Turning a blind eye: The complicit trespassing of ‘Chinese walls’ in financial institutions in New York

Abstract

This article examines the ways in which ‘Chinese walls’ – that is, information barriers within financial institutions – are constituted and subverted by acts of trespass within large investment banking firms in New York. While Chinese walls positively serve to prevent corruption and fraud, they simultaneously entice legal, semi-legal and illegal forms of trespassing. My analysis shows that some trespassing is based on non-verbalized and embodied exchanges of information that are not in and of themselves illegal. Referred to as playing ‘the game’, the result of these forms of trespass is that the Chinese wall becomes an ‘effect’ or fiction. At other times, trespassing can cause inconvenient suspicion, encouraging those who operate amid these walls to participate strategically in various aspects of wilful blindness. Together, these examples reveal the conceptual and material relationships between ‘seeing’ and ‘knowing’, thereby highlighting the complexity of information flows in financial institutions and demonstrating how the critical regulation of financial capitalism is sometimes weakened.

Dynamics of wilful blindness: An introduction

“…Here, blindness refers to mechanisms that constrict fields of vision, thereby leaving the larger issues of pollution and climate change unseen, and their causes unchallenged. Similarly, Peluso’s (2020) study of ‘Chinese Walls’ in investment banks, which are key to avoiding conflicts of interest, illustrates that strategic ignorance can be more intuitive than cognitive. She shows how the analysts and investors have developed a sensitivity that allows them to ‘know’ what is happening, even without seeing or hearing the actual information – wilful blindness becomes an embodied disposition.…”

The Importance of Chinese Walls in Banks and Management of Information Flows

“…[3] In 1933, the Glass-Steagall Act was enacted to legitimise Chinese walls by regulating the relationship between investment and commercial banking as the former often engaged in speculative behaviour that created risks for investors. [4] The 1933 Act aimed to protect investors from possible deception and insider trading. [5] This could be done with the help of Chinese walls.…”