Wall Street’s revolving door lets white-collar crime thrive

Wall Street’s revolving door lets white-collar crime thrive despite whistle-blowers

In September 2008, years of unchecked borrowing, irresponsible mortgage lending and ego-fuelled risk-taking on Wall Street finally came to a head. The shockwaves created by rampant banking malpractices threatened to bring the world’s financial system crashing down.

Astonishingly, only one man has ever spent time in jail for his part in the financial crisis. We can be certain, however, that the blame for the 2008 crash does not lie solely in the hands of the convicted Kareem Serageldin. Sentencing the Credit Suisse executive to 30 months in prison, US District Court judge Alvin Hellerstein acknowledged Serageldin’s conduct merely represented “a small piece of an overall evil climate within the bank and with many other banks”.

In the years since the crisis, the absence of any significant convictions has come to show the worrying extent of corporate impunity on Wall Street. While everyday Americans have been driven out of their homes and jobs, having lost a collective $13trn in household wealth, the individuals at the highest echelons of ‘Corporate America’ have been largely unaffected by their own financial gambling.

“There is no accountability in banking or in government”, Citigroup whistleblower Richard Bowen told World Finance. As early as 2006, Bowen began to ring internal alarms at Citigroup after observing first-hand how the bank would repeatedly engage in risky business practises, including carelessly certifying poor mortgages as quality ones. Yet when Bowen took his concerns to Citigroup’s board of directors and called for an external investigation of the bank, he was unceremoniously sacked.

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The unavoidable similarities between the Bowen and Ben-Artzi cases sadly show lessons are still yet to be learned from the 2008 financial crash. In lieu of seeking lengthy prison sentences for liable executives, the SEC focuses instead on reaching settlements with banks found guilty of misconduct. Since the 2008 banking bust, 20 global financial institutions have paid over $235bn in fines and settlements to various government entities. Yet this quarter of a trillion-dollar sum has been taken straight from shareholders’ pockets, allowing the responsible individuals to avoid personal fines or prosecutions.

Paying out shareholders’ money, however, will never discourage criminal behaviour among banking executives, while removing the threat of prosecution allows white-collar crime to thrive.

With no deterrents in place to discourage financial malfeasance and no accountability for the individuals responsible, the same reckless behaviour behind the 2008 global crash continues to run rampant on Wall Street. Unless this vicious cycle can somehow be broken, the global banking system may spiral into fresh disaster. Bowen has a grave warning for the Wall Street world: if its corrupt practises are not stamped out, then the next crisis will be “substantially more devastating than the last”.

www.worldfinance.com/strategy/wall-streets-revolving-door-lets-white-collar-crime-thrive