Benjamin Lawsky: The Man Who Picked a Fight With Wall Street

Meet the state’s top banking regulator

"In the strange political climate of the U.S., anyone who stands up to Iran is a hero," wrote economist Kishore Mahbubani.

London Mayor Boris Johnson chimed in, writing in the Telegraph that Lawsky had been "motivated by jealousy" and "a simple desire to knock a rival centre"—yet another example of the U.S. being "high-handed in her treatment of other nations."

Underneath the faux outrage, the real shock was that a bank—any bank at all—might be subjected to a serious punishment.

Willie Davis
Willie Davis

Though Congress passed Dodd-Frank, landmark legislation designed to rein in big banks and loosen their chokehold on the U.S. economy, more than three years ago, most of the bill has never been implemented.

So bankers have been partying as usual, laundering funds for terrorists, drug traffickers, and repressive regimes (HSBC, Standard Chartered); price-gouging on necessities like electricity and aluminum (JPMorgan, Goldman Sachs); investing other people's pension money in doomed-to-fail ventures (Bank of America, several times); and charging illegal overdraft fees (nearly every large bank in the country).

And the U.S. continued to handle institutional financial crimes the way it always had: by politely ignoring them, or, at worst, by charging the offender a penalty that typically amounted to just a few days' worth of revenue (what the feds always describe as "historic" fines).

Take JPMorgan Chase, which has been fined or sued at least 10 times between 2011 and 2013. It paid $5.29 billion for its share of the subprime mortgage crisis; almost $300 million for misleading investors about shaky mortgage-backed securities; $150 million to pension funds whose money it invested in a risky "structured investment vehicle." And that's just a snapshot of a 10-month period last year. Financial analyst Joshua Rosner estimates that since 2009, JPMorgan's "litigation expenses" have amounted to about $16 billion. (The figure inched up in July, when the bank was fined $410 million for manipulating electricity prices in California and the Midwest.)

Or take HSBC, which for years did a brisk business laundering money for Mexico's Sinaloa drug cartel. Despite the nation's reputation as a cartel kind of place, HSBC deemed Mexico a "standard" risk for money-laundering, meaning that all wire transfers to and from the country, no matter how large or frequent, were allowed to proceed without any internal review.

The Treasury Department found that hundreds of millions of dollars in drug money flowed through HSBC branches in the United States and Mexico. Drug traffickers deposited hundreds of thousands of dollars a day in cash at single branches, using boxes designed to fit precisely through HSBC's bank windows.

Bart Naylor, a financial policy advocate for Public Citizen, a consumer group that for years has begged the feds to take a harder line on bank crimes, says financial crime doesn't just hurt the economy; it deeply affects the lives of ordinary people.

"That teenage girl you knew in high school that became an addict to crack cocaine? That was made possible by HSBC and Standard Chartered taking money-laundering as unseriously as they did," says Naylor. "Shut off money-laundering, you can go a long way toward solving the drug problem and the subsequent gun violence."

The feds, Naylor asserts, have responded with "candy-ass deferred prosecution agreements," in which bankers accept no responsibility and no one goes to jail.

"I call it the immaculate-conception theory of a crime," Naylor says. "A crime was committed, but by no person and no corporation."

In a March appearance before the Senate Judiciary Committee, Attorney General Holder admitted as much, saying that some banks have become "so large that it does become difficult to prosecute them," especially because a criminal charge would have "a negative impact on the national economy."

Standard knew that in Benjamin Lawsky it faced a different adversary. A day before a scheduled hearing on whether its New York license would be revoked, the bank settled, paying a $340 million fine to DFS.

The feds followed with their own sanctions months later, fining Standard $100 million and forcing it to forfeit $227 million more, punishment for "illegally moving millions of dollars through the U.S. financial system on behalf of sanctioned Iranian, Sudanese, Libyan, and Burmese entities." According to the New York Times, the Justice Department, having concluded that the bank had broken no laws, had been on the verge of letting Standard completely off the hook before Lawsky intervened.

True, Lawsky had only managed a fine. But the settlement also forced Standard to install a monitor for two years to watch out for money-laundering violations, and hire permanent monitors to audit "internal procedures."

Lawsky's critics lapsed into a sulky silence. "The industry is not happy with how Ben went after Standard Chartered," says Neil Barofsky, a former federal regulator who oversaw the controversial bank-bailout program. He and Lawsky worked together as prosecutors in the Southern District of New York.

"He didn't follow the playbook: a lengthy internal investigation where you accept all the bank's arguments, then settle for pennies on the dollar," Barofsky says. "Ben said, 'This is egregious conduct, I'm going to take your license.'"

But the costs of that threat—not to mention stealing the feds' thunder—were clear. "When you do something like that, you're going to piss off everyone," Barofsky adds. "You're going to upset the bankers, because the advantageous status quo is being disrupted. You'll upset the regulators because they're being exposed as not doing their jobs, taking the easy road out, or a road that's acceptable to the banks, or helpful when officials want to take a spin through the revolving door." (That is, when federal regulators leave their government jobs for cushy bank jobs, a phenomenon several investigations have concluded is especially common at the Securities and Exchange Commission.)

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The US Attorney General, Eric Holder was one of Chiquita Brands International's corporate lawyers. He secured a $25 million settlement between the Justice Department and Chiquita in 2004, when Chiquita was exposed as hiring a terrorist group to protect their plantations in Colombia.

The ultra right wing paramilitary group, the AUC was and is on the US State Department's list of foreign terrorist organizations, and it killed tens of thousands of Colombians. It is one of the bloodiest groups in Latin America.

And yet Mr. Holder has defended Chiquita for using terrorists to protect their interests in Colombia. Is this not corruption?

How can we expect a man capable of defending such associations, to fight against other corporate wrongdoers?


Why is the word "corruption" not used when referring to the relationship between US public institutions, US public officials and US corporations?


"Lawsky wanted to know why he shouldn't pull Standard's license to operate in New York—a move that would cost the bank billions. The financial world erupted in chatter." 

Because then the New York State treasury wouldn't have received $340 million from Standard that it sorely needed. Also if DFS pulled the license, Standard could apply for a license for its New York office from the OCC and it might be granted. Alternatively, it could apply to Connecticut for a license as UBS did to avoid the New York State Banking Department. Also, it could serve its New York clients from a Connecticut location.

"True, Lawsky had only managed a fine. But the settlement also forced Standard to install a monitor for two years to watch out for money-laundering violations, and hire permanent monitors to audit "internal procedures." 

You don't report who chooses the monitor.

"Two days later, DFS lit up Bank of Tokyo-Mitsubishi UFJ for laundering money for Iran and Burma. The department accused the bank of conducting about $100 billion worth of illegal transactions, fining it $250 million." 

I believe this represents retroactive prosecution for something BOTM self-reported to OFAC in 2008.

"Afterward, Lawsky briefly spent time taking reporters' questions and pressing the flesh. In person, the 43-year-old civil servant is almost comically clean-cut, the type of man you imagine stepping out of the shower completely dry, clad in a suit and polished wingtips." 

Lawsky is a political appointee, serving at the pleasure of Governor Cuomo. I suspect that is the reason for the huge fines. Lawsky is Cuomo's man charged with obtaining desperately needed cash for the state treasury.

"Barofsky is still betting on Lawsky. He says the culture of Wall Street can be changed, but only with fines so large and punishments so strict that banks and insurers simply have no choice but to take them seriously." 

The large fines haven't prevented the scandals because they are charged to the wrong party. The bank is a legal fiction. Every illegal act purportedly by a bank, must really be an illegal act of a bank executive and/or other employee. The culture could be more effectively changed by fining the offending bank employees for every nickel they own down to their underwear. In 19th century England, a convict's property forfeited to the crown. Lawsky won't do this because he is not trying to change behavior, he is trying to raise cash for a deficit laden State.


«But the U.S. government believed Iran was laundering its money to finance its nuclear weapons program. » Fine - but the Iranian government denies it has a «nuclear weapons programme» and no one has been able to show credible evidence that the country, in fact, has one. Pity that the «Voice» is willing to lend itself as a propaganda organ for the US State Department and certain other still less savoury entities....



Great piece which serves to illustrate just how much we need a Ben Lawsky in the UK . As a victim of the banking crisis which lost me my home, my livelihood and my financial future, I have been blogging about my struggle to get my "mis-sold" HBOS mortgage investigated for almost five years. As yet I, and many more like me, have achieved little because the UK banks do not fear either the consequences of their actions or being taken to task because their punishments amount to nothing more than minor tax deductable costs on the very lucrative practice of widespread banking criminality. I wrote this in an effort to add my voice to those who champion change.


@mhenriday Great! Why is Iran not allowed to conduct transactions? Because the US has been trying to topple its government for decades.

This part of the article distracts the reader. Our problems are not that SCB does transactions with Iran. Our problems are illustrated after the article moves on from the Iran story, and addresses other issues. And that part is depressing. No jail, no convictions.

Unfortunately the only person allowed to express the view that Iran should be allowed to do it and that the US has no business interfering with Iran's affairs, is the corrupt CEO of SCB