Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 2: Today, we are announcing campaign finance, bribery and conspiracy charges
Speaker 2: against Eric Adams, the mayor of New York City. As
Speaker 2: the indictment alleges Mayor Adams engaged in a long running
Speaker 2: conspiracy in which he solicited and knowingly accepted illegal campaign
Speaker 2: contributions from foreign donors and corporations. As we allege Mayor
Speaker 2: Adams took these contributions even though he knew they were illegal.
Speaker 3: Manhattan US Attorney Damian Williams announced the first federal charges
Speaker 3: ever against a sitting mayor of New York City. The
Speaker 3: indictment charges Eric Adams with engaging in years of sustained
Speaker 3: corruption and accepting more than one hundred thousand dollars in
Speaker 3: lavish bribes from foreign nationals. Williams said that Adams repeatedly
Speaker 3: crossed bright red lines, leading to the charges of bribery, conspiracy,
Speaker 3: and breaking campaign finance laws.
Speaker 2: The conduct alleged in the indictment, the foreign money, the
Speaker 2: corporate money, the bribery, the years of concealment, is a
Speaker 2: grave breach of the public's trust.
Speaker 1: Public office is a privilege.
Speaker 2: We allege that Mayor Adams abused that privilege and broke
Speaker 2: the law flaws that are designed to ensure that officials
Speaker 2: like him serve the people, not the highest bidder, not
Speaker 2: a foreign bidder, and certainly not a foreign power.
Speaker 1: These are bright red lines, and we.
Speaker 2: Allege that the Mayor crossed them again and again for years.
Speaker 1: That is the only reason we are here today.
Speaker 3: Adams denied wrongdoing and struck a defiant tone in a
Speaker 3: press conference, vowing to remain in office.
Speaker 4: My day to day will not change. I will continue
Speaker 4: to do the job for eight point three million New
Speaker 4: Yorkers that I was elected to do.
Speaker 3: Joining me is Richard purflt. A professor at Columbia Law School.
Speaker 3: Rich this was a really detailed indictment. What struck you most?
Speaker 5: Good question? I think the level of fact that the
Speaker 5: government has put in the indictment means that at least
Speaker 5: some of the counts there are five counts, my sense
Speaker 5: is that at least four of them are pretty straightforward,
Speaker 5: and if the government is able to prove in court
Speaker 5: the facts that they're alleging in the indictment, it would
Speaker 5: be very hard to defend against them.
Speaker 3: What are the four that seemed straightforward.
Speaker 5: So they are the two that are about foreign campaign contributions,
Speaker 5: and that's one for the twenty twenty one campaign and
Speaker 5: one for the twenty twenty five campaign. That is flat
Speaker 5: out illegal. I mean in fact when you actually get
Speaker 5: to the count I mean, obviously there's a long factual backdrop,
Speaker 5: but those counts are like two paragraphs long. It's extremely
Speaker 5: shortened to the point. And if they can show that
Speaker 5: he kind of intentionally and with his team his associates
Speaker 5: worked with foreign donors knowing they were foreign donors to
Speaker 5: get them to contribute to his campaign, that's pretty close
Speaker 5: to open and shut if the facts prove out. And
Speaker 5: the other the other two that are pretty close those
Speaker 5: two just served very powerful is the federal funds ribery ones,
Speaker 5: which is the ones that basically charge him with kind
Speaker 5: of bilking the New York City Matching Funds program through
Speaker 5: various ways, again getting the foreign donations, but also other
Speaker 5: donations where they broke them down and then persuaded the
Speaker 5: donors to use straw donors so that larger donations were
Speaker 5: funneled through smaller donors so that they were matchable under
Speaker 5: the New York City Matching Funds program. That also is again,
Speaker 5: if they can prove that, that does seem like a
Speaker 5: straightforward effort on the part of the mayor to the
Speaker 5: City of New York. And you know that's what the
Speaker 5: federal funds bribery thing is. You know, is he in
Speaker 5: effect using this for his own benefit?
Speaker 3: Since this is an indictment of the first indictment of
Speaker 3: a New York City mayor on federal charges, and you
Speaker 3: know that this has been cleared all the way to
Speaker 3: the top of the Justice Department. I mean, are you
Speaker 3: pretty confident that they have the evidence to back up
Speaker 3: what they allege?
Speaker 5: No? I mean, I don't know enough, but certainly the
Speaker 5: indictment is very, very detailed, So they certainly have laid
Speaker 5: out a set of facts that if they can prove them,
Speaker 5: you know, are pretty strong. They've laid out a lot
Speaker 5: of facts. There are no gold bars in this one
Speaker 5: like Menendez, but they've laid out a lot and a
Speaker 5: lot of detail.
Speaker 3: So the US Attorney a big focus of his press
Speaker 3: conference was that Adams accepted luxury travel. And they had
Speaker 3: a poster board.
Speaker 5: Right showing pictures of the fancy hotels and.
Speaker 3: Things, right and showing the undisclosed travel benefits which are
Speaker 3: also listed. It was almost a duplicate of what's in
Speaker 3: the indictment. Is that because it catches the public's eye
Speaker 3: or is that a very important part of this.
Speaker 5: I'm sure they use of the photographs are designed to
Speaker 5: catch the public eye, just like in the Menendez case
Speaker 5: when they were showing off the gold bars or pictures
Speaker 5: of the gold bars. Obviously it's playing them the court
Speaker 5: of public opinion. All was on the court of law.
Speaker 5: It's not clear that having pictures of fancy hotel rooms
Speaker 5: in istan bulas that the pictures of the fancy hotel
Speaker 5: rooms are crucial. The fact that the rooms were renting
Speaker 5: for a certain rate and night that he wasn't paying.
Speaker 5: That's actually enough.
Speaker 3: And it might be surprising to many that this goes
Speaker 3: back nearly ten years. I mean they went to the
Speaker 3: time before.
Speaker 5: He was mayor, right, well, I mean his initial interactions
Speaker 5: with the Turkish representatives go back to time he's borough president.
Speaker 5: Of course, he was beginning to organize his campaign to
Speaker 5: become mayor, so a lot of the fundraising, you know,
Speaker 5: goes back two years before the election. But he knew
Speaker 5: he was running and he was borough president, so he
Speaker 5: did have an official position and had some prestige that's
Speaker 5: connected to that. Some official powers, powers that borrow president
Speaker 5: are not great. But you know, the one official thing
Speaker 5: that he's accused of doing is actually kind of borderline
Speaker 5: because it's pressuring the Fire Department to accelerate the approval
Speaker 5: of the opening of the new Turkish building. He actually
Speaker 5: wasn't mayor yet and he had no formal power over
Speaker 5: the Fire department. On the other hand, and he was
Speaker 5: just in the process of winning the election, and he
Speaker 5: was a city official, and the looral presidents have some
Speaker 5: role in city government. But I think in some sense there,
Speaker 5: I think the issues goes more to the fact that
Speaker 5: at that point he was on the verge of becoming mayor,
Speaker 5: So you know, at that point he didn't have any
Speaker 5: formal leverage over the Fire Department, but he would soon.
Speaker 3: Williams also spoke about how Adams failed to disclose this
Speaker 3: free and discounted travel. Where does that fit in.
Speaker 5: That's a good question, because I think a lot of
Speaker 5: what they described in course are violations of New York
Speaker 5: City conflict of interest law, which is not a violation
Speaker 5: of federal law. I mean, the failure to disclose all
Speaker 5: of these things violated city law. They're giving that as
Speaker 5: all background, but they're not charging him per se for
Speaker 5: not disclosing, because that's not a federal violation. I think
Speaker 5: it goes to the idea that he was hiding it,
Speaker 5: that he knew that he was getting these benefits, and
Speaker 5: that there was something improper about the benefits that he
Speaker 5: was getting, and that he was getting them in order
Speaker 5: to subsequently influences official actions. So to me, it's more
Speaker 5: a sense of maybe guilty conscience, but that he was
Speaker 5: covering his tracks. Because even receiving benefits from these Turkish
Speaker 5: interests don't necessarily violate federal law. They might have violate
Speaker 5: at New York City conflicts law, but it was ultimately
Speaker 5: the connection between getting the benefits and then using them
Speaker 5: either for his own personal benefit or to get people
Speaker 5: to support his campaign. That's where I think the connection
Speaker 5: comes in. There's not a federal crime to violate New
Speaker 5: York City conflicts laws, but I think they were using
Speaker 5: it to show that this is part of a broader
Speaker 5: scheme to get money from these Turkish interests, either just
Speaker 5: support his campaign and or in exchange for him ultimately
Speaker 5: doing them favors official favors.
Speaker 3: There's also allegations that he created a fake paper trail
Speaker 3: to suggest that he had paid for this. It's the
Speaker 3: cover up, of.
Speaker 5: Course, the idea that it wasn't just sloppy, it wasn't
Speaker 5: just unintentional, that this was all part of a conscious plan.
Speaker 3: The business is circumventing the city's ban on corporate contributions.
Speaker 3: How has that been to a federal.
Speaker 5: Again, so I think part of this idea that he
Speaker 5: was using the wires, because they says all technically wire
Speaker 5: fraud to defraud New York City. Because again he was
Speaker 5: taking those corporate contributions, turning them into individual contributions and
Speaker 5: matching them. So in effect, this was again part of
Speaker 5: a scheme to use the wires to defraud New York City.
Speaker 5: And New York City received federal funds. That's why it's
Speaker 5: federal program bribery aten US Code six sixty six. I mean,
Speaker 5: the foreign donations are clearly illegal under federal law. The
Speaker 5: domestic corporate ones, no. But what they're saying is that
Speaker 5: he was engaged in a scheme to defraud New York City.
Speaker 5: Because it's not so much that he got the donations,
Speaker 5: as he was leveraging the donations to get matching fund money,
Speaker 5: and that's taxpayer dollars.
Speaker 3: They mentioned a lot of techs. Most of the texts, though,
Speaker 3: that are long and outlined, are with a businessman, a
Speaker 3: Turkish official, a staffer, not Adams himself. There are a
Speaker 3: few references to Addam, but it's mostly other people and.
Speaker 5: Right, they're going to have to show that he was
Speaker 5: part of this, that his staff was doing it on
Speaker 5: his behalf, and that he knew what they were doing.
Speaker 3: So the indictment doesn't name names, but there's an unnamed
Speaker 3: Adam's staffer, and airline manager and several businessmen. Do you
Speaker 3: think they're already cooperating with prosecutors.
Speaker 5: I can't speak to that. I mean they've obviously interviewed
Speaker 5: them and gotten this information from them. Whether they have
Speaker 5: arrangements with them or not, I don't know, but they
Speaker 5: wouldn't be going forward and I think unless they felt
Speaker 5: they had the evidence that they could bring it to court.
Speaker 3: Do you see any defenses?
Speaker 5: I didn't know, you know one of the I didn't know.
Speaker 5: I mean that somewhere along the lines that where you
Speaker 5: were just hinting, which is these are my staff. I
Speaker 5: didn't know what they were doing. It's hard to say
Speaker 5: I didn't know this was illegal, and it could be
Speaker 5: a I didn't know this was happening, And certainly I
Speaker 5: think it's probably the strongest defenses if they're already would
Speaker 5: be in some sense that taking all of these Turkish
Speaker 5: benefits really, you know, didn't violate the federal law. The
Speaker 5: government isn't going to have to link up of all
Speaker 5: the benefits he got to the fact that he took
Speaker 5: them knowing they were intending to influence him in official actions.
Speaker 5: That's the bribery standard, that he knew that he was
Speaker 5: being influenced, that he took them knowing they were intended
Speaker 5: to influence his official actions. That may be frankly, that
Speaker 5: may be a challenge for the last count. I haven't
Speaker 5: really spoken about the last count until now. And that's
Speaker 5: the straightforward bribery that he took these things. He took
Speaker 5: all these benefits in exchange for basically pressuring the fire
Speaker 5: department to accelerate the approval of that building. The challenge
Speaker 5: there is that he was taking benefits for years and
Speaker 5: years before, so I think the government is going to
Speaker 5: have to kind of link up all of the free
Speaker 5: travel and the free hotel rooms that he got and
Speaker 5: connect that to the fact that he then did this
Speaker 5: favor for the Turkish government.
Speaker 3: Yeah, that's what struck me is that it just seemed
Speaker 3: like there was one thing that he did after he'd
Speaker 3: been you know, graegidly taking these trips, etc.
Speaker 5: That's going to be the hardest count because you've got
Speaker 5: the quid and you've got the quote, but do you
Speaker 5: have the pro you have the linkage, Whereas I think
Speaker 5: the easiest counts for the foreign funds because to me,
Speaker 5: if they made the payments and he knew about it
Speaker 5: or was involved in making that happen, that's all you
Speaker 5: need to show for the foreign funds, and for the
Speaker 5: matching funds, it's pretty close. If he knew him he
Speaker 5: was directing his team to work with these donors to
Speaker 5: break up their donations into smaller ones and funnel them
Speaker 5: through employees so that they were all matchable. That's also,
Speaker 5: you know, a violation of the city law. It connects
Speaker 5: up with the federal law that makes it a crime
Speaker 5: basically to defraud a government that's receiving federal funds.
Speaker 3: Coming up next, I'll continue this conversation with Columbia Law
Speaker 3: school professor Richard Brefalt, could Adams be removed from his
Speaker 3: position as Mayor of New York. I'm June Grosso and
Speaker 3: you're listening to Bloomberg. Manhattan. US Attorney Damian Williams announced
Speaker 3: the first criminal charges ever filed against a citty of
Speaker 3: New York. Today, Eric Adams was indicted on charges of bribery, conspiracy,
Speaker 3: and breaking campaign finance laws, and Williams promised, or rather warned,
Speaker 3: there's more to come.
Speaker 1: This investigation continues.
Speaker 2: We continue to dig and we will hold more people accountable,
Speaker 2: and I encourage anyone with information.
Speaker 1: To come forward and to do so before it is
Speaker 1: too late.
Speaker 3: The charges were made public hours after FBI agents entered
Speaker 3: the mayor's official residence, Gracie Mansion, and seized his phone
Speaker 3: and electronic devices. It caps an extraordinary few weeks in
Speaker 3: New York City that have seen a drumbeat of raids, subpoenas,
Speaker 3: and high level resignations of members of Adam's inner circle.
Speaker 3: Adams said the indictment didn't come as a surprise.
Speaker 4: The actions that have unfolded over the last ten months. Yeah,
Speaker 4: the leaks, the commentary, the demonizes, This did not surprise
Speaker 4: us that we reached this day.
Speaker 3: The mayor vowed to stay in office. I've been talking
Speaker 3: to Richard Brfalt, a professor of Columbia Law School. Rich
Speaker 3: the Supreme Court has been narrowing the scope of anti
Speaker 3: corruption laws for more than a decade.
Speaker 5: Yeah, I mean, I think that's a legitimate point. So
Speaker 5: one thing, those will not affect the foreign campaign contributions, Well,
Speaker 5: I think those are the ones that's going to be
Speaker 5: the hardest term to fight. That should not affect the
Speaker 5: foreign campaign contributions. For the others, they do require either
Speaker 5: the showing of an official action. And you know, that's
Speaker 5: the question of whether or not pressuring the fire department
Speaker 5: was an official action. It may be in that it
Speaker 5: was trying to affect a government decision and he was
Speaker 5: making phone calls or whatever he was doing to do that,
Speaker 5: but that's going to be the issue. The issue there
Speaker 5: will be did he take an official action and was
Speaker 5: it sufficially tightly linked up to the benefits he received.
Speaker 5: That one, I think is going to be tricky. And
Speaker 5: even the first one about the scheming to get the
Speaker 5: matching funds again is going to have to show that
Speaker 5: he was kind of showing that he would be influence
Speaker 5: in some way by these supportive people, So that's what
Speaker 5: I'm saying. I think the most straightforward is the accepting
Speaker 5: of foreign funds. First campaign, the foreign campaign contributions.
Speaker 3: Is that against campaign finance laws?
Speaker 5: Yes, yes, absolutely. The federal ban on foreign campaign contributions
Speaker 5: applies to federal, state and local elections.
Speaker 3: And I think it was on the last day of
Speaker 3: the term that the Supreme Court came down with that
Speaker 3: controversial opinion six to three, with the conservatives of course
Speaker 3: and the majority basically finding that the federal law that
Speaker 3: prescribes bribes to state and local officials doesn't make it
Speaker 3: a crime for those officials to accept gratuities for their
Speaker 3: past acts.
Speaker 5: Snider, yes, so on about right illegal gratuities, but that
Speaker 5: he hadn't been charged with taking a bribe, so that's
Speaker 5: not the same thing. They are charging bribery here. The
Speaker 5: problem in that case is the way the government framed
Speaker 5: what the man did is first he did the favors
Speaker 5: for of the private companies, and then he went to
Speaker 5: them and said, you know, give me a no show
Speaker 5: job or something like that. The government didn't charge bribery.
Speaker 5: The government basically charged accepting an illegal gift. Here they're
Speaker 5: charging bribery.
Speaker 3: And I'm wondering if the fact that they in the
Speaker 3: indictment keep repeating that he solicited it, you know, Adam solicited,
Speaker 3: whether that's just to be sure that they don't end
Speaker 3: up with a Snyder situation.
Speaker 5: Right, the language is corruptly solicit anything of value.
Speaker 3: You never know what the Supreme Court would do. He
Speaker 3: could get convicted below and the Supreme Court could say.
Speaker 5: Wait a second, yeah, And the Supreme Court has rejected
Speaker 5: many many corruption convictions.
Speaker 3: Is there a reason why?
Speaker 5: It's hard to say? I mean, one argument is the
Speaker 5: Supreme Court. These are all involved state and localists, and
Speaker 5: maybe the Supreme Court is a little nervous about federalizing
Speaker 5: the state and local misconduct. Maybe they think it should
Speaker 5: be better handled by local DA's. I don't know. And
Speaker 5: sometimes there's sort of a First Amendment element that which
Speaker 5: I think is pretty thin about. You know, people are
Speaker 5: trying to influence government all the time, and we don't
Speaker 5: want to make it a crime to try and to
Speaker 5: be a lobbyist, for example. But I think a lot
Speaker 5: of the concerns of federalism concerned and almost all those
Speaker 5: cases have involved the Snyder case involved a small city, Indiana.
Speaker 5: I mean McDonald, he's a governor, you know, Kelly was
Speaker 5: port authority, the Buffalo billions or state officials one of them.
Speaker 5: One of the early cases did involve a pecharive agriculture.
Speaker 5: So it's not like they're they're always going to support
Speaker 5: the federal and addictments of federal officials, but most of
Speaker 5: the cases have involved state and local officials.
Speaker 3: Now he vows he's going to continue in his role
Speaker 3: as mayor, right, explain how he could be removed?
Speaker 5: Okay, Well, so obviously the metre of factive indictment doesn't
Speaker 5: mean anything in terms of his eligibly to hold office.
Speaker 5: I actually have to don't know what happens if he's convicted.
Speaker 5: So let's hold off on that. The city law city
Speaker 5: charter does not have any provision for impeachment. It does
Speaker 5: have a provision for removal of the mayor for either
Speaker 5: temporary inability or permanent inability, but it creates a committee
Speaker 5: on Inability that does this. That committee is supposed to
Speaker 5: have five members, actually right now it only has four
Speaker 5: if there's a vacancy and when the positions the Corporation
Speaker 5: Council and require the votes of four out of the five.
Speaker 5: Are now require four out of the four. One of
Speaker 5: them is a deputy mayor, who is, of course an
Speaker 5: appointee of the mayor. At the moment, I'm skeptical that
Speaker 5: the deputy mayor who is his appointee, and I think
Speaker 5: the deputy may is Sheena Wright, who is also connected
Speaker 5: with some of these other scandals, would actually be part
Speaker 5: of a group that would vote to declare him unable
Speaker 5: to continue in office. There's no impeachment. There is this
Speaker 5: procedure to have the mayor declared unable, either temporarily or permanently.
Speaker 5: But the first step in the process requires the action
Speaker 5: by this committee, and the way the committee is set
Speaker 5: up that would currently require the agreement of the deputy mayor.
Speaker 3: I've been reading that the governor could remove him.
Speaker 5: The governor can remove him. The governor has authority under
Speaker 5: state law to remove the mayor, and I think Sdr
Speaker 5: when he was governor, came very close to removing Mayor Walker,
Speaker 5: who resigned while he was subject to the procedure for removal.
Speaker 5: The state law says very little about the grounds for removal.
Speaker 5: It gives a little bit more on the process. The
Speaker 5: kinds of the little bit of due process that the
Speaker 5: governor would have to afford the mayor in terms of
Speaker 5: being able to you know, the charges against him and
Speaker 5: being able to present a defense. But yes, state law
Speaker 5: most definitely, very vaguely, but definitely does authorize the governor
Speaker 5: to remove the mayor.
Speaker 3: Who would be the next mayor? Is it the barble?
Speaker 5: I think then it we'd go back to the New
Speaker 5: York City Charter for filling vacancies, so then it would
Speaker 5: become again the public advocate.
Speaker 3: Is there any case in history that compares with this
Speaker 3: or they say that no New York City mayor has
Speaker 3: been into on federal charges. I don't know if there
Speaker 3: was any mayor that's been indicted on SI.
Speaker 5: I don't know that they were ever indicted, and I
Speaker 5: you know, my sense is, of course, thinking about Greater
Speaker 5: New York, Greater New York only goes back to eighteen
Speaker 5: ninety eight, so I'm I'm not quite sure in the
Speaker 5: Tammany era whether anybody was ever indicted. But there were
Speaker 5: some scandals involving mayors. I mean, obviously I mentioned Mayor Walker,
Speaker 5: and then there's also Mayor O'Dwyer who resigned from office.
Speaker 5: And I'm not quite sure to what extent they grew
Speaker 5: out of a kind of a police corruption scandal or
Speaker 5: around nineteen fifty and I think there were hints of
Speaker 5: some corruption, but he was never charged with anything. I
Speaker 5: think even in the Tammany era, a lot of the
Speaker 5: corruption was all around the mayors, but I'm not sure
Speaker 5: of any of the mayor's.
Speaker 3: William said there's more to come. I mean, federal investigators
Speaker 3: have been pursuing several corruption investigations involving Adams, his senior
Speaker 3: aides and some of their relatives. And in the last
Speaker 3: two weeks alone, the police commission and the school's chancellor
Speaker 3: have resigned. Neither has been charged with a crime or
Speaker 3: even publicly accused of wrongdoing, right, And.
Speaker 5: You know, based on the news so far only, it's
Speaker 5: not clear how those really, if at all, to these
Speaker 5: The police commissioner who resigned, it sounds like he was
Speaker 5: caught up in some misconduct involving his brother, some kind
Speaker 5: of corruption, so I don't know if that relates to this.
Speaker 5: I have no idea what was what was going on
Speaker 5: with the school's chancellor, but the bank's brothers, I think,
Speaker 5: based on the media accounts, the issues I think more
Speaker 5: involved the one of the bank's brothers who wasn't in government,
Speaker 5: But I don't know about the ties of the ones
Speaker 5: who were in government.
Speaker 3: With the mayor under indictment and all these investigations and
Speaker 3: city officials resigning, how is he going to run a
Speaker 3: challenging city like New York.
Speaker 5: I mean the challenge is really there's the time distraction,
Speaker 5: and he's got to spend time on his legal defense.
Speaker 5: And I think also, you know, how effective can he
Speaker 5: be in kind of dealing with people and either making
Speaker 5: promises about things he can do or making threats against
Speaker 5: people who don't go along with him when he wants
Speaker 5: to adopt certain policies or propose certain laws, And you know,
Speaker 5: I just think he's likely to be less effective. I mean,
Speaker 5: it's true that much of the day to day of
Speaker 5: New York City will keep going. You know, there are
Speaker 5: many commissioners who have jobs to do, and they'll be
Speaker 5: doing their jobs. And obviously the vast majority of New
Speaker 5: York City public employees are going to continue to do
Speaker 5: whatever they do. But I do think you know, whether
Speaker 5: it's for can neew initiatives or even you know, at
Speaker 5: some point they've got to make a budget for the
Speaker 5: next year. We have a budget for this year, but
Speaker 5: some point they'll be a budget for next year. You know,
Speaker 5: at some point it's going to interfere with the ability
Speaker 5: to move the city forward.
Speaker 3: It's really a terrible day for the City of New York,
Speaker 3: no matter which way you look at it. And Adams
Speaker 3: will be in court tomorrow to be arraigned on corruption charges.
Speaker 3: Thanks so much, Rich for your insights. That's Columbia law
Speaker 3: professor Richard Ruffault coming up next on the Bloomberg Law Show.
Speaker 3: The Biden administration is turning its anti trust attention to
Speaker 3: the financial services industry, suing Visa. I'm June Grosso and
Speaker 3: you're listening to Bloomberg. The Biden administration is turning its
Speaker 3: attention to the financial services industry with its latest anti
Speaker 3: trust suit. The Justice Department sued Visa on Tuesday, alleging
Speaker 3: the global payments giant illegally monopolized the debit card market.
Speaker 3: Antitrust enforcers alleged that Visa, which handles more than sixty
Speaker 3: percent of the more than four trillion dollars in US
Speaker 3: debit transactions each year, entered into a series of agreements
Speaker 3: penalizing merchants who sought to use alternatives and paid potential
Speaker 3: rivals to stay out of the market. Joining me is
Speaker 3: Ronald Mann, a professor Columbia Law School, explain the charges
Speaker 3: against Visa. It's about the debit card market. Tell us
Speaker 3: about the allegations by the government.
Speaker 6: So the way that the debit card market works is
Speaker 6: individual consumers obtain debit cards from the banks which they
Speaker 6: have accounts, and then they can use these debit cards
Speaker 6: to make purchases at merchants that take Visa cards, which
Speaker 6: in the United States is as a practical matter, substantially
Speaker 6: all retail locations and many online locations. When a merchant
Speaker 6: accepts it the Visa card for a payment, there's a
Speaker 6: fee that they pay to Visa for the service of
Speaker 6: this mulitating the payment. And so if the merchant sells
Speaker 6: something for one hundred dollars, they don't get to keep
Speaker 6: one hundred dollars. They get, you know, less than hundred
Speaker 6: dollars to take a fee. The comb out of the
Speaker 6: amounts of the consumer since in their bank account through
Speaker 6: the Visa networked the merchants for decades, is not like
Speaker 6: the fees they wish the fees will lower. These thinks
Speaker 6: the fees are the proper amount. The merchants are unhappy.
Speaker 6: Often consumers are inhappy to be class action litigation. Both
Speaker 6: consumers believe that prices would be lower if the fees
Speaker 6: were lower. At this point's happened as the JUST Department
Speaker 6: has entered into litigation by buying a lawsuit against Visa,
Speaker 6: and the Just format claims that Visa has acted improperly,
Speaker 6: violating the any Trust laws by taking steps that make
Speaker 6: it difficult for people to compete with them. So the
Speaker 6: things that they challenge are things like provisions in contracts
Speaker 6: with merchants that make it difficult for competitors to get.
Speaker 6: In provisions with other people in the industry like Apple,
Speaker 6: they might make it difficult for other people to get.
Speaker 6: But it's an any trust lawsuit brought by the Department
Speaker 6: of Justice suing Visa under the any trust laws, and
Speaker 6: the merchants are very happy about this course.
Speaker 3: The Attorney General Merrick Garland said that this conduct affects
Speaker 3: the price of not one thing, but the price of everything.
Speaker 3: Do they say how much money is involved? You're like,
Speaker 3: how much extra consumers are paying?
Speaker 6: Well, I think reasona lines can differ on the extent
Speaker 6: to which consumers are paying extra, because that depends on
Speaker 6: the extent to which the prices are elevated by the
Speaker 6: paying of the fee, and it's hard to know what
Speaker 6: the caunterfactual is. So, from Visa's perspective, is the only
Speaker 6: reason merchants are agreeing to take decent pay the speed
Speaker 6: is because the costs of competing payment systems are much
Speaker 6: higher than the fee they're charging. So if merchants instead
Speaker 6: took cash, it'd be much more expensive for merchants to
Speaker 6: accept cash, and it would be to accept debit cards,
Speaker 6: the cost of keeping the cash safe and transporting into
Speaker 6: the bank, to say nothing in the fact that many
Speaker 6: people like me don't really carry cash, and so I
Speaker 6: can't really buy things that stores that only took cash.
Speaker 6: If they took personal checks, the cost of processing personal
Speaker 6: checks dwarfs the amount of the interchange piece, so it's
Speaker 6: hard to know what the counterfactual is. I think economists
Speaker 6: on both sides could have started that the prices are
Speaker 6: higher because the level of these fees, but economists would
Speaker 6: also say that some comest so they're not And I
Speaker 6: tend to be skeptical these fees are raising prices because
Speaker 6: they're lower than the cost of competing payment systems by
Speaker 6: a lot.
Speaker 3: How important is it to the Justice Department's case that
Speaker 3: consumers are being hurt by higher prices? I mean, if
Speaker 3: no one's being hurt by this, someone might say, what's
Speaker 3: the harm.
Speaker 6: The merchants feelings as the consumers, as they do believe
Speaker 6: that the prices are higher, and that the consumers are
Speaker 6: being hurt. I'm just saying, as a matter of economics,
Speaker 6: it's not easy to tell that they're being heard of
Speaker 6: what the amount is. What I'll say in this case
Speaker 6: is the government isn't saying, because the price is too high,
Speaker 6: you need to lower the price. The government is saying,
Speaker 6: you have these contracts that keep out competitors, and we
Speaker 6: think that these competitors are in the pressure from the
Speaker 6: competitors would force the price down. So that's somewhat different,
Speaker 6: and so it's not as necessarily dependent on proving up
Speaker 6: the amount by which consumers are harmed as it is
Speaker 6: necessary to prove that these contracts every strained trade by
Speaker 6: improperly keeping out competitors.
Speaker 3: According to the complaint, these have viewed Apple pay as
Speaker 3: an existential threat, and there was also PayPal and Block.
Speaker 3: Can you explain what happened with these other companies that
Speaker 3: Visa saw is a threat?
Speaker 6: Well, PayPal is an needs example to see. You can
Speaker 6: imagine a world in which PayPal would have developed as
Speaker 6: a system where people use it without putting credit or
Speaker 6: debit cards into it, and they kept money loaded at PayPal,
Speaker 6: and so they could actually process payment transactions without using
Speaker 6: a credit card or a debit card. And if they
Speaker 6: did that, those transactions would have been transactions that went
Speaker 6: off of Visa and MasterCards platforms somewhere else, and that
Speaker 6: would have been really bad for them. I think historically
Speaker 6: the way its developed, the overalling majority by size and
Speaker 6: volume of transactions that are cleared with PayPal, the money
Speaker 6: comes from a branded credit card debit card, and so
Speaker 6: that hasn't happened. In theory, the same thing could have
Speaker 6: happened with Apple Pay. I don't think at this point though,
Speaker 6: there are any large umber transactions that are made on
Speaker 6: Apple Pay that don't use a branded credit card or
Speaker 6: debit card so that don't pay an interchange fee.
Speaker 3: The complaint alleges that Visa pays Apple hundreds of millions
Speaker 3: of dollars each year do we know what their agreement is.
Speaker 6: I actually don't know anything about the arrangement with Apple
Speaker 6: to discuss there, and the complaint lays it out as
Speaker 6: if Visa has agreed that it will pay Apple money
Speaker 6: so that Apple won't compete with it. I think it's
Speaker 6: highly unlikely there's a contract between Visa and Apple that
Speaker 6: says we're paying you this money so you won't compete
Speaker 6: with us. I think Visa thinks it's paying the money
Speaker 6: for a different reason, would be my guess.
Speaker 3: The lawsuit is asking the court to order Visa to
Speaker 3: stop these anti competitive practices, but it's not asking that
Speaker 3: Visa be broken up.
Speaker 6: It is not. It's not obvious from the outside how
Speaker 6: you could break Visa up in irrelevant way. I mean,
Speaker 6: you could say they can do credit cards in that
Speaker 6: debit cards, but I mean the problem is there an
Speaker 6: association of banks essentially that issues payment cards, and the
Speaker 6: functional difference this decade between debit cards and credit cards
Speaker 6: is pretty thin. It's it's just not obviously what you
Speaker 6: would make them still off to break up the company,
Speaker 6: but anything, I think that's not the motive litigation. The
Speaker 6: motive litigation I think is actually pretty smart because I
Speaker 6: think if they were saying, your practicing very process, we
Speaker 6: want you to lower interchange rates by fifty percent, I
Speaker 6: think that would be a case that Visa just couldn't settle.
Speaker 6: It would be impossible Visa sell in the case it
Speaker 6: has to go to trial, and just because they just
Speaker 6: couldn't be inflexibility about that. The case that says we
Speaker 6: want you to change to Visit your contracts. So I
Speaker 6: can imagine them getting some relief that Visa could agree
Speaker 6: to voluntarily and Visa might change them to the contracts
Speaker 6: rather than have a trial. I mean, I mean, that's
Speaker 6: a lawsuit that could go somewhere, I think successfully, as
Speaker 6: compared to one just trying to lower the price.
Speaker 3: So Visa's general counsel Julie Rottenberg said the lawsuit ignores
Speaker 3: the reality that Visa is just one of many competitors
Speaker 3: in a debit space that is growing with entrants who
Speaker 3: are thriving. Is it the debit space growing It seems
Speaker 3: to be.
Speaker 6: But I haven't looked at the day of the last
Speaker 6: year or so, but the share of payment transactions that
Speaker 6: use debit cards as opposed to other payment devices, it's
Speaker 6: much harder now than it was twenty years ago, in
Speaker 6: part because people that are younger, we're more likely to
Speaker 6: pay with debit cards, and people that are older more
Speaker 6: likely to pay with credit cards. So the debit cards
Speaker 6: share is growing now. I think from Visa's perspectives, the
Speaker 6: competition is between Visa, MasterCard, Discover, and offshore issues like
Speaker 6: Union paying jay Shub, and there's probably some other ones
Speaker 6: that I'm not directly familiar with. From the just farmer's perspective,
Speaker 6: the competition is between Visa because they're the largest debit
Speaker 6: card person and these what you might call fintech companies
Speaker 6: that aren't really card networks, that are providing some kind
Speaker 6: of services trying to get around the card network, like
Speaker 6: Square and Flat and these kinds of things. It's just
Speaker 6: a different perspective on what the middle of the competition is.
Speaker 6: I mean, Visa clearly has competitors that they are, you know,
Speaker 6: in a next throttling battle with MasterCard and Discover. I mean,
Speaker 6: and you might say they're winning. May mean are those
Speaker 6: are large payment networks?
Speaker 4: Mean?
Speaker 6: I say, to competing against each other robustly. That's not
Speaker 6: what this solicit is about.
Speaker 3: Though, the Justice Department's Anti Trust Division has been bringing
Speaker 3: case after case after case, and it's also been targeting
Speaker 3: middlemen that take a kind of transaction fees like the
Speaker 3: Live Nation suit and part of the case against Apple.
Speaker 3: Is this a new road for the Justice Department?
Speaker 6: I would say that any trust division is not much
Speaker 6: more active under this administration that wasn't in the least administration.
Speaker 6: I mean there's a different assistant ry Jaler used to be,
Speaker 6: and I think that they're more active. I think they
Speaker 6: have a focus on that. I think part is a
Speaker 6: matter of just kind of updating the kinds of people
Speaker 6: that you sue. If you're looking at the modern economy,
Speaker 6: that's what a lot of the biggest people do, is
Speaker 6: they facilitate transactions. Why get into the middle of transactions
Speaker 6: and making it cheaper for one person to get together
Speaker 6: another person in the charge fees for that. It's very
Speaker 6: difficult to know exactly how think any trust laws should
Speaker 6: apply to those relationships. Mean, when I went to law school,
Speaker 6: those kinds of companies didn't really exist, and there aren't
Speaker 6: any Supreme Court cases that really actually tell you exactly
Speaker 6: how to think about it. So I think there's some
Speaker 6: want to be made on exactly what to think about
Speaker 6: those companies and they're a big part of the economy.
Speaker 6: They decided they're going to try and make some of it,
Speaker 6: and some of that they would like to make is
Speaker 6: going to make it harder for those companies to have
Speaker 6: a free handed design in the way their platforms work.
Speaker 3: Last month, a federal judge found that Google violated antitrust laws.
Speaker 3: Do any of the findings in that case apply to
Speaker 3: this case.
Speaker 6: It's not obvious to me that it does. I think
Speaker 6: the relevance of that case really it's more performative. It's
Speaker 6: the just Department showed that they have the stamina to
Speaker 6: take one of these big companies to trial and do
Speaker 6: such a good job at trial that they win. I mean,
Speaker 6: Google has highly paid, highly experienced, highly skilled counsel, and
Speaker 6: they didn't win, and the Justice Department waged them out
Speaker 6: and won that case. And I think that's sort of
Speaker 6: a warning of Visa and Visa can't just assume we'll
Speaker 6: take this to trial and the government will lose patience
Speaker 6: or the governments flawyers won't be very good. The people
Speaker 6: who work in any trust vision who do these cases
Speaker 6: are highly skilled and know what they're doing, as evidenced
Speaker 6: by winning the Google case. I mean, I think that's
Speaker 6: the significant case really, is that this is not twenty
Speaker 6: years ago when the Just Department could just get more
Speaker 6: easily outlawyered by skilled private any trust lawyers.
Speaker 3: Between the Justice Department and the FTC, there are so
Speaker 3: many anti trust cases. Thanks so much for being on
Speaker 3: this show. That's Professor runold Man of Columbia Law School.
Speaker 3: And that's it for this edition of the Bloomberg Law Podcast.
Speaker 3: Remember you can always get the latest legal news by
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Speaker 3: and at Bloomberg dot com, slash podcast, slash Law. I'm
Speaker 3: June also, and this is Bloomberg