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

Meet the state’s top banking regulator

Though Lawsky didn't end up taking Standard's license, the fact that he threatened to was something new and terrifying for the banks.

"This industry is so cosseted, no one's even suggested that before," Naylor says. "We are so captured by the banking industry, we don't even know it."

If the Standard affair was equivalent to DFS lobbing a grenade into a tea party, the department's founding was a bit like setting off a stink bomb in the middle of a landfill. No one really noticed.

Willie Davis
Willie Davis

DFS's backstory is deadly dull, full of phrases like "fiduciary power" that tend to make eyes glaze over. Briefly, it goes like this: Once upon a time, before there was a Department of Financial Services, New York had a Banking Department and an Insurance Department, both of them hundreds of years old. In 2011, Gov. Andrew Cuomo passed a law jamming the two together. That May, Ben Lawsky, who had briefly served as Cuomo's chief of staff (as well as several other positions in his cabinet), was appointed superintendent of DFS.

Although DFS oversees banking and insurance, performs investigations, and metes out fines, it can't put people in jail. That was a change for Lawsky, who got his start as an aide to Senator Chuck Schumer on the Judiciary Committee, and as a trial attorney in the Department of Justice. His formative job, though, was that prosecutor's spot in the Southern District, where he developed skills that made him uniquely equipped to take on banks.

"One of the things you learn is to question everything," Barofsky says. "Things have to be proven to you, and [you can't] be fearful of authority or others." (Barofsky learned the same skill set. After resigning from the bailout program, he became one of the financial system's greatest critics, calling it a "gaping chest wound.")

DFS started small, with a series of mundane moves throughout 2011: warning New Yorkers to watch out for home-repair scams in the wake of Hurricane Irene, announcing it would crack down on workers' compensation fraud, and investigating sketchy doctors for fraud.

Lawsky played nice with the banks at first, opting for persuasion over force. When Ocwen Financial Corporation wanted to buy a mortgage company owned by Goldman Sachs, Lawsky said the deal could go through only if Ocwen forgave some of the money owed by homeowners facing foreclosure, people who were 60 days delinquent on their loan payments. Goldman and Ocwen agreed.

But last year, with the sudden announcement of the Standard investigation, the tone shifted perceptibly, and the targets became more numerous: not just banks, but also predatory payday lenders and abusive debt collectors.

This year, Lawsky hammered three insurance companies—Narragansett Bay, Tower, and Kingstone—after they failed to process homeowners' claims in the wake of Hurricane Sandy. So began an astonishing show of force for a tiny state agency with only 40 full-time investigators.

"He's done an outstanding job," says Michael Greenberger, a former regulator with the federal Commodity Futures Trading Commission. Greenberger is now a professor at the University of Maryland's law school—when he's not testifying before Congressional committees on "dysfunctions" in the country's financial markets. "He's has taken this financial-division department and really made some wondrous thing out of it, including making the federal government look like they don't know what they're doing."

A year after settling with Standard, Lawsky wasn't quite done with the bank. This June, DFS went after Deloitte, one of the nation's largest corporate auditors. Deloitte was supposed to be monitoring Standard for shenanigans. Instead, DFS charged, it was in cahoots with the bank, watering down reports and removing recommendations on how to prevent money laundering.

"At times, the consulting industry has been infected by an 'I'll scratch your back if you scratch mine' culture and a stunning lack of independence," Lawsky said in a press release announcing his assault. "Today, we are taking an important step in helping ensure that consultants are independent voices—rather than beholden to the large institutions that pay their fees."

Deloitte agreed to a $10 million fine, relatively small potatoes. But there was a bigger hit in store: It agreed to a one-year ban on consulting for New York banks, a devastating timeout that forced the auditor to forgo some huge contracts.

Two days later, DFS lit up the 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. A year earlier, the Treasury Department had negotiated a mere $8.5 million settlement in its own case.

"Terrorism needs money to survive," Lawsky told the New York Post. "We will continue to do everything we can to ensure banks don't facilitate the flow of funds that could be used by terrorists and enemy nations."

It was a good summer at DFS. But as the heads have piled up, Lawsky has gotten skittish about talking to the press. Almost every press release issued by DFS credits Governor Cuomo first. Lawsky isn't usually mentioned until the third or fourth paragraph.

Where he once gave expansive interviews in his office on State Street, posing for photographs behind his giant, shiny desk, securing an interview with Lawsky these days involves weeks of chasing and a little party-crashing. The Voice only managed to reach him by dropping in on a midsummer talk he gave at the Yale Club.

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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