The Obama Administration Overreach No One Is Talking About

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. 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 (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 -- 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.

Overreach, pure and simple
This administration has had almost five years to deal with the crimes committed in the run-up to the financial crisis. In that time, Iceland convicted its ex-prime minister on a crisis-relate charge. The scrappy little North Atlantic island also indicted two CEOs whose banks collapsed during the crash. If the DOJ wanted to go after the banks -- or even government officials -- for anything related to the financial crisis, it's had ample time and opportunity to do so.

Certainly, there was no shortage of wrongdoing by American banks in the run-up to the crash. But five years out, the lingering threat of federal regulatory action is an unnecessary sword hanging over the head of U.S. banking. A free-market economy needs smoothly circulating money in order to flourish, with banks that feel safe lending -- without the fear of potentially game-changing or crippling regulatory actions, and the fines that come along with them.

This attempt by the Obama Justice Department to use wartime powers to go after banks and other financial institutions for alleged financial crimes -- after traditional statutes of limitation have expired -- is overreach, pure and simple. Along with the other abuses of executive authority we've witnessed of late, it doesn't bode well for our democracy, let alone for the publicly traded banks that keep the economy moving and the shareholders who invest their hard-earned dollars in them.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 13, 2013, at 1:16 PM, KENETICS wrote:

    Can't blame me. I didn't vote for him since I wasn't sure he actually was born a US citizen

  • Report this Comment On June 14, 2013, at 12:47 AM, rmm200 wrote:

    Our Republic is really in danger from our elected officials, and Congress is a willing accomplice with the Executive branch.

    This extension of executive powers is as bad as anything I have seen in my lifetime.

  • Report this Comment On June 14, 2013, at 7:34 AM, XMFGrgurich wrote:

    Also in the WSJ piece, the writer commented that, technically, we're still at war with Korea: so why not use that as justification for pushing aside inconvenient laws? Unsettling stuff.

  • Report this Comment On June 14, 2013, at 8:05 AM, ETFsRule wrote:

    He has made some abuses in other areas, but I certainly don't have a problem with this one. He is following both the spirit and the letter of the law. Crooks belong in jail.

    The real problem here is that the financial industry has grown so large and complex that it is much more difficult to prosecute them effectively.

    And if WF is really clean, they have nothing to worry about.

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