Four years ago, I began representing victims of fraudulent schemes who filed suits against banks for providing the financial services that were essential to perpetrating the fraud. We developed our case on the theory that the banks (some of the largest in the land) aided and abetted the fraud. These cases seemed like “no brainers.” A slick Ponzi Schemer (in one case he had just been released from a federal prison (for fraud no less)) who begins using a bank as his financial back office – who wouldn’t think the bank should be held accountable? The Ponzi Schemer deposits tens of millions without any sign of an actual operating business (hmmmm) and uses the bank to transfer funds overseas (can you say money laundering) – all the while receiving advice from branch employees and bank officers about how to increase financial efficiency. In one particularly shocking case, a bank employee worked directly for the Ponzi schemer as an “embedded” employee. But alas the timing wasn’t right and without exception these cases were dismissed. But times “they are a changing”
DOJ appears to be willing and anxious to prosecute financial fraud against enablers including: banks, third-party payment processors and other financial institutions who “provide the scammers with access to the national banking system and facilitate the movement of money from the victim of the fraud to the scam artist.” This initiative seems to be the brainchild of Michael Bresnick, who heads up the DOJ’s Financial Fraud Enforcement Task Force. Bresnick identified these entities as the “bottlenecks” in many fraudulent schemes. Without banks or payment processors, fraudsters would be without a means to get paid their ill-gotten gains.
But DOJ isn’t just claiming these financial institutions are “looking the other way.” No, DOJ seems to be alleging that these financial entities actually encourage the fraud. Bresnick was not coy about this suggestion:
“Financial institutions through which these fraudulent proceeds flow, we have seen, are not always blind to the fraud. In fact, we have observed that some financial institutions actually have been complicit in these schemes, ignoring their BSA/AML obligations, and either know about – or are willfully blind to – the fraudulent proceeds flowing through their institutions.”
DOJ doesn’t stop at “willfully blind” allegations. Bresnick continues and says that “despite the presence of glaring red flags indicative of fraud,” (even describing the “red flags” as “ambulance sirens, screaming out for attention”) the banks continued to offer these “suspect” customers high levels of service so that these fraudsters could continue to bilk their victims out of money. Meanwhile, the bank continued to collect fees and profit from the fraudulent business that was occurring within its walls. Bresnick offers several specific examples of precisely how egregious the banks behaviors were.
DOJ’s tactic boils down to “starving” the con artist fraudsters out of business. If they no longer have reputable, trusted banking institutions to do their dirty work for them their ability to defraud people out of money goes way down.
Well it’s about time. This new focus by Mr. Bresnick and his DOJ task force holds out the promise that banks will get in-line and stop aiding and abetting fraudsters. My only additional suggestion: don’t forget the threat of criminal sanctions. In the end that will be the strongest deterrent.