Deutsche Bank is surprised. The financial institution had reached an agreement with U.S. tax authorities on a federal level in 2009. The agreement was about a typical business incident: Taxes were avoided through a clever maneuver and the question came up whether it was a legal move or an illegal bypassing of laws.
Regardless of the agreement with the tax authorities, a well-known district attorney in New York has now filed a lawsuit against the bank for the same incident, and is demanding $190 million in penalties and damages. The bank is protesting that it had already reached an agreement, and saying it cannot be sued twice for the same thing.
Deutsche Bank should know better. Whoever does business in the United States can never be sure when and by whom they will be sued. That has been particularly valid for banks since the financial crisis.
Clear areas of responsibility for individual regulatory or judicial authorities do not exist. There is ambiguity about what will be dealt with on a federal and an individual U.S. state level. There are rival authorities, and judicial positions are often also used as political platforms. Since the country's founding, the states have been fighting with Washington about areas of jurisdiction. With contradictory regulations on both levels, there is no clear primacy for one side.
The chaotic American system is not a model to emulate.
From a European point of view, the U.S. judicial system is simply a mess. And it is not just Europeans who suffer under it – U.S. banks also never know if or when they will have finally resolved a judicial problem.
From the U.S. perspective, the system also has advantages. If many authorities are zealously competing, the risk that companies will be handled with kid gloves goes down. Competition is good in business, and that is also valid in justice. It is not a coincidence that many banks worldwide fear the American tax and judicial authorities more than those of their own countries.
Still, the chaotic American system is not a model to emulate.
To contact the author: [email protected].