SIGTARP's investigative approach has resulted in the successful prosecution of senior executives including 16CEOs, 3 CFOs, and 6 COOs or CCOs at medium sized banks and smaller banks. In each of these cases, SIGTARP obtained evidence required to prove criminal intent of the bank official based on their knowledge of the fraud. In comparison, we have faced significant difficulties proving criminal intent of senior officials in large organizations that are designed to insulate high level officials from knowing about crime or civil fraud. That's why Special Inspector General Goldsmith Romero has proposed that Congress consider requiring an annual crime and fraud certification.
Crime and fraud should have no protection, and corporate culture should not allow crime and fraud to go unchecked, but that starts with the tone at the top. This certification to law enforcement would apply to the six largest Wall Street banks, which collectively received more than $160 billion in TARP funds: Bank of America, Wells Fargo, Citigroup, Goldman Sachs, Morgan Stanley, and JP Morgan. All have faced a law enforcement action in recent years based on major violations of the law that caused massive harm to victims. Several of those actions resulted from SIGTARP's investigations, which found major fraud in the way these banks conducted business.
With each scandal, Congress holds hearings seeking accountability from CEOs who testify that they had no knowledge of the fraud. With only one exception - the New York Attorney General's civil action against Bank of America's former CEO and CFO, which SIGTARP jointly investigated - have the CEO or CFO of the six largest TARP banks ever been individually charged.
SIGTARP does not have the law enforcement tools required to prove criminal intent of large bank CEOs, CFOs, COOs or CCOs as long as they continue to insulate themselves from knowledge of crime or fraud within their organization. Until CEOs, CFOs, COOs and CCOs have an affirmative duty to look for crime or civil fraud in their organization, it is likely that they will continue to be "in the dark" about wrongdoing. By staying in the dark, these high level officials lose a critical opportunity to stop the crime or fraud and save victims from harm. This is not accountability by any definition of the word. A change in the laws is required to remove the insulation around CEOs, CFOs, COOs and CCOs at these six Wall Street banks that took TARP funds.
"Require the CEO, CFO, COO, and CCO at the six largest Wall Street banks that took TARP bailout funds to sign an annual certification to law enforcement that they have conducted due diligence and can certify that there is no criminal conduct or civil fraud within their organization."
The enforcement tool Special Inspector General Goldsmith Romero proposes that Congress consider is to have the CEO, CFO, COO and CCO (or the equivalent to the CCO) at the six largest Wall Street banks that took TARP funds look for crime and fraud within their organization each year and certify to law enforcement that they have conducted due diligence and that there is no criminal conduct or civil fraud in their organization. Law enforcement agencies would not be relieved of their burden to prove criminal intent. Rather than assume no crime or fraud exists, due diligence makes it more likely that knowledge about the crime or fraud will rise all the way up to the CEO. Stopping fraud and immediately reporting it to law enforcement is the right response. If the executives cannot certify, they should call law enforcement, such as SIGTARP, immediately. It is not likely that the senior executive would face law enforcement action if she conducted due diligence but was were duped by a rogue employee.
One of an inspector general's key roles is to recommend action to prevent fraud, which is the intent of this proposed law enforcement tool. Given SIGTARP's authority related to TARP, the Special Inspector General proposes that Congress consider requiring that this certification apply to prevent crime and fraud at the six largest TARP bailed out banks. An annual certification requirement provides an incentive to CEOs, CFOs, COOs and CCOs to look for crime and fraud within their organization so that they can stop it. In other words, to give them an incentive to be "in the know" about crime or civil fraud within their company (particularly major fraud in the way the company does business), rather than stay "in the dark." This is something that these CEOs, CFOs, COOs and CCOs should already be doing. The incentive for a CEO to be "in the know" about crime in his or her bank already exist naturally for CEOs of mid-sized and smaller banks because that crime can take down the bank. Changing incentives for leaders of the top six Wall Street banks that took TARP funds could change culture to one of increased accountability.
"SIGTARP does not have the law enforcement tools required to prove criminal intent of large bank CEOs, CFOs, COOs or CCOs as long as they continue to insulate themselves from knowledge of crime or fraud within their organization."
Examples of Wall Street culture driven by dollars without regard for consequences are too well known, and examples of wrongdoing have become too many to accept. But our nation also has a culture that rewards integrity, transparency, and accountability - not a CEO, CFO, COO or CCO that insulates them from knowing about crime and fraud in their organization. The time is ripe to make a difference for the future. Otherwise, without this enforcement tool, history could repeat itself. Our nation must have one system of justice that can be applied equally. To do that, Congress could prevent Wall Street bank leaders from insulating themselves from crime and fraud in their organization.
This proposal was featured in SIGTARP's 2017 First Quarter Report to Congress.