Financial Reform Newsletter
July 27, 2017
 

To Prevent Injustice and Protect Americans from Another Crash, Better Markets Files Motion to Disqualify DOJ in MetLife v FSOC Case 

Citing profound and unmanageable conflicts of interest, Better Markets this week went to court to disqualify the Department of Justice from representing FSOC in the MetLife v. FSOC case.

Better Markets has written about the watchdog role we have played in the legal fight against MetLife and the company’s political ploy to short-circuit the appellate process previously, but with a meeting of FSOC scheduled for this week and with the MetLife case on the agenda, we were compelled to take action to ensure that this vital financial reform and the critical protection it provides to the financial system remain vibrant and effective.

The DOJ’s conflict of interest stems from the fact that it cannot serve two masters, FSOC on one hand and the President of the United States on the other, at the same time. A bedrock rule of law is that lawyers must zealously represent their clients’ interests, and to safeguard this principle, they are prohibited from representing different clients having conflicting interests. That is exactly the case here, where the DOJ is representing multiple clients with conflicting interests on the same legal issue at the same time. The only remedy, as we assert in our motion and amicus brief, is for the DOJ to be disqualified from representing FSOC.

The specific evidence of conflict in this case is compelling. After full briefing and oral argument, and as the case was poised for a decision, MetLife suddenly filed a motion to delay the appeal for at least half a year. It relied directly and expressly on a memo from President Trump, issued just two days earlier, that mandated a review of the FSOC’s designation process. The President’s memo strikingly tracks the same issues presented by MetLife in the appeal. Furthermore, all indications are that the DOJ reviewed the memo and counseled the President on its form and content. The DOJ’s legal duties to and zealous representation of the President undermines its duty to its other client, FSOC. Acting in its role as counsel for FSOC, the DOJ responded to MetLife’s extraordinary request for a minimum half-year delay by asking for 60 days to think it over.

Rather than providing conflict-free advice and zealously representing FSOC by fighting against MetLife’s baseless eleventh-hour bid to delay the case, the DOJ, purporting to act on behalf of and solely in the best interests of FSOC, instead agreed to one-third of MetLife’s request. Confirming this conflict, the DOJ, again purporting to act solely in the best interests of FSOC in the case, recently sought 30 more days to further consider MetLife’s motion, thereby handing MetLife half the relief it originally sought. There is absolutely no legal, logical, or policy-based reason for any delay in the appeal, and the review mandated by the President and undertaken by the Secretary of the Treasury certainly provides none. With such a clear and compelling argument, the court should grant our motion, accept our brief and disqualify DOJ as well as deny MetLife’s request for any delay.

Fighting for FSOC at the Treasury Department

As we have written about before (here and here), Better Markets has been privileged to be included in a series of roundtable meetings the Treasury department is hosting as it evaluates financial protection rules in accordance with various Executive Orders President Trump signed early this year. Earlier this month, Better Markets again participated in another meeting at Treasury, this time focused exclusively on the Financial Stability Oversight Council.

Better Markets presented a fulsome defense of FSOC, reviewing its unique and important role as the only agency tasked with monitoring the entire financial system and designating nonbank financial companies for enhanced prudential regulation by the Federal Reserve if they pose a threat to the financial system. As we emphasized at the roundtable, in the seven years since it was created, FSOC has exercised its authority in a thoughtful and measured way, designating just four nonbank financial firms for enhanced supervision (and one of those firms – GE Capital – has since been de-designated). While seeking to do things better and be more efficient and effective is always a good idea, to redesign, disarm, or dismantle such a critical agency that has performed so well thus far, we said, makes no sense and would be a great disservice to the American people. As the roundtable discussion turned to specific proposals for changes in FSOC’s designation process, we highlighted three additional key points:

• First, saddling the FSOC with the task of conducting an onerous, quantitative cost-benefit analysis would be a huge mistake. Congress wisely and deliberately refrained from imposing that duty on FSOC in the Dodd-Frank Act, and with good reason: The process is imprecise, biased, time-consuming, and resource-intensive, ultimately leading to weaker, slower agency action that is set up for court challenges (as we spelled out in this report).
• Second, the FSOC needs flexibility when deciding whether to de-designate institutions, just as it does when making the initial designation decision. It must make difficult and complex predictive decisions during both phases, and unduly mechanizing the process would be a mistake.
• Finally, there is no need to enlarge the right of judicial review that is already set forth in the Dodd-Frank Act. The statute clearly provides that firms have the right to seek judicial review of a designation decision on grounds that the decision was arbitrary and capricious, and that doctrine adequately allows firms to advance a wide array of legal challenges to the FSOC’s actions.

Disagreeing with Better Markets’ Brief, Court Puts Secrecy for a Lawbreaking Bank Ahead of Public’s Right to Transparency and Accountability 

Putting a lawbreaking bank’s desire for secrecy ahead of the public’s right to transparency and accountability, the Court of Appeals for the 2nd Circuit ruled in United States v. HSBC Bank to keep a court-appointed monitor’s report secret from the public.

In 2012, HSBC had entered into a five-year deferred prosecution agreement as well as a $1.92 billion fine to settle a criminal case against the bank, which had become a bank of choice for Mexican drug cartels, money launderers, as well as for countries barred by U.S. sanctions. The monitor’s report examined how HSBC was complying or not with its agreement with DOJ.

Better Markets filed an amicus brief in the case, asserting that the public has a fundamental right to see that the bank is complying with the agreement and making the necessary changes in its business practices.
 

Public trust and confidence in the rule of law and the judicial system were at stake in this matter, but unfortunately the court put private interests above the public interest by limiting the public’s right of access to these documents which were filed in court. Without this transparency, the public has no ability to hold the bank or DOJ accountable for their actions or inactions.

The case involved egregious, vast, and systemic criminal conduct by one of the world’s largest banks profiting from money laundering for narco-terrorists and rogue nuclear states. But the court’s decision means that the public is denied knowing what one of the biggest lawbreaking financial institutions in the world is doing to comply with the law or even if it is complying with the law.