Fines & Penalties Monitor: March 2016

April 12, 2016 at 4:29 PM


The steady stream of penalties levied in the first two months of 2016 came to a halt in March. Of the 18 largest institutions headquartered in the U.S. and EU, none experienced a fine, penalty, or settlement of greater than $50 million between March 1st and March 31st. As a result, CPG’s year-to-date fine total stayed at $12.5 billion.

Nevertheless, there are several ongoing investigations that could result in additional penalties in the coming months. In March, Goldman Sachs came under scrutiny for alleged involvement in several illegal activities. While Goldman Sachs first disclosed that they were being investigated for manipulating Treasury bond prices in November, it was announced last month that the firm is also being investigated for price-rigging in the secondary market. Separately, Goldman Sachs is also under investigation for allegedly laundering money through a Malaysian state investment fund, 1Malaysia Development bhd. Both the FBI and the Justice Department are looking into whether the company misled investors about the securities it sold that were issued by this fund. Both departments are attempting to determine whether the profits from the bond deals were being used for their intended purpose. All of these investigations are ongoing and no formal charges have been made.

A high profile lawsuit was also announced in March, between retail merchants and major credit card issuers, including Barclays and Wells Fargo. The plaintiffs claim that the credit card issuers colluded to shift the liability of fraudulent credit card transactions from themselves to retailers when they made the switch to EMV chip cards. In October 2015, networking rules stating that any retailer not accepting EMV chips at that time would be liable for illegal charges went into effect. These charges would have usually been covered by the credit card issuers. While many retailers bought the EMV terminal to process the chip card by that date, they were unable to use them until the portal became certified by payment processors – a process that can take months, if not longer. Most of these processing centers are at least partially owned by banks, raising questions as to whether these companies have an incentive to certify more slowly. Merchants allege that financial institutions are intentionally delaying EMV certifications in order to evade being liable for fraudulent purchases. Defendants, such as American Express, have denied these accusations, stating the charges lack merit.

Finally, regulators continue to keep a sharp eye out for unfair and deceptive acts and practices, particularly in the businesses of consumer, student, and mortgage lending. Between continued regulatory scrutiny, the rise of new lawsuits, and ongoing investigations, it seems clear that the lack of large fines, penalties, and settlements in March represents only a temporary respite for our large bank group.

Lauren Rosenberg

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