JPM and ING: Some Trading with the Enemy Is More Equal than Other Trading with the Enemy

/4 Comments/in , /by

ING just signed a $619M settlement with Treasury for sanctions violations, largely with Cuba, but also with Iran, Burma, North Korea, Sudan, and Syria. Aside from the fact that that’s the biggest sanctions settlement ever, I’m interested in it because of just how different Treasury’s publication of ING’s settlement looks from JPMC’s $88.3M settlement last August.

The difference largely comes down to one big detail: Treasury didn’t release the actual settlement with JPMC, but did with ING. Rather than the JPMC settlement, Treasury released just a PDF version of the public announcement on a blank sheet of paper (compare smaller civil penalties, for example, where they release just a link and a PDF of the details, link and PDF). With ING, the settlement appears in full, on letterhead, with the signatures of ING’s General Counsel and Vice Chair at the bottom, not far below the terms of the settlement. And the settlement reads like an indictment, with a 6 pages of factual statements. Indeed, ING signed Deferred Prosecution Agreements with both the NY DA and DC US Attorneys Offices.

And the information included in the settlement is quite interesting. Most interestingly, the settlement describes how ING manipulated SWIFT reporting to hide its transfers with restricted countries.

Beginning in 2001, ING Curacao increasingly used MT 202 cover payments to send Cuba-related payments to unaffiliated U.S. banks, which would not have to include originator or beneficiary information related to Cuban parties. For serial payments, up until the beginning of 2003, NCB populated field 50 of the outgoing SWIFT MT 103 message with its own name or Bank Identifier Code, Beginning in the second quarter of 2003, NCB populated field 50 with its customer’s name, but omitted address information. ING Curacao also included its customer’s name, but no address information, in field 50 of outgoing SWIFT messages.

Read more →

The Banksters and the Cartels

/13 Comments/in , /by

Two Colombian economists decided to see who’s getting money off the illegal drug trade. And they discovered that American and British banks are getting a big chunk of the profits. (h/t Chris from Americablog) That’s because the cartels are laundering their proceeds through those banks.

The most far-reaching and detailed analysis to date of the drug economy in any country – in this case, Colombia – shows that 2.6% of the total street value of cocaine produced remains within the country, while a staggering 97.4% of profits are reaped by criminal syndicates, and laundered by banks, in first-world consuming countries.

Mind you, I’m not sure the analysis would be that different for any agricultural export. Even for food, farmers make less than 12% of all the money spent.

But one of the factors, the economists contend, is that the US more stringently polices money laundering in Colombian banks than in US ones.

Colombia’s banks, meanwhile, said Mejía, “are subject to rigorous control, to stop laundering of profits that may return to our country. Just to bank $2,000 involves a huge amount of paperwork – and much of this is overseen by Americans.”

“In Colombia,” said Gaviria, “they ask questions of banks they’d never ask in the US. If they did, it would be against the laws of banking privacy. In the US you have very strong laws on bank secrecy, in Colombia not – though the proportion of laundered money is the other way round. It’s kind of hypocrisy, right?”

I have noted (as does the Guardian), how banks like Wachovia used drug proceeds to help offset their losses from the mortgage bubble shitpile. I have noted how much less stringent we were in rooting out all the crime than we are with other banks, such as the Lebanese Canadian Bank. And I noted Citi’s recent wrist slap for allowing money laundering in the same shitpile period.

This article shows the other side to that: while our banksters get rich off of crime here, Colombia and Mexico and Honduras suffer the violence that results. That really has to change.

Only Banks Might Want to Review How Criminal Banks Are

/4 Comments/in , /by

The other day, I noted how–days after his department reported that suspected bankster crimes are growing quickly and terrorist financing crimes are going down–Treasury Department fired FinCEN head, Jim Freis. Given some of the reporting describing the firing, which explained that Treasury wanted to focus on things like terrorist financing whereas Fries had been focusing on things like mortgage fraud, I wondered whether Treasury fired Freis, in part, for showing that the emphasis on terrorism resulted in the neglect of bankster crimes.

Today, FinCEN sent out notice of a survey to determine how useful that report and another yearly report–on Tips and Trends–they produce are (note, the email notice says an invitation to the survey is here, but as of 8:15 it is not).

As a subscriber to e-mail updates from the United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), FinCEN invites you to participate in a survey assessing the value of two of our recurring publications:  The SAR Activity Review-Trends, Tips & Issues and The SAR Activity Review-By the Numbers.  This invitation has been sent to you in follow up to FinCEN’s prior e-mail notification.  A copy of that notice and this invitation can be found on FinCEN’s official website at http://www.fincen.gov/hotTopics.html

To participate in this completely voluntary survey, please click on the following link: https://svy.cfigroup.com/cgi-bin/qwebcorporate.dll?idx=HWGKEN   Please note that this link will direct you to a website hosted by the CFI Group, which FinCEN has commissioned to conduct this survey.  FinCEN has obtained permission from the Office of Management and Budget through control number 1090-0007 to conduct this survey in accordance with the Paperwork Reduction Act (44 U.S.C. § 3501-3520) and its implementing regulations (5 C.F.R. Part 1320).

Through the survey, we hope to learn more about your needs and identify opportunities to improve these products.  The results of the survey will be reported to FinCEN only in the aggregate; individual responses will be grouped anonymously along with those of other FinCEN customers.

Read more →

Did Treasury Fire Jim Freis for Showing that Banksters Are a Bigger Problem than Terrorists?

/17 Comments/in , /by

As I noted earlier, a few weeks ago Treasury fired the head of FinCEN, Jim Freis. (FinCEN makes sure that financial institutions report whatever evidence of potential crimes they’re seeing.)

American Banker reported that Treasury wanted “additional focus on international areas such as terrorist financing,” and less focus on “other financial crimes such as mortgage fraud.”

Three days before he was fired, FinCEN released this report, showing in aggregate what all of last year’s Suspicious Activity Reports revealed. It shows that among the SARs from depository institutions (which make up over half of all SARs), reports of terrorist financing and hacking (computer intrusion) are going down, while reports of behavior targeting consumers–mortgage and consumer loan fraud–are going up (though it notes the mortgage loan fraud reports are inflated because some date from years ago).

  • Reports of Terrorist Financing declined 14%, from 711 instances in 2010 to 609 for the same period in 2011.
  • The number of depository institution SARs identifying Mortgage Loan Fraud as a Characterization of Suspicious Activity continued to rise (up 30.6% in calendar year 2011). Quite markedly, Mortgage Loan Fraud is the only summary characterization that has experienced an increase every year since 1996, with the past two years (2010 and 2011) accounting for nearly 37% of all noted instances of this specific activity for the last decade. Note that depository institutions may submit Mortgage Loan Fraud SARs well past the actual date of the activity. This upward spike in mortgage fraud counts is in predominant part attributable to mortgage repurchase demands and special filings generated by several institutions.4
  • Of the eleven reportable suspicious activities that experienced decreases, none saw greater than Computer Intrusion, falling 21% in 2011 as compared to those filed in 2010. For the second year in a row, this drop is amongst the largest of any of the defined summary characterizations.
  • Though having experienced decreases in 2009 and 2010, the number of reports indicating Consumer Loan Fraud (in whole or part) significantly rose in 2011, up 127% from the prior year.

Such trends are similar to what the report shows in the securities and futures industries, with an even bigger drop in terrorist financing and big gains in futures fraud, embezzlement, and insider trading.

  • Embezzlement/Theft saw the second largest gain of any of the suspicious activities reported in SAR-SF filings, rising 38% in CY2011. However, of the 21 Types of Suspicious Activity listed, Futures Fraud saw the biggest rise (up 85%) for the same year, increasing from 20 instances in 2010 to 37 instances in 2011.
  • Likewise, Insider Trading (+34%) and Forgery (+19%) also experienced double-digit growth, making them the only two distinct activities that have continued to rise every year since 2003.
  • Of those activity types showing a decrease, Bribery/Gratuity (down 74%) and Terrorist Financing (down 59%) both saw a sizeable drop between 2010 and 2011, with the former down from 69 reported instances last year to just 18 in 2011 and the latter falling from 46 instances in 2010 to a low of 19 twelve months later.

Remember, SARs are not a reflection of what Freis demands (nevermind the fact he’s been on the job when things like terrorist financing were higher). Rather, this is what banks and securities firms self report, as mandated by law, about what they’re seeing in their own records.

Jim Freis showed that terrorism is getting better and bankster crimes are getting worse. And then Treasury fired him.

And the report from American Banker suggests that by replacing Freis, Treasury may intend to have FinCEN dictate what financial institutions prioritize. Which will mean terrorism–and not the crimes of banksters–will once again be the focus.

Fincen is likely to take a higher profile when it receives new leadership. In the immediate aftermath of the Sept. 11 attacks, Fincen was very active in dealing with bank regulatory matters, including helping to shape policy on anti-money laundering requirements. But the financial crisis largely pushed Fincen to the side and the agency focused on many of its other responsibilities. Treasury appears to want Fincen to take a larger role in terrorist financing activities and possibly reassert itself in the bank regulatory sphere. In past few years, banks have not had to focus on what Fincen’s agenda was. A more assertive Fincen changes the equation.

FinCEN offers one objective read of the relative prevalence of various forms of financial crime. And last year, it showed that banksters were a growing problem and terrorists a shrinking one.

And that message was so dangerous to the powers that be, it appears, Treasury decided to kill the messenger.

US Let China Buy Treasuries Directly During Debt Ceiling Crisis

/20 Comments/in /by

Reuters has a story on how the Treasury Department allowed China to start buying US Treasuries directly last June.

The documents viewed by Reuters show the U.S. Treasury Department has given the People’s Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011.

China can now participate in auctions without placing bids through primary dealers. If it wants to sell, however, it still has to go through the market.

The change was not announced publicly or in any message to primary dealers.

Now, Reuters offers a number of potential reasons why China might want to do this: it would get a better price by by-passing Wall Street, it reflected growing confidence its money managers could buy debt more efficiently than through primary dealers.

But I can’t help notice the timing.

Last summer, just as it was becoming increasingly clear that Republicans were willing to crash the economy to win the debt ceiling debate, China started buying US debt directly.

I have no idea whether that would enable Treasury to exceed the debt limit without notice–assuming everything else worked the same, it presumably wouldn’t. But as Reuters reported last year (almost at the same time this latest change was taking place), when China wanted to keep buying 30% or more of our treasuries at auctions in 2009, we fudged the rules to allow them to do that. Then by letting China buy directly last year, as The Big Picture shows, Treasury gave the appearance that China was net selling debt, rather than (presumably) continuing to buy a great deal of it.

At the very least, then, the Obama Administration has twice enacted ways to hide the degree to which China has us by the balls, keeping interest rates low while gaining more and more of a threat over us. Given the timing, though, I can’t help but wonder whether it also serves to hide something else about our debt.

And–as Reuters implicitly notes–this change also means we willingly gave the greatest hacking entity in the world direct access to our Treasury auctions.

To safeguard against hackers, Treasury officials upgraded the system that allows China to access the bidding process.

[snip]

The United States has, however, displayed increasing anxiety about China as a cybersecurity threat. The change Treasury officials made to their direct bidding system before allowing access to China was to limit access to the system to a specially designed private network connection controlled by the Treasury.

Oh, okay then. Because the specially designed private networks DOD runs on have proven so resistant to China’s attacks.

Jamie Dimon: Inspiring Fear Among “Wealthy Private Clients” Even in Disgrace

/18 Comments/in , /by

I’ve got that wonderfully satisfied yet mildly sick feeling I used to get after eating too many sweets as a kid, what with all the schadenfreude directed at Jamie Dimon and his $2 billion loss.

But I’m particularly struck by this story, in which Gretchen Morgenson recounts how Jamie DImon called Paul Volcker and Richard Fisher “infantile” at a party a month ago, for warning about Too Big To Fail banks. That piece of news, like all the rest, added to my sugar buzz. But I was struck by this passage, describing Morgenson’s sources.

The party, sponsored by JPMorgan for a group of its wealthy private clients, took place at the sumptuous Mansion on Turtle Creek hotel. Mr. Dimon was on hand to thank the guests for their patronage and their trust.

During the party, Mr. Dimon took questions from the crowd, according to an attendee who spoke on condition of anonymity for fear of alienating the bank. One guest asked about the problem of too-big-to-fail banks and the arguments made by Mr. Volcker and Mr. Fisher.

Mr. Dimon responded that he had just two words to describe them: “infantile” and “nonfactual.” He went on to lambaste Mr. Fisher further, according to the attendee. Some in the room were taken aback by the comments.

That is, Morgenson’s source(s) is not some entry level trader. He or she is a private client, a very rich person, whom Dimon was brought in to suck up to. Not just suck up to, but “thank … for their trust.”

Here we are a month later and Dimon and JPM generally have proven that trust was misplaced. If it were me, I’d be pulling my money out of JPM before Dimon pulls an MF Global with it. Yet even still, this very rich person is afraid of “alienating the bank.”

Not that that’s surprising. After all, Goldman Sachs still commands the kind of fear that leads people to invest with it, even after it became clear it was suckering clients to buy shitpile that it could then short.

Still, if there’s a sign of just how perverse our finance system is right now, it’s that the rich people Dimon is supposed to be sucking up to actually fear him, even after he has been disgraced.

Vladimir Putin Too Busy Rearranging His Sock Drawer to Attend the G8

/11 Comments/in /by

I have to admit, the old KGB hand Vladimir Putin sure plays hardball in matters of diplomacy. Normally when you blow off a major summit (Putin will be sending Dmitri Mevedev in his place), you give more than a ten day’s notice.

Vladimir Putin will miss a planned visit to the US this month for a key global summit and a much-anticipated meeting with President Barack Obama, the Kremlin has confirmed, as the Russian president faced pressure from protests and opposition criticism at home.

The White House announced on Wednesday that Putin was unable to join the other leaders of the Group of Eight industrial nations meeting outside Washington on 18-19 May. The Kremlin said Putin needed to finish work setting up his government.

I guess Vlad didn’t know what a mess his sock drawer was in when the US used him as an excuse to move the G8 away from protestors in Chicago to Camp David.

Russian opposition to U.S. and NATO plans for a missile defense shield in Europe was the subtext of a surprise announcement earlier this spring of a change in venue for the G-8 meeting. The summit was long planned to take place adjacent to a larger summit of NATO leaders in Chicago.

Putin let it be known that he did not want to attend the NATO summit, as Russian leaders sometimes do by invitation, or engage NATO leaders on the missile issue, U.S. and other diplomats said. They spoke on condition of anonymity to discuss sensitive diplomacy. The missile defense plan is on the NATO agenda for Chicago, although most of the summit discussions are likely to center on Afghanistan.

The switch to Camp David was partly an attempt by the U.S. to appear welcoming to Putin, so that he could meet quietly with European and other large powers at the dawn of his presidency without the awkward juxtaposition with NATO and the missile shield issue, the diplomats said.

Though a desire to appease Putin was, just like Putin’s excuse about naming a cabinet, just a convenient excuse.

Read more →

Fighting Middle Eastern Wars with Pegs and Drones

/16 Comments/in , /by

I’m reading Currency Wars right now, which may be one of the reasons I suspect that the decision to launch signature strikes in Yemen was not requested by CIA and JSOC but instead dictated by Saudi Arabia. But I’ve also recently read the WikiLeaks cables that show how nervous recent discussions of the Saudi peg of the riyal to the dollar have been.

For example, one of the most recent cables released, describing a mid-February 2010 meeting between Deputy Treasury Secretary Neal Wolin and Saudi Monetary Agency Governor Muhammad Al Jasser and Minister of Finance Ibrahim Al Assaf, records Jasser invoking Chinese calls for an alternative to the dollar.

(C) Jasser reaffirmed Saudi Arabia’s support for the riyal-dollar peg, noting that the peg is in Saudi Arabia’s “cold-blooded self interest,” though he noted it sometimes felt like “we are alone.” Referencing past calls by China and others in the G-20 for an alternative to the U.S. dollar as the world’s reserve currency, Jasser said some have asked him why he does not give up on the U.S. dollar. He turned to a response he gave to a European newspaper that asked why Saudi Arabia hadn’t switched its peg to the Euro, “When oil is denominated in Euros, we’ll research it.”

In the same meeting, Jasser reminded Wolin that Saudi Arabia had far more ability to “undermine and safeguard” the world economy than its GDP might suggest.

Jasser stated that, as an oil economy, Saudi Arabia has the ability to both undermine and safeguard the world’s economy. He noted that Saudi Arabia was able and willing to support reform efforts at the IMF and World Bank, but that the ability to harm or help the global economy is a better measure of a nation’s relative economic importance than GDP.

Read more →

The 99% Demand that GE Pay Its Fair Share

/9 Comments/in /by

I spent the morning in Detroit watching the Joe Louis fist–one of Detroit’s iconic symbols–be swallowed up by a crowd of people demanding that GE–which was holding its shareholders meeting in the Renaissance Center nearby–pay its fair share in taxes (to say nothing of keeping jobs in the US).

Seeing crowds of people, swarm that fist, pointed right towards where Jeff Immelt was speaking, was a pretty awesome way to spend the morning.

Inside the event, some of the 99% were making the same demand.  Then, Jeff “China China China” Immelt apparently rushed through his legal obligation to at least pretend that shareholders own GE (he finished one hour in exactly).

As we walked around Detroit’s Renaissance Center, a few people came to the balcony to look on.

I think the Powers that Be had originally thought it’d be smart to hide us out back. For some reason, they had us leave the hidden back area and move right up front.

The sign reads: To hell with greed. –God

I’ll update later if my video is any good and when Dave Johnson–who managed to stay through the whole whopping 60 minute (exactly) meeting posts his story.

 

The US Attempts to Retain Control Over the Financialized Playground

/46 Comments/in /by

I’m a big fan of Kevin Phillips’ arguments about how increased financialization of their economies lead to the decline of the Spanish, Dutch, and British empires in succession; his latest book warned that Wall Street crash might represent our tipping point. But I’ve been wondering what happens to a globalized world that is that financialized, as we have now. My impression is that it might be different this time around, partly because the world is so interconnected that most of the world has, for better or worse, been integrated into the same financialized system.

As James Galbraith described in his book Inequality and Instability, the the last several decades can be understood as the US first extracting wealth from the rest of the world, and only then turning to the American consumer to do to it what it had already done to developing countries.

First, the massive rise of inequality in the global economy from 1980 to 2000, with a peak in most countries–including the United States–in the millennial year, is a fundamental reflection of the concentration of income and wealth among the richest of the rich, and the corresponding financial fragility affecting everyone else. Crises, and especially debt crises, are thus not new or sudden; in global perspective we see that they have cascaded across the world for a generation, hitting Latin America and African in the early 1980s, the Soviet Union and its satellites in the late 1980s and through the 1990s, and much of Asia in the late 1990s.

Through this period inequality rose in the United States, but the prevalence of external crises also meant that the United States benefited throughout from its position as a refuge for capital. In the 1990s capital flowed in, especially to the benefit of investors in the technology sectors, whose investment euphoria produced a general nationwide prosperity right up to the initial crash of the technology sector–and its NASDAQ stock index–in March and April 2000.

The problem facing the incoming administration of George W. Bush in January 2001 was thus twofold. Externally, there was little scope remaining for extracting capital from the rest of the world. Every region that was open to crisis, with the possible exceptions of China and India, had already had one. Internally, the appeal of the major American leadership sector had worn out.

Galbraith describes how Bush tried first war and then American consumers to sustain growth, which brought about the financial crisis.

The financial crisis (and the world economic crisis it engendered) thus represented not so much the natural outgrowth of rising inequality as a further phase; it was the consequence of a deliberate effort to sustain a model of economic growth based on inequality that had, in the year 2000, already ended. By pressing this model past all legal and ethical limits, the United States succeeded in prolonging an “era of good feeling,” and in ensuring that when the collapse came, it would utterly destroy the financial sector.

In short, you can’t separate the current global system from the US efforts to sustain its financialized empire.

But the big players in the developing world are getting cranky with US efforts to sustain its hegemony over that financialized system.

The view was expressed by Wang Jisi, a high level Chinese insider, in this Brookings report documenting the roots of Chinese-American distrust (see also this NYT article on the report).

Since 2008, several developments have reshaped China’s views of the international structure and global trends, and therefore of its attitude toward the United States. First, many Chinese officials believe that their nation has ascended to be a firstclass power in the world and should be treated as such. China has successfully weathered not only the 1997-98 Asian financial crisis but also the 2008-09 global financial crisis; the latter, in Chinese eyes, was caused by deep deficiencies in the U.S. economy and politics.

Read more →