Tag: Banking

Feb 10

Bank That Laundered Drug Money Revealed to Be Doing Worse

Cross posted from The Stars Hollow Gazette

It seems that since 2010, the US Department of Justice has known that one of the largest banks in Europe has been sheltering money for dictators and arms dealers, among others:

Banking Giant HSBC Sheltered Murky Cash Linked to Dictators and Arms Dealers

By Gerard Ryle, Will Fitzgibbon, Mar Cabra, Rigoberto Carvajal, Marina Walker Guevara, Martha M. Hamilton and Tom Stites, February 8, 2015, The International Consortium of Investigative Jouranlists

Team of journalists from 45 countries unearths secret bank accounts maintained for criminals, traffickers, tax dodgers, politicians and celebrities

Secret documents reveal that global banking giant HSBC profited from doing business with arms dealers who channeled mortar bombs to child soldiers in Africa, bag men for Third World dictators, traffickers in blood diamonds and other international outlaws.

The leaked files, based on the inner workings of HSBC’s Swiss private banking arm, relate to accounts holding more than $100 billion. They provide a rare glimpse inside the super-secret Swiss banking system – one the public has never seen before. [..]

These disclosures shine a light on the intersection of international crime and legitimate business, and they dramatically expand what’s known about potentially illegal or unethical behavior in recent years at HSBC, one of the world’s largest banks.

The leaked account records show some clients making trips to Geneva to withdraw large wads of cash, sometimes in used notes. The files also document huge sums of money controlled by dealers in diamonds who are known to have operated in war zones and sold gemstones to finance insurgencies that caused untold deaths.

These are some of the key findings the journalists found:

 

HSBC Private Bank (Suisse) continued to offer services to clients who had been unfavorably named by the United Nations, in court documents and in the media as connected to arms trafficking, blood diamonds and bribery.

   HSBC served those close to discredited regimes such as that of former Egyptian president Hosni Mubarak, former Tunisian president Ben Ali and current Syrian ruler Bashar al-Assad.

   Clients who held HSBC bank accounts in Switzerland include former and current politicians from Britain, Russia, Ukraine, Georgia, Kenya, Romania, India, Liechtenstein, Mexico, Lebanon, Tunisia, the Democratic Republic of the Congo, Zimbabwe, Rwanda, Paraguay, Djibouti, Senegal, Philippines and Algeria.

   The bank repeatedly reassured clients that it would not disclose details of accounts to national authorities, even if evidence suggested that the accounts were undeclared to tax authorities in the client’s home country. Bank employees also discussed with clients a range of measures that would ultimately allow clients to avoid paying taxes in their home countries. This included holding accounts in the name of offshore companies to avoid the European Savings Directive, a 2005 Europe-wide rule aimed at tackling tax evasion through the exchange of bank information.

If this seems all too familiar, that’s because it is. HSBC was fined $1.6 billion in June of 2013 after it reached an agreement with the US Department of Justice which resolved charges it enabled Latin American drug cartels to launder billions of dollars

HSBC was accused of failing to monitor more than $670 billion in wire transfers and more than $9.4 billion in purchases of U.S. currency from HSBC Mexico, allowing for money laundering, prosecutors said. The bank also violated U.S. economic sanctions against Iran, Libya, Sudan, Burma and Cuba, according to a criminal information filed in the case. [..]

Under a deferred prosecution agreement, the U.S. allows a target to avoid charges by meeting certain conditions — including the payment of fines or penalties — and by committing to specific reforms.

US government faces pressure after biggest leak in banking history

So just what was the Department of Justice and the IRS doing with this information about the bank and its clients? Apparently not much.

Confronted by the Guardian’s evidence, HSBC admitted wrongdoing by its Geneva-based subsidiary. “We acknowledge and are accountable for past compliance and control failures,” the bank said in a statement. The Swiss arm, the statement said, had not been fully integrated into HSBC after its purchase in 1999, allowing “significantly lower” standards of compliance and due diligence to persist. [..]

The 2012 settlement was overseen by Loretta Lynch, who was then US Attorney for the Eastern District of New York. Lynch is currently Barack Obama’s current nominee for attorney general.

At the time, the HSBC settlement was heavily criticised by both Republicans and Democrats for allowing the bank to escape criminal indictments and keep the charter which enables it to operate in the US. Lynch and other senior DoJ officials defended the deal, pointing out it committed HSBC to a five-year plan to stamp out money laundering and other illicit practices, an ongoing process that is being overseen by an independent, court-appointed monitor. [..]

The DoJ was under pressure to go beyond financial penalties – to bring criminal charges against HSBC or its bankers – in July 2012, after the Senate’s permanent subcommittee on investigations published its crushing 330-page report documenting how the bank’s lax anti-money laundering controls had been exploited by drug traffickers. [..]

The settlement proved controversial because it stopped short of criminally indicting the bank or its executives; lawmakers from both parties complained it revealed some Wall Street institutions were considered “too big to jail”. [..]

HSBC is now just over two years into its reform plan, and has been deemed to be complying with the terms of the settlement. However the court-appointed monitor, Michael Cherkasky, who oversees a team of banking investigators who review HSBC’s changes, has expressed some concern over the pace of reform. Cherkasky’s most recent assessment of HSBC’s ongoing efforts to clean up its act has once again concluded it could do better, according a recent report in the Wall Street Journal which cited people familiar with its findings.

CBS’s “60 Minutes” aired The Swiss Leaks a report by Bill Whitaker that examined “HSBC’s business dealings with a collection of international outlaws.”

Transcript can be read here

The sickening part of this is the US Justice Department was well aware of this when they settled the HSBC’s drug laundering case in 2013. Also. HSBC is one of the institutions that is refusing to handle the money of legitimate marijuana businesses.

Nice going, Eric.

Jun 18

Too Big To Fail Banks Are Getting Bigger

Last week the city of Miami sued JP Morgan Chase for its predatory lending practices in Miami’e minority neighborhoods that caused a wave of foreclosures resulting in blight and high crime in those areas

There has been no criminal prosecution of these banking behemoths by the Department of Justice, not because of lack of evidence but because Attorney General Eric Holder refused to bring those charges. Instead Holder has negotiated with the banks and, in the case of JPMorgan, directly with the CEO’s, imposing large fines that most of these banks recoup in hours. We know that the Obama administration is top heavy with former Wall Street and banking executives from Obama’s Treasury Department, to the Department of Commerce down to his latest appointment Thomas Wheeler, as chair of the Federal Communications Commission. Why has this been allowed? Why haven’t the regulations and reforms been enacted? Why no prosecutions? One word answer: Congress. As PBS’s [Bill Moyer notes Congress is their secret weapon

These finance executives took part in “scandals that violate the most basic ethical norms,” as the head of the IMF Christine Lagarde put it last month, including illegal foreclosures, money laundering and the fixing of interest rate benchmarks. In fact, banking CEOs not only avoided prosecution but got average pay rises of 10 percent last year, taking home, on average, $13 million in compensation.

  These “gentlemen” are among the leaders of the industry’s efforts to repeal, or water down, some of the tougher rules and regulations enacted in the Dodd-Frank legislation that was passed to prevent another crash. As usual, they’re swelling their ranks with the very people who helped to write that bill. More than two dozen federal officials have pushed through the revolving door to the private sector they once sought to regulate.

   And then there are the lapdogs in Congress willfully collaborating with the financial industry. As the Center for Public Integrity put it recently, they are “Wall Street’s secret weapon,” a handful of representatives at the beck and call of the banks, eager to do their bidding. Jeb Hensarling is their head honcho. The Republican from Texas chairs the House Financial Services Committee, which functions for Wall Street like one of those no-tell motels with the neon sign. Hensarling makes no bones as to where his loyalties lie. “Occasionally we have been accused of trying to undermine aspects of Dodd-Frank,” he said recently, adding, with a chuckle, “I hope we’re guilty of it.” Guilty as charged, Congressman. And it tells us all we need to know about our bought and paid for government that you think it’s funny.

Mr. Moyers was joined by economist Anat Admati, co-author of the book, The Bankers’ New Clothes, to discuss the bipartisan effort to defang Dodd-Frank and let these Too Big To Fail banks get even bigger.

Wall Street banks are lobbying to defang sections of the law related to derivatives – the complex financial contracts at the core of the meltdown. One deregulation bill, the “London Whale Loophole Act,” would allow American banks to skip Dodd-Frank’s trading rules on derivatives if they are traded in countries that have similar regulatory structures.



Full transcript can be read here

Jan 09

A Tale of Two Frauds

Why are these two tales of fraud not the same in the eyes of the law?

Charges for 106 in Huge Fraud Over Disability

By William K. Rashbaum and James C. McKinley Jr.JAN. 7, 2014

The retired New York City police officers and firefighters showed up for their psychiatric exams disheveled and disoriented, most following a nearly identical script.

They had been coached on how to fail memory tests, feign panic attacks and, if they had worked during the Sept. 11, 2001, terrorist attacks, to talk about their fear of airplanes and entering skyscrapers, prosecutors said. And they were told to make it clear they could not leave the house, much less find a job. [..]

Former police officers who had told government doctors they were too mentally scarred to leave home had posted photographs of themselves fishing, riding motorcycles, driving water scooters, flying helicopters and playing basketball.

“The brazenness is shocking,” Cyrus R. Vance Jr., the Manhattan district attorney, said on Tuesday.

While those fraudsters were being indicted, arrested and arraigned, these fraudster were planning their next rip off of their investors.

JPMorgan Is Penalized $2 Billion Over Madoff

By Ben Protess and Jessica Silver-Greenberg

Preet Bharara, the United States attorney in Manhattan, and Jamie Dimon, the chief executive of JPMorgan Chase, gathered in Lower Manhattan as Mr. Bharara’s prosecutors were considering criminal charges against Mr. Dimon’s bank for turning a blind eye to the Ponzi scheme run by Bernard L. Madoff. Mr. Dimon and his lawyers outlined the bank’s defense in the hopes of securing a lesser civil case, according to people briefed on the meeting. [..]

Within weeks of meeting Mr. Bharara and recognizing their limited bargaining power, JPMorgan’s lawyers accepted the $1.7 billion penalty, the people briefed on the meeting said, which was within the range that prosecutors initially proposed. The bank also agreed to pay $350 million to the Office of the Comptroller of the Currency, accepting the agency’s only offer, one of the people said.

It could have been worse for the bank. At one point, prosecutors were weighing whether to demand that the bank plead guilty to a criminal charge, a move that senior executives feared could have devastating ripple effects. Rather than extracting a guilty plea, prosecutors struck a so-called deferred-prosecution agreement, suspending an indictment for two years as long as JPMorgan overhauls its controls against money-laundering. [..]

For JPMorgan, the Madoff case is the bank’s latest steep payout to the government. In November, JPMorgan paid a record $13 billion to the Justice Department and other authorities over its sale of questionable mortgage securities in the lead-up to the financial crisis. All told, after paying these settlements, JPMorgan will have paid out some $20 billion to resolve government investigations over the last 12 months. [..]

And critics of Wall Street are unsatisfied, noting that Mr. Bharara’s office opted to defer prosecution and did not charge any JPMorgan employees with wrongdoing.

“Banks do not commit crimes; bankers do,” said Dennis M. Kelleher, the head of Better Markets, an advocacy group.

A United States District Judge for the Southern District of New York, Jed Rakoff, wants to know why have no high-level executives been prosecuted for the financial crisis

Five years have passed since the onset of what is sometimes called the Great Recession. While the economy has slowly improved, there are still millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope.

Who was to blame? Was it simply a result of negligence, of the kind of inordinate risk-taking commonly called a “bubble,” of an imprudent but innocent failure to maintain adequate reserves for a rainy day? Or was it the result, at least in part, of fraudulent practices, of dubious mortgages portrayed as sound risks and packaged into ever more esoteric financial instruments, the fundamental weaknesses of which were intentionally obscured?

If it was the former – if the recession was due, at worst, to a lack of caution – then the criminal law has no role to play in the aftermath. [..]

But if, by contrast, the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years. [..]

In striking contrast with these past prosecutions, not a single high-level executive has been successfully prosecuted in connection with the recent financial crisis, and given the fact that most of the relevant criminal provisions are governed by a five-year statute of limitations, it appears likely that none will be. It may not be too soon, therefore, to ask why. [..]

But the stated opinion of those government entities asked to examine the financial crisis overall is not that no fraud was committed. Quite the contrary. For example, the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior. [..]

Without giving further examples, the point is that, in the aftermath of the financial crisis, the prevailing view of many government officials (as well as others) was that the crisis was in material respects the product of intentional fraud. In a nutshell, the fraud, they argued, was a simple one. Subprime mortgages, i.e., mortgages of dubious creditworthiness, increasingly provided the chief collateral for highly leveraged securities that were marketed as AAA, i.e., securities of very low risk. How could this transformation of a sow’s ear into a silk purse be accomplished unless someone dissembled along the way? [..]

Thus, Attorney General Eric Holder himself told Congress:

   It does become difficult for us to prosecute them when we are hit with indications that if you do prosecute-if you do bring a criminal charge-it will have a negative impact on the national economy, perhaps even the world economy.

To a federal judge, who takes an oath to apply the law equally to rich and to poor, this excuse-sometimes labeled the “too big to jail” excuse-is disturbing, frankly, in what it says about the department’s apparent disregard for equality under the law.

Mar 26

Cyprus: The Not So Good Deal

Cross posted from The Stars Hollow Gazette

Cyprus Bailout photo BrokenEuro_zps0a6d094f.png As the dust of enthusiasm settles over this morning’s Cyprus deal with the European Union that closed the country’s second-largest bank and created a set of capital controls to prevent a run on the remaining banks, the financial world is taking a closer look and they aren’t happy. The agreement adheres to the law protecting insured accounts less than 100,000 euros. Supposedly, this deal prevented the immediate collapse of the Cyprus economy and its exit from the euro and, possibly, the European Union. Several economic analysts discuss the ramifications on the global banking and economy.

The Prodigal Greek has the simplest explanation of what capital controls entail (h/t Yves Smith):

Here is what a cash economy looks like:      

  • Restrictions in daily withdrawals
  • Ban on premature termination of time savings deposits
  • Compulsory renewal of all time savings deposits upon maturity
  • Conversion of current accounts to time deposits
  • Ban or restrictions on non cash transactions
  • Restrictions on use of debit, credit or prepaid debit cards
  • Ban or restriction on cashing in checks
  • Restrictions on domestic interbank transfers or transfers within the same bank
  • Restrictions on the interactions/transactions of the public with credit institutions
  • Restrictions on movements of capital, payments, transfers
  • Any other measure which the Finance Minister or the Govern or of Cyprus Central Bank see necessary for reasons of public order and safety

In other words, Cyprus euros can only be spent in Cyprus and cannot be taken out of Cyprus to any other country; checks, debit and credit cards are useless. It is a strictly cash and carry local economy since Cypriots will not be able to make internet purchases. It will restrict travel into and out of the island, as well. The agreement has isolated the tiny island from the rest of the EU. Economics and financial analyst, Frances Coppola explains the ramifications of these restrictions:

From Tuesday, Cyprus becomes a black hole in the Eurozone: any money that goes into it stays there, and no money can leave……From a safe distance, it will appear frozen in time, a small cash-based economy, isolated from the rest of the EU. While inside, invisible to all except those who actually go there – or live there – its social fabric is torn apart as its economy collapses. Note the final clause in the capital control bill:

   Any other measure which the Finance Minister or the Governor of Cyprus Central Bank see necessary for reasons of public order and safety

So as people’s livelihoods are destroyed and their standard of living crashes, other measures may be introduced to ensure that they can’t take matters into their own hands.

From Yves Smith at naked capitalism is her summation of the attempt to contain Cyprus:

First, confiscating bank deposits is now on the table in any future crisis. That’s toothpaste that’s not going back in the tube. Commerzbank chief economist Jörg Krämer has already suggested (Google translates) “a one-time property tax levy” for Italy and “a tax rate of 15 percent on financial assets.” And adding fuel to the fire, the Leader of the UK Independence Party has urged expats in the periphery countries, in particular the 750,000 British in Spain to “Get your money out of there while you’ve still got a chance.”

Second, capital controls in Cyprus mean that there are now two Euros in effect: The Euro that you can use only in Cyprus, and the Euro you can use elsewhere in the so-called “monetary union.” So from the perspective of people in Cyprus, the results are in some ways worst that a breakup: rather than having depreciated dough, you have dough that has been impounded, particularly in terms of using it outside Cyprus. [..]

Third, these concerns may be amplified by how rapidly and visibly the Cypriot economy craters. The “rapidly” is due to the fact, as discussed in greater detail in the post from Cyprus.com below, that the Cyprus economy will suffer a one-two punch: the loss of a big chunk of wealth, plus the disappearance of much of the financial services sector, which was 45% of GDP.

The capital controls have isolated Cyprus from the rest of the EU without actually expelling the country.

The deal may have stayed the immediate crisis but it hasn’t stopped the eventual collapse of the Cyprus economy or its future exit from the euro. Not only that, it is the shot across the bow for other economically troubled EU countries of things to come.  

Mar 23

Cyprus: No Good Deed Goes Unpunished

Cross posted from The Stars Hollow Gazette

Up Date 3.23.2013 0100 AM EDT: The Cyprus Parliament has passed part of a bailout plan but has delayed voting on a tax for unsecured deposits:

One of the provisions Parliament approved Friday would impose new restrictions on withdrawing cash or moving money out of the country when the banks reopen. These new capital controls would prohibit or restrict check-cashing and bar “premature” account closings or any other transaction the authorities deemed unwarranted.

Lawmakers also voted to restructure the nation’s largest and most troubled bank, Laiki Bank, by splitting off its troubled assets into a so-called bad bank. Accounts with no problem would be transferred to the nation’s largest financial institution, the Bank of Cyprus. Lawmakers also voted to require that any bank on the verge of bankruptcy be split apart in the same way. [..]

Still to be voted on is the measure to impose a tax of 22 to 25 percent on uninsured deposits at the Bank of Cyprus. That proposal was made after lawmakers rejected a plan earlier in the week to tax insured deposits to help raise the amount needed to secure the bailout. The Parliament appears to be trying to make up the difference in part by shifting the burden to large account holders.

Cyprus Finance Minister Michael Sarris returned empty handed from Russia after the Russians ruled  out helping until after a deal is struck with European Union. Yesterday, German Chancellor Angela Merkel rejected the proposal to nationalize pension funds and insisting that depositors, especially large savings accounts, be taxed to raise the needed €5.8 billion of the €10 billion bailout deal. Part of the reason for the refusal to accept nationalization of pensions as part of the deal is that Germany did just that to finance both world wars. Germans also face an election in six months and have been reluctant to give up on the bank levy since it protects them from accusations of using European taxpayers money to bail out big Russian investors in Cyprus.

In a nut shell, Cyprus got into this mess because the country’s banks were using Russian deposits to buy Greek bonds to help forestall the collapse of the Greek banks. The Greek bonds went bad, and the Cypriot banks lost a bundle. No good deed goes unpunished.

So where is Cyprus now? At this time, the Parliament is going over a series of bills that would consolidate its ailing banks and the creation of a fund that pools state and church assets, i.e. real estate and pensions, against which they would issue bonds. The deputy leader of he ruling Democratic Rally party, Averof Neophytou, cleared the way for the reconsideration of tax levy on savings accounts which had been flatly reject ted on Tuesday.

The other monkey wrench in all of this is Turkey’s challenge of the any move by Cyprus to speed up offshore natural gas exploration as a way of attracting desperately needed investment to save the economy.  

“This resource belongs to two communities and the future of this resource can’t be subject to the will of southern Cyprus alone. (We) may act against such initiatives if necessary,” one of the Turkish officials told Reuters.

“The exclusive use of this resource … by Southern Cyprus is out of question … and unacceptable.”

Cyprus has been divided between the Greek Cypriot south and Turkish north since a Greek coup d’etat followed by a Turkish army invasion in 1974. Efforts to reunite the island have repeatedly failed and Turkey is the only nation to recognise the self-declared Turkish Republic of Northern Cyprus.

At the Washington Post‘s “Wonkblog”, Dylan Matthews predicted two possible scenarios if Cyprus accepts the EU bailout terms:

What’s the best case scenario from a bailout?

The best we can hope for is that Cyprus takes the hit, gets some money, recapitalizes its banks, and recovers from there. It had a fairly conservative banking sector before the crisis, with deposits far outstripping loans, and its government was actually running surpluses, so it doesn’t have to engage in the kinds of fundamental structural reforms that appear necessary in Greece. So if the Greek losses were just a temporary shock, the rescue money should get the country back on its feet.

And the worst-case scenario?

The worst-case scenario under a plan with a haircut is that the plan triggers a run on banks not just in Cyprus (that appears to already be happening) but in other vulnerable countries like Spain and Italy as customers worry that the E.U. will try to impose similar conditions there. That would exacerbate an already bad situation as it would increase bank shortfalls; fewer deposits, after all, mean a worse deposit-to-liability ratio. Those kinds of runs could lead to a continent-wide crisis of the kind observers have been fearing since the euro zone started its slow-motion collapse back in 2009.

However, the failure of the initial haircut plan renders this outcome less likely. It does render a Cypriot exit from the monetary union quite a bit more likely. That would trigger bank runs in Cyprus as people try to get their money out before the Cypriot pound falls dramatically in value relative to the Euro, and could trigger further runs in Spain and Italy. That’s bad for the same reason haircut-inspired bank runs are bad.

Truthfully, it’s all bad and there is no reason for this since as Ezra Klein points out that the solution is to just give Cyprus the money:

Seriously. €15.8 billion ($20.5 billion) is not a lot of money in the scheme of European finance. It is trivially easy for the European Central Bank, or the IMF, or the Federal Reserve, or really any central bank of any consequence to just hand it over. That the troika is already committing €10 billion ($13 billion) is evidence enough. All the troubles in the negotiations are linked to the demand that €5.8 billion ($7.5 billion) come from Cyprus’ own coffers. Dropping that requirement could solve everything.

The Germans will never allow that until they are in the same boat. This is also why the euro will eventually fail.  

Mar 22

The Cyprus Game of Chicken

Cross posted from The Stars Hollow Gazette

Cyrus banks will remain closed until Tuesday as the government of Pres. Nicos Anastasiades struggles to find away to avert a banking failure and withdrawal from the euro.

Crisis talks among the political leadership in Nicosia are set to resume on Thursday after late-night meetings to discuss a “Plan B” broke up on Wednesday without result.

EU officials voiced frustration but little sympathy for an ambitious but now bust banking system that extended itself well beyond the island; Russia, whose citizens have billions to lose in those Cypriot banks, called the EU a “bull in a china shop”. [..]

Finance Minister Michael Sarris extended a stay in Moscow, where Russian officials said he asked for a further 5 billion euros on top of a five-year extension and lower interest on an existing 2.5-billion euro loan from Moscow.

According to Yves Smith at naked capitalism not all of Cyprus’ banks are in the same shape and “the back story is complicated”

It’s key to understand that this crisis was created by the Troika. Cyprus asked for a bailout nine months ago and the deadline is a bond payment this June. And while it has become fashionable to pin the blame for this mess on Cyprus, the backstory is more complicated. From Cyprus.com:

   Not all the banks are in the same condition.

   (a) Cyprus has two money-center type banks: Laiki (Popular) Bank and Bank of Cyprus.

   (b) Laiki was purchased by a Greek vehicle (Marfin Investment Group) backed by Gulf money. Marfin’s purchase of Laiki took Laiki from being a fairly conservative local bank to being highly exposed to Greece. Laiki is definitely insolvent and needs to be restructured.

   (c) Bank of Cyprus has been more conservative vis-a-vis Greece, but still has meaningful exposure. It is conceivable that, given time, Bank of Cyprus could survive.

   (d) Beyond the main two banks, there is Hellenic Bank (a much smaller bank with much less Greek exposure), Cyprus Development Bank (no Greek exposure), the Co-ops (no Greek exposure) and the Cyprus subsidiaries of foreign banks (aka, Russian, English, etc banks), also with no Greek exposure.

   (e) All the local oriented banks (BoC, Laiki, Hellenic, Coops) have exposure to the local real estate market that went through a bubble during the 2000-2009 period. This exposure however is not short-term and could be resolved over the period of years. It is a problem, not a crisis, and is offset by the fact that the two main banks have quasi-monopolistic earnings power locally. Given the time and some financial represssion (a la the United States) and the local issues would be manageable.

In other words, the bank that is the epicenter of the problem was driven into the ditch by foreign buyers. Now admittedly, the local bank supervisors did nothing to stop that, but can you point to a single national bank regulator (ex the Canadians) that put much in the way of constraints on their banks prior to the crisis.

Paul Krugman’s take on this:

Still trying to wrap my head around the Cyprus situation; what makes it so interesting (as in “may you live in interesting times”) is the role of the island as a tax, regulation, and law enforcement haven.

It’s not just about the Russian connection, but that connection is really huge. Here’s another metric: Cyprus is, according to official figures, the largest single foreign direct investor in Russia – this from an economy roughly the same size as metropolitan Scranton PA. What’s that about? The FT explained it a while back: [..]

And a key aspect of the current mess is that the Cypriot government isn’t willing to give up this business. That’s why solutions like converting large deposits into CDs haven’t been on the table; once round-tripping Russians know that they can find their money trapped for long periods, they’ll go find another treasure island.

Stay tuned for more to come.

Mar 20

Cyprus Stops EU Bank Robbery

Cross posted from The Stars Hollow Gazette

The Cyprus Parliament has rejected the European Union’s bail out deal that would have imposed a hefty one time tax on all deposits to raise  €5.8 billion of the total €10 billion bailout cost. The original terms of the bailout called for a one-time tax of 6.75 percent on deposits of less than €100,000, or $129,000, and a 9.9 percent tax on holdings of more than €100,000.

NICOSIA – The Cypriot Parliament on Tuesday overwhelmingly repudiated a €10 billion international bailout package that would have set an extraordinary precedent by taxing ordinary depositors to pay part of the bill.  The lawmakers sent President Nicos Anastasiades back to the drawing board with international bailout negotiators to devise a new plan that would allow the country to receive a financial lifeline and avoid the specter of a devastating default that would reignite the euro crisis.

Lawmakers rejected the plan with 36 voting no and 19 abstaining arguing that it would be unacceptable to take money from account holders. Some in the opposition party even suggested abandoning a European Union bailout altogether and appealing to Russia or China to lend Cyprus the funds it needs to keep the economy and its banks afloat.

The deal was brokered last week with Cypriot President Nicos Anastasiades in a meeting at a European Union summit in Brussels. According to reports in The Guardian, the newly elected president was literally “sucker punched” by  the International Monetary Fund, the European Commission, and the European Central Bank as it sought to broker a bailout for its ailing banks:

(..) (T)he centre-right Cypriot leader was given a 12-hour stay of execution until the early hours of Saturday on what, highly conveniently, was a Cyprus bank holiday weekend. He went home with a €10bn euro bailout and a eurozone taboo-busting obligation to expropriate every saver in every bank in Cyprus. [..]

It was not the two-day summit that decided to confiscate savers’ money for the first time in more than three years of currency, banking and sovereign debt crisis. Rather, the Dutch finance minister Jeroen Dijsselbloem called an emergency session of the eurogroup in the same drab building in Brussels to kick off on Friday just as the leaders were heading for the airport. [..]

The key players were Wolfgang Schaeuble, the German finance minister, his former deputy, Jörg Asmussen, from the ECB, Christine Lagarde of France for the IMF, and Finland’s Rehn from the commission.

Anastasiades lingered in the building, but did not take part in the meeting which began at 4.30pm on Friday and ended with a bombshell – under the terms of the bailout he would need to find €5.8bn by raiding bank accounts.

Needless to say the reaction of the Cypriots was predictable with attempts to withdraw as much cash from ATM’s which were quickly emptied over the weekend. The banks were ordered to keep the cash machines replenished even though the banks would remained closed until Thursday. There were worries in other EU member states that depositors would start pulling savings from accounts, particularly Italy, Spain and Greece where the economic conditions are still uncertain.

The market reactions on Monday were predictable, they fell. While the Asian market today was fairly stable on the plus side, the European market fell. On Wall Street, the S&P and NASDAQ fell while the DOW which was in the red most of the day had a late rally to end the day with a 0.03% gain, hardly impressive.

At Reuters, Felix Salmon presented an alternative solution that designed the godfather of sovereign debt restructuring by Lee Buchheit, “the godfather of sovereign debt restructuring,” and Mitu Gulati of Duke University, in a three page paper:

First, leave all deposits under €100,000 untouched. Hitting those deposits was by far the biggest mistake of the Cyprus plan as originally envisaged, and everybody would be extremely happy if guaranteed depositors could be kept whole.

Second, term out everybody else by five years, or ten if they prefer.

That’s it! That’s the whole plan, and it’s kinda genius. If you have bank deposits of more than €100,000, they will be converted into bank CDs, with a maturity of either five years or 10 years – your choice. If you pick the longer maturity, then your CD will be secured by future Cypriot gas revenues, which could amount to hundreds of billions of dollars.

And if you have sovereign bonds, they too will be termed out by five years, giving Cyprus a bit of breathing room to get its act together.

According the paper, this plan would reduce the size of the bailout by more that the €5.8 while not touching anyone’s principle. There would still be a “present value haircut” to accounts over €100,000 but that is going to happen in any bailout scenario.

Cyprus has long been a money stashing haven for Russian oligarchs who have over €20 billion in the banks, nearly one third of all deposits.  

This was an unprecedented move by the EU to force regular depositors and, rightly, the outrage was justified, immediate and predicted. Even Paul Krugman was predicting bank runs. That question looms large:

if the taxpayers of the rich northern members of the eurozone are going to force a country that represents only 0.2% of the club’s GDP to part-finance their own bailout, will they be any more generous when it comes to some of the big-country members such as Italy and Spain that might be next in line? And in the event that the Italians and the Spanish get an inkling that a bailout is looming, won’t they immediately withdraw all their euros immediately, triggering a bank run?

The question now is what next? Will the Russians or Chinese come to the aid of Cyprus to protect their citizens deposits? Can they afford to? Will Cyprus withdraw from the EU and risk the failure of its banks? Can a tiny island nation of 1.1 million be the downfall of the euro?

Stand by, as events will happen very fast to avert a global monetary disaster.

Mar 13

Why Wasn’t the Death Penalty Warranted?

Cross posted from The Stars Hollow Gazette

Once again Sen. Elizabeth Warren demonstrated why the voters of Massachusetts sent her to the Senate when in a Senate Banking Committee hearing about money laundering, she questioned why British bank HSBC is still doing business in the U.S., with no criminal charges filed against it, despite confessing to what one regulator called “egregious” money laundering violations

Her comments came just a day after the attorney general of the United States confessed that some banks are so big and important that they are essentially above the law. His Justice Department’s failure to bring any criminal charges against HSBC or its employees is Exhibit A of that problem.

(..} Warren grilled officials from the Treasury Department, Federal Reserve and Office of the Comptroller of the Currency about why HSBC, which recently paid $1.9 billion to settle money laundering charges, wasn’t criminally prosecuted and shut down in the U.S. Nor were any individuals from HSBC charged with any crimes, despite the bank confessing to laundering billions of dollars for Mexican drug cartels and rogue regimes like Iran and Libya over several years.

Defenders of the Justice Department say that a criminal conviction could have been a death penalty for the bank, causing widespread damage to the economy. Warren wanted to know why the death penalty wasn’t warranted in this case.

“They did it over and over and over again across a period of years. And they were caught doing it, warned not to do it and kept right on doing it, and evidently making profits doing it,”

“How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this?”

“You sit in Treasury and you try to enforce these laws, and I’ve read all of your testimony and you tell me how vigorously you want to enforce these laws, but you have no opinion on when it is that a bank should be shut down for money laundering?”

“If you’re caught with an ounce of cocaine, the chances are good you’re gonna go to jail. If it happens repeatedly, you may go to jail for the rest of your life,” Warren said. “But evidently if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your bed at night — every single individual associated with this. And I think that’s fundamentally wrong.”

As staunch an opponent of the death penalty as I am, I would have voted for it and watched the “execution” of HSBC with glee.

Dec 19

Now They Are “Too Big To Jail”

Cross posted from The Stars Hollow Gazette

Last summer it was revealed that one of the world’s largest banks based, HSBC, base in Britain, had been laundering billions of dollars for Mexican drug cartels and skirting US government bans against financial transactions with Iran and other countries that aid Al Qaeda and other terrorist groups. In a stunning move during a hearing before the  Senate Permanent Subcommittee on Investigations chief compliance officer, David Bagley, took the blame and resigned.

Last week the federal government and New York State announced a settlement with HSBC:

In a filing in Federal District Court in Brooklyn, federal prosecutors said the bank had agreed to enter into a deferred prosecution agreement and to forfeit $1.25 billion. The four-count criminal information filed in the court charged HSBC with failure to maintain an effective anti-money laundering program, to conduct due diligence on its foreign correspondent affiliates, and for violating sanctions and the Trading With the Enemy Act.

“HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries,” Lanny A. Breuer, the head of the Justice Department’s criminal division, said in a statement. [..]

HSBC, based in Britain, has also agreed to pay the Office of the Comptroller of the Currency, one of the bank’s central regulators, an additional $500 million as part of a civil penalty. The Federal Reserve will be paid a $165 million civil penalty. [..]

HSBC also entered into a deferred prosecution agreement with the Manhattan district attorney’s office. As part of that agreement, HSBC admitted that it violated New York State law.

Just like the mortgage and banking fraud that was uncovered during the financial crisis, there will be no criminal charges. The fines that were levied are tantamount to about five weeks of income for the bank. Contributing editor for the Rolling Stone, Matt Taibbi points out the outrageous incongruity of this settlement:

If you’ve ever been arrested on a drug charge, if you’ve ever spent even a day in jail for having a stem of marijuana in your pocket or “drug paraphernalia” in your gym bag, Assistant Attorney General and longtime Bill Clinton pal Lanny Breuer has a message for you: Bite me. [..]

The banks’ laundering transactions were so brazen that the NSA probably could have spotted them from space. Breuer admitted that drug dealers would sometimes come to HSBC’s Mexican branches and “deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows.”

This bears repeating: in order to more efficiently move as much illegal money as possible into the “legitimate” banking institution HSBC, drug dealers specifically designed boxes to fit through the bank’s teller windows. [..]

Though this was not stated explicitly, the government’s rationale in not pursuing criminal prosecutions against the bank was apparently rooted in concerns that putting executives from a “systemically important institution” in jail for drug laundering would threaten the stability of the financial system. The New York Times put it this way:

   Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system. [..]

So there is absolutely no reason they couldn’t all face criminal penalties. That they are not being prosecuted is cowardice and pure corruption, nothing else. And by approving this settlement, Breuer removed the government’s moral authority to prosecute anyone for any other drug offense. Not that most people didn’t already know that the drug war is a joke, but this makes it official.

Apparently this settlement has garnered some bipartisan concerns from Senators Jeff Merkley (D-OR) and Charles Grassley. In separate statements released from their offices, they criticized the Justice Department for not sending a stronger message to the banking industry. Sen. Grassley said it best:

   The Department has not prosecuted a single employee of HSBC-no executives, no directors, no AML compliance staff members, no one. By allowing these individuals to walk away without any real punishment, the Department is declaring that crime actually does pay. Functionally, HSBC has quite literally purchased a get-out-of-jail-free card for its employees for the price of $1.92 billion dollars.

   There is no doubt that the Department has “missed a rare chance to send an unmistakable signal about the threat posed by financial institutions willing to assist drug lords and terror groups in moving their money.” One international banking expert went as far as to argue that, despite the “astonishing amount of criminal behavior” from HSBC employees, the DPA is no more than a “parking ticket.”

But, as David Dayen at FDL News notes there are crickets from certain key senators:

Matt Stoller makes a very good point here: where is Patrick Leahy on this? He has made no public statement on the HSBC case, despite being the co-author of the Fraud Enforcement and Recovery Act, which was supposed to deliver funds toward prosecuting fraudulent big bank activity (it never actually did). Grassley, a co-author, has spoken out. Why not Leahy?

Matt Taibbi sat down with Amy Goodman and Juan Gonzalez at Democracy Now to discuss the settlement:

Transcript can be read here

Now, not only are the banks “too big to fail“, they are “too big to jail.

 

Aug 19

I Am You and You Are Me

It’s hard to say where it went wrong,

Decades before me and this song,

Through the banksters and the wars,

I just can’t take it anymore . . .

Aug 17

Every Banker Had a Good Time

As the leaders of the People’s Republic of Plutocracy, Inc. prepare for the corporate coronations of Romney and Obama in Tampa and Charlotte, they’re fervently hoping Occupy Wall Street won’t spoil all the fun by sending dangerous American citizens into the streets to tell the truth all over the place.  In Beltway offices, Homeland Security meetings, and conference calls with the militarized police departments of the One-Percent, the same questions are being asked about Occupy Wall Street. Who are those people?  Why are they going to the national conventions with protest signs and devious plans to say whatever they want about the government, right out loud, in broad daylight where other citizens might hear them?  What the hell do they think this is, a democracy?  

I’ve got a feeling it’s not going to matter how many riot police are in the streets, pepper-spraying everyone in the twilight’s last gleaming, Americans are going to hear what Occupy Wall Street has to say in Tampa and Charlotte about the “government” and the “job creators” and this trickle down train wreck they call an economy.

Oh yeah . . .

Oh please believe me, I’d hate to miss the train.  Oh yeah.

The chorus of our new national anthem is inspiring, isn’t it?  Feel free to sing along Fox viewers, low information voters, brainwashed birthers and cable pundits, pulpit pounders of the Westboro Baptist Church and Obamabots of the Great Orange Asteroid . . .  

Every worker had a hard year,

Every banker had a good time,

Every general had a wet dream,

Every fat cat saw the sun shine.

Oh yeah.

Aug 17

SBC Settles with NYS Regulator

Cross posted from The Stars Hollow Gazette

No agreement is perfect but the settlement that was reached Tuesday afternoon with the New York Department of Financial Services over Standard Charter Bank’s illicit money laundering with Iran and other countries under sanctions was better than most. In particular, SBC’s admission that the “the conduct at issue involved transactions of at least $250 billion.” The fine of $340 million was larger than the $250 million SBC offered but smaller than either the $700 million to $1 billion that SBC might have had to pay if the case had gone to a hearing on Wednesday and large because of the multi-billion dollar transaction admission. So the agreement is being touted as a victory for Benjamin M. Lawsky and his 10-month old agency, the New York Department of Financial Services which took on the bank without the Federal agencies who have been negotiating with SBC.

Yves Smith at naked capitalism has the statement from Mr. Lawsky:

STATEMENT FROM BENJAMIN M. LAWSKY, SUPERINTENDENT OF FINANCIAL SERVICES, REGARDING STANDARD CHARTERED BANK

   Benjamin M. Lawsky, New York Superintendent of Financial Services, issued the following statement today.

   “The New York State Department of Financial Services (“DFS”) and Standard Chartered Bank (“Bank”) have reached an agreement to settle the matters raised in the DFS Order dated August 6, 2012. The parties have agreed that the conduct at issue involved transactions of at least $250 billion.

   “The settlement also includes the following terms:

       

  • The Bank shall pay a civil penalty of $340 million to the New York State Department of Financial Services.
  • The Bank shall install a monitor for a term of at least two years who will report directly to DFS and who will evaluate the money-laundering risk controls in the New York branch and implementation of appropriate corrective measures. In addition, DFS examiners shall be placed on site at the Bank.
  • The Bank shall permanently install personnel within its New York branch to oversee and audit any offshore money-laundering due diligence and monitoring undertaken by the Bank.

   “The hearing scheduled for August 15, 2012 is adjourned.

   “We will continue to work with our federal and state partners on this matter.”

This settlement is only with the New York regulator and it includes the transfers with Libya, Mynmar and the Sudan.

While this could have been better, Mr. Lawsky did get the bank to concede that the transfer did indeed involve the $250 billion which resulted in a larger settlement. SBC still must deal with the federal regulators based on the concession with NYDF. As David Dayen at FDL sees it this put a whole new slant on those talks:

In addition, this does not end the legal trouble for Standard Chartered. This only resolves the issues with the New York Department of Financial Services. Federal regulators (including Treasury, the Federal Reserve and the Justice Department) as well as the Manhattan District Attorney must now enter into their negotiations, and if they cannot get as much as the DFS, it will be completely embarrassing. This could cost Standard Chartered at least double this initial figure.

Meanwhile over at the SEC, Wells Fargo walks away from mortgage investment case with a $6.5 million fine and no admission of wrongdoing as usual. Wells Fargo earned $16 billion last year.

The Securities and Exchange Commission has spent nearly four years building cases against the nation’s biggest banks for their role in the mortgage mess.The agency has filed civil actions against Goldman Sachs, JPMorgan Chase and Citigroup.

But in recent months, the agency has struggled to bring big cases as it pursued a second round of investigations focused on the banks’ failure to disclose the dangers of mortgage securities. The Wells Fargo case comes just days after Goldman Sachs revealed that the S.E.C. had closed an investigation into a 2006 mortgage deal without pursuing charges. [..]

The action also cited Shawn McMurtry, a former vice president and broker at the bank, over his role in selling the deals. Under the settlement, Mr. McMurtry agreed to a $25,000 fine and six-month suspension from the securities industry.

I’m sure Mr. McMurtry can afford it.

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