(Bloomberg) — The U.S. Labor Department will give an unlikely procession of speakers — including a relative of Holocaust victims and consumer activist Ralph Nader — a rare platform Thursday to tell federal regulators why its time to banish misbehaving banks from lucrative businesses.
The critics are expected to press Labor to reject Credit Suisse Group AGs request for an exemption from regulatory sanctions, a decision that would effectively ban the bank from managing U.S. pension funds. Switzerlands second-largest bank pleaded guilty in the U.S. last year to helping thousands of Americans evade taxes. To stay in the pension business, it needs a waiver from the Labor Department.
At the waiver hearing, Nader, known for auto-safety advocacy in the 1960s, will call for an inquiry into the absence of meaningful character requirements for corporations, according to a summary of his planned remarks posted on the Labor Department website. James Henry, an economist with Tax Justice Network, a Chesham, England-based research group, said he plans to testify that Credit Suisse has been allowed to profit from malfeasance.
Then theres Paul Morjanoff, the chief of investigations for Financial Recovery and Consulting Services Pty Ltd., an Australian investor advocacy group. He said his firm was rebuffed when it sought to meet with Credit Suisse executives about its allegations of wrongdoing inside the bank, so hes traveling to the U.S. to make his case.
Media, government and public have become numb to financial atrocities, Morjanoff wrote in an e-mail.
Unique Venue
Credit Suisse said in an e-mail that it appreciates the opportunity to appear before the Labor Department panel.
Credit Suisse has worked hard to uphold the highest standards in the industry, and where we have fallen short, we have accepted responsibility and have addressed the issues, said Justin Perras, a Credit Suisse spokesman, in the e-mail.
Perras said Majoranoffs complaints relate to a 15-year-old matter and are merely another effort to raise an issue that is not relevant to these proceedings, after numerous failed efforts to find a forum for his grievances.
For those who desire to air critical views of banks, the Labor hearing offers a unique official venue. Congress brings people to testify by invitation only. Labor, by contrast, will give all 18 people who responded to the hearing notice a chance to speak, said Laura McGinnis, a department spokeswoman.
Rubber Stamping
Lawmakers have criticized the department for rubber stamping every bank waiver request since at least the 1990s. House Democrats Maxine Waters, Stephen Lynch and George Miller wrote to the department in October urging it to hold a hearing on Credit Suisses request. Thursdays event will be the departments first of its sort.
It promises to echo recent wrangling over banks accountability. Critics of the financial industry fear the new Republican-dominated Congress will soften regulations on banks. That camp notched a populist victory on Monday, when Senator Elizabeth Warren, a Massachusetts Democrat, helped win the withdrawal of Wall Street veteran Antonio Weiss from consideration for a top Treasury Department post.
Making the case for Credit Suisse at the hearing will be three of its own executives, two outside attorneys and two representatives of New York nonprofits to which the bank and its employees contribute time and money. One, Student Sponsor Partners, held a dinner last year to honor Credit Suisse Chief Executive Officer Brady Dougan. Its director, Denise Durham Williams, declined to comment.
Hefty Costs
The bank and its supporters are expected to argue that pension clients would incur hefty costs moving to another manager and that it has safeguards to ensure any wrongdoing in other units wont affect the pension business. Credit Suisse oversees billions of dollars of assets for more than 100 U.S. pension plans, according to a July court filing by the Zurich- based bank.
Credit Suisse isnt the only bank grappling with waiver issues. BNP Paribas SA also pleaded guilty to criminal charges last year and had to seek a sentencing delay while it asked for a pension waiver from the Labor Department. UBS AG is hesitating to settle a French criminal tax-evasion case in part over concern about the repercussions for its business in the U.S., Bloomberg News reported in November, citing two people familiar with the matter.
Waivers also became a flashpoint at the Securities and Exchange Commission in April when Kara Stein, a Democratic commissioner, publicly objected in a 3-2 vote to granting Royal Bank of Scotland Group Plc a waiver to continue offering its own securities without SEC approval, following its criminal conviction for manipulating the London interbank offered rate.
Denial of waivers, Stein said at the time, has the potential for deterrence at large institutions that no one-time financial penalty could ever wield.
Temporary Waiver
The Labor Department, because it oversees pensions, has the power to designate certain companies as Qualified Professional Asset Managers, a key requirement for banks to carry out bond, currency and derivative transactions for pension-fund clients. A manager automatically loses that status if it or one of its affiliates is convicted of certain crimes, including tax evasion.
Our asset management functions provide pension plans and IRAs the opportunity to invest in asset classes that are unique, said Credit Suisse spokesman Perras. None of the asset management entities seeking this exemption were involved in the misconduct that led to the 2014 guilty plea.
The department allowed Credit Suisse to continue operating in that space by offering it a temporary, one-year waiver to avert possible disruptions in retirement plan investments, and proposed terms for a final exemption.
In its Notice of Hearing, Labor said it was interested in testimony on whether the proposed waiver is in the interests of Credit Suisses pension plan clients and their beneficiaries. In the end, however, it agreed to hear from those with broader agendas.
Critics are likely to emphasize the banks history of tangles with enforcement authorities. George Arnstein, who also opposes the granting of a waiver, said in comments posted on the Labor website that the bank failed to fulfill its fiduciary obligations to account holders, including his relatives, who lost money they had deposited in the bank before World War II.
Following the hearing, the Labor Department will conduct a thorough review before making a decision on Credit Suisses waiver request, McGinnis said.
To contact the reporter on this story: Neil Weinberg in New York at nweinberg2@bloomberg.net To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Jeffrey D Grocott
