Top White Shoe Law Firms Cited as Enablers of Bank Misconduct

One of the tacit agreements among those at the very top of the power pecking order is not to criticize each other in public (with a few ritualized exceptions, like roughings up in Congressional hearings).

So while this account, from Susan Beck at Litigation Daily, might not seem all that bad, given the mind-numbing range and variety of bank misdeeds, what is critical to recognize here is the way that these top blue-chip law firms have abandoned their traditional role of helping clients stay on the right side of the knife edge of misconduct. They not only happily helped them disobey, but pushed the accountants into helping with the cover up.

From Beck (hat tip Abigail Field):

For the second time this summer, a major law firm has come under scrutiny for its questionable role advising a bank on transactions with sanctioned countries.

This time the firm is Sullivan & Cromwell, whose work for Bank of Tokyo-Mitsubishi UFJ was revealed in documents filed Monday by the New York State Department of Financial Services…

[Benjamin] Lawsky accused the PwC unit of helping Bank of Tokyo “scrub” a report to state and federal financial regulators about its falsification of wire transfer information for Sudan, Iran and other nations sanctioned for human rights abuses…

Monday’s settlement describes how in 2007 and 2008 Bank of Tokyo and its lawyers pressured PwC to omit incriminating details about its activities in a regulatory report. The agreement says the bank’s lawyers “essentially dictated” part of the report to PwC, rewording a passage that cast doubt on PwC’s review of suspect transactions. (The final language deemed the review “appropriate.”) An unnamed PwC director who is now a partner at the company warned that using certain words to describe the bank’s stripping instructions might get the bank or its lawyers “all twisted up.”

While these portions of the settlement agreement don’t name the law firm, a person familiar with the case confirmed that it is Sullivan & Cromwell, which is identified as the bank’s counsel elsewhere in the documents. The firm is known for having one of the top practices advising clients dealing with the Office of Foreign Assets Control (OFAC), the division of the U.S. Treasury that enforces economic trade sanctions…

In late June, Cleary Gottlieb Steen & Hamilton was on the hot seat for advice it gave to French bank BNP Paribas, which agreed to pay $8.9 billion to the U.S. Department of Justice to settle criminal charges that it conspired to help clients evade U.S. sanctions against Sudan, Iran and Cuba.

Yves here. Even though it’s easy to be jaded about elite misconduct, Sullivan & Cromwell is the blue-chippiest of bank regulatory fixers. For it to go so casually and flagrantly over the line of misconduct, perhaps assuming it had no risk, since the real bagholder was PwC, is still a wake-up call. I can’t say I was shocked, but Abigail Field, who is no naif, yours truly, and apparently Beck as well, saw this as surprising.

Admittedly, law firms have more and more gotten in the business of enabling rather than preventing corporate bad behavior. But the top firms (at least in the past) had to preserve their image of being purer than Caesar’s wife, at least in terms of their public image, to be effective inside operators. That was important with being credible in negotiating with the government. But with the revolving door, cognitive capture, and other forms of soft and overt corruption the new normal, it makes sense that the law firms no longer feel the need to adhere to the old lowest-common-denominator standard of looking, as opposed to actually being, law abiding.

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  1. Skeptic

    “Admittedly, law firms have more and more gotten in the business of enabling rather than preventing corporate bad behavior.”

    Or how about “inventing” corporate bad behaviour? The law firm that can invent new and unique ways to break the law and get away with it will be very successful. I am only an amateir but here’s one way to start: Since many legal filings are online nowadays pore over that amount of metadata and find out what statutes and regulatioins are little or least prosecuted in the various jurisdictions in the US, state and federal. Then use that data to devise deals that violate those laws.

    Or simply use your Revolving Door Legal Moles in the Government and find out what laws can be broken this month.

    I was convinced long ago that these large Banksters and Lawsters each have departments set up to do the above and more. For those doubters, just read about Credit Suisse sending their agents into the US undercover with phony credit cards, IDs, instructions to change hotels frequently, etc. Activities, by the way, worthy of terrorists.

    1. Yves Smith Post author

      With all due respect, have you been on another planet? The direction of the law and regulations has clearly been towards less rather than more enforcement over the last 30 years. Entire legal theories, like anti-trust, that once had teeth, are virtually dead. The ability to get class action certifications, another big way for law firms to gin up litigation, has been severely curtailed. More and more consumers and employees are forced into agreements that explicitly bar litigation as a condition of the agreement. The state Supreme Courts in what once were the states that were favorable for consumer litigation (most of all Alabama) have been heavily targeted by business interests who make sure conservative jurists are on the bench. The Alabama Supreme Court race runs to over $10 million, more than the governor’s race.

      And the legal profession generally has been targeted to be more business-friendly via the “law and economics” movement, which I wrote about in ECONNED. This amounts to a systematic propagandization of lawyers starting when they are in law school.

      A big offset has been that law firms increasingly act as political lobbyists and fixers.

      1. Frances

        Yves, I’m envious of how you summed up the implosion of regulations and law in so few words. Brilliant.

        I add an especially illuminating example here, the Lloyd Karmeier campaign for the Illinois Supreme Court and his subsequent key vote in favor of his benefactor, State Farm, to illuminate your succinct sentence regarding capture of state Supreme Courts: “The state Supreme Courts in what once were the states that were favorable for consumer litigation (most of all Alabama) has been heavily targeted by business interests who make sure conservative jurists are on the bench.”

        Karmeier: from the Chicago Tribune

  2. OMF

    But the top firms (at least in the past) had to preserve their image of being purer than Caesar’s wife, at least in terms of their public image, to be effective inside operators

    It’s ideological. All that matter now is coming out on top (I’d argue money is only part of this). You do whatever it takes to get paid, succeed, win, and that in itself is seen as virtuous. Being law abiding or straight laced is no longer aspirational. I’d argue that being willing to bend rules and game the system is seen as the greatest virtue going. “Smart guys”, “Good for them”, “It’s not illegal”.

    When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it. — Frédéric Bastiat

    1. James Levy

      You bust your butt and make yourself the apple of your mama’s eye by graduating in the top 10% of a top ten law school and, with $150,000 dollars of debt, get offered a job working 75 hours a week for a white shoe law firm. They are engaged in something clearly unethical and borderline illegal. What do you do? Unless you have a moral core of iron and a will of steel, you go along and get along. You don’t spend the rest of your life explaining why you went to Yale Law School and are practicing family law in Rochester, New York and driving a Toyota Camry while all your buddies from school are living in NY, DC, LA, or San Francisco sending their kids to fancy private school and driving around in Mercedes SUVs. Any crime in American can be forgive save failure (real or perceived).

    2. Skeptic

      “When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it. — Frédéric Bastiat”

      Welcome to my Planet, Monsieur Bastiat!

      1. Ulysses

        That’s a great comment by M. Bastiat!

        Excellent post, Yves. Who do you think, in the small universe of U.S. regulators, lawyers, politicians, etc. with a moral conscience, could really step up and “drain the swamp” of corruption today? What mechanisms could they employ to re-establish and enforce at least some minimal standards of decent conduct?

        1. Frances

          William K. Black stands heads above my list.

          Lawyer, former bank regulator, developed concept of “control fraud,” and more. He exposed Congressional corruption in S & L scandal: the Keating Five Senators. Wrote the bible: The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry.”

          1. Ulysses

            This recent comment by William K. Black shows that he is not very optimistic that things will get better any time soon.

            “The best way for the CEO to loot “his” bank is to cause the bank to make or purchase vast amounts of bad loans at a premium yield. That requires the lender to gut the effectiveness of its underwriting and other internal and external controls. Those facts – known for two decades to competent economists and criminologists and for three decades by competent financial regulators – are written out of existence by Wagner and those he chooses to train AUSAs. DOJ attorneys and FBI agents are now trained to believe that the most destructive form of financial fraud no longer exists.”


  3. RUKidding

    Interesting article and some good comments, esp from Yves. I’ve worked in the legal field for longer than I care to reveal (not an attorney). When I first started out, I would posit that most of the bigger law firms made a reasonable attempt to stay within the letter of the law and to advise their clients on how to do things legally. Of course, criminal law has always been a bit edgier than that, but that’s not the topic today.

    As time passed, I duly noted how lawyers were transitioning (it was a somewhat slowish process over time) into finding more & more loopholes, more and more ways to get around the law, etc. Of course, this happened in conjunction with Federal and State legislatures making the laws, esp those governing business dealings, more and more toothless, less and less regulations bc of course such regs were “strangling” progress and all the usual b.s. folderol.

    It’s not just Sullivan & Cromwell – yes once a venerable white shoe firm perhaps more worthy of its reputation – they ALL do it now, big and small. The legal GAME has become one of how can I fix it for my clients to get away with as much as possible – all aided and abetted by Fed & State legislatures. And yes, the Judges are appointed according to what they promise they’ll do (also not the case previously, where most judges actually strove to be – gasp! – objective and really adjudicate within the letter of the law).

    They’re all crooks, imo. The so-called Rule of Law has been abolished, at least for the 1% who can pretty much do whatever the eff they want up to and including rape, child abuse, murder, massive criminal rip offs and so on. Of course, the 99s had better watch out bc the book, or worse, can and will be thrown at us at the slightest provocation.

    1. weinerdog43

      As a corporate lawyer, I found the entire article and comments pretty depressing.

      In my practice, my client (the company) does NOT want to hear me going on all day about “you can’t do this, and you can’t do that”. Enough of those kind of recommendations and I’m out of a job. Instead, our job is to advise if what they want to do is LEGAL. If it is not, then the idea gets a thumbs down from me. But if it is legal, yet unethical, I’m within my job description to state that fact. Because I’m a geezer, when I ask “…is this really a good idea?”, my client will frequently re-evaluate their plan. Unfortunately, I think that I’m the guy with my finger in the dike. I can’t make a corporation behave ethically. I can only try to encourage good and ethical decisions and veto outright illegal ones.

      The difference between me and Sullivan’s outfit is twofold: 1.) Sullivan is doing work for some of the most ethically challenged people on the planet. My company by and large tries to do the right thing most of the time; and 2.) If Sullivan pushes back too hard, their clients will simply go elsewhere. My company is pretty much stuck with me. (heh).

    1. Paul P

      Allen Dulles and John Foster Dulles organized the overthrow of the Arbenz government in Guatemala in 1954 as part of the Eisenhower Administration. This bloody indifference to their bloody results makes me question that ethical relations between lawyers and corporations have changed, so much as have become unmasked.

      Yes, the Savings and Loan crimes were prosecuted, fraudsters went to jail, and other examples can be cited, so there are differences. But, Kings have always sacrificed pawns … and have always viewed the masses as pawns.

    2. vegasmike

      William Cromwell in the early 20th Century was actively involved in the early 20th Century intrigues that created the country of Panama and also the Panama Canal. Panama was originally just another province in Colombia.

  4. bruno marr

    …and then there are lawyers (?) like John Yoo, Jay Bybee (sp?), that Barron fellow (CIA). All now secure financially. One as a professor at Cal Berkeley (Hastings), the other two as lifetime federal judges.

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