During the past few years there have been a staggering number of financial crimes on Wall Street. Among others, BNP-Paribas, Bank of America, Credit Suisse, Citigroup, and JP Morgan Chase are facing fines reaching tens of billions of dollars and potential jail sentences that may last multiple decades.
Why are these financial crimes on Wall Street occurring in such large numbers?
It is hard to put your finger on one clear cut answer. One reason is that the prosecution for the crimes often takes place many years after the crimes themselves. Money laundering to Iran or marketing a garbage mortgage can take a matter of days. Then it can take years to get to the bottom of the crime. Think about the fact that there may be insider trading taking place for as many as one out of every four acquisitions or mergers. These acquisitions or mergers happen in the derivatives market where the leverage of buying a call on a stock can have a huge reward. Many people cave to the temptation to use a tip on a deal to make a fast pile of cash.
If you question this reality, take a look at the roughly 80 or so hedge fund managers who are currently serving jail time or are facing a jail sentence. Some people believe that the financial crimes on Wall Street have come about through America’s financialization and the world’s financial system. It is very tempting to collect and distribute large sums of money from all around the world, moving it from one institution to the next. In an age where the markets are booming, interest rates are at an all-time low, and the cops on the beat are scarce and largely oblivious, just about anything can happen in the fuzzy web of finance.
Money is the primary measure of success for a banker.
More money means more power. Consider the notion that in 2007, Goldman Sachs could pay an average employee annual compensation of more than $660,000. When people have the opportunity to tap into such riches, would they think about compromising their ethics? It is hard to reach a definite answer, but the likelihood is high. Someone once asked the prolific American bank robber William “Willie” Sutton why he robbed banks. He answered, “Because that’s where the money is.” It’s easy to see how this statement quickly became one of the most repeated wisecracks in recent history. There are many industries with no banks to rob. Why would someone pursue one of these industries when there is cold hard cash sitting in hundreds of banks around the country? Is it possible to measure the amount of crime in business against the amount of crime in finance? Furthermore, what will the impact be on the financial industry as the gap between what you can earn on Wall Street and within the rest of the industry continues to grow? John Plender of the Financial Times wrote a column in June 2014 titled “The crisis shows moral capital is in secure decline.” In this column, he poses the challenging question:
“How are we to make sense of this bizarre concatenation of events in which the financial system appears to have become an ethics free zone?” He adopts John Kenneth Galbraith’s idea that in a frothy bullish market in which the focus is on opportunities for taking bigger and bigger bets, the players are riding high in the embezzlement.
Today it seems as though vengeance for the cops is going to come after tens of billions of fines from the players. Veriti Consulting LLC provides certified financial crimes investigator services across the U.S. Learn more about our fraud investigation services by calling 855.232.4410 or contact us via email.
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- The Ultimate Financial Crimes Investigation & Prevention Checklist