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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 2: Today, we are announcing campaign finance, bribery and conspiracy charges

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Speaker 2: against Eric Adams, the mayor of New York City. As

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Speaker 2: the indictment alleges Mayor Adams engaged in a long running

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Speaker 2: conspiracy in which he solicited and knowingly accepted illegal campaign

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Speaker 2: contributions from foreign donors and corporations. As we allege Mayor

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Speaker 2: Adams took these contributions even though he knew they were illegal.

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Speaker 3: Manhattan US Attorney Damian Williams announced the first federal charges

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Speaker 3: ever against a sitting mayor of New York City. The

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Speaker 3: indictment charges Eric Adams with engaging in years of sustained

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Speaker 3: corruption and accepting more than one hundred thousand dollars in

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Speaker 3: lavish bribes from foreign nationals. Williams said that Adams repeatedly

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Speaker 3: crossed bright red lines, leading to the charges of bribery, conspiracy,

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Speaker 3: and breaking campaign finance laws.

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Speaker 2: The conduct alleged in the indictment, the foreign money, the

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Speaker 2: corporate money, the bribery, the years of concealment, is a

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Speaker 2: grave breach of the public's trust.

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Speaker 1: Public office is a privilege.

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Speaker 2: We allege that Mayor Adams abused that privilege and broke

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Speaker 2: the law flaws that are designed to ensure that officials

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Speaker 2: like him serve the people, not the highest bidder, not

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Speaker 2: a foreign bidder, and certainly not a foreign power.

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Speaker 1: These are bright red lines, and we.

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Speaker 2: Allege that the Mayor crossed them again and again for years.

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Speaker 1: That is the only reason we are here today.

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Speaker 3: Adams denied wrongdoing and struck a defiant tone in a

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Speaker 3: press conference, vowing to remain in office.

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Speaker 4: My day to day will not change. I will continue

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Speaker 4: to do the job for eight point three million New

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Speaker 4: Yorkers that I was elected to do.

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Speaker 3: Joining me is Richard purflt. A professor at Columbia Law School.

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Speaker 3: Rich this was a really detailed indictment. What struck you most?

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Speaker 5: Good question? I think the level of fact that the

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Speaker 5: government has put in the indictment means that at least

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Speaker 5: some of the counts there are five counts, my sense

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Speaker 5: is that at least four of them are pretty straightforward,

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Speaker 5: and if the government is able to prove in court

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Speaker 5: the facts that they're alleging in the indictment, it would

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Speaker 5: be very hard to defend against them.

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Speaker 3: What are the four that seemed straightforward.

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Speaker 5: So they are the two that are about foreign campaign contributions,

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Speaker 5: and that's one for the twenty twenty one campaign and

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Speaker 5: one for the twenty twenty five campaign. That is flat

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Speaker 5: out illegal. I mean in fact when you actually get

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Speaker 5: to the count I mean, obviously there's a long factual backdrop,

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Speaker 5: but those counts are like two paragraphs long. It's extremely

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Speaker 5: shortened to the point. And if they can show that

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Speaker 5: he kind of intentionally and with his team his associates

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Speaker 5: worked with foreign donors knowing they were foreign donors to

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Speaker 5: get them to contribute to his campaign, that's pretty close

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Speaker 5: to open and shut if the facts prove out. And

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Speaker 5: the other the other two that are pretty close those

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Speaker 5: two just served very powerful is the federal funds ribery ones,

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Speaker 5: which is the ones that basically charge him with kind

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Speaker 5: of bilking the New York City Matching Funds program through

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Speaker 5: various ways, again getting the foreign donations, but also other

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Speaker 5: donations where they broke them down and then persuaded the

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Speaker 5: donors to use straw donors so that larger donations were

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Speaker 5: funneled through smaller donors so that they were matchable under

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Speaker 5: the New York City Matching Funds program. That also is again,

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Speaker 5: if they can prove that, that does seem like a

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Speaker 5: straightforward effort on the part of the mayor to the

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Speaker 5: City of New York. And you know that's what the

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Speaker 5: federal funds bribery thing is. You know, is he in

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Speaker 5: effect using this for his own benefit?

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Speaker 3: Since this is an indictment of the first indictment of

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Speaker 3: a New York City mayor on federal charges, and you

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Speaker 3: know that this has been cleared all the way to

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Speaker 3: the top of the Justice Department. I mean, are you

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Speaker 3: pretty confident that they have the evidence to back up

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Speaker 3: what they allege?

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Speaker 5: No? I mean, I don't know enough, but certainly the

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Speaker 5: indictment is very, very detailed, So they certainly have laid

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Speaker 5: out a set of facts that if they can prove them,

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Speaker 5: you know, are pretty strong. They've laid out a lot

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Speaker 5: of facts. There are no gold bars in this one

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Speaker 5: like Menendez, but they've laid out a lot and a

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Speaker 5: lot of detail.

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Speaker 3: So the US Attorney a big focus of his press

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Speaker 3: conference was that Adams accepted luxury travel. And they had

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Speaker 3: a poster board.

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Speaker 5: Right showing pictures of the fancy hotels and.

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Speaker 3: Things, right and showing the undisclosed travel benefits which are

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Speaker 3: also listed. It was almost a duplicate of what's in

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Speaker 3: the indictment. Is that because it catches the public's eye

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Speaker 3: or is that a very important part of this.

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Speaker 5: I'm sure they use of the photographs are designed to

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Speaker 5: catch the public eye, just like in the Menendez case

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Speaker 5: when they were showing off the gold bars or pictures

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Speaker 5: of the gold bars. Obviously it's playing them the court

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Speaker 5: of public opinion. All was on the court of law.

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Speaker 5: It's not clear that having pictures of fancy hotel rooms

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Speaker 5: in istan bulas that the pictures of the fancy hotel

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Speaker 5: rooms are crucial. The fact that the rooms were renting

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Speaker 5: for a certain rate and night that he wasn't paying.

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Speaker 5: That's actually enough.

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Speaker 3: And it might be surprising to many that this goes

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Speaker 3: back nearly ten years. I mean they went to the

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Speaker 3: time before.

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Speaker 5: He was mayor, right, well, I mean his initial interactions

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Speaker 5: with the Turkish representatives go back to time he's borough president.

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Speaker 5: Of course, he was beginning to organize his campaign to

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Speaker 5: become mayor, so a lot of the fundraising, you know,

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Speaker 5: goes back two years before the election. But he knew

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Speaker 5: he was running and he was borough president, so he

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Speaker 5: did have an official position and had some prestige that's

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Speaker 5: connected to that. Some official powers, powers that borrow president

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Speaker 5: are not great. But you know, the one official thing

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Speaker 5: that he's accused of doing is actually kind of borderline

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Speaker 5: because it's pressuring the Fire Department to accelerate the approval

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Speaker 5: of the opening of the new Turkish building. He actually

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Speaker 5: wasn't mayor yet and he had no formal power over

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Speaker 5: the Fire department. On the other hand, and he was

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Speaker 5: just in the process of winning the election, and he

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Speaker 5: was a city official, and the looral presidents have some

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Speaker 5: role in city government. But I think in some sense there,

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Speaker 5: I think the issues goes more to the fact that

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Speaker 5: at that point he was on the verge of becoming mayor,

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Speaker 5: So you know, at that point he didn't have any

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Speaker 5: formal leverage over the Fire Department, but he would soon.

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Speaker 3: Williams also spoke about how Adams failed to disclose this

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Speaker 3: free and discounted travel. Where does that fit in.

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Speaker 5: That's a good question, because I think a lot of

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Speaker 5: what they described in course are violations of New York

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Speaker 5: City conflict of interest law, which is not a violation

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Speaker 5: of federal law. I mean, the failure to disclose all

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Speaker 5: of these things violated city law. They're giving that as

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Speaker 5: all background, but they're not charging him per se for

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Speaker 5: not disclosing, because that's not a federal violation. I think

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Speaker 5: it goes to the idea that he was hiding it,

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Speaker 5: that he knew that he was getting these benefits, and

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Speaker 5: that there was something improper about the benefits that he

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Speaker 5: was getting, and that he was getting them in order

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Speaker 5: to subsequently influences official actions. So to me, it's more

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Speaker 5: a sense of maybe guilty conscience, but that he was

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Speaker 5: covering his tracks. Because even receiving benefits from these Turkish

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Speaker 5: interests don't necessarily violate federal law. They might have violate

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Speaker 5: at New York City conflicts law, but it was ultimately

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Speaker 5: the connection between getting the benefits and then using them

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Speaker 5: either for his own personal benefit or to get people

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Speaker 5: to support his campaign. That's where I think the connection

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Speaker 5: comes in. There's not a federal crime to violate New

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Speaker 5: York City conflicts laws, but I think they were using

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Speaker 5: it to show that this is part of a broader

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Speaker 5: scheme to get money from these Turkish interests, either just

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Speaker 5: support his campaign and or in exchange for him ultimately

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Speaker 5: doing them favors official favors.

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Speaker 3: There's also allegations that he created a fake paper trail

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Speaker 3: to suggest that he had paid for this. It's the

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Speaker 3: cover up, of.

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Speaker 5: Course, the idea that it wasn't just sloppy, it wasn't

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Speaker 5: just unintentional, that this was all part of a conscious plan.

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Speaker 3: The business is circumventing the city's ban on corporate contributions.

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Speaker 3: How has that been to a federal.

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Speaker 5: Again, so I think part of this idea that he

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Speaker 5: was using the wires, because they says all technically wire

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Speaker 5: fraud to defraud New York City. Because again he was

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Speaker 5: taking those corporate contributions, turning them into individual contributions and

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Speaker 5: matching them. So in effect, this was again part of

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Speaker 5: a scheme to use the wires to defraud New York City.

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Speaker 5: And New York City received federal funds. That's why it's

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Speaker 5: federal program bribery aten US Code six sixty six. I mean,

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Speaker 5: the foreign donations are clearly illegal under federal law. The

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Speaker 5: domestic corporate ones, no. But what they're saying is that

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Speaker 5: he was engaged in a scheme to defraud New York City.

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Speaker 5: Because it's not so much that he got the donations,

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Speaker 5: as he was leveraging the donations to get matching fund money,

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Speaker 5: and that's taxpayer dollars.

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Speaker 3: They mentioned a lot of techs. Most of the texts, though,

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Speaker 3: that are long and outlined, are with a businessman, a

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Speaker 3: Turkish official, a staffer, not Adams himself. There are a

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Speaker 3: few references to Addam, but it's mostly other people and.

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Speaker 5: Right, they're going to have to show that he was

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Speaker 5: part of this, that his staff was doing it on

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Speaker 5: his behalf, and that he knew what they were doing.

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Speaker 3: So the indictment doesn't name names, but there's an unnamed

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Speaker 3: Adam's staffer, and airline manager and several businessmen. Do you

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Speaker 3: think they're already cooperating with prosecutors.

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Speaker 5: I can't speak to that. I mean they've obviously interviewed

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Speaker 5: them and gotten this information from them. Whether they have

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Speaker 5: arrangements with them or not, I don't know, but they

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Speaker 5: wouldn't be going forward and I think unless they felt

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Speaker 5: they had the evidence that they could bring it to court.

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Speaker 3: Do you see any defenses?

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Speaker 5: I didn't know, you know one of the I didn't know.

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Speaker 5: I mean that somewhere along the lines that where you

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Speaker 5: were just hinting, which is these are my staff. I

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Speaker 5: didn't know what they were doing. It's hard to say

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Speaker 5: I didn't know this was illegal, and it could be

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Speaker 5: a I didn't know this was happening, And certainly I

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Speaker 5: think it's probably the strongest defenses if they're already would

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Speaker 5: be in some sense that taking all of these Turkish

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Speaker 5: benefits really, you know, didn't violate the federal law. The

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Speaker 5: government isn't going to have to link up of all

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Speaker 5: the benefits he got to the fact that he took

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Speaker 5: them knowing they were intending to influence him in official actions.

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Speaker 5: That's the bribery standard, that he knew that he was

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Speaker 5: being influenced, that he took them knowing they were intended

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Speaker 5: to influence his official actions. That may be frankly, that

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Speaker 5: may be a challenge for the last count. I haven't

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Speaker 5: really spoken about the last count until now. And that's

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Speaker 5: the straightforward bribery that he took these things. He took

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Speaker 5: all these benefits in exchange for basically pressuring the fire

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Speaker 5: department to accelerate the approval of that building. The challenge

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Speaker 5: there is that he was taking benefits for years and

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Speaker 5: years before, so I think the government is going to

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Speaker 5: have to kind of link up all of the free

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Speaker 5: travel and the free hotel rooms that he got and

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Speaker 5: connect that to the fact that he then did this

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Speaker 5: favor for the Turkish government.

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Speaker 3: Yeah, that's what struck me is that it just seemed

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Speaker 3: like there was one thing that he did after he'd

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Speaker 3: been you know, graegidly taking these trips, etc.

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Speaker 5: That's going to be the hardest count because you've got

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Speaker 5: the quid and you've got the quote, but do you

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Speaker 5: have the pro you have the linkage, Whereas I think

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Speaker 5: the easiest counts for the foreign funds because to me,

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Speaker 5: if they made the payments and he knew about it

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Speaker 5: or was involved in making that happen, that's all you

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Speaker 5: need to show for the foreign funds, and for the

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Speaker 5: matching funds, it's pretty close. If he knew him he

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Speaker 5: was directing his team to work with these donors to

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Speaker 5: break up their donations into smaller ones and funnel them

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Speaker 5: through employees so that they were all matchable. That's also,

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Speaker 5: you know, a violation of the city law. It connects

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Speaker 5: up with the federal law that makes it a crime

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Speaker 5: basically to defraud a government that's receiving federal funds.

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Speaker 3: Coming up next, I'll continue this conversation with Columbia Law

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Speaker 3: school professor Richard Brefalt, could Adams be removed from his

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Speaker 3: position as Mayor of New York. I'm June Grosso and

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Speaker 3: you're listening to Bloomberg. Manhattan. US Attorney Damian Williams announced

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Speaker 3: the first criminal charges ever filed against a citty of

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Speaker 3: New York. Today, Eric Adams was indicted on charges of bribery, conspiracy,

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Speaker 3: and breaking campaign finance laws, and Williams promised, or rather warned,

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Speaker 3: there's more to come.

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Speaker 1: This investigation continues.

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Speaker 2: We continue to dig and we will hold more people accountable,

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Speaker 2: and I encourage anyone with information.

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Speaker 1: To come forward and to do so before it is

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Speaker 1: too late.

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Speaker 3: The charges were made public hours after FBI agents entered

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Speaker 3: the mayor's official residence, Gracie Mansion, and seized his phone

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Speaker 3: and electronic devices. It caps an extraordinary few weeks in

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Speaker 3: New York City that have seen a drumbeat of raids, subpoenas,

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Speaker 3: and high level resignations of members of Adam's inner circle.

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Speaker 3: Adams said the indictment didn't come as a surprise.

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Speaker 4: The actions that have unfolded over the last ten months. Yeah,

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Speaker 4: the leaks, the commentary, the demonizes, This did not surprise

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Speaker 4: us that we reached this day.

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Speaker 3: The mayor vowed to stay in office. I've been talking

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Speaker 3: to Richard Brfalt, a professor of Columbia Law School. Rich

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Speaker 3: the Supreme Court has been narrowing the scope of anti

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Speaker 3: corruption laws for more than a decade.

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Speaker 5: Yeah, I mean, I think that's a legitimate point. So

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Speaker 5: one thing, those will not affect the foreign campaign contributions, Well,

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Speaker 5: I think those are the ones that's going to be

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Speaker 5: the hardest term to fight. That should not affect the

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Speaker 5: foreign campaign contributions. For the others, they do require either

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Speaker 5: the showing of an official action. And you know, that's

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Speaker 5: the question of whether or not pressuring the fire department

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Speaker 5: was an official action. It may be in that it

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Speaker 5: was trying to affect a government decision and he was

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Speaker 5: making phone calls or whatever he was doing to do that,

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Speaker 5: but that's going to be the issue. The issue there

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Speaker 5: will be did he take an official action and was

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Speaker 5: it sufficially tightly linked up to the benefits he received.

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Speaker 5: That one, I think is going to be tricky. And

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Speaker 5: even the first one about the scheming to get the

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Speaker 5: matching funds again is going to have to show that

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Speaker 5: he was kind of showing that he would be influence

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Speaker 5: in some way by these supportive people, So that's what

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Speaker 5: I'm saying. I think the most straightforward is the accepting

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Speaker 5: of foreign funds. First campaign, the foreign campaign contributions.

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Speaker 3: Is that against campaign finance laws?

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Speaker 5: Yes, yes, absolutely. The federal ban on foreign campaign contributions

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Speaker 5: applies to federal, state and local elections.

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Speaker 3: And I think it was on the last day of

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Speaker 3: the term that the Supreme Court came down with that

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Speaker 3: controversial opinion six to three, with the conservatives of course

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Speaker 3: and the majority basically finding that the federal law that

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Speaker 3: prescribes bribes to state and local officials doesn't make it

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Speaker 3: a crime for those officials to accept gratuities for their

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Speaker 3: past acts.

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Speaker 5: Snider, yes, so on about right illegal gratuities, but that

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Speaker 5: he hadn't been charged with taking a bribe, so that's

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Speaker 5: not the same thing. They are charging bribery here. The

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Speaker 5: problem in that case is the way the government framed

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Speaker 5: what the man did is first he did the favors

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Speaker 5: for of the private companies, and then he went to

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Speaker 5: them and said, you know, give me a no show

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Speaker 5: job or something like that. The government didn't charge bribery.

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Speaker 5: The government basically charged accepting an illegal gift. Here they're

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Speaker 5: charging bribery.

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Speaker 3: And I'm wondering if the fact that they in the

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Speaker 3: indictment keep repeating that he solicited it, you know, Adam solicited,

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Speaker 3: whether that's just to be sure that they don't end

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Speaker 3: up with a Snyder situation.

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Speaker 5: Right, the language is corruptly solicit anything of value.

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Speaker 3: You never know what the Supreme Court would do. He

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Speaker 3: could get convicted below and the Supreme Court could say.

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Speaker 5: Wait a second, yeah, And the Supreme Court has rejected

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Speaker 5: many many corruption convictions.

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Speaker 3: Is there a reason why?

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Speaker 5: It's hard to say? I mean, one argument is the

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Speaker 5: Supreme Court. These are all involved state and localists, and

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Speaker 5: maybe the Supreme Court is a little nervous about federalizing

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Speaker 5: the state and local misconduct. Maybe they think it should

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Speaker 5: be better handled by local DA's. I don't know. And

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Speaker 5: sometimes there's sort of a First Amendment element that which

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Speaker 5: I think is pretty thin about. You know, people are

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Speaker 5: trying to influence government all the time, and we don't

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Speaker 5: want to make it a crime to try and to

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Speaker 5: be a lobbyist, for example. But I think a lot

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Speaker 5: of the concerns of federalism concerned and almost all those

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Speaker 5: cases have involved the Snyder case involved a small city, Indiana.

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Speaker 5: I mean McDonald, he's a governor, you know, Kelly was

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Speaker 5: port authority, the Buffalo billions or state officials one of them.

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Speaker 5: One of the early cases did involve a pecharive agriculture.

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Speaker 5: So it's not like they're they're always going to support

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Speaker 5: the federal and addictments of federal officials, but most of

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Speaker 5: the cases have involved state and local officials.

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Speaker 3: Now he vows he's going to continue in his role

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Speaker 3: as mayor, right, explain how he could be removed?

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Speaker 5: Okay, Well, so obviously the metre of factive indictment doesn't

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Speaker 5: mean anything in terms of his eligibly to hold office.

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Speaker 5: I actually have to don't know what happens if he's convicted.

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Speaker 5: So let's hold off on that. The city law city

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Speaker 5: charter does not have any provision for impeachment. It does

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Speaker 5: have a provision for removal of the mayor for either

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Speaker 5: temporary inability or permanent inability, but it creates a committee

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Speaker 5: on Inability that does this. That committee is supposed to

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Speaker 5: have five members, actually right now it only has four

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Speaker 5: if there's a vacancy and when the positions the Corporation

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Speaker 5: Council and require the votes of four out of the five.

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Speaker 5: Are now require four out of the four. One of

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Speaker 5: them is a deputy mayor, who is, of course an

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Speaker 5: appointee of the mayor. At the moment, I'm skeptical that

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Speaker 5: the deputy mayor who is his appointee, and I think

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Speaker 5: the deputy may is Sheena Wright, who is also connected

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Speaker 5: with some of these other scandals, would actually be part

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Speaker 5: of a group that would vote to declare him unable

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Speaker 5: to continue in office. There's no impeachment. There is this

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Speaker 5: procedure to have the mayor declared unable, either temporarily or permanently.

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Speaker 5: But the first step in the process requires the action

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Speaker 5: by this committee, and the way the committee is set

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Speaker 5: up that would currently require the agreement of the deputy mayor.

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Speaker 3: I've been reading that the governor could remove him.

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Speaker 5: The governor can remove him. The governor has authority under

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Speaker 5: state law to remove the mayor, and I think Sdr

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Speaker 5: when he was governor, came very close to removing Mayor Walker,

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Speaker 5: who resigned while he was subject to the procedure for removal.

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Speaker 5: The state law says very little about the grounds for removal.

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Speaker 5: It gives a little bit more on the process. The

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Speaker 5: kinds of the little bit of due process that the

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Speaker 5: governor would have to afford the mayor in terms of

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Speaker 5: being able to you know, the charges against him and

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Speaker 5: being able to present a defense. But yes, state law

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Speaker 5: most definitely, very vaguely, but definitely does authorize the governor

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Speaker 5: to remove the mayor.

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Speaker 3: Who would be the next mayor? Is it the barble?

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Speaker 5: I think then it we'd go back to the New

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Speaker 5: York City Charter for filling vacancies, so then it would

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Speaker 5: become again the public advocate.

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Speaker 3: Is there any case in history that compares with this

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Speaker 3: or they say that no New York City mayor has

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Speaker 3: been into on federal charges. I don't know if there

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Speaker 3: was any mayor that's been indicted on SI.

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Speaker 5: I don't know that they were ever indicted, and I

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Speaker 5: you know, my sense is, of course, thinking about Greater

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Speaker 5: New York, Greater New York only goes back to eighteen

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Speaker 5: ninety eight, so I'm I'm not quite sure in the

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Speaker 5: Tammany era whether anybody was ever indicted. But there were

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Speaker 5: some scandals involving mayors. I mean, obviously I mentioned Mayor Walker,

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Speaker 5: and then there's also Mayor O'Dwyer who resigned from office.

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Speaker 5: And I'm not quite sure to what extent they grew

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Speaker 5: out of a kind of a police corruption scandal or

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Speaker 5: around nineteen fifty and I think there were hints of

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Speaker 5: some corruption, but he was never charged with anything. I

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Speaker 5: think even in the Tammany era, a lot of the

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Speaker 5: corruption was all around the mayors, but I'm not sure

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Speaker 5: of any of the mayor's.

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Speaker 3: William said there's more to come. I mean, federal investigators

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Speaker 3: have been pursuing several corruption investigations involving Adams, his senior

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Speaker 3: aides and some of their relatives. And in the last

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Speaker 3: two weeks alone, the police commission and the school's chancellor

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Speaker 3: have resigned. Neither has been charged with a crime or

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Speaker 3: even publicly accused of wrongdoing, right, And.

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Speaker 5: You know, based on the news so far only, it's

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Speaker 5: not clear how those really, if at all, to these

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Speaker 5: The police commissioner who resigned, it sounds like he was

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Speaker 5: caught up in some misconduct involving his brother, some kind

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Speaker 5: of corruption, so I don't know if that relates to this.

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Speaker 5: I have no idea what was what was going on

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Speaker 5: with the school's chancellor, but the bank's brothers, I think,

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Speaker 5: based on the media accounts, the issues I think more

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Speaker 5: involved the one of the bank's brothers who wasn't in government,

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Speaker 5: But I don't know about the ties of the ones

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Speaker 5: who were in government.

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Speaker 3: With the mayor under indictment and all these investigations and

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Speaker 3: city officials resigning, how is he going to run a

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Speaker 3: challenging city like New York.

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Speaker 5: I mean the challenge is really there's the time distraction,

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Speaker 5: and he's got to spend time on his legal defense.

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Speaker 5: And I think also, you know, how effective can he

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Speaker 5: be in kind of dealing with people and either making

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Speaker 5: promises about things he can do or making threats against

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Speaker 5: people who don't go along with him when he wants

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Speaker 5: to adopt certain policies or propose certain laws, And you know,

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Speaker 5: I just think he's likely to be less effective. I mean,

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Speaker 5: it's true that much of the day to day of

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Speaker 5: New York City will keep going. You know, there are

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Speaker 5: many commissioners who have jobs to do, and they'll be

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Speaker 5: doing their jobs. And obviously the vast majority of New

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Speaker 5: York City public employees are going to continue to do

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Speaker 5: whatever they do. But I do think you know, whether

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Speaker 5: it's for can neew initiatives or even you know, at

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Speaker 5: some point they've got to make a budget for the

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Speaker 5: next year. We have a budget for this year, but

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Speaker 5: some point they'll be a budget for next year. You know,

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Speaker 5: at some point it's going to interfere with the ability

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Speaker 5: to move the city forward.

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Speaker 3: It's really a terrible day for the City of New York,

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Speaker 3: no matter which way you look at it. And Adams

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Speaker 3: will be in court tomorrow to be arraigned on corruption charges.

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Speaker 3: Thanks so much, Rich for your insights. That's Columbia law

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Speaker 3: professor Richard Ruffault coming up next on the Bloomberg Law Show.

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Speaker 3: The Biden administration is turning its anti trust attention to

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Speaker 3: the financial services industry, suing Visa. I'm June Grosso and

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Speaker 3: you're listening to Bloomberg. The Biden administration is turning its

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Speaker 3: attention to the financial services industry with its latest anti

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Speaker 3: trust suit. The Justice Department sued Visa on Tuesday, alleging

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Speaker 3: the global payments giant illegally monopolized the debit card market.

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Speaker 3: Antitrust enforcers alleged that Visa, which handles more than sixty

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Speaker 3: percent of the more than four trillion dollars in US

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Speaker 3: debit transactions each year, entered into a series of agreements

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Speaker 3: penalizing merchants who sought to use alternatives and paid potential

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Speaker 3: rivals to stay out of the market. Joining me is

438
00:22:50,440 --> 00:22:54,960
Speaker 3: Ronald Mann, a professor Columbia Law School, explain the charges

439
00:22:55,520 --> 00:22:59,000
Speaker 3: against Visa. It's about the debit card market. Tell us

440
00:22:59,000 --> 00:23:01,480
Speaker 3: about the allegations by the government.

441
00:23:02,400 --> 00:23:04,800
Speaker 6: So the way that the debit card market works is

442
00:23:05,520 --> 00:23:09,639
Speaker 6: individual consumers obtain debit cards from the banks which they

443
00:23:09,640 --> 00:23:11,960
Speaker 6: have accounts, and then they can use these debit cards

444
00:23:12,000 --> 00:23:14,720
Speaker 6: to make purchases at merchants that take Visa cards, which

445
00:23:14,760 --> 00:23:17,680
Speaker 6: in the United States is as a practical matter, substantially

446
00:23:17,720 --> 00:23:23,240
Speaker 6: all retail locations and many online locations. When a merchant

447
00:23:23,280 --> 00:23:26,000
Speaker 6: accepts it the Visa card for a payment, there's a

448
00:23:26,080 --> 00:23:28,159
Speaker 6: fee that they pay to Visa for the service of

449
00:23:28,280 --> 00:23:30,800
Speaker 6: this mulitating the payment. And so if the merchant sells

450
00:23:30,800 --> 00:23:32,919
Speaker 6: something for one hundred dollars, they don't get to keep

451
00:23:32,920 --> 00:23:35,040
Speaker 6: one hundred dollars. They get, you know, less than hundred

452
00:23:35,040 --> 00:23:37,080
Speaker 6: dollars to take a fee. The comb out of the

453
00:23:37,080 --> 00:23:40,120
Speaker 6: amounts of the consumer since in their bank account through

454
00:23:40,119 --> 00:23:43,280
Speaker 6: the Visa networked the merchants for decades, is not like

455
00:23:43,320 --> 00:23:46,160
Speaker 6: the fees they wish the fees will lower. These thinks

456
00:23:46,160 --> 00:23:48,600
Speaker 6: the fees are the proper amount. The merchants are unhappy.

457
00:23:48,920 --> 00:23:51,760
Speaker 6: Often consumers are inhappy to be class action litigation. Both

458
00:23:51,800 --> 00:23:54,960
Speaker 6: consumers believe that prices would be lower if the fees

459
00:23:55,000 --> 00:23:57,360
Speaker 6: were lower. At this point's happened as the JUST Department

460
00:23:57,359 --> 00:24:01,560
Speaker 6: has entered into litigation by buying a lawsuit against Visa,

461
00:24:01,640 --> 00:24:05,440
Speaker 6: and the Just format claims that Visa has acted improperly,

462
00:24:05,920 --> 00:24:09,320
Speaker 6: violating the any Trust laws by taking steps that make

463
00:24:09,359 --> 00:24:12,199
Speaker 6: it difficult for people to compete with them. So the

464
00:24:12,240 --> 00:24:16,080
Speaker 6: things that they challenge are things like provisions in contracts

465
00:24:16,119 --> 00:24:18,680
Speaker 6: with merchants that make it difficult for competitors to get.

466
00:24:18,680 --> 00:24:21,359
Speaker 6: In provisions with other people in the industry like Apple,

467
00:24:21,600 --> 00:24:23,479
Speaker 6: they might make it difficult for other people to get.

468
00:24:23,640 --> 00:24:26,399
Speaker 6: But it's an any trust lawsuit brought by the Department

469
00:24:26,480 --> 00:24:29,199
Speaker 6: of Justice suing Visa under the any trust laws, and

470
00:24:29,400 --> 00:24:31,680
Speaker 6: the merchants are very happy about this course.

471
00:24:31,960 --> 00:24:36,679
Speaker 3: The Attorney General Merrick Garland said that this conduct affects

472
00:24:37,040 --> 00:24:39,760
Speaker 3: the price of not one thing, but the price of everything.

473
00:24:40,000 --> 00:24:42,919
Speaker 3: Do they say how much money is involved? You're like,

474
00:24:42,960 --> 00:24:45,479
Speaker 3: how much extra consumers are paying?

475
00:24:46,320 --> 00:24:49,080
Speaker 6: Well, I think reasona lines can differ on the extent

476
00:24:49,119 --> 00:24:51,960
Speaker 6: to which consumers are paying extra, because that depends on

477
00:24:52,080 --> 00:24:54,800
Speaker 6: the extent to which the prices are elevated by the

478
00:24:54,840 --> 00:24:57,280
Speaker 6: paying of the fee, and it's hard to know what

479
00:24:57,280 --> 00:25:00,880
Speaker 6: the caunterfactual is. So, from Visa's perspective, is the only

480
00:25:00,920 --> 00:25:03,480
Speaker 6: reason merchants are agreeing to take decent pay the speed

481
00:25:04,000 --> 00:25:06,720
Speaker 6: is because the costs of competing payment systems are much

482
00:25:06,800 --> 00:25:09,800
Speaker 6: higher than the fee they're charging. So if merchants instead

483
00:25:09,840 --> 00:25:12,639
Speaker 6: took cash, it'd be much more expensive for merchants to

484
00:25:12,720 --> 00:25:14,720
Speaker 6: accept cash, and it would be to accept debit cards,

485
00:25:14,720 --> 00:25:17,440
Speaker 6: the cost of keeping the cash safe and transporting into

486
00:25:17,440 --> 00:25:19,520
Speaker 6: the bank, to say nothing in the fact that many

487
00:25:19,520 --> 00:25:23,159
Speaker 6: people like me don't really carry cash, and so I

488
00:25:23,280 --> 00:25:25,359
Speaker 6: can't really buy things that stores that only took cash.

489
00:25:25,640 --> 00:25:28,200
Speaker 6: If they took personal checks, the cost of processing personal

490
00:25:28,280 --> 00:25:30,280
Speaker 6: checks dwarfs the amount of the interchange piece, so it's

491
00:25:30,280 --> 00:25:33,840
Speaker 6: hard to know what the counterfactual is. I think economists

492
00:25:33,840 --> 00:25:35,800
Speaker 6: on both sides could have started that the prices are

493
00:25:36,080 --> 00:25:38,520
Speaker 6: higher because the level of these fees, but economists would

494
00:25:38,520 --> 00:25:40,159
Speaker 6: also say that some comest so they're not And I

495
00:25:40,800 --> 00:25:43,680
Speaker 6: tend to be skeptical these fees are raising prices because

496
00:25:43,680 --> 00:25:46,640
Speaker 6: they're lower than the cost of competing payment systems by

497
00:25:46,680 --> 00:25:46,920
Speaker 6: a lot.

498
00:25:47,520 --> 00:25:51,280
Speaker 3: How important is it to the Justice Department's case that

499
00:25:52,359 --> 00:25:55,120
Speaker 3: consumers are being hurt by higher prices? I mean, if

500
00:25:55,119 --> 00:25:58,760
Speaker 3: no one's being hurt by this, someone might say, what's

501
00:25:58,760 --> 00:25:59,560
Speaker 3: the harm.

502
00:26:00,160 --> 00:26:03,520
Speaker 6: The merchants feelings as the consumers, as they do believe

503
00:26:03,600 --> 00:26:05,439
Speaker 6: that the prices are higher, and that the consumers are

504
00:26:05,480 --> 00:26:08,119
Speaker 6: being hurt. I'm just saying, as a matter of economics,

505
00:26:08,200 --> 00:26:11,040
Speaker 6: it's not easy to tell that they're being heard of

506
00:26:11,080 --> 00:26:13,720
Speaker 6: what the amount is. What I'll say in this case

507
00:26:13,880 --> 00:26:17,680
Speaker 6: is the government isn't saying, because the price is too high,

508
00:26:17,720 --> 00:26:20,120
Speaker 6: you need to lower the price. The government is saying,

509
00:26:20,480 --> 00:26:22,879
Speaker 6: you have these contracts that keep out competitors, and we

510
00:26:23,040 --> 00:26:25,440
Speaker 6: think that these competitors are in the pressure from the

511
00:26:25,480 --> 00:26:28,600
Speaker 6: competitors would force the price down. So that's somewhat different,

512
00:26:28,840 --> 00:26:32,560
Speaker 6: and so it's not as necessarily dependent on proving up

513
00:26:32,600 --> 00:26:34,680
Speaker 6: the amount by which consumers are harmed as it is

514
00:26:35,160 --> 00:26:39,000
Speaker 6: necessary to prove that these contracts every strained trade by

515
00:26:39,520 --> 00:26:41,159
Speaker 6: improperly keeping out competitors.

516
00:26:41,400 --> 00:26:44,760
Speaker 3: According to the complaint, these have viewed Apple pay as

517
00:26:44,800 --> 00:26:49,960
Speaker 3: an existential threat, and there was also PayPal and Block.

518
00:26:50,040 --> 00:26:54,359
Speaker 3: Can you explain what happened with these other companies that

519
00:26:55,080 --> 00:26:56,200
Speaker 3: Visa saw is a threat?

520
00:26:57,000 --> 00:26:59,439
Speaker 6: Well, PayPal is an needs example to see. You can

521
00:26:59,480 --> 00:27:02,280
Speaker 6: imagine a world in which PayPal would have developed as

522
00:27:02,359 --> 00:27:04,639
Speaker 6: a system where people use it without putting credit or

523
00:27:04,640 --> 00:27:07,520
Speaker 6: debit cards into it, and they kept money loaded at PayPal,

524
00:27:07,600 --> 00:27:11,280
Speaker 6: and so they could actually process payment transactions without using

525
00:27:11,320 --> 00:27:14,159
Speaker 6: a credit card or a debit card. And if they

526
00:27:14,200 --> 00:27:17,399
Speaker 6: did that, those transactions would have been transactions that went

527
00:27:17,480 --> 00:27:19,879
Speaker 6: off of Visa and MasterCards platforms somewhere else, and that

528
00:27:19,920 --> 00:27:22,280
Speaker 6: would have been really bad for them. I think historically

529
00:27:22,320 --> 00:27:24,960
Speaker 6: the way its developed, the overalling majority by size and

530
00:27:25,040 --> 00:27:28,400
Speaker 6: volume of transactions that are cleared with PayPal, the money

531
00:27:28,480 --> 00:27:31,320
Speaker 6: comes from a branded credit card debit card, and so

532
00:27:31,440 --> 00:27:33,879
Speaker 6: that hasn't happened. In theory, the same thing could have

533
00:27:33,920 --> 00:27:36,679
Speaker 6: happened with Apple Pay. I don't think at this point though,

534
00:27:36,720 --> 00:27:39,119
Speaker 6: there are any large umber transactions that are made on

535
00:27:39,160 --> 00:27:42,840
Speaker 6: Apple Pay that don't use a branded credit card or

536
00:27:42,880 --> 00:27:45,240
Speaker 6: debit card so that don't pay an interchange fee.

537
00:27:45,720 --> 00:27:50,480
Speaker 3: The complaint alleges that Visa pays Apple hundreds of millions

538
00:27:50,520 --> 00:27:54,560
Speaker 3: of dollars each year do we know what their agreement is.

539
00:27:55,640 --> 00:27:58,119
Speaker 6: I actually don't know anything about the arrangement with Apple

540
00:27:58,160 --> 00:28:01,919
Speaker 6: to discuss there, and the complaint lays it out as

541
00:28:01,960 --> 00:28:05,200
Speaker 6: if Visa has agreed that it will pay Apple money

542
00:28:05,359 --> 00:28:07,400
Speaker 6: so that Apple won't compete with it. I think it's

543
00:28:07,480 --> 00:28:09,760
Speaker 6: highly unlikely there's a contract between Visa and Apple that

544
00:28:09,880 --> 00:28:11,840
Speaker 6: says we're paying you this money so you won't compete

545
00:28:11,880 --> 00:28:14,240
Speaker 6: with us. I think Visa thinks it's paying the money

546
00:28:14,240 --> 00:28:16,080
Speaker 6: for a different reason, would be my guess.

547
00:28:16,680 --> 00:28:21,280
Speaker 3: The lawsuit is asking the court to order Visa to

548
00:28:21,480 --> 00:28:25,760
Speaker 3: stop these anti competitive practices, but it's not asking that

549
00:28:26,119 --> 00:28:27,280
Speaker 3: Visa be broken up.

550
00:28:27,920 --> 00:28:32,040
Speaker 6: It is not. It's not obvious from the outside how

551
00:28:32,200 --> 00:28:35,199
Speaker 6: you could break Visa up in irrelevant way. I mean,

552
00:28:35,240 --> 00:28:37,040
Speaker 6: you could say they can do credit cards in that

553
00:28:37,160 --> 00:28:38,920
Speaker 6: debit cards, but I mean the problem is there an

554
00:28:38,920 --> 00:28:43,160
Speaker 6: association of banks essentially that issues payment cards, and the

555
00:28:43,240 --> 00:28:46,920
Speaker 6: functional difference this decade between debit cards and credit cards

556
00:28:47,040 --> 00:28:49,080
Speaker 6: is pretty thin. It's it's just not obviously what you

557
00:28:49,120 --> 00:28:51,920
Speaker 6: would make them still off to break up the company,

558
00:28:52,120 --> 00:28:54,280
Speaker 6: but anything, I think that's not the motive litigation. The

559
00:28:54,320 --> 00:28:57,720
Speaker 6: motive litigation I think is actually pretty smart because I

560
00:28:57,720 --> 00:29:00,600
Speaker 6: think if they were saying, your practicing very process, we

561
00:29:00,720 --> 00:29:03,240
Speaker 6: want you to lower interchange rates by fifty percent, I

562
00:29:03,360 --> 00:29:05,800
Speaker 6: think that would be a case that Visa just couldn't settle.

563
00:29:06,240 --> 00:29:08,000
Speaker 6: It would be impossible Visa sell in the case it

564
00:29:08,080 --> 00:29:09,920
Speaker 6: has to go to trial, and just because they just

565
00:29:09,920 --> 00:29:13,200
Speaker 6: couldn't be inflexibility about that. The case that says we

566
00:29:13,360 --> 00:29:15,280
Speaker 6: want you to change to Visit your contracts. So I

567
00:29:15,360 --> 00:29:18,560
Speaker 6: can imagine them getting some relief that Visa could agree

568
00:29:18,600 --> 00:29:21,400
Speaker 6: to voluntarily and Visa might change them to the contracts

569
00:29:21,520 --> 00:29:23,800
Speaker 6: rather than have a trial. I mean, I mean, that's

570
00:29:23,840 --> 00:29:26,520
Speaker 6: a lawsuit that could go somewhere, I think successfully, as

571
00:29:26,560 --> 00:29:28,240
Speaker 6: compared to one just trying to lower the price.

572
00:29:29,120 --> 00:29:34,560
Speaker 3: So Visa's general counsel Julie Rottenberg said the lawsuit ignores

573
00:29:34,600 --> 00:29:37,920
Speaker 3: the reality that Visa is just one of many competitors

574
00:29:38,160 --> 00:29:41,760
Speaker 3: in a debit space that is growing with entrants who

575
00:29:41,840 --> 00:29:45,920
Speaker 3: are thriving. Is it the debit space growing It seems

576
00:29:45,960 --> 00:29:46,160
Speaker 3: to be.

577
00:29:46,400 --> 00:29:49,080
Speaker 6: But I haven't looked at the day of the last

578
00:29:49,160 --> 00:29:52,600
Speaker 6: year or so, but the share of payment transactions that

579
00:29:52,760 --> 00:29:55,960
Speaker 6: use debit cards as opposed to other payment devices, it's

580
00:29:56,040 --> 00:29:58,280
Speaker 6: much harder now than it was twenty years ago, in

581
00:29:58,400 --> 00:30:00,800
Speaker 6: part because people that are younger, we're more likely to

582
00:30:00,840 --> 00:30:02,640
Speaker 6: pay with debit cards, and people that are older more

583
00:30:02,760 --> 00:30:05,440
Speaker 6: likely to pay with credit cards. So the debit cards

584
00:30:05,480 --> 00:30:09,160
Speaker 6: share is growing now. I think from Visa's perspectives, the

585
00:30:09,240 --> 00:30:16,160
Speaker 6: competition is between Visa, MasterCard, Discover, and offshore issues like

586
00:30:16,600 --> 00:30:18,760
Speaker 6: Union paying jay Shub, and there's probably some other ones

587
00:30:18,800 --> 00:30:23,040
Speaker 6: that I'm not directly familiar with. From the just farmer's perspective,

588
00:30:23,280 --> 00:30:25,880
Speaker 6: the competition is between Visa because they're the largest debit

589
00:30:25,920 --> 00:30:30,160
Speaker 6: card person and these what you might call fintech companies

590
00:30:30,200 --> 00:30:33,560
Speaker 6: that aren't really card networks, that are providing some kind

591
00:30:33,600 --> 00:30:36,080
Speaker 6: of services trying to get around the card network, like

592
00:30:36,240 --> 00:30:39,000
Speaker 6: Square and Flat and these kinds of things. It's just

593
00:30:39,880 --> 00:30:42,200
Speaker 6: a different perspective on what the middle of the competition is.

594
00:30:42,360 --> 00:30:46,280
Speaker 6: I mean, Visa clearly has competitors that they are, you know,

595
00:30:46,800 --> 00:30:52,239
Speaker 6: in a next throttling battle with MasterCard and Discover. I mean,

596
00:30:52,880 --> 00:30:54,520
Speaker 6: and you might say they're winning. May mean are those

597
00:30:54,560 --> 00:30:56,560
Speaker 6: are large payment networks?

598
00:30:56,640 --> 00:30:56,720
Speaker 4: Mean?

599
00:30:56,840 --> 00:31:00,240
Speaker 6: I say, to competing against each other robustly. That's not

600
00:31:00,320 --> 00:31:01,240
Speaker 6: what this solicit is about.

601
00:31:01,240 --> 00:31:05,720
Speaker 3: Though, the Justice Department's Anti Trust Division has been bringing

602
00:31:06,080 --> 00:31:09,920
Speaker 3: case after case after case, and it's also been targeting

603
00:31:10,520 --> 00:31:14,560
Speaker 3: middlemen that take a kind of transaction fees like the

604
00:31:15,040 --> 00:31:19,479
Speaker 3: Live Nation suit and part of the case against Apple.

605
00:31:20,120 --> 00:31:22,320
Speaker 3: Is this a new road for the Justice Department?

606
00:31:22,880 --> 00:31:25,200
Speaker 6: I would say that any trust division is not much

607
00:31:25,280 --> 00:31:28,880
Speaker 6: more active under this administration that wasn't in the least administration.

608
00:31:29,160 --> 00:31:32,560
Speaker 6: I mean there's a different assistant ry Jaler used to be,

609
00:31:32,640 --> 00:31:35,240
Speaker 6: and I think that they're more active. I think they

610
00:31:35,320 --> 00:31:37,560
Speaker 6: have a focus on that. I think part is a

611
00:31:37,640 --> 00:31:39,360
Speaker 6: matter of just kind of updating the kinds of people

612
00:31:39,400 --> 00:31:42,200
Speaker 6: that you sue. If you're looking at the modern economy,

613
00:31:43,120 --> 00:31:44,840
Speaker 6: that's what a lot of the biggest people do, is

614
00:31:44,920 --> 00:31:48,080
Speaker 6: they facilitate transactions. Why get into the middle of transactions

615
00:31:48,120 --> 00:31:51,760
Speaker 6: and making it cheaper for one person to get together

616
00:31:51,800 --> 00:31:54,040
Speaker 6: another person in the charge fees for that. It's very

617
00:31:54,120 --> 00:31:58,680
Speaker 6: difficult to know exactly how think any trust laws should

618
00:31:58,680 --> 00:32:03,200
Speaker 6: apply to those relationships. Mean, when I went to law school,

619
00:32:03,440 --> 00:32:07,240
Speaker 6: those kinds of companies didn't really exist, and there aren't

620
00:32:07,280 --> 00:32:10,960
Speaker 6: any Supreme Court cases that really actually tell you exactly

621
00:32:11,000 --> 00:32:13,720
Speaker 6: how to think about it. So I think there's some

622
00:32:13,800 --> 00:32:15,520
Speaker 6: want to be made on exactly what to think about

623
00:32:15,520 --> 00:32:18,200
Speaker 6: those companies and they're a big part of the economy.

624
00:32:18,280 --> 00:32:20,200
Speaker 6: They decided they're going to try and make some of it,

625
00:32:21,240 --> 00:32:22,720
Speaker 6: and some of that they would like to make is

626
00:32:22,760 --> 00:32:25,360
Speaker 6: going to make it harder for those companies to have

627
00:32:25,440 --> 00:32:28,840
Speaker 6: a free handed design in the way their platforms work.

628
00:32:29,800 --> 00:32:34,200
Speaker 3: Last month, a federal judge found that Google violated antitrust laws.

629
00:32:34,760 --> 00:32:38,680
Speaker 3: Do any of the findings in that case apply to

630
00:32:39,080 --> 00:32:39,600
Speaker 3: this case.

631
00:32:40,280 --> 00:32:42,560
Speaker 6: It's not obvious to me that it does. I think

632
00:32:42,640 --> 00:32:47,080
Speaker 6: the relevance of that case really it's more performative. It's

633
00:32:47,760 --> 00:32:52,160
Speaker 6: the just Department showed that they have the stamina to

634
00:32:52,280 --> 00:32:56,360
Speaker 6: take one of these big companies to trial and do

635
00:32:56,480 --> 00:32:58,920
Speaker 6: such a good job at trial that they win. I mean,

636
00:32:59,200 --> 00:33:02,800
Speaker 6: Google has highly paid, highly experienced, highly skilled counsel, and

637
00:33:02,800 --> 00:33:05,800
Speaker 6: they didn't win, and the Justice Department waged them out

638
00:33:05,920 --> 00:33:07,840
Speaker 6: and won that case. And I think that's sort of

639
00:33:07,880 --> 00:33:11,600
Speaker 6: a warning of Visa and Visa can't just assume we'll

640
00:33:11,640 --> 00:33:14,440
Speaker 6: take this to trial and the government will lose patience

641
00:33:14,520 --> 00:33:16,760
Speaker 6: or the governments flawyers won't be very good. The people

642
00:33:16,760 --> 00:33:19,080
Speaker 6: who work in any trust vision who do these cases

643
00:33:19,400 --> 00:33:22,840
Speaker 6: are highly skilled and know what they're doing, as evidenced

644
00:33:22,840 --> 00:33:24,280
Speaker 6: by winning the Google case. I mean, I think that's

645
00:33:24,320 --> 00:33:27,280
Speaker 6: the significant case really, is that this is not twenty

646
00:33:27,360 --> 00:33:29,520
Speaker 6: years ago when the Just Department could just get more

647
00:33:29,560 --> 00:33:32,640
Speaker 6: easily outlawyered by skilled private any trust lawyers.

648
00:33:33,360 --> 00:33:37,960
Speaker 3: Between the Justice Department and the FTC, there are so

649
00:33:38,320 --> 00:33:41,600
Speaker 3: many anti trust cases. Thanks so much for being on

650
00:33:41,720 --> 00:33:45,360
Speaker 3: this show. That's Professor runold Man of Columbia Law School.

651
00:33:46,200 --> 00:33:48,800
Speaker 3: And that's it for this edition of the Bloomberg Law Podcast.

652
00:33:49,200 --> 00:33:51,560
Speaker 3: Remember you can always get the latest legal news by

653
00:33:51,640 --> 00:33:55,400
Speaker 3: subscribing and listening to the show on Apple Podcasts, Spotify,

654
00:33:55,720 --> 00:33:59,560
Speaker 3: and at Bloomberg dot com, slash podcast, slash Law. I'm

655
00:33:59,640 --> 00:34:02,080
Speaker 3: June also, and this is Bloomberg