“Cozy Ties Between Regulators, Politicians and Utilities” Gives New Nuke Agency in Japan, Business as Usual on Wall Street

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Reuters reports this morning that Japan’s lower house of parliament has passed a law authorizing creation of a new nuclear regulatory agency. The second paragraph of the story stands out to me:

The 2011 Fukushima disaster cast a harsh spotlight on the cozy ties between regulators, politicians and utilities – known as Japan’s “nuclear village” – that experts say were a major factor in the failure to avert the crisis triggered when a huge earthquake and tsunami devastated the plant, causing meltdowns.

The underlying cause of the “nuclear village” where regulators are captured by the industry they regulate and the politicians also are owned by the same system applies equally as well to the situation that enabled the meltdown of global financial markets in 2008. There is far less recognition of the village aspect of Wall Street’s lack of regulation in the financial crisis, and where there have been moves ostensibly toward regulation or even prosecution of crimes, they have been a sham:

On March 9 — 45 days after the speech and 30 days after the announcement — we met with Schneiderman in New York City and asked him for an update. He had just returned from Washington, where he had been personally looking for office space. As of that date, he had no office, no phones, no staff and no executive director. None of the 55 staff members promised by Holder had materialized. On April 2, we bumped into Schneiderman on a train leaving Washington for New York and learned that the situation was the same.

Tuesday, calls to the Justice Department’s switchboard requesting to be connected with the working group produced the answer, “I really don’t know where to send you.” After being transferred to the attorney general’s office and asking for a phone number for the working group, the answer was, “I’m not aware of one.”

The promises of the President have led to little or no concrete action.

In fact, the new Residential Mortgage-Backed Securities Working Group was the sixth such entity formed since the start of the financial crisis in 2009. The grand total of staff working for all of the previous five groups was one, according to a surprised Schneiderman. In Washington, where staffs grow like cherry blossoms, this is a remarkable occurrence.

We are led to conclude that Donovan was right. The settlement and working group — taken together — were a coup: a public relations coup for the White House and the banks. The media hailed the resolution for a few days and then turned their attention to other topics and controversies.

But for 12 million American homeowners, collectively $700 billion under water, this was just another in a long series of sham transactions.

Perhaps in homage to the Schneiderman and other sham units, the Reuters article on Japan’s new agency does show a bit of caution regarding the new agency:

The legislation, however, swiftly came under fire for appearing to weaken the government’s commitment to decommissioning reactors after 40 years in operation, even as it drafts an energy program to reduce nuclear power’s role.

Under a deal ending months of bickering by ruling and opposition parties, the new regulatory commission could revise a rule limiting the life of reactors to 40 years in principle.

“Does this reflect the sentiment of the citizens, who are seeking an exit from nuclear power?” queried an editorial in the Tokyo Shimbun daily. “Won’t it instead make what was supposed to be a rare exception par for the course?”

And as for the coziness between politicians in the US and the financial industry, we need look no further than Wednesday’s appearance by Jamie Dimon before the Senate Banking, Housing and Urban Affairs Committee. One of Marcy’s tweets during the hearing says all we need to know about that “hearing”:

BOB CORKER WIPE THAT SPOOGE FROM YOUR CHIN RIGHT NOW!

Japan’s response to its meltdown has been to shut down all nuclear plants while the framework for how they will operate if they are allowed to restart is debated. Imagine how much better off the world would be if JP Morgan Chase and Goldman Sachs had been shut down while a proper regulatory framework for them was developed.

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

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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.

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Why The DOJ Can’t Prosecute Banksters: Map of Clemens Investigation

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At a time when there are still no significant prosecutions of major players, banks and investment shops responsible for the financial fraud that nearly toppled the world economy and is still choking the US economy, we get an explanation why from an unlikely source – the Roger Clemens trial in Judge Reggie Walton’s courtroom in the DC District. During defense examination of FBI special agent John Longmire today, a map of the FBI/DOJ investigation of Roger Clemens, who was accused of lying about getting a few steroid shots in the late 90s and early 2000s, was displayed. We are now two full months into the second trial of Roger Clemens stemming from this investigation.

Any more questions on why DOJ cannot get around to prosecuting banksters??

Foreclosure Fraud: The Most Dangerous Panel in the World

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They’ve scheduled DDay’s Netroots Nation foreclosure fraud panel–with Lynn Szymoniak, Malcom Chu, and Neil Barofsky–in a room with no streaming, and President Obama is holding a press conference to conflict with it. Which suggests this is the most dangerous panel in the world.

So I’m gonna liveblog it.

DDay introduces Barofsky as the first George Bush appointee to speak at Netroots Nation. Says Szymoniak made the name Linda Green famous. Chu is a Springfield MA foreclosure activist.

DDay: We told Eric Schneiderman’s Chief of Staff we could fit him in. I don’t see him here. We’ll put a seat here for Elijah. It occurs I could call this panel “Foreclosure Fraud, the first 5000 years.” Elizabeth Warren, Jeff Merkley, nothing has changed. Dissipation of a lot of the leverage that the regulators have.

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The Banksters and the Cartels

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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

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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.

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

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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.

Will Treasury Hire the Guy Who Allowed JP Morgan Help Iran Launder Money?

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Two weeks ago, Treasury fired the guy in charge of FinCEN (the part of Treasury that enforces and tracks Suspicious Activities Reports), Jim Freis, reportedly (pay wall) because he wanted to focus on law enforcement and financial crimes, rather than a more focused counterterrorism focus.

The issue wasn’t Fincen’s speed or personality conflicts, but more about control. To put it simply, Treasury wants more oversight of Fincen’s activities, including additional focus on international areas such as terrorist financing. “Fincen ought to be better integrated and tethered to the policy issues that relate to money laundering, terrorist financing and economic sanctions on behalf of the U.S. government. It’s not as well integrated as it should be,” said a senior administration official who spoke on condition of anonymity.

Freis saw Fincen’s role as more independent, and was primarily concerned with the agency’s role in supporting law enforcement agencies as well as tackling other financial crimes such as mortgage fraud.

And if that isn’t enough to make you wonder about this Administration’s commitment to making banks obey the law, consider that the apparent leading candidate to replace Freis is JP Morgan’s anti-money laundering VP, William Langford.

In December 2009, when JPMC extended a $2.9 million loan to the Islamic Republic of Iran Shipping lines, in violation of WMD sanctions, Langford was the VP at JPMC in charge of money laundering. He was there, too, when JPMC decided not to self-disclose the loan until they had almost been repaid.

In the months before March 2011, when JPMC repeatedly claimed it didn’t have 20 documents relating to a wire transfer with Khartoum? Langford was at JPMC for that too.

The 9 wire transfers since April 2006 in violation of a range of sanctions? He was there for most of those.

And he was probably at JPM–though just barely–when JPMC transferred $20M in gold bullion–a ton of gold!–for an Iranian bank?

Now, presumably all this money laundering and sanctions violating happened in remote corners of JPMC, far from Langford’s views (though you would think his office would be involved in the non-responsive answers about the Khartoum documents and decisions about when and whether to self-disclose some of these violations). There is no reason to believe Langford facilitated any of this money laundering and sanctions violating.

Still, even aside from the whole revolving door problem, from the centrality of JPMC in both the MF Global and JPMC’s won Fail Whale investigations, it seems like Treasury might hire someone who couldn’t keep one bank in line, much less all of them.

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

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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.

Whose Illicit Money Did Citi Help Launder?

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Back when the story of how Wachovia helped drug cartels launder money was breaking in 2010, reports said that cartels had also used Citi to launder their money.

A Mexican judge on Jan. 22 accused the owners of six centros cambiarios, or money changers, in Culiacan and Tijuana of laundering drug funds through their accounts at the Mexican units of Banco Santander SA, Citigroup Inc. and HSBC, according to court documents filed in the case.

Citigroup, HSBC and Santander, which is the largest Spanish bank by assets, weren’t accused of any wrongdoing. The three banks say Mexican law bars them from commenting on the case, adding that they each carefully enforce anti-money-laundering programs.

HSBC has stopped accepting dollar deposits in Mexico, and Citigroup no longer allows non-customers to change dollars there. Citigroup detected suspicious activity in the Tijuana accounts, reported it to regulators and closed the accounts, Citigroup spokesman Paulo Carreno says.

At the time, it seemed that Citi had reported the attempted money laundering as required by US bank secrecy laws.

I guess they didn’t report everything they were supposed to. The Office of the Comptroller and the Currency, Citi’s regulator, just announced a cease and desist order covering inadequacies in Citi’s anti-money laundering compliance.

(3) Some of the critical deficiencies in the elements of the Bank’s BSA/AML compliance program include the following:
(a) The Bank has internal control weaknesses including the incomplete identification of high risk customers in multiple areas of the bank, inability to assess and monitor client relationships on a bank-wide basis, inadequate scope of periodic reviews of customers, weaknesses in the scope and documentation of the validation and optimization process applied to the automated transaction monitoring system, and inadequate customer due diligence;
(b) The Bank failed to adequately conduct customer due diligence and enhanced due diligence on its foreign correspondent customers, its retail banking customers, and its international personal banking customers and did not properly obtain and analyze information to ascertain the risk and expected activity of particular customers;
(c) The Bank self-reported to the OCC that from 2006 through 2010, the Bank failed to adequately monitor its remote deposit capture/international cash letter instrument processing in connection with foreign correspondent banking;
(d) As a result of that inadequate monitoring, the Bank failed to file timely SARs involving remote deposit capture/international cash letter activity in its foreign correspondent banking business; and
(e) The Bank’s independent BSA/AML audit function failed to identify systemic deficiencies found by the OCC during the examination process. [my emphasis]

Note that among other things, Citi took this opportunity to ‘fess up to not adequately monitoring the use of cash letters (see this article for a description of how cash letters are used in money laundering) in the 2006-2010 period. You know? The period when Citi was reeling because it had invested too deeply in shitpile?

Now maybe in the near future, Treasury will release a similar notice telling us whether all this negligence on Citi’s part only could have–or actually did–help some nefarious types launder money. But for now, OCC’s not telling. Nor is OCC fining Citi (which they would normally do if Citi violates this consent order–banks, you see, get do-overs when they fuck up).

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