Treasury’s Quaint Notion of “Voluntarily”

/1 Comment/in /by

As DDay noted earlier, Treasury will ignore that Standard Chartered signed a settlement confirming that it had hidden $250 billion worth of transfers by gaming its documentation so that it can sign a softball unified settlement with everyone else.

It’s more important that SCB get its softball settlement, I guess, than Treasury maintain even a shred of credibility.

But in addition to simply ignoring that earlier settlement, Treasury is also giving this excuse for its softball settlement.

Prosecutors and Treasury officials will also assess a smaller penalty because the bank came forward voluntarily with information about its transactions and compliance with United States sanctions, according to the law enforcement officials.

Remember this, from Benjamin Lawsky’s original settlement?

At a meeting in May 2010, SCB assured the Department that it would take immediate corrective action. Notwithstanding that promise, the Department‟s last regulatory examination of the New York branch in 2011 identified continuing and significant BSA/AML

failures, including:

  • An OFAC compliance system that lacked the ability to identify misspellings and variations of names on the OFAC sanctioned list.
  • No documented evidence of investigation before release of funds for transactions with parties whose names matched the OFAC-sanctioned list.
  • Outsourcing of the entire OFAC compliance process for the New York branch to Chennai, India, with no evidence of any oversight or communication between the Chennai and the New York offices. [my emphasis]

As of last year, SCB wasn’t even doing what they claimed they were doing to fix this problem. More troubling, they had replicated what they and other banks had done before, simply send the office engaging in this fraud so far away from the US so as to offer the US branch plausible deniability.

That’s what counts as “voluntary” cooperation in TurboTax Timmeh Geithner’s Treasury Department: ongoing efforts to continue engaging in the same kind of games.

Read more →

When Job-Killing Regulations Are Removed, Jobs Become Killers

/4 Comments/in , /by

The city of Karachi is shut down today:

Public transport was suspended and schools and colleges closed. Factories and markets also shut while attendance at offices was thin.

This city of 18 million is in mourning for the deaths of 258 people in a fire at a garment factory. The fire was horrific:

Workers were suffocated or burnt alive at the Ali Enterprises garment factory in Karachi, which made ready-to-wear clothing for Western export, when a massive fire tore through the building during the evening shift on Tuesday.

Up to 600 people were working inside at the time, in a building that officials said was in poor condition without emergency exits, forcing dozens to jump from upper storeys to escape the flames, but trapping dozens in the basement where they perished.

How can a factory be allowed to operate when it is in such poor condition that nearly half the workforce present dies when a fire breaks out? One place to look for an answer to that question is the labor minister of Sindh province, where Karachi is located:

Ameer Nawab, who has just resigned from his post as Sindh labour minister, has said that Chief Minister Syed Qaim Ali Shah had stopped him from taking action against factories violating labour rules.

This point was corroborated by Sharafat Ali of the Pakistan Institute of Labour Education and Research, an organisation that works for labour rights. He alleged on Wednesday that the CM had verbally issued directives to government officials to stop the inspections of factories in Sindh.

Noor Muhammad of the Pakistan Workers Confederation and Ayub Qureshi of the Pakistan Trade Union Federation had damning words for how regulations are enforced:

“The state and its machinery is responsible because they silently allow the violation of laws and regulations established to ensure health and safety at work,” said Muhammad.

The National Trade Union Federation held a protest outside the press club and demanded Rs700,000 for those who died in the fire and Rs300,000 for the injured.

“If inspections are allowed in jails where people serve time for their crimes then why is this right denied to labourers who strive to earn by lawful means?” asked Ayub Qureshi of the Pakistan Trade Union Federation. “Industrialists and entrepreneurs have been allowed to treat their labourers even worse than animals.”

Those in the US who rail against “job-killing regulations” should take a moment to ponder Karachi’s mourning today. The cost of allowing garment manufacturers in Pakistan to operate without inspections of their facilities was around 300 lives just this week, as another 25 lives were lost in a shoe factory fire in Lahore. Factory inspections also had been halted in Punjab province, where Lahore is located. Earlier this year, over 100 Pakistanis lost their lives due to contaminated heart medication that was produced as a result of lax regulation.

These tragedies in Pakistan should stand as a stern warning for what happens when regulations are brushed aside in favor of “industrialists and entrepreneurs”. And if you think that can’t happen here, try telling it to the four million families who lost their homes as $7 trillion in family home values was wiped out by the unregulated market for various derivatives based on mortgages that were packaged and sold in “creative” ways. If other US industries are allowed to go Galt in the way the financial industry has, days of mourning could be coming to a city near you.

Bittersweet Justice for Bradley Birkenfeld

/14 Comments/in /by

Today, the IRS awarded whistleblower Bradley Birkenfeld $104 million to reward him for having exposed UBS’ methods of helping US tax cheats hide their loot, tax free, in Switzerland.

It’s a bittersweet award, I’m sure. As Birkenfeld’s lawyer, Stephen Kohn, reminded at the ceremony, Birkenfeld was imprisoned by the Obama Administration for fraud in spite of what now is clear confirmation he acted as a whistleblower; he got out early on August 1 from his 40 month sentence.

The IRS reward will help undo the tremendous damage caused by the ill-conceived decision of the U.S. Department of Justice to ignore the whistleblower laws and prosecute Mr. Birkenfeld. Mr. Birkenfeld was the only UBS banker to blow the whistle and the only UBS banker to be prosecuted. By doing so the DOJ sent the wrong message to international bankers. They caused a chilling effect on the willingness of employees in the international banking industry with direct knowledge of illegal offshore banking practices to step forward to report these crimes.

The National Whistleblower Center carefully investigated the basis upon which the DOJ justified its prosecution. The DOJ did not tell the truth about Mr. Birkenfeld. At his sentencing hearing, the DOJ justified its decision to indict Mr. Birkenfeld based on its position that Mr. Birkenfeld had failed to inform the government about the illegal activities of his largest client, billionaire Igor Olenicoff.

But this charge against Mr. Birkenfeld was false and defamatory. The NWC carefully reviewed court records concerning the Olenicoff case, internal emails regarding Mr. Birkenfeld’s disclosures, and a confidential transcript of sworn testimony Mr. Birkenfeld provided to the U.S. Senate in 2007 about the illegal activities of Mr. Olenicoff. These materials absolutely verify that Mr. Birkenfeld did in fact blow the whistle on Mr. Olenicoff, and that the charges made by the DOJ were false. The NWC finds it very troubling that the prosecutor who leveled these charges in court against Mr. Birkenfeld has left his government job and taken a position with a major law firm that defends tax cheats. The DOJ also granted immunity to the top-ranking official at UBS who was responsible for the UBS tax frauds and permitted this official, Martin Liechti, to leave the United States and obtain safe-haven in Switzerland where, to this day, he has escaped justice. Mr. Liechti invoked the 5th amendment in testimony before the U.S. Senate.

There’s even a WikiLeaks cable suggesting we prosecuted Birkenfeld as a favor to the Swiss.

And it’s not just Birkenfeld who has gotten limited justice out of this–though obviously he is by far the worst off. While the IRS got over $5 billion in owed taxes as a result of his whistleblowing, no one else went to prison, not even the several individuals about whom specifically Birkenfeld blew the whistle. And a bunch of rich people–potentially including a Presidential candidate–enjoyed an amnesty that didn’t even require them to admit they had been cheating their country.

In short, like so much else with the Obama Administration, it’s an example where the real criminals go free while the whistleblowers get prosecuted.

The Imperial Overlords Giveth, the Imperial Overlords Taketh Away

/10 Comments/in /by

In the US yesterday, the big press outlets were reporting on a big push to give Egypt “aid” to get its economy back on track. (WaPo, NYT) Though the NYT’s URL (and original title, I think) used the word “aid,” what we’re really planning on doing is offering Egypt debt relief.

Nearly 16 months after first pledging to helpEgypt’s failing economy, the Obama administration is nearing an agreement with the country’s new government to relieve $1 billion of its debt as part of an American and international assistance package intended to bolster its transition to democracy, administration officials said.

In addition, we’re talking an IMF loan, economic liberalization of the sort that brought about the revolution in the first place, and a dog and pony show for the American Chamber of Commerce in Egypt.

The day before, on the other side of the pond, the Guardian and some other outlets reported on the loot Hosni Mubarak’s cronies stashed in England which hasn’t been frozen (and/or wasn’t before they hid it somewhere else).

Britain has allowed key members of Egypt’s toppled dictatorship to retain millions of pounds of suspected property and business assets in the UK, potentially violating a globally-agreed set of sanctions.

[snip]

Three days after Mubarak’s downfall, with popular pressure to recover Egypt’s ‘stolen billions’ mounting in the street, the interim government in Cairo requested that western authorities freeze the assets of several former regime members who were suspected of embezzling public funds and hiding them in property and business interests.

William Hague, the foreign secretary, told MPs the request would be co-operated with, and government ministers promised “firm, decisive and prompt action”.

Yet although Switzerland took only half an hour to begin freezing Egyptian regime assets following Mubarak’s overthrow, the UK took 37 days to follow suit – a delay which critics say could have allowed assets to be liquidated and illicit funds to be moved offshore.

And while Switzerland has frozen almost £500m of suspect Egyptian assets, the UK has frozen less than a fifth of that and returned none of it to Egypt.

Read thew whole thing–the Guardian describes how some of Mubarak’s cronies are opening new businesses in London.

The Guardian also reminds that one of the things that facilitated all this looting was the kind of “free market liberalizations” that the US is now applauding more of in Egypt.

An aggressive free-market reform programme instituted by the Mubarak regime in the 1990s and 2000s saw previously state-owned companies and landholdings shift into the hands of private businessmen at an astonishing rate. Prominent “big sharks” within the ruling NDP party – including Mubarak’s playboy son and assumed successor Gamal – amassed huge riches.

Now, the “news” that England has been sheltering Egyptian loot is not news. I posted this 18 months ago.

The New York Times heralds that,

Swiss Locate Funds Linked to Mubarak

But what the story really reports is that the Swiss have located just “several dozen million Swiss francs,” which works out to less than $38 million of the up to $70 billion Hosni Mubarak reportedly looted from Egypt. The real headline of the story ought to be…

Former Western Allies Dragging Feet on Mubarak’s Millions

Read more →

Immunizing Crimes: Blankfein, Zirbel, and Arpaio, but Whither Corzine?

/23 Comments/in , , , , /by

DOJ has been doing a lot of immunizing of late. There’s Lloyd Blankfein, who not only ripped off his clients with “one shitty deal,” he then lied to Congress about it. There’s Matt Zirbel,* the CIA officer who had Gul Rahman doused with water and left to freeze to death in the Salt Pit. And there’s Joe Arpaio, who used the Maricopa County Sherriff’s office to investigate his political enemies.

DOJ immunized all these men in the last month, in spite of a vast amount of publicly available evidence clearly showing their crimes. And while DOJ had the courage to announce their decision about Blankfein and Goldman Sachs on a typical news day, not so their announcements about Zirbel and Arpaio–DOJ slipped those announcements into the journalistic distraction of Paul Ryan’s dishonest speech and Clint Eastwood’s empty chair, and the more generalized distraction of an imminent holiday weekend.

But with these grants of immunity, DOJ cleared the board of most of the politically contentious cases of immunized criminals just in time for election season. The Goldman banksters could donate with no worries, the NatSec types wouldn’t pull an October surprise, and Republicans couldn’t claim Arpaio was caught in a witch hunt because of the witch hunts he himself conducted.

DOJ cleared most, though not all, of the politically contentious cases they plan to clear though. The exception may prove the rule.

Read more →

After Making Bank Fraud Legal, Eric Holder’s DOJ Makes Torture Legal

/45 Comments/in , /by

DOJ has announced that the two ongoing investigations it had into torture have been closed for lack of admissible evidence.

The Attorney General announced today the closure of the criminal investigations into the death of two individuals while in United States custody at overseas locations.

Eric Holder tried to put a good spin on this event.

AUSA John Durham has now completed his investigations, and the Department has decided not to initiate criminal charges in these matters. In reaching this determination, Mr. Durham considered all potentially applicable substantive criminal statutes as well as the statutes of limitations and jurisdictional provisions that govern prosecutions under those statutes. Mr. Durham and his team reviewed a tremendous volume of information pertaining to the detainees. That review included both information and matters that were not examined during the Department’s prior reviews. Based on the fully developed factual record concerning the two deaths, the Department has declined prosecution because the admissible evidence would not be sufficient to obtain and sustain a conviction beyond a reasonable doubt.

[snip]

Mr. Durham and his team of agents and prosecutors have worked tirelessly to conduct extraordinarily thorough and complete preliminary reviews and investigations. I am grateful to his team and to him for their commitment to ensuring that the preliminary review and the subsequent investigations fully examined a broad universe of allegations from multiple sources. I continue to believe that our Nation will be better for it.

I also appreciate and respect the work of and sacrifices made by the men and women in our intelligence community on behalf of this country. They perform an incredibly important service to our nation, and they often do so under difficult and dangerous circumstances. They deserve our respect and gratitude for the work they do. I asked Mr. Durham to conduct this review based on existing information as well as new information and matters presented to me that I believed warranted a thorough examination of the detainee treatment issue.

I am confident that Mr. Durham’s thorough reviews and determination that the filing of criminal charges would not be appropriate have satisfied that need. Our inquiry was limited to a determination of whether prosecutable offenses were committed and was not intended to, and does not resolve, broader questions regarding the propriety of the examined conduct. [my emphasis]

But when it comes down to it, it means our government either refuses or is completely incapable of holding the powerful to account.

John Kiriakou is being prosecuted for speaking about waterboarding. But the guys who water doused someone to death? They enjoy the same impunity as the banksters.

Promontory Financial Group Describes a New “Risk-Based” Approach to Anti-Money Laundering

/4 Comments/in , /by

In light of the recent Standard Chartered Bank flap, Saturday’s report that Deutsche Bank is under investigation for similar behavior, and today’s report that RBS (as well as two other banks, one of which is Sumitomo Mitsui) is as well, I want to look at an article on Anti-Money Laundering enforcement a Promontory Financial Group exec, Michael Dawson, published in American Banker just one week before NY’s Superintendent of Financial Services, Benjamin Lawsky, filed an order against SCB alone.

Around the same time Dawson was writing this, remember, his company was involved in a review of SCB’s laundering of Iranian funds that would show a tiny fraction of the total exposure that SCB would ultimately admit to. That is, Dawson’s comments probably provide a glimpse into what PFG was seeing not just in Citibank and Commerzbank enforcement actions, which he discusses, but also in SCB. And it might help to explain why other regulators were so intent on crafting an SCB settlement based on just $14 million in violations rather than $250 billion.

Dawson reports seeing a change in recent AML/BSA enforcement actions, away from a “rules-based approach” toward a “risk-based approach.” He suggests that regulators are demanding not a broad-based examination of the scope of AML violations, but instead more targeted information about who posed the biggest risk laundering money and what they were doing.

Instead of requiring expensive reviews of extended periods of time for a broad range of potential suspicious activity, the latest enforcement actions emphasize a risk-based approach to AML compliance, with several of the actions requiring a risk assessment or enhancements to an existing assessment.

[snip]

The level of specificity required is noteworthy and includes, among other things, detail on the volumes and types of transactions and services by country or geographic location as well as detail on the numbers of customers that typically pose higher BSA/AML risk. The actions also require a more holistic approach, requiring the results of the bank’s Customer Identification Program and Customer Due Diligence program to be integrated in the risk assessment. [my emphasis]

This sounds like the regulators are interested not in discovering how banks are complicit in money laundering, but rather using the banks to get details on key people who money launder and the tactics just those key people (terrorists, cartel kingpins, mean Iranians) use. (Note, I think something similar, but even more significant, happened last year when JPMC got busted for trading with Iran, but no one seems to remember that happened.)

After making these broad statements about the general direction of AML enforcement, Dawson distinguishes between what the Office of the Comptroller of the Currency is requiring and what the Fed is. OCC has not only shortened the period which it requires banks to examine problematic behavior, but it has also permitted banks to conduct their own reviews (which seems to have Dawson worried about losing the business of providing such services for banks).

Where the OCC required lookbacks, it asked for risk-based, targeted reviews, rather than comprehensive look-backs that were sometimes found in earlier enforcement actions. The recent actions either specify a shorter look-back period than has been specified in the past or, in the case of the Citibank action, no explicitly specified period, subject to the ability of the regulator to expand the look-back depending on the results of the more limited period.

Also, the OCC actions allowed the institutions to conduct the review themselves and either do not explicitly mention an independent consultant or limit the role of the independent consultant to “supervising and certifying” the look-back.

The OCC, at least, doesn’t sound like it’s doing “smarter” enforcement, but rather doing lax enforcement. Remember, though, that OCC got a newly-confirmed Comptroller during this period, who talked aggressively at the recent Permanent Subcommittee on Investigations hearing on HSBC’s egregious AML problems–though that talk partly echoed what Dawson has to say about “flexibility” and a “holistic” approach.

Meanwhile, according to Dawson, the Fed doesn’t seem to be offering quite as much flexibility. Dawson describes the Fed employing this new risk-based approach, but it is still requiring longer reviews (though not all that long, at 16 months) and outside consultants to complete the reviews.

The Fed, in its action against Commerzbank requiring a lookback, also showed some flexibility. Read more →

DOJ Corporate Settlement Dealer Takes Over at FinCEN

/6 Comments/in , , /by

In February, here’s what Jennifer Shasky Calvery said in testimony before a House Subcommittee.

These staggering amounts of money in the hands of some of the worst criminal elements create a terrifyingly vicious cycle – money enables [the crooks] to corrupt the economic and political systems in which they operate, thereby allowing them to consolidate and expand their power and influence, which gives rise to more opportunity to commit crime and generate revenue.

Mind you, I’m cherry picking a quote from testimony about Transnational Crime Organizations. But it shows the blindness DOJ (and the Administration generally) have had as they try to repurpose their counter-terrorism tools to combat transnational crime: to some extent, what’s true of drug cartels is also true of the banks that have escaped prosecution even while doing as much damage as the drug cartels.

And yet we never get around to prosecuting our own transnational criminal organizations, the banks.

It’s worth keeping in mind, now that Shasky Calvery takes over at Treasury’s FinCEN, the part of the Agency that makes sure corporations are complying with reporting requirements of suspected financial crimes.

Read more →

Good Thing Obama Kept that Iraq AUMF Lying Around

/10 Comments/in , /by

Remember how both Congress and the Administration refused to repeal the Iraq AUMF?

Maybe they wanted to have it to hang over Nuri al-Maliki’s head for the time when Iraqis were discovered helping Iran evade sanctions? The NYT reports that Elaf Islamic Bank–which Obama called out last month–is just one of a number of Iraqi institutions helping Iran bust our sanctions.

The little-known bank singled out by the United States, the Elaf Islamic Bank, is only part of a network of financial institutions and oil-smuggling operations that, according to current and former American and Iraqi government officials and experts on the Iraqi banking sector, has provided Iran with a crucial flow of dollars at a time when sanctions are squeezing its economy.

[snip]

In announcing that he was “cutting off” Elaf Islamic Bank, Mr. Obama said it had “facilitated transactions worth millions of dollars on behalf of Iranian banks that are subject to sanctions for their links to Iran’s illicit proliferation activities.”

[snip]

Iraqi banking experts said last week that the bank was still allowed to participate in the Iraq Central Bank’s daily auction at which commercial banks can sell Iraqi dinars and buy United States dollars. These auctions are a crucial pathway for Iranian access to the international financial system.

It’s an interesting predicament for the Administration. At the same time as they’re systematically taking out Iran’s allies and/or implicating them as expansively as they dare, they’re in a bit of a pickle with Iran’s closest geographic ally, the one with the biggest oil reserves.

Which may explain why James Risen (with Duraid Adnan) is reporting this story. Sure, he has written some of the key financial flow stories in the last decade. But he’s not exactly in good grace with this–or any recent–Administration. And the whole story reads like one that the Administration–which hasn’t found a Syrian or Lebanese insinuation they wouldn’t magnifiy–doesn’t want reported.

The Obama administration is not eager for a public showdown with the government of Prime Minister Nuri Kamal al-Maliki over Iran just eight months after the last American troops withdrew from Baghdad.

That sheepish tone continues through the rest of the article.

Consider. The one country were Obama can’t engage in the same kind of hardass approaches as he has elsewhere (at least not before the election) is helping Iran to flout sanctions. Obama can’t admit the truth–that Iran won the Iraq War. If he does, the neocons will accuse him of withdrawing prematurely. If he takes a hard stance, I might no longer be the one person talking about the extant AUMF.

And yet Iraq seems to be a key hole in the sanctions.

You Don’t Suppose All These Dictators Have Been Looting with SCB’s and HSBC’s Help?

/10 Comments/in , /by

It happens every time. Around about the time it becomes clear a corrupt Middle Eastern dictator will fall, but before he has actually fallen, the press begins to report on the hunt for the money the dictator looted from his country. There was the “discovery” of Hosni Mubarak’s up-to $70 billion in February 2011. And reports, in March 2011, of the up to $200 billion that Moammar Qaddafi looted.

And today,

Even as the war in Syria rages and Bashar al-Assad clings to power, the race to find the regime’s vast—and mostly hidden—fortune is already underway. Experts say al-Assad and his associates have amassed as much as $25 billion through investments in banks, state industries and other concessions, and has stashed the money in offshore tax havens and in investments across the Middle East.

I don’t mean to slight Eli Lake (or any of the other journalists linked) for reporting this. It’s important the world remember that these dictators rule by and for the looting of their countries. Indeed, Lake’s report is particularly useful in the way he maps out the industry that charges big fees to help bring looted money back to its rightful owners.

Finding the money is of keen interest to the modern-day treasure hunters who specialize in recovering the wealth of fallen dictators. Sometimes called financial intelligence or forensic accounting, the industry comprises lawyers, accountants, ex-spies, former law enforcement investigators and even some retired journalists, all of whom look at the unrest in Syria as a business opportunity. Some firms charge several thousands of dollars per hour for the sleuth work of a team of six to eight investigators. Others get paid a “success fee,” a small percentage of the overall haul.

It’s just that few people ever want to talk about the looting that goes on–often with the assistance and for the profit of American and/or European banks–while it’s occurring.

Which is one of the reasons why the flap over Standard Chartered is so interesting. It revealed that most of the regulators overseeing our sanctions and money-laundering enforcement really wanted SCB to reach a settlement on transactions that SCB now admits represent just a fraction of a percent of the affected transactions. And that’s just the Iranian transactions; it doesn’t include the Libyan transactions that Benjamin Lawsky alluded to in a footnote of the report.

And while there’s no evidence in the DFS report that SCB was helping Assad loot his country, the Carl Levin-led investigation into HSBC describes several examples of HSBC evading sanctions so as to keep its Syrian business even after sanctions were imposed. In particular, there’s the way HSBC apparently decided it wouldn’t tell the Office of Foreign Asset Controls about the trust relationship its Cayman Island affiliate had with Rami Makhlouf, whom Lake singles out as a key Syrian target of the loot-hunters.

Another account involving an individual on the OFAC list was housed at HSBC Cayman Islands. On February 21, 2008, a Syrian businessman by the name of Rami Makhlouf was placed on the SDN list by OFAC. One week later, HSBC Cayman Compliance personnel contacted HBUS to report that HSBC Cayman Islands currently held a trust relationship with Mr. Makhlouf and to inquire as to “what actions if any HSBC Group has taken in relation to the above mentioned individual.” An HBUS Compliance officer asked the Cayman Compliance officer for more information about the Makhlouf accounts, and the head of HSBC Cayman Compliance responded: “The Trust is administered by HSBC Geneva. We raised concerns with this client in August 2007 however we were assured by David Ford that the relationship had been reviewed at a Group level and a decision had been taken to continue with the relationship.” Ultimately, HBUS determined that it did not have any connection to Mr. Makhlouf and did not need to report any information to OFAC.

Maybe the loot-hunters should ask HSBC and SCB where Qaddafi and Assad put their money? Maybe that’s what they bill out at such high rates to do?

The thing is, we can only point to these details because SCB and HSBC, because of Lawsky and Levin’s efforts, have undergone more transparency than all the other banks helping dictators strip their country’s wealth.  Regulators apparently want to keep us from knowing how much purportedly respectable banks help these dictators to shore up their own power and loot their countries. Moreover, they only want to penalize these banks for a tiny fraction of the business they do with these dictators even after they’ve been sanctioned.

It’s as if the regulators wanted to permit this kind of looting to happen, only to acted surprised at the sheer scope of the looting after the dictator’s demise.