Epstein files present banks with the ultimate reputational risk

• Key insight: Jeffrey Epstein’s network is so vast that large professional crisis management firms are feeling the strain of having too many clients involved in the revelations. Some crisis firms cannot be retained by banks due to conflicts of interest.
• Expert quote: “There has been a total lack of accountability,” said Dennis Kelleher,  co-founder, president and CEO at Better Markets, a Washington-based nonprofit.
• Look ahead: The scandal is unfolding at a critical time, immediately following federal regulators eliminating “reputational risk” as a factor in supervisory bank exams, an action the Trump administration championed. 

The release of the Epstein files has detonated a reputational-risk timebomb, forcing banks and financial firms to decide whether involvement with the notorious sex trafficker crossed an ethical line, and if so, what the appropriate response should be.

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Attention has zeroed in most recently on Goldman Sachs’ former chief legal officer,  Kathryn Ruemmler, whose relationship with the convicted sex offender Jeffrey Epstein was laid bare through emails showing she accepted lavish gifts — a $9,400 Hermès bag, Fendi coats and more — and gleefully referred to being “tricked out by Uncle Jeffrey.” (Asked for a comment, Goldman referred us to CEO David Solomon’s public comments.)

Ruemmler is among more than a half-dozen prominent leaders who have resigned in the wake of the most recent disclosures related to the government’s investigation into Epstein’s network.

The public release of the files has allowed law enforcement, journalists and online sleuths alike to comb through them, and means more connections could emerge. Epstein’s vast network touched dozens of industries, but perhaps none so much as the banking industry, which — wittingly or not — helped facilitate many of his crimes. And executives such as JPMorganChase’s Mary Callahan Erdoes are being examined for their relationships to Epstein that have emerged from the files (JPMorgan declined to comment for this article.)

That network is so vast that large professional crisis management firms are feeling the strain of having too many clients involved in the revelations. Some crisis firms cannot be retained by banks due to conflicts of interest, according to one crisis manager who spoke on condition of anonymity.

Many experts said the files point to evidence of criminal behavior that merits further investigation. 

“This elite crowd has created a protective shield around themselves that prevents any accountability no matter how egregious their conduct, including criminal conduct,” said Dennis Kelleher, co-founder, president and CEO at Better Markets, a Washington-based consumer nonprofit.

“If this was a nobody, you can bet the FBI would be all over it, knocking on people’s doors and investigating them and probably arresting people,” he said. “But because it’s not a nobody — because it’s a rich, powerful connector — all of a sudden, there seems to be this incredible reluctance to even investigate — never mind actually enforce — the law.”

Susan Holliday, an independent board director at Hippo Insurance, said that at the very least, bank boards will engage in a more robust vetting process for executives. 

“One outcome of this will be that boards will do more vetting when they’re hiring C-suite executives, board members and advisors, or anyone who’s high-profile,” said Holliday, who sits on Hippo’s audit, risk and compliance and compensation committees. “They’ll do more vetting — and that’s probably a good thing, because the risk is quite high.”

One distinction that boards may look at is when contact with Epstein occurred. He pleaded guilty and was convicted in 2008 in a Florida court on state charges of procuring a child for prostitution and soliciting a prostitute, under a plea deal that many have called generous. In 2019, Epstein was arrested on sex trafficking charges in July and died by apparent suicide in August while awaiting trial. 

“Where do you draw the line?” said Holliday. “Is there a difference between people who were hanging out with Jeffrey Epstein years ago and people who were hanging out with Jeffrey Epstein after he’d been convicted of a crime?”

Many experts who declined to talk publicly lamented privately that so many executives failed to adhere to basic common sense and business ethics.

“The first lesson we learned in business is don’t put anything in writing that you wouldn’t want to see in the newspaper,” said Warren Traiger, senior counsel at Orrick Herrington & Sutcliffe. “They forgot that lesson.”

Shifting sands of reputational risk

The scandal’s timing is critical, arriving soon after federal regulators eliminated “reputational risk” as a factor in bank oversight. 

The Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. stopped using reputational risk as a factor in supervisory bank exams last year, and the National Credit Union Administration has made moves in that direction as well. Senate Banking Committee Chairman Tim Scott, R-S.C., led the Trump administration’s dismantling of reputational risk, claiming that a bank’s reputation should not play a role in safety and soundness exams. 

“They rolled back reputation risk considerations, ironically, with the fallout from the Epstein files posing exactly that kind of risk,” said Cliff Rossi, finance professor at University of Maryland’s business school and a former chief risk officer at Citi’s consumer lending group.

Those actions do not impact banks’ ability to use reputational risk in their internal risk models, though there have been nascent efforts to push “fair access” rules in the past. House Financial Services Committee Chair French Hill, R-Ark., said earlier this year that fair access legislation isn’t currently being considered.

Lawyers, compliance experts and insurance executives say the U.S. is not taking the Epstein files seriously enough. Kelleher said he expects a public backlash over what he calls “the broader truths laid bare” by the Epstein files. He said the fact that Ruemmler is stepping down June 30th, and will stay in her job for more than four more months, is an indication that executives ensnared with Epstein may face consequences but with some leeway, beyond a brief public shaming.   

“There has been a total lack of accountability, no real accountability by anyone yet,” said Kelleher, who criticized Ruemmler specifically for “being allowed to leave Goldman in June.”

Kelleher said the Epstein files appear to have crystallized a broader theme: profit motive and greed as the driving cultural force among high-profile executives, even as the public witnesses the criminal justice system turning a blind eye to the actions of billionaires.

“There’s been no evidence that anybody has put morals over money, lusting for money, power, access, influence, or frankly, lusting for sex itself,” said Kelleher. “It has exposed that the elites have a self-reinforcing and self-protecting ecosystem.”

Banks assess risks associated with employee misconduct regularly as part of their overall risk management process Rossi said. The flurry of voluntary resignations is one of the outcomes of those assessments, he said.

“This is an example of employee misconduct risk, which is something banks take into account in their risk management practices,” Rossi said. “The appearance of a relationship with Epstein via email contact can be enough to trigger a voluntary resignation.”

‘I call that an endorsement’

Ruemmler joins the list of big names that have resigned from their jobs because of their ties to Epstein, including ex-Barclays CEO Jes Staley; former U.S. Treasury Secretary and Harvard University President Larry Summers, who resigned from roles at Harvard and on several boards; and Brad Karp, who stepped down as chairman of the law firm Paul Weiss Rifkind Wharton & Garrison, but remains at the firm.

Since her connection to Epstein was first reported in 2023, Ruemmler and Goldman have repeatedly said that she used Epstein’s contacts to pursue potential legal clients at a former law firm, Latham & Watkins.

Goldman Sachs’ CEO David Solomon praised Ruemmler in a statement last week.

“Throughout her tenure, Kathy has been an extraordinary general counsel, and we are grateful for her contributions and sound advice on a wide range of consequential legal matters for the firm,” he said. “As one of the most accomplished professionals in her field, Kathy has also been a mentor and friend to many of our people, and she will be missed. I accepted her resignation, and I respect her decision.”

But Kelleher noted that after Epstein was arrested for a second time, in 2019, on federal charges of sex trafficking of minors, he immediately called Ruemmler.

“After he was arrested for being a sex trafficker, she is one of the first calls that he makes, and yet the CEO of Goldman Sachs has no reservation in singing her praises when she steps down from one of the most important legal positions on all of Wall Street,” said Kelleher. “I don’t call that accountability, I call that an endorsement.” 

More than a dozen Trump administration officials and advisors also have been named in the files, including Elon Musk, Commerce Secretary Howard Lutnick, former Labor Secretary Alexander Acosta and former Attorney General Bill Barr. Barr and Acosta, who served during the first Trump administration, left their posts in 2021 following the inauguration of President Joseph Biden, and Musk left government service last year. Acosta, Labor Secretary in Trump’s first term, was the U.S. Attorney for the Southern District of Florida who cut the plea deal in 2008 that allowed Epstein to serve 13 months in jail with work release, avoiding a potential life sentence. Lutnick has said his relationship with Epstein was limited and has not resigned, despite bipartisan calls for him to do so. 

Rossi said reputational risk “has faded as a compliance priority, shifting culpability for the underlying exposure — and its severe corporate and personal consequences — further into the private sector.”

Nir Kossovsky, CEO at Steel City Re, a Pittsburgh-based provider of insurance and reputation risk forecasting, said financial institutions face reputational risk when they lose the trust of customers and clients. Having bank directors or executives named in such a high-profile scandal — even in such a way that does not suggest complicity in the gravest of Epstein’s crimes — represents a challenge for banks.

“It raises questions of honesty, competence and judgement, making it potentially professionally fatal to directors, officers and other C-suite occupants,” Kossovsky said. 

Protecting the reputation of a bank “may come at the board’s expense,” said Kossovsky, who advises directors and officers to retain their own crisis communications counsel.

Many banking experts point to Wells Fargo’s phony-accounts scandal a decade ago as a scandal of comparable magnitude, at least in terms of corporate impact. That episode, in which the bank was found to have fraudulently created millions of accounts for its customers without their knowledge, ultimately led to the resignation of its CEO John Stumpf, a massive changeover of top executives and an asset cap that was in place for seven years. 

Executives at JPMorganChase, Deutsche Bank and Barclays have faced considerable blowback from federal regulators after they continued to keep Epstein on as a client for years after he was convicted in 2008. 

Sen. Ron Wyden, D-Ore., also has continued to scrutinize top JPMorgan executives including Mary Callahan Erdoes, the bank’s CEO of asset and wealth management. He claims they enabled Epstein’s sex trafficking operation by failing to report suspicious activity to federal authorities. 

“Reputation risk management has faded as a compliance priority,” Kossovsky said, “but the underlying exposure—and its severe corporate and personal consequences—remains.”