Banks and other large financial institutions are not immune from federal prosecution because of the potential collateral consequences to the economy, a top U.S. Department of Justice official testified Wednesday on Capitol Hill.
"Size does not equal immunity," Mythili Raman, the acting assistant attorney general of the criminal division, told the House Financial Services Committee. While the Justice Department considers the possible economic impact of filing criminal charges against a bank, Raman said, "It's never the dispositive factor."
Subcommittee Chairman Representative Patrick McHenry (R-N.C.) called the hearing—"Who Is Too Big to Fail: Are Large Financial Institutions Immune from Federal Prosecution?"—to clarify the Justice Department's stance on the issue.
McHenry said he wanted to know more about how the Justice Department makes these decisions, particularly because Attorney General Eric Holder Jr. has made different statements before Congress in the past few months. "We're trying to learn something here," McHenry said.
Holder, in December, described the limitations of prosecuting the largest banks in testimony before the Senate Judiciary Committee. He said the ripple effects on other businesses and the national and global economy make prosecutions of the largest institutions more difficult. "It has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate," he said.
On May 15, however, Holder told the House Judiciary Committee that he felt that statement was misunderstood and that there's "no bank, there's no institution, there's no individual who cannot be investigated and prosecuted by the United States Department of Justice."
Raman defended the Justice Department by pointing out the prosecutions the government has brought, including thousands of fraud cases against 14,500 defendants. She cited the prosecution of Raj Rajaratnam or Galleon Management L.P. and Rajat Gupta, a former Goldman Sachs board member, for the largest hedge fund insider trading scheme in history. The U.S. Court of Appeals for the Second Circuit this week heard Gupta’s challenge of his conviction.
She also highlighted health care fraud cases, stepped up enforcement of the Foreign Corrupt Practices Act and the investigation into the manipulation of interbank lending rates that "had reverberations across the globe."
"No individual or institution is immune from prosecution, and we intend to continue our aggressive pursuit of financial fraud with the same strong commitment with which we pursue other criminal matters of national and international significance," Raman said.
Republicans pressed Raman on who the Justice Department consults while considering the systemic risk. Raman said that "comes up very, very rarely" and they go to regulators. "I have to emphasize as much as I can that that issue only comes up rarely," she said.