5 Outright Illegal Scams That Should Put Wall St. Bankers Behind Bars
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Unchecked greed and financial insanity on Wall Street crashed our economy. Much of that insanity was legal -- bankers lobbied hard for weak regulations, and got what they paid for. But much of that craziness was outright illegal, and in recent months, a number of shocking scams have come to light that could result in huge fines for banks or even put bankers behind bars. Though Wall Street has yet to see serious prosecutions for the current calamity, prosecutions are not at all uncommon after financial crises -- more than 1,000 bankers went to prison after the savings and loan debacle alone.
From laundering drug money to scamming you on overdrafts, here are five recent Wall Street scandals that have "illegal" written all over them. The SEC is attempting to settle civil fraud charges it has filed in many of these cases, but in finance, the only difference between civil fraud and criminal fraud is the burden of proof. If the Justice Department wanted to go after many of these crooked dealers, it could.
1) Wachovia Launders $380 Billion in Drug Money
The financial crisis is full of complex schemes and indecipherable acronyms, but the most astonishing alleged fraud of the entire mess is pretty straightforward: Wachovia allowed Mexican drug cartels to launder $380 billion of drug money through its bank, repeatedly looking the other way and ignoring internal whistleblowers who alerted them to the problem.
This was a clear violation of federal law, but Wachovia appears to be getting away with it. The Justice Department is not seeking an indictment against the company, out of fears that it could destabilize financial markets. Instead, it's reached a "deferred prosecution agreement" -- effectively a settlement -- in which the bank agrees to pay $160 million and promise to never, ever launder drug money again.
Pretty light penalty for, you know, laundering drug money . The fine amounts to about one-half of one-hundredth of a percent of the drug money that DOJ says passed through the bank. Outside the too-big-to-fail world, getting caught laundering billions of dollars in drug money doesn't just earn you hefty fines, it plants you in jail.
And Wachovia wasn't alone. According to the U.N., laundering drug money was common during the darkest days of the financial crisis, as faltering banks sought to get their hands on any money they could find -- regardless of where it came from.
2) Chamber of Commerce Launders AIG's Lobbying Cash
Money laundering has been very profitable for Wall Street, and not just drug money. The U.S. Chamber of Commerce is a lobbying front-group for a lot of powerful corporations, and some of its most aggressive members are Wall Street titans. A watchdog group has filed a complaint with the Internal Revenue Service accusing the Chamber and notorious AIG kingpin Maurice "Hank" Greenberg of tax fraud. Greenberg was ousted from AIG in 2005 amid a massive accounting scandal, but not before helping to establish the insurance giant's ridiculous credit default swap wing, which would destroy the company only a few years later.
Greenberg and the Chamber are accused of abusing a charity in order to hide millions of dollars in lobbying expenditures by AIG. In 2003, a foundation handled by Greenberg gave $5 million to the charitable wing of the Chamber of Commerce. The Chamber operates a charity called the National Chamber Foundation. The next year, Greenberg's foundation gave another $10 million to the Chamber's charity. In 2003 and 2004, 80 percent of the National Chamber Foundation's budget was coming from Greenberg and AIG. The charity's main function was to serve as a front for AIG lobbying.