I support this enforcement action against a Wall Street bank (Wells Fargo) and a group of large foreign banks (BNP Paribas and Societe Generale, both headquartered in France with U.S. registered brokers or dealers and Bank of Montreal, headquartered in Canada), as another victory in holding banks accountable for their pervasive use of unauthorized communication methods, like private texts and in some cases Whatsapp, violating the law and evading regulatory oversight requirements.  Together with our previous offline communications enforcement actions, the Commission has levied over $1 billion in penalties against 18 Wall Street institutions and large foreign banks,[1] sending a zero tolerance message to those who seek to evade regulatory oversight.  This is combined with $1.5 billion in penalties from the SEC, for a total of more than $2.5 billion in penalties.

These and the previous CFTC cases shut down and bring transparency and public accountability to Wall Street’s and large foreign banks’ pervasive and evasive bank practices that jeopardize market integrity and violate the law.  The CFTC is requiring all defendants in the cases announced today to admit wrongdoing,[2] pay historically high penalties for recordkeeping violations of the law (a combined more than $530 million between CFTC and parallel SEC cases), and to fix internal policies and practices to ensure that both U.S. regulators and bank executives can prevent, detect, and correct unauthorized illegal communications.[3]

Based on the serious threat that unauthorized communications platforms pose to market integrity, the CFTC is requiring an admission of wrongdoing as part of these settlements.[4]  Too often, accountability and deterrence is only discussed in terms of the size of a penalty.  In my enforcement experience, deterrence can be achieved from a defendant having to admit wrongdoing, combined with a penalty.  Particularly those defendants with significant resources may view admissions to be more consequential than a penalty.

1. Zero-tolerance for keeping regulators in the dark.

By bringing these cases, and the prior offline communication cases in parallel with the SEC, the Commission is sending a strong message to all entities that we regulate that we will not tolerate efforts that evade our regulatory oversight—oversight that these entities signed up for when they registered with the Commission.  As I previously said in our first offline communication enforcement cases:[5]

The same is true for foreign banks operating in U.S. markets.  The illegal conduct impeded the CFTC’s ability to oversee market activity and ensure compliance with laws that protect investors, promote market integrity, and serve other public interests.  The illegal conduct also impeded the banks’ ability to supervise their employees and ensure that bank practices matched internal bank policies prohibiting these communication methods.  The CFTC found significant unauthorized communication practices involving those at a senior level.  The conduct found serves as a red flag about bank culture.

2. The widespread evasive use of unauthorized communications undermines law enforcement. 

The CFTC will not allow Wall Street or foreign banks to undermine our law enforcement by evading requirements to keep communications surrounding trading.  The Commission’s offline communication cases are not merely “technical” violations, but instead go to the core of public interests in financial regulator visibility into those it regulates to protect markets and investors.  They also go to the core public interest of market integrity.  U.S. markets are the safest and most liquid in the world because market participants have confidence in U.S. financial regulators’ ability to police the markets for illegal actors.  That may be why foreign banks are interested in U.S. markets.

The public interest is not served by U.S. or foreign banks keeping U.S. regulators in the dark.  Darkness undermines law enforcement.  As a federal official in law enforcement for the last two decades, I have routinely used communication records as evidence of a defendant’s intent to violate the law.  Efforts to hide the motivation for trades make it harder for the government to establish the intent required to prove fraud, market manipulation, and other illegal acts—a fact well known to banks.

In some of our bank offline communications cases, the CFTC was investigating suspected illegal conduct when it became apparent that there were missing communications records.  The missing records triggered another investigation where we found that hundreds or thousands of employees used (often regularly) unauthorized communication platforms, with the knowledge and participation of senior leadership.  In most of these cases, this even included the use of encrypted messaging apps and private texts by those who should have stopped this illegal practice—senior officials and those officials responsible for compliance.

3. A broader message

It’s time for Wall Street and large foreign banks operating in U.S. markets to stop waiting for an enforcement action before they change illegal practices.  The illegality that the CFTC found in all of these cases was disturbingly widespread, evasive, conducted by senior officials as well as those responsible for compliance, and a clear violation of the law and internal bank policies.  It was well known within these banks that their internal policies were being flagrantly violated in practice.  But no one stopped it.  In the future as more time passes from these enforcement actions, and as there is adoption of new technologies and evolving means of private communication, I am concerned that there again will be a temptation for some to evade regulatory requirements and keep the CFTC in the dark.

Tone at the top dictates a bank’s culture and that tone must change on Wall Street and large foreign banks.  The tone at the top the CFTC found was one of evasion, keeping regulators in the dark.  Change can only happen if the bank’s C-suite establishes a culture of compliance over evasion.  It is far past time for the C-suite to step up.