Everyone’s talking about how the National Security Agency is collecting the metadata on all calls made within the United States and overseas from telecom giant Verizon Communications Inc. (NYSE:VZ). And just weeks ago, the country was a-buzz with news that the Department of Justice seized the telephone records of Associated Press journalists in pursuit of administration leakers.
What no one seems to be talking about is something just as unsettling: the DOJ trying to justify continuing prosecution of financial wrongdoing because of the U.S. war in Afghanistan.
What’s war got to do with it?
Two months ago, The Wall Street Journal broke the news that Justice is citing a 1948 wartime act in an attempt to prosecute banks for financial wrongdoing after the traditional statutes of limitation have run out: typically five years. It’s called the Wartime Suspension of Limitations Act, and it “gives prosecutors unlimited time to go after alleged fraud during times of war.”
As an example, this past December, the DOJ sued Wells Fargo & Co (NYSE:WFC) for mortgage-related loan fraud. According to The Journal, by the time the suit was filed, “the statute of limitations had run out on much of the alleged wrongdoing.” There’s been no decision yet in the case, and Wells said the allegations had nothing to do with the war in Afghanistan.
The federal government has invoked the WSLA more times in the first four years of the Obama administration than it has since the mid 1960s.
I can’t recall
What does this mean for banks and their shareholders? If the DOJ can ignore statutes of limitation, the sky’s the limit, potentially, as far as crisis-related financial wrongdoing is concerned, along with the consequent fines and payouts.
And if Wells Fargo & Co (NYSE:WFC) — traditionally one of banking’s cleanest operators — is finding itself under the Justice Department’s prosecutorial gun, how long before the country’s other big banks find themselves in the same position? All of them got their hands dirty in the housing boom, to one degree or another.
Statutes of limitation are put in place for a reason: There’s a limit to how far out from a crime prosecutors can operate before evidence trails and participants’ memories get too shaky to be reliable. How accurate could you be if I asked specific details about a work project you were involved in five years ago? How about last year? What if I asked you what you had for dinner last Tuesday?
And the war in Afghanistan has nothing to do with the kinds of financial wrongdoing the DOJ is pursuing Wells Fargo for. Laws like the WSLA were designed to deal with crimes like wartime contracting, as noted above. But even in times of war, these kinds of suspensions are dubious and dangerous — they can very easily lead to overreach and abuse, even if well intentioned.