Tuesday, November 26, 2013

DOJ Settlement with JP Morgan:   Another Federal Financial Gap &More Fines and Penalties/Offshore Account Style Enforcement

               The Department of Justice (DOJ) announced a settlement on its “Financial Fraud Enforcement Task Force Website” which read strikingly similar to the DOJ announcements regarding offshore disclosure “victories” for the government. Its no coincidence that the tones in the press releases are similar.   The Financial Fraud Enforcement Task Force (“FFETF”) was created by President Obama, and was announced on November 17, 2009. Its membership consists of many governmental departments, including the IRS-Criminal Investigation and the Financial Crimes Enforcement Network (FINCEN). The DOJ Tax Division’s current offshore enforcement program began in 2008, with the investigation of UBS AG, Switzerland's largest bank. Most of the offshore tax enforcement is carried out by the DOJ Tax Division, working closely with United States Attorneys' offices.
These statements of government officials regarding the JP Morgan settlement sound very much like those of the DOJ and IRS remarks after a significant offshore “victory” in the form of a settlement or prosecution (See http://www.stopfraud.gov/iso/opa/stopfraud/2013/13-ag-1237.html for entire JP Morgan DOJ press release)

                  "JPMorgan was not the only financial institution during this period to  knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.  The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over.  No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability,” said Attorney General Eric Holder;

           "Through this $13 billion resolution, we are demanding accountability and requiring remediation from those who helped create a financial storm that devastated millions of Americans,” said Associate Attorney General Tony West.

                  “Today’s global settlement underscores the power of FIRREA and other civil enforcement tools for combating financial fraud,”... “The Civil Division, working with the U.S. Attorney’s Offices and our state and agency partners, will continue to use every available resource to aggressively pursue those responsible for the financial crisis,” said Assistant Attorney General for the Civil Division Stuart F. Delery, co-chair of the RMBS Working Group.

                  “This settlement resolves only civil claims arising out of the RMBS packaged, marketed, sold and issued by JPMorgan, Bear Stearns and Washington Mutual.  The agreement does not release individuals from civil charges, nor does it release JPMorgan or any individuals from potential criminal prosecution. In addition, as part of the settlement, JPMorgan has pledged to fully cooperate in investigations related to the conduct covered by the agreement.”

       As to the use of the fine to assist with its current “gap” in funds, the press release cited the following allocations of the settlement proceeds:

                      “of the record-breaking $13 billion resolution, $9 billion will be paid to settle federal and state civil claims by various entities related to RMBS.  Of that $9 billion, JPMorgan will pay $2 billion as a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), $1.4 billion to settle federal and state securities claims by the National Credit Union Administration (NCUA), $515.4 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC)....”

      Here are some DOJ comments made in an August 29, 2013 press release regarding a newly announced a program designed to encourage Swiss banks to voluntarily cooperate in turning over names of U.S. account holders (See http://www.justice.gov/tax/2013/txdv13975.htm):

                   "This program will significantly enhance the Justice Department's ongoing efforts to aggressively pursue those who attempt to evade the law by hiding their assets outside of the United States...In addition to strengthening our partnership with the Swiss government, the program's requirement that Swiss banks provide detailed account information will improve our ability to bring tax dollars back to the U.S. treasury from across the globe," said Attorney General Eric Holder.      

                   "This program will provide us with additional information to prosecute those who used secret offshore bank accounts and those here and abroad who established and facilitated the use of such accounts...Now is the time for all U.S. taxpayers who hid behind Swiss bank secrecy laws or have undeclared offshore accounts in other foreign countries to come forward and resolve their outstanding tax issues with the United States," said Deputy Attorney General James M. Cole.

     Since the United States Attorney General is the same person directly responsible for both the FIRREA and offshore tax enforcement, it is not surprising that record-breaking fines and criminal penalties, and threats of criminal penalties  are the primary tools being used to combat both "evils" and to reduce the "Tax Gap" as well as the "gaps" resulting from the federal and state financial banking crisis.

           Whether the record setting fines and criminal sanctions are good tax and financial policy will be seen.  

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