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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you insight and analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud

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Speaker 1: and on Bloomberg dot com slash podcasts. Central bank enforcement

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Speaker 1: actions against banks have been ratcheting up in recent years,

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Speaker 1: and now Wells Fargo has been hit with a sanction

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Speaker 1: called unprecedented by FETE officials. After markets closed on Friday, Janet,

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Speaker 1: Yellen's final work day in office, the FED announced a

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Speaker 1: harsh new punishment for Wells Fargo, which has been involved

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Speaker 1: in scandal after scandal. The FED banned the bank from

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Speaker 1: growing until it convinces authorities it's fixed. It's many problems. Yellen,

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Speaker 1: speaking on CBS Sunday Morning yesterday, cautioned against rolling back

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Speaker 1: enforcement of banks. They are now much safer, much sounder,

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Speaker 1: and much better at managing their rit and it would

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Speaker 1: be a grief mistake to rules that back. My guess

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Speaker 1: is Robert Hockett, professor at Cornell Law School, Bob, how

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Speaker 1: harsh and how unusual is this action against Wells Fargo. Well, Hi, Jane,

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Speaker 1: thanks for having me on it's actually not as harsh

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Speaker 1: as one might have thought. It's definitely unprecedented, and that's

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Speaker 1: what's sort of interesting about this. It's unprecedented, I think

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Speaker 1: precisely because the regulators were trying to decide whether there's

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Speaker 1: some sort of potent form of enforcement that nevertheless falls

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Speaker 1: short of the much more severe enforcement actions that the

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Speaker 1: FED could have taken. Describe what the action actually is.

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Speaker 1: So essentially it's a limitation placed on the right of

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Speaker 1: the institution to grow. And what that means is it's

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Speaker 1: going to be limited as to the size of its

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Speaker 1: asset portfolio until it convinces the ft that it has

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Speaker 1: taken appropriate action directed by its internal governance and law

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Speaker 1: compliance measures or programs. So essentially what they're saying is okay,

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Speaker 1: well as a sort frozen at its current size. Um.

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Speaker 1: Now that's a punishment in the sense that in two senses,

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Speaker 1: I guess. On the one hand, banks typically do like

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Speaker 1: to grow their asset uh portfolio is because, of course,

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Speaker 1: that means that they're standing to it to yield higher

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Speaker 1: profits to their shareholders. In that sense, it hurts. But

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Speaker 1: more importantly, I think it hurts because it gets a

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Speaker 1: lot of attention precisely because it's an unusual form of sanction,

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Speaker 1: and that means that the public is once again paying

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Speaker 1: close attention to repeat offender and to the fact that

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Speaker 1: Wells is a repeat offender. Major US banks have bounced

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Speaker 1: back from past crackdowns. Do you expect this to be

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Speaker 1: any different? I'm sorry? Is what major US banks have

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Speaker 1: bounced back from these crackdowns before, Morgan, Chase, City Group, etcetera.

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Speaker 1: Do you expect it to be any different for Wells Cards? No?

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Speaker 1: I actually don't. I mean, at least I don't expect

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Speaker 1: it to be any different if they actually do correct

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Speaker 1: what's been going on internally, and it looks as that

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Speaker 1: they're trying to do that. As you know, there's a

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Speaker 1: major shuffle has been underway on the board and that

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Speaker 1: is itself, that's to say, the Wales Board and that

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Speaker 1: is itself and attempts to sort of get a wrap

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Speaker 1: on or get a get a grip on its internal

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Speaker 1: compliance problems and to sort of impose a discipline within

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Speaker 1: the organization, which apparently has been rather difficult for the

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Speaker 1: board to do in the past. What else does it

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Speaker 1: have to do, Bob in order to get to fix

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Speaker 1: its problems Well one thing is to develop, typically with

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Speaker 1: an outside consultant and effective form of internal compliance procedure.

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Speaker 1: That can include hotlines or anonymous tip lines for employees

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Speaker 1: to be able to report abuses that they see going on.

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Speaker 1: It can include uh sort of heavier reporting requirements that

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Speaker 1: higher ups might place on those lower down to ensure

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Speaker 1: that they're all complying with the law, any number of

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Speaker 1: such things. And then the second thing is that it's

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Speaker 1: typical to seek some kind of endorsement of the measures

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Speaker 1: that have been adopted from some outside so called reputational intermediary,

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Speaker 1: which could could be any number of intermediaries, including the

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Speaker 1: standard of PORES or fits or you name it. UM.

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Speaker 1: And if the board, the FED board that is, finally

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Speaker 1: becomes satisfied UH with the warrant of reputational intermediaries that

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Speaker 1: the internal compliance procedures adopted by Wells are substantial and

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Speaker 1: indeed likely to work, that could indeed see a relaxation

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Speaker 1: than of the sanction looking forward as far as other

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Speaker 1: banks are concerned to are looking at this harsh penalty.

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Speaker 1: President Donald Trump has repeatedly said he wants to loosen

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Speaker 1: constraints on the financial industry, so does this harsh penalty

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Speaker 1: signal a new reality or is it Yellin's final salvo.

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Speaker 1: I think it signifies just the same reality as we

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Speaker 1: had before. To tell you the truth, a couple of

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Speaker 1: couple of reasons for that. The first is, as I

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Speaker 1: mentioned earlier, it is possible for the regulators to impose

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Speaker 1: much more difficult, much more onerous sanctions, including monetary fines

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Speaker 1: or even imprisonment or regulatory sanctions against individual human beings

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Speaker 1: who make decisions in an organization. And I note that

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Speaker 1: the FETE has not done anything quite like that in

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Speaker 1: connection with Wales, so in that sense, it's not that unusual.

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Speaker 1: It's also I mean, it's not that that's harsh, um uh,

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Speaker 1: And it doesn't really change. It's a significant move away

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Speaker 1: from where we were in the previous two or three years.

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Speaker 1: For another thing, is you know, Trump has suggested that

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Speaker 1: while he wants to relax the various regulatory requirements and

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Speaker 1: the like, he has also been claiming that he wants

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Speaker 1: the penalties to be harsh for those who nevertheless violate

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Speaker 1: what rules remain. Now, of course, we always have to

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Speaker 1: say what Mr Trump says with a grain of salty

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Speaker 1: might say something different. Tomorrow. But there's no I think

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Speaker 1: signal at this point that there's going to be some

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Speaker 1: fun of it will change in the way that we

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Speaker 1: deal with banks, the size of of wells. This was

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Speaker 1: a consent degree, so perhaps they had to give a

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Speaker 1: little to get a little, and that's why it wasn't

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Speaker 1: as harsh as anticipated by you. Uh, it's that's possibly

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Speaker 1: the case, um, you know. So the idea here is

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Speaker 1: that typically if you can get the regulated entity to

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Speaker 1: agree with whatever penalty or rectificatory measure has been decided

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Speaker 1: on by the regulator, that does make things easier for

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Speaker 1: the regulator because of course it spares it the trouble

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Speaker 1: having to engage in litigation. But of course it also

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Speaker 1: spares the litigated, i mean the regulated entity from possible

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Speaker 1: litigation expenses as well. So while it is sort of

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Speaker 1: a given take that arrives at a consent decree, it's

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Speaker 1: probably worth keeping in mind that both signs gain if

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Speaker 1: they can avoid litigation, which is to say that both

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Speaker 1: sides gain if they can reach an agreement as to

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Speaker 1: some sort of direct deficatory measure. About thirty seconds, you

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Speaker 1: can have a quick answer here. You mentioned criminal penalties,

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Speaker 1: which we never see. Do you expect to see them

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Speaker 1: in the coming years. I fear not. I don't think them.

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Speaker 1: To the Trump administration, we're likely to see anything um

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Speaker 1: in the way from old cudalts. Is particularly given that

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Speaker 1: we didn't see anything like that during the Obama years.

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Speaker 1: So they force your you might stay of Obama was

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Speaker 1: allowed to do this. I suspect the Trump, who seems

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Speaker 1: to be more friendly to big bankers, won't do it either.

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Speaker 1: Thanks so much, Bob. As always, that's Robert Hockett, professor

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Speaker 1: at Cornell Law School. The House Intelligence Committee is holding

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Speaker 1: a closed door session at five PM to consider releasing

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Speaker 1: the Democratic rebuttal memo to the Republican memo that alleges

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Speaker 1: bias in the Russia investigation. President Donald Trump and some

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Speaker 1: Republican allies are using the so called Newness Memo to

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Speaker 1: allege bias in Special Counsel Robert Mueller's investigation. Several former

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Speaker 1: intelligence officials have publicly criticized the memo, drafted by the

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Speaker 1: chair of the committee, Republican devon Newness. Here's former CIA

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Speaker 1: director Leon Panetta speaking on Fox News Sunday. I think

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Speaker 1: in this instance, very frankly, that the Newness charges against FISA,

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Speaker 1: particularly without looking at the entire application, without talking to

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Speaker 1: the judges who actually make these decisions. I think that's irresponsible.

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Speaker 1: The Democratic counter memo was authored by California Representative Adam

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Speaker 1: Shift The pan Top Democrat. Joining me is William Banks,

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Speaker 1: professor at Syracuse University Law School. Bill, you've read the memo.

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Speaker 1: What's your analysis? Well, I agree with what Mr Panetta

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Speaker 1: said just now, and I think it's a very unfortunate

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Speaker 1: turn of events for the investigation to have. It may

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Speaker 1: have the elements of the investigation by the Mueller team

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Speaker 1: revealed in this way. It's a it's clearly partisan, it's

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Speaker 1: an effort to protect President Trump, and it's you know,

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Speaker 1: it compromises a valuable intelligence source that the Bureau had

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Speaker 1: been working with. And it of course is also very

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Speaker 1: much a sort of a cherry picked gleaning of a

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Speaker 1: few elements of a much larger FISE application. Tell us

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Speaker 1: about the FIS accords and what it takes to get

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Speaker 1: a surveillance on an American citizen. It's important to remember,

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Speaker 1: June that the purpose of the FIZER process is to

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Speaker 1: collect foreign intelligence or counter intelligence. In this case, it

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Speaker 1: was counter intelligence involved in Carter Page, this is not

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Speaker 1: a criminal process, so we don't expect the same Fourth

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Speaker 1: Amendment protections for citizens that we would if a criminal

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Speaker 1: sanction or possible jail could be forthcoming. Still, the process

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Speaker 1: does do more to protect Americans than it does persons

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Speaker 1: who are not from the United States. So the the predicate,

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Speaker 1: if you will, is still the same probable cause to

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Speaker 1: believe that the target is an agent of foreign power,

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Speaker 1: in this case Russia. The thing that's different about US

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Speaker 1: persons in this regard is that none of the uh,

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Speaker 1: none of the activities that are the base for an

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Speaker 1: order of surveillance could be based on protected First Amendment activities,

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Speaker 1: and the process requires that they seek remol of the

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Speaker 1: authorization more frequently than they would have to if the

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Speaker 1: target were not a US person. So something I find

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Speaker 1: difficult to understand is this memo is about Carter Page,

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Speaker 1: who White House officials described as a peripheral member of

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Speaker 1: a relatively peripheral advisory committee, and last December, White House

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Speaker 1: attorney Don McGan wrote to Page to cease saying he's

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Speaker 1: a Trump advisor and doesn't didn't the FBI have a

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Speaker 1: lot more on Page? He was interviewed by them as

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Speaker 1: early as ten as part of an investigation into a

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Speaker 1: Russian inspiring So shouldn't the FBI had had more information

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Speaker 1: on him than the Steel dossier. They clearly did, and

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Speaker 1: I think if the Democratic Memo is released, will learn

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Speaker 1: more about some of that other information. You know, the

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Speaker 1: defies application is a lengthy process that involves internal vetting

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Speaker 1: inside the Department of Justice by numerous officials, lawyers and

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Speaker 1: policy officials, and the application itself, when it's carried to

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Speaker 1: the FIES the court would have been lengthy, I don't know,

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Speaker 1: fifty pages, maybe more so. The Steel dossier would have

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Speaker 1: been a very small part of a larger package of materials.

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Speaker 1: As you say, they've been looking at at Steel or

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Speaker 1: a page rather for up to three years prior to

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Speaker 1: this application. And of course it's also important to remember

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Speaker 1: this was actually stated at the bottom of the of

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Speaker 1: the newest Memo that the investigation of the potential uh

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Speaker 1: for collusion between the Trump campaign and the Russian interference

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Speaker 1: was first investigated concerning Adopolis, not Card or Page. So

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Speaker 1: there was a prior application that had already been reviewed. No,

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Speaker 1: we hardly on Panetta to say, you know, we shouldn't

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Speaker 1: do this without talking to the judges. Judges don't normally

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Speaker 1: explain their decisions to people unless there's some kind of

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Speaker 1: criminal process, and you know, they have to look into

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Speaker 1: what the judge found. And so is that likely to

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Speaker 1: happen that one of the judges would come forward, Oh,

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Speaker 1: it's it's almost surely not going to happen. We don't

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Speaker 1: even know which judges might have been involved in the

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Speaker 1: Carter page application as the as the materials reveal the

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Speaker 1: page request was renewed on two or three occasions. I

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Speaker 1: forget the details. Now, it's likely that on the first

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Speaker 1: occasion and then on the renewals, there might have been

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Speaker 1: a different judge involved each time. The judge wouldn't have

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Speaker 1: been identified. The judge won't identify himself for herself now,

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Speaker 1: and that's the way the process is supposed to work.

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Speaker 1: So Bill, now, let's say the Democrats are allowed to

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Speaker 1: come out with their memo. Is good to have to

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Speaker 1: dueling memos out there and about the FBI's process. And

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Speaker 1: is it dangerous to release the second memo? You I

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Speaker 1: doubt that it's dangerous to release it at this point.

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Speaker 1: It's about achieving turbopartisan balance here. The best result is

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Speaker 1: for no memos to have been released, because it was

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Speaker 1: a real affront to the integrity and the Apartment of

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Speaker 1: Justice in the whole five process, the entire intelligence community

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Speaker 1: for that matter. So I think the better thing would

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Speaker 1: have been for there to be no memo. I think

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Speaker 1: once there's a heavily partisan memo out, it's fair to

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Speaker 1: have a rebuttal memo out. I think that Representative Shift

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Speaker 1: and others would be very careful not to release sensitive information,

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Speaker 1: uh in the chance that their memo does come out. Now,

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Speaker 1: another part to this is that Senate Judiciary Chair Chuck

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Speaker 1: Grassley is calling on the FBI to stop blocking the

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Speaker 1: release of key portions of his memo that calls for

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Speaker 1: a criminal investigation of Christopher Steele, which is who's the

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Speaker 1: former British spy who compiled that dossier we know so

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Speaker 1: much about. In about a minute, can you tell me

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Speaker 1: what grass Lee is trying to accomplish. Uh, It's very

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Speaker 1: hard to know exactly what he's trying to accomplish. One

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Speaker 1: of the things that we learned, unfortunately, is that in

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Speaker 1: in releasing the newest memo, we now know that Steele

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Speaker 1: was an FBI source prior to the so called dossier

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Speaker 1: and prior to the investigation, Carter page. So, in the

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Speaker 1: context of the of the larger investigation, one of the

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Speaker 1: things that happened is that the Bureau was lost the

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Speaker 1: source that had been using for foreign intelligence gathering for years.

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Speaker 1: So I think coming out with more now, I think

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Speaker 1: that they've already lost Steel and whatever value that he

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Speaker 1: might have provided to the process or law. Well, we'll

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Speaker 1: see how this plays out, and there are certainly different

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Speaker 1: different parts of this. Now it seems as if there

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Speaker 1: it's like a tree with the branches spreading. Thanks so

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Speaker 1: much for being here. Bill. That's William Banks, professor at

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Speaker 1: Syracuse University Law School. Thanks for listening to the Bloomberg

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Speaker 1: Law Podcast. You can subscribe and listen to the show

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Speaker 1: on Apple podcast, SoundCloud, and on Bloomberg dot com slash podcast.

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Speaker 1: I'm June Brosso. This is Bloomberg