Com­merzbank, Eric Holder and too-big-to-jail

The Pak Banker - - OPINION - Jonathan Weil

DENNIS Lerner, a former tax di­rec­tor at Com­merzbank AG (CBK) in New York, isn't too big to jail. But the bank he once worked for may well be, along with the other ex­ec­u­tives there who made his crimes pos­si­ble. Lerner, 60, pleaded guilty this week to pub­lic-cor­rup­tion charges. Com­merzbank hired him from the In­ter­nal Rev­enue Ser­vice in 2011 while he was an ex­am­iner re­spon­si­ble for ne­go­ti­at­ing a tax-fraud set­tle­ment with the bank, ac­cord­ing to the crim­i­nal com­plaint that pros­e­cu­tors filed in Septem­ber. Com­merzbank paid the IRS $210 mil­lion one day be­fore of­fer­ing Lerner the job, which he ac­cepted im­me­di­ately. The fig­ure was 62 per­cent of the po­ten­tial taxes due. Bank em­ploy­ees later told fed­eral in­ves­ti­ga­tors it had been will­ing to pay much more money to set­tle the au­dit.

"We will not tol­er­ate cor­rupt government em­ploy­ees and will pros­e­cute and pun­ish them to the full ex­tent of the law," Preet Bharara, the U.S. at­tor­ney for the South­ern District of New York, said in a March 12 news re­lease. Notably, Bharara said noth­ing about pros­e­cut­ing the peo­ple and com­pa­nies that par­tic­i­pate in cor­rupt­ing them. Why hasn't the Jus­tice De­part­ment charged Com­merzbank or any­one else who worked there? That is a mys­tery, but per­haps only partly. U.S. At­tor­ney Gen­eral Eric Holder last week told the Se­nate Ju­di­ciary Com­mit­tee, in essence, that some fi­nan­cial in­sti­tu­tions are in­deed too big to pros­e­cute, be­cause of the dam­age to the U.S. and world econ­omy that might en­sue.

Com­merzbank is cer­tainly big. The com­pany had 636 bil­lion eu­ros ($839 bil­lion) of as­sets on its Dec. 31 bal­ance sheet, mak­ing it Ger­many's sec­ond-largest bank. The Ger­man government owns about 25 per­cent of the com­pany, af­ter bail­ing it out in 2009. We can imag­ine how up­set some Ger­man po­lit­i­cal lead­ers would be if the Frankfurt-based lender were ever in­dicted in the U.S., jeop­ar­diz­ing its abil­ity to sur­vive.

Julie Bol­cer, a U.S. At­tor­ney's Of­fice spokes­woman, de­clined to say if the Jus­tice De­part­ment's in­ves­ti­ga­tion is con­tin­u­ing. Mar­garita Thiel, a Com­merzbank spokes­woman, de­clined to com­ment. (The government's court pa­pers re­fer to Com­merzbank only as "Bank 1." Bloomberg News and other news or­ga­ni­za­tions pre­vi­ously have iden­ti­fied the bank as Com­merzbank.)

There are signs the in­ves­ti­ga­tion might be wrap­ping up. Lerner's plea deal doesn't re­quire him to co­op­er­ate with government in­ves­ti­ga­tors, which sug­gests the feds aren't try­ing to use him to tar­get big­ger fish at the bank. Pros­e­cu­tors said they would rec­om­mend only four to 10 months in prison, in line with fed­eral sen­tenc­ing guide­lines. He also isn't re­quired to ad­mit to break­ing the law while he was a Com­merzbank of­fi­cial.

Of the orig­i­nal four counts against him, Lerner pleaded guilty to the two charges re­lated to his con­duct while he was an IRS em­ployee. One was for vi­o­lat­ing con­flictof-in­ter­est laws, the other for il­le­gally dis­clos­ing IRS au­dit in­for­ma­tion. Pros­e­cu­tors said they would drop the two counts stem­ming from his ac­tions as Com­merzbank's tax di­rec­tor.

If Lerner com­mit­ted crimes, it stands to rea­son that oth­ers at Com­merzbank did, too. Lerner didn't act alone. The no­tion that he's the only one who vi­o­lated the law in this case seems be­yond be­lief, based on the facts the government al­leged.

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