This is how we do it baby.

What are “Capital Controls”? Well, they’re basically laws that keep people (and corporations) from sucking Billions of dollars in revenues and resources from your country and taking it someplace else.

It’s really not too strong to call it National rape.

Now back in the bad old days before “Free Trade” it was acceptable for a government to say- “Ok, your company can do business here, but you also have to take the profit you generate and buy and invest in other things here also.” Think Nigeria, Shell, and Chevron. Companies have stolen native land, gunned down protesters in the streets, and polluted the crap out it. Then, instead of improving the economy they’ve taken the money and left Nigeria like a used condom on the oil slicked bloated and decaying fish dead bird beach.

It’s Africa Jake.

Is it? Is it really? Just because they’re brown? There’s a name for that- racist.

But it’s a principle of universal applicability. Another, though marginally more subtle, example is the Eurozone. Because of the universal currency Germans can suck all the resources out of Greece, Portugal, Spain, Italy with no restrictions.

So what’s the downside of just saying “No”?

“You make your country less hospitable to foreign investors!”

So, you don’t get raped so often. This is bad why?

If you have an economy like any major power (talking U.S., EU, Japan, China, Russia…) most of your trade is internal. International investors can piss up a rope because you’ll never notice. Hell, you print your own money and all your debts are payable in that same exact money of which you can make all you want!

Thhhhhpt!

While most of the majors take full advantage of this there are some circumstances in which you wish to prevent Capital flight. Suppose your country was in a deep Depression and you needed to stimulate local spending to increase Demand for your Excess Capacity?

Or suppose your country was under sanctions and you couldn’t trade on a “Free Market”? Do you think it would be fair to allow everyone to just take all their stuff and leave?

Personally I think that would be fair but as we have seen sanctions are intensely political and unjust executions of punishment on regimes that are merely sufficiently unpopular among the global ruling elite. Where are the sanctions on Saudi Arabia for bombing MSF Hospitals in Yemen (oh, and they’re bombing them because the Yemeni are Shia so it’s simply religious persecution which the U.S. Government fully supports. Yay us.)?

Anyway, Banksters laugh at you and your puny attempts at regulation!

Deutsche Bank’s $10-Billion Scandal
By Ed Caesar, The New Yorker
August 29, 2016

Scandals have proliferated at Deutsche Bank. Since 2008, it has paid more than nine billion dollars in fines and settlements for such improprieties as conspiring to manipulate the price of gold and silver, defrauding mortgage companies, and violating U.S. sanctions by trading in Iran, Syria, Libya, Myanmar, and Sudan. Last year, Deutsche Bank was ordered to pay regulators in the U.S. and the U.K. two and a half billion dollars, and to dismiss seven employees, for its role in manipulating the London Interbank Offered Rate, or libor, which is the interest rate banks charge one another. The Financial Conduct Authority, in Britain, chastised Deutsche Bank not only for its manipulation of libor but also for its subsequent lack of candor. “Deutsche Bank’s failings were compounded by them repeatedly misleading us,” Georgina Philippou, of the F.C.A., declared. “The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems.”

In April, 2015, the mirror-trades scheme unravelled.
…
According to a former employee, before the crash of 2008 the desk’s yearly profit was nearly three hundred million dollars. In the years after the crash, profits plunged by more than half. In this environment of diminishing returns on normal stock-market activity, the Moscow equities desk was looking to find fresh revenue streams.

Many businesses in the Russian Federation avoid taxes by using offshore jurisdictions, such as Cyprus, for their headquarters. Rich Russians, meanwhile, often funnel their private fortunes offshore, in an effort to hide their assets from the capricious and predatory Russian state. Frequently, this fugitive money is invested in assets such as property: on Park Lane in London, or Park Avenue in New York.
…
The impact of this capital flight is felt at both ends of its journey. Research published last year by Deutsche Bank’s own analysts suggested that unrecorded capital inflows from Russia into the U.K. correlated strongly with increases in U.K. house prices and, to a lesser extent, with a strengthening of the pound sterling. Capital flight also has weakened Russia’s tax base and its currency. In 2012, Putin began a “de-offshorization” program, urging businesses and oligarchs to keep their headquarters and their fortunes at home. Two years later, after Russia’s incursion into Crimea led to sanctions from the European Union and the U.S., Putin declared that offshorization was illegal. But as the ruble and the economy foundered many Russians felt even more eager to remove their money. Mirror trading was an ideal escape tunnel.
…
In one, he would use Russian rubles to buy a blue-chip Russian stock, such as Lukoil, for a Russian company that he represented. Usually, the order was for about ten million dollars’ worth of the stock. In the second trade, Volkov — acting on behalf of a different company, which typically was registered in an offshore territory, such as the British Virgin Islands — would sell the same Russian stock, in the same quantity, in London, in exchange for dollars, pounds, or euros. Both the Russian company and the offshore company had the same owner. Deutsche Bank was helping the client to buy and sell to himself.

At first glance, the trades appeared banal, even pointless. Deutsche Bank earned a small commission for executing the buy and sell orders, but in financial terms the clients finished roughly where they began. To inspect the trades individually, however, was like standing too close to an Impressionist painting—you saw the brushstrokes and missed the lilies. These transactions had nothing to do with pursuing profit. They were a way to expatriate money. Because the Russian company and the offshore company both belonged to the same owner, these ordinary-seeming trades had an alchemical purpose: to turn rubles that were stuck in Russia into dollars stashed outside Russia. On the Moscow markets, this sleight of hand had a nickname: konvert, which means “envelope” and echoes the English verb “convert.” In the English-language media, the scheme has become known as “mirror trading.”

Mirror trades are not inherently illegal. The purpose of an equities desk at an investment bank is to help approved clients buy and sell stock, and there could be legitimate reasons for making a simultaneous trade. A client might want to benefit, say, from the difference between the local and the foreign price of a stock. Indeed, because the individual transactions involved in mirror trades did not directly contravene any regulations, some employees who worked at Deutsche Bank’s Russian headquarters at the time deny that such activity was improper.
…
Viewed with detachment, however, repeated mirror trades suggest a sustained plot to shift and hide money of possibly dubious origin. Deutsche Bank’s actions are now under investigation by the U.S. Department of Justice, the New York State Department of Financial Services, and financial regulators in the U.K. and in Germany. In an internal report, Deutsche Bank has admitted that, until April, 2015, when three members of its Russian equities desk were suspended for their role in the mirror trades, about ten billion dollars was spirited out of Russia through the scheme. The lingering question is whose money was moved, and why.
…
One day in 2011, the Russian side of a mirror trade, for about ten million dollars, could not be completed: the counterparty, Westminster Capital Management, had just lost its trading license. The Federal Financial Markets Service in Russia had barred two mirror-trade counterparties, Westminster and Financial Bridge, for improperly using the stock market to send money overseas. Fees, charges and costs of transferring money overseas can be a real pain when trying to send money, which is why these kind of events tend to happen. The failed trade was a problem for Deutsche Bank. It had paid several million dollars for stock without receiving a cent from Westminster. Employees at all levels of a financial institution notice when a trading desk abruptly falls short by a few million dollars. The episode should have raised serious suspicions—especially given the revoking of Westminster’s license—but apparently it did not.

Employees recall that the failed trade was resolved in November, 2012, when Westminster repaid Deutsche Bank. Volkov resumed calling in mirror trades, on behalf of other counterparties. These companies were supposedly subjected to a rigorous “client review” process, and all of them were deemed satisfactory by a Deutsche Bank compliance team. But there was a pattern suggesting malfeasance. Clients of the scheme consistently lost small amounts of money: the differences between Moscow and London prices of a stock often worked against them, and clients had to pay Deutsche Bank a commission for every transaction—between ten hundredths and fifteen hundredths of a percentage point per trade. The apparent willingness of counterparties to lose money again and again, a former manager at Deutsche Bank told me, should have “sounded an air-raid alarm” that the true purpose of the mirror trades was to facilitate capital flight.
…
(A) Russian banker, who helped to set up the mirror-trade scheme, told me that much of the money belonged to Chechens with connections to the Kremlin. Chechnya, the semi-autonomous region in the North Caucasus, is ruled by the exuberantly barbarous Ramzan Kadyrov, who is close with Putin. Chechnya receives huge subsidies from Russia, and much of the money has ended up in the pockets of figures close to Kadyrov.

The Deutsche Bank mirror-trades operation appears to be linked to an even bigger attempt to expatriate money: the so-called Moldovan scheme. Starting in 2010, fake loans and debt agreements involving U.K. companies helped funnel about twenty billion dollars out of Russia to a Latvian bank, by way of Moldova. When the Moldovan scheme unravelled, in late 2015, several people were arrested. One was Alexander Grigoriev, a Russian financier who controlled Promsberbank—a now defunct institution, based in a Russian backwater called Podolsk, which counted Igor Putin as a board member. Two of Promsberbank’s major shareholders—including Financial Bridge—have been accused of making mirror trades. The Russian news agency RBC has reported that “the criminal dealings of Promsberbank” and the mirror trades at Deutsche Bank are connected.

Deutsche Bank has not commented on whose money was expatriated through the mirror trades, although John Cryan, the C.E.O., has said that the bank has not knowingly assisted Russians on the sanctions list. In the deadening argot of finance, Deutsche Bank’s Russian fiasco has frequently been called a “failure of controls.” In an interview in March, 2016, Cryan said, “To our knowledge, the individual transaction steps in themselves were innocuous. However, the case raises questions about how effective our systems and controls were, especially with regard to the onboarding of new clients, an area where we experienced difficulties in collecting sufficient information.”

This passive language is hard to square with the blatant nature of the scheme. Roman Borisovich, a former investment banker at Deutsche Bank in London, who focussed on Russian businesses, told me, “‘Fucking Obvious’ is the middle name of Russian corruption.”
…
Reports of Deutsche Bank’s internal investigation into mirror trades do not inspire confidence. Mirror trades occurred for at least two years before anyone raised any concerns, and when red flags appeared it was months before anyone acted on them. According to Bloomberg News, the internal report notes that, in early 2014, a series of inquiries about the propriety of mirror trades had been logged by multiple parties, including Hellenic Bank, in Cyprus, the Russian Central Bank, and back-office staff members at Deutsche Bank itself. When Hellenic Bank executives contacted Deutsche Bank and asked about the unusual trades, they did not hear back from the compliance department. Instead, their inquiry was fielded by the equities desk that was performing the mirror trades. Deutsche Bank in Moscow reassured Hellenic Bank that everything was in order.
…
On March 9, 2015, less than a month before the mirror-trades scandal became public, Oliver Harvey and Robin Winkler, two strategists in the research department of Deutsche Bank in London, published a report, “Dark Matter,” which described the vast unrecorded transfer of money among nations. Most economic papers are politely ignored by the world at large, but “Dark Matter” attracted wide interest. Several newspapers ran articles about it, and Harvey appeared on both CNN and the BBC to discuss his research.

The report’s conclusions confirmed long-held suspicions. In any national economy, the authors explained, there are capital flows that do not appear on what is called “the balance of payments.” Errors and accidental omissions should be random, and therefore reveal no pattern. The authors found that in the United Kingdom the pattern was anything but random. Britain had “large positive net errors” that suggested significant “unrecorded capital inflows.” Analyzing data from other countries, Harvey and Winkler deduced where the vast majority of unrecorded capital flowing into the U.K. was coming from. Since 2010, they wrote, about a billion and a half dollars had arrived, unrecorded, in London every month; “a good chunk” of it was from Russia. “At its most extreme,” the authors explained, the unrecorded capital flight from Moscow included “criminal activity such as tax evasion and money laundering.”

In a connected and digitized financial system, how could such capital flight happen? Bank transfers leave a footprint. Imports and exports are accounted for. How could money disappear in one place and show up in another? The two strategists did not have to wait long, or look far, to learn the shameful answer: of the eighteen billion dollars that the researchers had estimated was flowing into the U.K. each year, about twenty per cent had arrived there as the result of trades made at their own bank.

But what does this mean to you?

Since 2011, the Federal Reserve has performed a yearly “stress test” of U.S. lenders, assessing whether banks would have enough capital to withstand the shock of an economic downturn. Deutsche Bank failed the test in 2015, and failed again this June, when “broad and substantial weaknesses” were uncovered. Soon after the Federal Reserve’s latest report was released, the International Monetary Fund issued a dire warning. Deutsche Bank, it said, was not only “one of the most important net contributors to systemic risks in the global banking system”; it was also a contagious agent, because of heavy financial “spillover” between Deutsche Bank and other lenders and insurers. Any kind of failure at Deutsche Bank, the I.M.F. suggested, would be extremely bad news for everybody.

Given Deutsche Bank’s fragility, the mirror-trading scandal could not have come at a worse time. Cryan has promised to settle the Russian case by the end of this year, and the bank recently set aside about a billion dollars for legal costs. This may not be enough. Last year, Deutsche Bank was fined the relatively small sum of two hundred and fifty-eight million dollars for its circumvention of sanctions against Iran, Sudan, and elsewhere. In 2014, however, BNP Paribas agreed to pay nearly nine billion dollars to settle with regulators over sanctions violations. And the mirror trades may exact a heavy fine from U.S. regulators, who take a dim view of activity that looks like money laundering. A payment as vast as the one levied at BNP Paribas could require Deutsche Bank to raise capital to survive. A German government bailout might become a necessity. A capital shortfall at Germany’s largest bank might provoke a banking crisis across Europe. The shock to the global economy would be profound.

No, I’m not seeing into the future. That’s the actual dateline.

Is it important? HSBC laundered Billions for Drug Lords and Terrorists. Did that matter? Deutsche Bank was deeply involved in the LIBOR scandal putting $350 Trillion (59.5 Light Years) at risk.

Senate Judiciary Committee Hearing, March 6, 2013

Sen. Chuck Grassley, R-Iowa: In the case of bank prosecution. I’m concerned we have a mentality of ‘too big to jail’ in the financial sector, spreading from fraud cases to terrorist financing to money laundering cases. I would cite HSBC.
…
Assistant Attorney General Breuer said that one reason that DOJ has not sought these prosecutions is because it reaches out to ‘experts’ to see what effect the prosecution will have on the financial markets. On Jan. 29, Sen. [Sherrod] Brown and I requested details on who these so-called ‘experts’ are. So far we have not received any information. Maybe you’re going to but why have we not yet been provided the names of experts the DOJ consults as we requested on Jan. 29? We continue to find out why we aren’t having these high-profile cases.

Attorney General Eric Holder: I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy. I think that is a function of the fact that some of these institutions have become too large.

Again, I’m not talking about HSBC, this is more of a general comment. I think it has an inhibiting influence, impact on our ability to bring resolutions that I think would be more appropriate.
…
We looked at those kinds of cases. I think we have been appropriately aggressive, these are not always easy cases to make. When you look at these cases, you see that things were done ‘wrong’ then the question is whether or not they were illegal. And I think the people in our criminal division… I think have been as aggressive as they could be, brought cases where we think we could have brought them. I know that in some instances that has not been a satisfying answer to people, but we have been as aggressive as we could have been.

Grassley: If you constitutionally can jail the CEO of a major institution, that is going to send a pretty wide signal to stop a lot of activity that people think they can get away with.

Holder: You are right, senator. The greatest deterrent effect is not to prosecute a corporation — although that’s important — the greatest deterrent effect is to prosecute the individuals in the corporations that are responsible for those decisions. We’ve done that in the UBS matter and try to do that whenever we can. But the point that you make is a good one.

Thank you so much Mr. “Liberal” “Progressive” Barack Obama.