Federal prosecutors sent a harsh warning against potential corporate wrongdoers by levying a record $340 million fine against Daiwa Bank Ltd. for hiding a spectacular trading scandal from banking regulators.
The fine, the largest ever for a U.S. criminal case, was part of a plea agreement approved Wednesday that closed an ill-fated U.S. chapter for Daiwa, which already had shut down its operations here in an earlier punishment by regulators.The plea deal in Manhattan federal court also ends a wrenching financial scandal that aggravated Japanese-U.S. relations and reflected what prosecutors called brazen disregard for American laws by a foreign bank.
Daiwa pleaded guilty to 16 criminal counts of fraud, deception and other charges stemming from the illicit cover-up of $1.1 billion in losses at its New York branch over a 12-year period.
"Banks doing business in the United States must abide by the rules," Attorney General Janet Reno said in Washington. "This record fine demonstrates that we take the rules seriously."
The total amount ranks as the fourth largest against a financial institution operating in the United States. Drexel Burnham Lambert Inc. paid $650 million, BCCI paid $550 million and Prudential Securities paid $370 million. But those amounts include restitution money as well as fines.
"We hope that Daiwa's plea will serve as a stark reminder to the corporate community" about flouting American laws, U.S. prosecutor Reid Figel told the court at a hearing for the agreement, which was approved by U.S. District Judge Kimba Wood.
In exchange for Daiwa's plea, the government dropped the remaining counts, including some charges related to Daiwa's conduct prior to a 1991 federal law that stiffened regulation of foreign banks operating in the United States.
The government also agreed not to press further charges against Daiwa or Daiwa Bank Trust Co., its banking trust subsidiary.
"We agreed to this settlement as the best business decision for our bank, its customers and its shareholders," Daiwa President Takashi Kaiho said in a statement. "Years of future litigation would benefit no one. We accept responsibility for our actions."
Until the plea agreement, Daiwa had portrayed itself as a victim of a scheme hatched by Toshihide Iguchi, a senior bond trader in its New York office, who pleaded guilty last fall to hiding the $1.1 billion loss through tens of thousands of unauthorized trades.
But on Wednesday, Daiwa admitted it directed Iguchi to continue covering up his losses in the two months before the bank publicly disclosed the scandal last Sept. 25. The bank also admitted it misled U.S. banking regulators by failing to report the scandal in reports to the Federal Reserve Board in July and August.
Daiwa had faced up to $1.3 billion in fines, or about four times the plea amount, if it had been found guilty at trial. The charges included obstructing examinations of its branches, making false statements to federal authorities and forging records.
The trial had been set to start April 15.
The bank "has gotten itself rid of a huge albatross around its neck," said Louis Begley, Daiwa's lead lawyer in the case. "It's relieved and happy."