Sunday, May 19, 2013
While Barack Obama's "favorite banker" continues to receive the royal treatment in Washington, new sleaze allegations threaten to further tarnish the golden boy image of "teflon don" Jamie Dimon, the CEO and Chairman of JPMorgan Chase.
Wearing multiple hats, Dimon is the Chairman of The Business Council, a long-time member of the Council on Foreign Relations, The Trilateral Commission, a "Class A" Director of the New York Federal Reserve and Advisory Board member of the President's Council on Jobs and Competitiveness, that is, until the Council was foreclosed on earlier this year.
It doesn't hurt that JPM's embattled capo di tutti capi is also a leading light and Executive Committee member of The Business Roundtable, a corporatist "association of chief executive officers of leading U.S. companies with more than $7.3 trillion in annual revenues and nearly 16 million employees."
As they say on the street, Dimon has juice.
So much in fact, that when he and Brian Moynihan, the CEO of the Bank of America, and other members of the Financial Services Forum, a benighted cabal chaired by Goldman Sachs CEO Lloyd Blankfein and comprised of serial financial predators such as Deutsche Bank, AIG, Citigroup, Credit Suisse, UBS, HSBC, Morgan Stanley and Wells Fargo, met with Obama at the White House for April discussions, the press was barred.
As investigative journalist Pam Martens reported in Wall Street On Parade at the time, "The Financial Services Forum is a lobby group composed of 19 CEOs of the too-big-to-fail banks, both U.S. and foreign. . . . The Forum is not bashful about its lobbying agenda. According to the lobby disclosure document it filed with the Senate last year, it doesn't believe big banks should be broken up: 'The Forum opposes legislation to preemptively dismantle or limit the activities of well-capitalized and well-managed financial institutions, haircuts on secured creditors to financial institutions in the course of a resolution, and punitive taxes or levies on financial institutions'."
One result of that April White House meeting may be watered-down rules adopted by the Commodity Futures Trading Commission (CFTC) last week over domination by too-big-to-fail-and-jail banks of the $700 trillion (£461.4tn) global derivatives markets.
As Reuters reported, the new rules are a "compromise" that will leave regulators "fewer tools in hand to rein in the opaque derivatives trading between two parties that was among the causes of the 2007-2009 credit meltdown."
Allegedly "designed to make trading less opaque as part of the Dodd-Frank law overhauling Wall Street practices," the rules are "an important nod to an industry dominated by big banks, such as Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co, the CFTC lowered the number of quotes clients need to collect from banks."
Indeed, the deeply-flawed, Wall Street-friendly Dodd-Frank legislation had a provision that would have made bidding on derivatives contracts public but it was left to CFTC to iron out the details. Well, we see where that went. CFTC's Chairman Gary Gensler, caving to pressure by lobbyists had already compromised on moves to make those trades public; hence his proposal to require at least five banks to issue price quotes on financialized garbage.
"But even that plan," The New York Times reported, "prompted a full-court press from Wall Street lobbyists. Banks and other groups that opposed the plan held more than 80 meetings with agency officials over the last three years, an analysis of meeting records shows. Goldman Sachs attended 19 meetings; the Securities Industry and Financial Markets Association, Wall Street's main lobbying group, was there for 11."
"The outcome was a 'massive convenience' for the largest banks," Will Rhodes, "an analyst at Tabb Group, a market structure research and consultancy firm," told Reuters.
"I don't think it's going to have the same impact in terms of . . . the decentralization of risk that would have occurred had there been a requirement (for five quotes) in place."
But even these weak-kneed rules were too much for the best Congress that FIRE sector money can buy. One particularly filthy piece of legislative detritus which passed out on the House Agriculture and Financial Services Committees in March, HR 992, would allow banks to hold any kind of derivative in the same account as depositor funds, i.e., checking and savings accounts which enjoy FDIC insurance protection against bank losses.
And should one of these corrupt banks go belly up, since derivatives are senior in terms of bankruptcy pay-outs, hedge fund pirates sitting on the other side of trades with the bank would get paid back first with depositors potentially left holding the bag!
In other words, as banking analyst Ellen Brown pointed out last month in the wake of Cyprus' confiscation of depositor funds, when captured governments "are no longer willing to use taxpayer money to bail out banks that have gambled away their capital, the banks are now being instructed to 'recapitalize' themselves by confiscating the funds of their creditors, turning debt into equity, or stock; and the 'creditors' include the depositors who put their money in the bank thinking it was a secure place to store their savings."
"Too big to fail" now trumps all," Brown wrote. "Rather than banks being put into bankruptcy to salvage the deposits of their customers, the customers will be put into bankruptcy to save the banks."
And standing at the front of the line with his hand out is none other than Wall Street "maestro," Jamie Dimon.
JPM Energy Price Manipulation: History Repeats as Tragedy and Farce
The latest scandal to rock JPM concern fraudulent schemes to manipulate energy markets.
Earlier this month, The New York Times reported that multiple government investigations uncovered evidence that America's largest bank, with some $2.5 trillion (£1.61tn) in assets, "devised 'manipulative schemes' that transformed 'money-losing power plants into powerful profit centers,' and that one of its most senior executives gave 'false and misleading statements' under oath."
That senior executive, Blythe Masters, one of JPM's "smartest gals in the room" who helped develop "credit default swaps, a derivative that played a role in the financial crisis," that is, blow up the global capitalist economy, was accused by the Federal Energy Regulatory Commission (FERC) in a 70-page document cited by the Times, for her "'knowledge and approval of schemes' carried out by a group of energy traders in Houston" to manipulate energy prices in the "California and Michigan electric markets."
"The agency's investigators claimed," the Times disclosed, "that Ms. Masters had 'falsely' denied under oath her awareness of the problems and said that JPMorgan had made 'scores of false and misleading statements and material omissions' to authorities, the document shows."
In other words, Masters may have committed perjury, a jailable offense.
The FERC investigation was triggered by charges last year by the California Independent System Operator, a nonprofit run by California's state government, which estimated that "JPMorgan may have gamed the state's power market," resulting in tens of millions of dollars in "improper payments" in 2010 and 2011. "But that could be just the tip of the iceberg," the Los Angeles Times reported last summer.
According to the LA Times, "The bank continued its activities past that time frame, according to the ISO. It also says JPMorgan's alleged manipulation could have helped throw the entire energy market out of whack, imposing what could be incalculable costs on ratepayers."
Though suspended from energy trading in California," Bloomberg reported that JPM "may be evading the ban through swap agreements with EDF Group and Cargill Inc. subsidiaries, the state's grid operator said."
According to Bloomberg, Cal ISO said in a recent filing with FERC that JPM may be using "using swap contracts to secure a portion of the profit stream from a unit, while masking the identity of a party that has some level of control over the bidding."
Through its contracts with EDF and Cargill, "JPMorgan could be bringing in profits during its suspension 'beyond those contemplated' by FERC in its order, Cal ISO said. The operator recommended broad changes that would capture any situation in which 'a market participant structured transactions to evade its suspension of market-based rate authority'."
If any of this sounds familiar, it should. "What's worse," the Los Angeles Times reported, "it shows that we haven't learned anything from Enron's bogus energy trading, the disclosure of which helped destroy that firm in 2001 and land several of its executives in jail."
According to reporter Michael Hiltzik, "To the extent it was designed to exploit loopholes in energy trading rules, experts say, the scheme allegedly perpetrated by JPMorgan Ventures Energy Corp. is cut from the same cloth as Enron's infamous 'fat boy' swindle, which cost the state's ratepayers an estimated $1.4 billion in 2000."
Indeed, during the Securities and Exchange Commission's 2003 investigation into JPM's collusion with Enron, federal regulators charged Chase with "aiding and abetting Enron Corp.'s securities fraud."
At the time, the SEC said that "J.P. Morgan Chase aided and abetted Enron's manipulation of its reported financial results through a series of complex structured finance transactions, called 'prepays,' over a period of several years preceding Enron's bankruptcy."
Those fraudulent transactions were exploited by Enron officers led by "Bush Ranger," Chairman Kenneth "Kenny Boy" Lay, CEO Jeffrey Skilling and CFO Andrew Fastow, "to report loans from J.P. Morgan Chase as cash from operating activities. The structural complexity of these transactions had no business purpose aside from masking the fact that, in substance, they were loans from J.P. Morgan Chase to Enron. Between December 1997 and September 2001, J.P. Morgan Chase effectively loaned Enron a total of approximately $2.6 billion in the form of seven such transactions." (emphasis added)
But as a Florida airline executive once told investigative journalist Daniel Hopsicker during his probe into the 9/11 attacks: "Sometimes when things don't make business sense, its because they do make sense . . . just in some other way."
According to the SEC complaint, "the critical difference in the J.P. Morgan Chase/Enron prepays--and the reason that these transactions were in substance loans--was that they employed a structure that passed the counter-party commodity price risk back to Enron, thus eliminating all commodity risk from the transaction."
In other words, this was a classic example of what criminologist William K. Black describes as an "accounting control fraud." Under such schemes, a firm's chief operating officers are the recipients of massive corporate bonuses as they loot their own companies. As became evident during Enron's collapse, as well as during the 2007-2008 financial meltdown, Enron executives manipulated company books as fraudulently reported income drove share prices higher, which enriched those at the top through inflated asset values, while simultaneously disappearing liabilities, which were hidden from shareholders and Enron employees.
In the wake of Enron's collapse, shareholders lost $74 billion (£48.78bn), $45 billion (£29.66bn) of which was attributed to fraud, and the firm's 20,000 employees lost more than $2 billion (£1.32bn) from looted pension funds.
SEC investigators found that the JPM-Enron fraud was "accomplished through a series of simultaneous trades whereby Enron passed the counter-party commodity price risk to a J.P. Morgan Chase-sponsored special purpose vehicle called Mahonia, which passed the risk to J.P. Morgan Chase, which, in turn, passed the risk back to Enron."
The complaint charged that JPM's "Mahonia was included in the structure solely to effectuate Enron's accounting and financial reporting objectives. Enron told J.P. Morgan Chase that Enron needed Mahonia in the transactions for Enron's accounting. Mahonia was controlled by Chase and was directed by Chase to participate in the transactions ostensibly as a separate, independent, commodities-trading entity. As the complaint further alleges, in order to facilitate Enron's accounting objectives, J.P. Morgan Chase took various steps to make it appear that Mahonia was an independent third party."
Any future obligation assumed by Enron "were reduced to the repayment of cash it received from J.P. Morgan Chase with negotiated interest. The interest was calculated with reference to," wait for it, "LIBOR." (!)
"Since all price risk and, in certain transactions, even the obligation to transport a commodity were eliminated, the only risk in the transactions was Chase's risk that Enron would not make its payments when due, i.e., credit risk. In short, the complaint alleges, these seven prepays were in substance loans."
What penalties were extracted from JPM by the SEC for helping design Enron's massive fraud? A measly $120 million; in other words, chump change.
"Adopting eight different 'schemes' between September 2010 and June 2011," The New York Times reported, "the traders offered the energy at prices 'calculated to falsely appear attractive' to state energy authorities. The effort prompted authorities in California and Michigan to dole out about $83 million in 'excessive' payments to JPMorgan, the investigators said. The behavior had 'harmful effects' on the markets, according to the document."
As a result of fraudulent "schemes," designed solely to "generate large profits" at the expense of consumers in California and Michigan, FERC "enforcement officials plan to recommend that the commission hold the traders and Ms. Masters 'individually liable.' While Ms. Masters was 'less involved in the day-to-day decisions,' investigators nonetheless noted that she received PowerPoint presentations and e-mails outlining the energy trading strategies."
Plausible deniability aside, it appears that Masters was up to her eyeballs in the grift and "'planned and executed a systematic cover-up' of documents that exposed the strategy, including profit and loss statements," the Times averred.
Citing regulators' complaints that their investigation was "obstructed" by Masters and her cohorts, when "state authorities began to object to the strategy, Ms. Masters 'personally participated in JPMorgan's efforts to block' the state authorities 'from understanding the reasons behind JPMorgan’s bidding schemes,' the document said."
Referencing an April 2011 email, "Masters ordered a 'rewrite' of an internal document that raised questions about whether the bank had run afoul of the law. The new wording stated that 'JPMorgan does not believe that it violated FERC's policies'."
Will history repeat? You bet it will! Even if FERC were to levy a maximum penalty of $1 million per day for violating the rules, "the $180-million bill would be a pittance compared with the $14 billion in revenue collected annually by JPMorgan's investment banking arm, which houses the energy trading," the Los Angeles Times reported.
Talk about a sweet deal!
A Criminal Enterprise
Coming on the heels of a scathing 307-page Senate report released by the Permanent Subcommittee on Investigations in March, which provided details of the scandalous actions by senior officers as they covered-up bank overexposure in the synthetic credit derivatives market along with a mammoth $6.2 billion (£3.98bn) loss for investors, and a toothless Consent Order by the Office of the Comptroller of the Currency over allegations of JPM drug money laundering, the question is: Why hasn't Jamie Dimon already landed in the dock?
Leaving aside the criminal behavior of US Attorney General Eric Holder, adept at prosecuting national security whistleblowers and seizing the phone records of Associated Press reporters through the mechanism of an administrative subpoena, i.e., solely on the say-so of the Justice Department and the FBI, when it comes to prosecuting corporate criminals, including those who collude with transnational drug cartels, The Most Transparent Administration Ever™ has surpassed the deceitful practices of the Bush regime.
No where is this more apparent than with the non-prosecution of criminogenic banks.
A withering 45-page report authored by GrahamFisher analyst Joshua Rosner, JPMorgan Chase: Out of Control, paints the organization as a criminal enterprise. According to Rosner: "Even without the inclusion" of some $16 billion [£10.41bn] in "litigation expenses" arising from JPM's foreclosure scandals, "since 2009, the Company has paid more than $8.5 billion [£5.53bn] in settlements for the various regulatory and legal problems discussed in this report. These settlement costs, which include a small number of recent settlements of older issues, represent almost 12% of the net income generated between 2009-2012."
Amongst the patently illegal schemes hatched by JPM detailed in Rosner's report we find the following:
● Bank Secrecy Act violations
● Money laundering for drug cartels
● Sanctions busting
● Violations of the Commodities Exchange Act
● The execution of fictitious trades where the customer, with JPM's full knowledge, is on both sides of the deal
● SEC enforcement actions relating to CDO and RMBS misrepresentations
● Foreclosure fraud and abuse
● Failure to properly segregate customer funds and then failing to report it
● Consumer abuses related to check overdraft penalties
● Violations of NY State's ERISA Act, the result of JPM investments in failing structured investment vehicles (SIVs)
● Credit card collection practices, "eerily similar" to JPM's foreclosure abuses
● Violations of the Servicemembers Civil Relief Act; i.e., illegally foreclosing on the homes of soldiers, including those stationed in Afghanistan and Iraq
● Illegal flood insurance commissions
● Municipal bond market manipulation, including $8 million in bribes paid to "close friends" of Jefferson County, Alabama commissioners for sewer system bonds that eventually bankrupted the county
● Violation of the Sherman Antitrust Act related to bid rigging and payments associated with "seeing competitors' bids in 93 municipal bond deals"
● Repeated obstruction and refusal to hand over documents to the OCC related to their investigation of JPM's role in the Madoff fraud
Will any of this change? It's doubtful.
Rosner writes: "JPM appears to have taken a page out of the Fannie Mae playbook in which the company perfected the art of cozying up to elected officials, dominating trade associations, employing political heavyweights and their former staffers and creating the image of American Flag-waving, apple-pie-eating, good corporate-citizen, all of which supported an 'implied government guarantee' and seemingly lowered their cost of funding. Additionally, rather than being driven by the strength of its operations and management, many of the JPM's returns appear to be supported by an implied guarantee it receives as a too-big-to-fail institution."
In other words, as with other well-connected "Families" that come to mind, "too-big-to-fail-and-jail" is bankster code for "we can do whatever the fuck we want."
Sunday, April 28, 2013
In the Wake of Last Year's 'Soft Coup' Against Paraguay's President, Will a New Narco-Dictatorship Emerge?
Paraguay's April 21 election of Horacio Cartes, a dodgy "tobacco magnate," rancher and banker, whose Banco Amambay has been accused of laundering drug money, tax evasion and other crimes, raises the specter of "state capture" by powerful drug cartels linked to US intelligence agencies.
In the context of US efforts to manage not eliminate, the multibillion dollar global trade in illegal narcotics, Cartes electoral victory might very well be a shot in the arm for certain three-lettered US intelligence agencies, eager beavers always on the lookout for new allies--and an endless supply of black funds--to carry out hemisphere-wide dirty ops against leftist governments. The current US destabilization campaign targeting Venezuela's newly elected president, Nicolás Maduro and the Bolivarian revolution, is instructive in this regard.
A key factor driving US regional operations is control over the narcotics market. As researchers Oliver Villar and Drew Cottle revealed in Cocaine, Death Squads and the war on Terror: "Paraguay was the first country in Latin America to be publicly exposed for its involvement in the drug trade. Paraguay in the early 1970s was a vital center for the Corsican mafia, leading to the development of a vast heroin-trafficking network supplied from Turkey, and based in Marseille, the infamous 'French Connection.' Corsicans coordinated the transport of heroin from Marseille to the United States via Paraguay. The CIA," Villar and Cottle averred, "used such networks as transit stops in transporting Asian heroin to the United States with the help of corrupt high-ranking government and military officials."
"Later," journalist Vicky Pelaez disclosed in The Moscow News, "cocaine trafficking was added. It was transported through Chaco's wild and rough terrain. Chaco is a vast, semi-arid and semi-humid region in western Paraguay, where there are at least 900 covert airplane runways and where between 60 and 70 tons of cocaine circulate annually, according to former Interior Minister Carlos Filizzola."
"Curiously," Pelaez averred, "there are two US bases in that region. One is located in the city of Pedro Juan Caballero, in the Amambay province, and is operated by the Drug Enforcement Agency (DEA). The other, run by the Pentagon, is part of the Mariscal Estigarribia airport, in the Boquerón province, and boasts a 3,800-meter long runway."
When Fernando Lugo was removed from office last year after an expedited impeachment "trial" by Paraguay's Senate, it was widely denounced across Latin American as a parliamentary coup d'état which had more than a passing resemblance to the 2009 ouster of Honduran President Manuel Zelaya.
And like the Honduran coup against Zelaya, the World Socialist Web Site pointed out that "both countries have been the focus of attention of the US military and intelligence apparatus, which shares intimate connections with its local counterparts. Security forces in both countries have been trained and advised by the Pentagon and would not support the overthrow of an existing government without its approval."
Elected in 2008, Lugo, a former Catholic bishop and proponent of Liberation Theology, promised to combat Paraguay's endemic corruption and implement policies favoring a "preferential option for the poor." Lugo however, was no Hugo Chávez, Evo Morales or Rafael Correa, populist leaders who defied the Global Godfather by charting an independent course.
Despite a mildly reformist agenda which increased access to healthcare and education for Paraguay's working class majority, when it came to the key issue of land reform Lugo's administration hit a brick wall.
Shortly after assuming office, Lugo became the target of that nation's entrenched landed oligarchy, multinational agricultural corporations (including such paragons of virtue as Monsanto, Pioneer, Syngenta, Dupont, Cargill, Archer Daniels Midland, and Bunge) and the transnational drug cartels which continue to rule Paraguay with an iron fist much as they did under the 35-year dictatorship of Alfredo Stroessner.
Paraguay, a landlocked nation in which 2 percent of the population control more than 80 percent of the landed wealth, most of which had been expropriated by the kleptocratic Stroessner regime and handed out to favored cronies of his Colorado party, agrarian reform should have topped Lugo's agenda.
As The Moscow News pointed out, "Monsanto was naturally involved in the conspiracy. The world's largest producer of genetically modified crops disapproved of Lugo's idea to abolish the per-ton royalty of $4 on soybeans, to be paid by growers using Roundup Ready RR1 and Intenta RR2 Pro seeds. Recall that on his fifth day in office, the new president, Federico Franco, offered new concessions to Monsanto concerning the distribution of its GM cotton, soybean and corn seeds in Paraguay."
According to Pelaez, "Over the past ten months, unofficial employment has soared to 66% (this proportion is higher only in Peru (67%) and in Haiti (92%)). The bulk of the shadow labor market is formed by farmers pushed off the fields by such groups as Monsanto and Cargill, which use biotechnology to industrialize agricultural production and convert farmland into a contaminated 'green desert,' slowly but surely implanting a system of 'farming without farmers'."
Blocked at every step, and relying on the right's largesse to remain in office, Lugo's betrayal of the campesino base that put him in office and his retreat and capitulation to Paraguay's elite doomed his administration.
In fact, as journalist and researcher Benjamin Dangl reported in UpSideDownWorld last year, "Lugo was no friend of the campesino sector that helped bring him into power. His administration regularly called for the severe repression and criminalization of the country's campesino movements. He was therefore isolated from above at the political level, and lacked a strong political base below due to his stance toward social movements and the slow pace of land reform."
Using a police provocation and subsequent massacre of 11 landless farmers who had occupied land belonging to ex-Colorado Senator Blas Riquelme, illegally seized by the Stroessner regime as a pretext, the Chamber of Deputies launched proceedings to remove Lugo from office. Scarcely 24 hours later, the Senate voted to impeach the president. Who was leading the charge for Lugo's removal? Why none other than the Colorado Party's declared candidate for the presidency, then-Senator Horacio Cartes.
But the final straw may have been the decision by Lugo's administration three years earlier, to cut off access to the country by the US military. By 2007, the Pentagon had deployed some 400 Marines under the guise of "medical readiness training" exercises that were denounced by grassroots activists as a ploy to identify "dangerous" rural leaders of the landless movement. At the same time, the Pentagon was planning to expand US operations at the giant Mariscal Estigarribia air base, 120 miles from the Argentine and Bolivian borders.
Journalist Conn Hallinan reported back in 2005, "US Special Forces began arriving this past summer at Paraguay's Mariscal Estigarribia air base, a sprawling complex built in 1982 during the reign of dictator Alfredo Stroessner. Argentinean journalists who got a peek at the place say the airfield can handle B-52 bombers and Galaxy C-5 cargo planes. It also has a huge radar system, vast hangers, and can house up to 16,000 troops. The air base is larger than the international airport at the capital city, Asunción."
During a 2009 press conference, Lugo rejected further US troop deployments under the Bush-era "New Horizons" program. In a decision that greatly angered Washington, Lugo remarked, "we don't see it as convenient that the Southern Command has a presence in Paraguay."
Coming on the heels of Ecuador's 2009 closure of the giant US airbase at Manta, of which Ecuadorean president Rafael Correa famously said: "We can negotiate with the US about a base in Manta, if they let us put a military base in Miami," the Pentagon and CIA looked to Paraguay for a platform for what Southern Command described as "counternarcotics surveillance," but which regional neighbors denounced as a threat to hemispheric security.
Ominously, the US ambassador in Asunción, Liliana Ayalde declared: "It's a regrettable decision."
Indeed it was, for Lugo and the Paraguayan people.
The (Narco) Ties that Bind
In their relentless drive to accumulate riches at the expense of their citizens, comprador elites, particularly those who mix land grabs, far-right politics with currying favor from their imperialist overlords, utilize state institutions as cash cows.
And when those elites are also plugged into the international narcotics trade and control the state's machinery of repression, well, it's a win-win all around!
Who would imagine that a central banker would have ties to criminals and narcotraffickers? Why, the US Embassy that's who!
A 2007 Cable Gate file published by WikiLeaks noted that former Central Bank president Dr. Angel Gabriel González Cáceres, "a strong Colorado with close ties to [former] President Duarte, who appointed him Central Bank president in September 2003," was named "Paraguay's new director of SEPRELAD, the Secretariat for the Prevention of Money Laundering," and that reviews of his previous performance were "quite mixed."
Variously described by the Embassy as "a technician with a long trajectory at the Central Bank who has cooperated with the Embassy on money laundering and terrorist financing," as Banking Superintendent however, González "opposed creation of SEPRELAD because he wanted the Central Bank to retain responsibility for fighting money laundering."
But perhaps there were other factors, and interests, at work?
According to Asunción Deputy Chief of Mission Michael J. Fitzpatrick, Paraguay's counternarcotics director Hugo Ibarra would have "nothing to do with" González. The counternarcotics chief then "volunteered that González had a direct personal role as Central Bank president in white-washing ('blanquear') funds for so-called pillar of the community Horacio Cartes and his Banco Amambay, noting that 80 percent of money laundering in Paraguay moves through that banking institution."
"Ibarra indicated," Embassy officials averred, "that González is still involved with Amambay, and questioned why a former Central Bank president would take a lower level position as SEPRELAD director--managing an office with less than a dozen employees--in the absence of some other financial incentive."
Certainly a relevant question; however, no answers were forthcoming.
In 2008, another WikiLeaks file disclosed that shortly after assuming office, Lugo informed the US Embassy of his interest "in closer counternarcotics cooperation with the United States and requested U.S. assistance with microenterprise development during a Friday, August 29 dinner with the Ambassador."
Significantly, "Lugo made clear that he does not trust some of his closest advisors or cabinet ministers. During dinner, which took place before the weekend rumors emerged regarding coup planning, Lugo told Ambassador about a tape recording of former President Duarte and General Lino Oviedo betting that Lugo will last only three to eight months in office."
A 2009 secret WikiLeaks file, "Paraguayan Pols Plot Paraguayan Putsch," noted that "discredited General and UNACE party leader Lino Oviedo and ex-president Nicanor Duarte Frutos are now working together to assume power via (mostly) legal means should President Lugo stumble in coming months."
Oviedo, "serving time for involvement in the 1999 assassination of Vice President Luis Argana and the subsequent Marzo Paraguayo massacre of unarmed student protesters," the Embassy noted it was Duarte "who used his control of the Supreme Court to free Oviedo from jail" in 2007.
A 2003 CIA report published by the Library of Congress informed us that "Brazilian and U.S. officials generally consider former General Lino César Oviedo to be head of the so-called Paraguay Cartel. He reportedly has amassed at least US$1 billion, including numerous properties in the TBA [Tri Border Area]."
The Argentine investigative news magazine Página/12 published a 2001 Argentine Chamber of Deputies report on money laundering which noted that according to Brazilian officials, the US Embassy and the DEA, Oviedo was involved with "drug trafficking (cocaine and marijuana), weapons, money laundering and the smuggling of various items."
In 1994 for example, a "load of seven tons of cocaine, worth $70 million, which was seized with the participation of the CIA, and destined for the USA," was linked to Oviedo and his employees. Later that year, according to DEA documents, another load of five tons of cocaine was seized from "Oviedo accomplices" attempting to smuggle it across the Paraguayan border.
The Chamber of Deputies report concluded: "Oviedo is accused of being the head of a drug trafficking, arms trafficking [cartel] and being involved in the murder of media entrepreneur Carlos Honorio Cubillas and Paraguayan Vice President Argana. The various charges against him made by the DEA were, by former U.S. Ambassador to Paraguay and the Brazilian CPI."
As noted above, in 2007, Oviedo's conviction for orchestrating an attempted military coup in 1996 was annulled by Paraguay's Supreme Court. Again a candidate for the presidency in 2013, nominated by the ironically named National Union of Ethical Citizens (Unión Nacional de Ciudadanos Éticos, UNACE), Oviedo died in a "helicopter accident" after a campaign appearance in February, clearing the path to power for Horacio Cartes.
The Cartel: Back in Power
Last Sunday in an unusually critical article, The New York Times reported that during the campaign, Cartes "was pressed to explain why antinarcotics police officers apprehended a plane carrying cocaine and marijuana on his ranch in 2000; why he went to prison in 1989 on currency fraud charges; and why he had never even voted in past general elections."
Good questions, all of which were dismissed by Cartes' top aides as "conspiracy theories" and "slander."
The most serious charges involve Cartes connection to drug trafficking, money laundering and the smuggling of contraband cigarettes.
Another WikiLeaks file, this one from 2010, informed us that a joint that a joint ATF-DEA-ICE-OFAC US anti-money laundering investigation dubbed "Heart of Stone," revealed that Cartes is the head of a transnational criminal organization and the main target of the operation.
"OPERATION HEART OF STONE is a coordinated, transnational investigation focused on the disruption and dismantlement of a significant drug trafficking and money laundering enterprise operating within the Tri Border Area (TBA) of Argentina, Paraguay, and Brazil, and elsewhere throughout the world. This investigation has established links between and among drug trafficking, money laundering and other criminal organizations and, as such, was approved as a designated Consolidated Priority Organizational Target (CPOT) investigation during April 2009."
The WikiLeaks file averred: "The investigative team has implemented strategies and operations aimed at attacking the financial infrastructure of drug trafficking supply network (DTO's) and other criminal enterprises operating within the TBA. Using a strategic approach to target the international command and control centers of these criminal organizations based in the TBA, agents have successfully focused investigative activity in an effort to develop this investigation with an aim toward a DEA UC introduction to CPOT designee Horacio CARTES. Through the utilization of a DEA BACO cooperating source and other DEA undercover personnel, agents have infiltrated CARTES' money laundering enterprise, an organization believed to launder large quantities of United States currency generated through illegal means, including through the sale of narcotics, from the TBA to the United States."
Despite the seriousness of the allegations, and others enumerated below, The Independent reported that Cartes "has publicly denied the allegations and says he has received assurances from the embassy that the US Drugs Enforcement Agency and Bureau of Alcohol, Tobacco and Firearms are conducting no investigations against him, something the cables allege."
If true, this raises a disturbing question: did the DEA drop the ball or were they ordered to back away from the investigation by Obama's State Department?
"'When it comes to drug trafficking, Horacio has made it clear what his position is,' says Julio Velazquez, a Colorado senator standing for re-election tomorrow."
Ludicrously, Velazquez told The Independent: "'There's no concrete allegation against him. Horacio has investments in the US. Do you think the Americans would allow a narco to bring money into their country?'"
Memo to Senator Velazquez: Not only would the Yankees "allow a narco to bring money into their country," they'd look the other way as US banksters laundered the funds and extracted hefty fees in the process!
Another front in the Cartes empire involved Banco Amambay and illegal tax evasion. The International Consortium of Investigative Journalists (ICIJ) reported earlier this month that "five directors of Banco Amambay created a secret bank in the Cook Islands with no building and no staff."
Journalists Marina Walker Guevara and Mabel Rehnfeldt disclosed that "top officials of a Paraguayan bank owned by Horacio Manuel Cartes, the country’s leading candidate in this month's presidential election, operated a secret financial institution in a tax haven in the South Pacific."
According to the ICIJ's investigation, "Cartes' father, Ramón Telmo Cartes Lind, and four other executives of Paraguay's Banco Amambay S.A. created Amambay Trust Bank Ltd. in 1995 in the Cook Islands, a tiny chain of atolls and volcanic outcroppings more than 6,000 miles away from the South American nation."
"The Cook Islands bank, which was operational until 2000," the same year the Cook Islands landed on of the OECD's money laundering blacklist, "a dishonor roll for places the OECD considers havens for dirty money," was de-registered a month prior to OECD sanctions.
Guevara and Rehnfeldt reported that the Cook Islands were condemned for "'excessive secrecy provisions'" that "allowed owners of offshore companies and accounts to hide in the shadows. It noted the islands' government had 'no relevant information on approximately 1,200 international companies that it had registered' and that the offshore banks located in the Cooks weren't required to document the identity of their customers."
"It was not the only time that Banco Amambay and its officials made headlines for alleged money laundering, but the accusations have never resulted in convictions."
"Just last month," the ICIJ averred, "the head of Paraguay's anti-money laundering agency said that the bank was being investigated alongside other financial institutions for illegal money transfers abroad. The following day the official recanted his words and said he had misspoken. Amambay denied any involvement in criminal activities."
With the election of another "teflon president" accused of operating a drug trafficking and money laundering enterprise, and with powerful connections to prominent right-wing politicians suspected of decades' long ties to global narcotics rackets, the Pentagon and US secret state agencies must be salivating over the prospect of the cartel's return to power.
After all, as State Department spokesperson Patrick Ventrell said during an April 22 press briefing when queried about Cartes dodgy record: "The United States values its relationship with Paraguay and looks forward to working with the President-elect, with President-elect Cartes, on many of our shared interests, such as defending and promoting democracy, human rights, and the rule of law, and expanding trade and economic opportunities."
When pressed about Cartes long history of criminal allegations, Ventrell didn't bat an eyelash and averred: "I'm not aware of specific allegations one way or another, but we do congratulate him on his electoral victory. And I think I just was clear about working with him going forward."
And so it goes...
Sunday, April 7, 2013
Toothless Federal Reserve 'Enforcement Action' Hands Citigroup/Banamex a Pass Over Drug Money Laundering
In October 2005, at the height of the speculative financial bubble that eventually cost taxpayers trillions of dollars and devastated millions of lives, Citigroup Equity Strategy analysts Ajay Kapur, Niall Macleod and Narendra Singh published their provocative, though accurate portrayal of bourgeois amorality, Plutonomy: Buying Luxury, Explaining Global Imbalances.
According to these worthies, the egregious economic disparities between the filthy ruling rich and the rest of us revolve around the salient fact that the "world is dividing into two blocs--the plutonomies where economic growth is powered by and largely consumed by the wealthy few," and the great mass of proletarians who need to sit down, shut up and worship at the feet of their masters.
To whit, their evocation of "disruptive technology-driven productivity gains, creative financial innovation, capitalist-friendly cooperative governments . . . overseas conquests invigorating wealth creation" as the engines driving capitalism's criminogenic "wealth waves . . . exploited best by the rich and educated," recalled Orwell's dystopian vision of a future which imagined "a boot stamping on a human face--forever."
In a follow-up piece published in March 2006, Citi claimed that "so long as the rich continue to get richer, the likelihood of these conundrums [obscene income disparities] resolving themselves through traditionally disruptive means (currency collapses, consumer recessions etc) looks low."
Indeed, "While we have concerns about the spending power of the middle-income consumer in the US in the event of a housing slowdown, the richest 10% are less exposed to a housing slowdown, as their wealth is more diversified."
In other words, while Citi's "plutonomic" clients were gobbling up an ever greater share of the world's wealth, hyperinflating the real estate bubble and peddling fraudulent "investment instruments" that still threaten to drive the global economy into the abyss, "we believe that the rich are going to keep getting richer in coming years, as capitalists (the rich) get an even bigger share of GDP as a result, principally, of globalization."
"We expect the global pool of labor in developing economies to keep wage inflation in check," they opined, "and profit margins rising--good for the wealth of capitalists, relatively bad for developed market unskilled/outsource-able labor."
If you're an average worker, even one with an advanced degree and mountains of student debt, well, too bad suckers!
What could go wrong with this rosy picture? "Beyond war, inflation, the end of the technology/productivity wave, and financial collapse, we think the most potent and short-term threat would be societies demanding a more 'equitable' share of wealth." (emphasis added)
Worry not dear plutonomes, there's an app for that too in the form of militarized police deploying the latest in "less than lethal" technologies--pepper spray, tear gas, tasers and the like to keep those uppity proles at bay!
Lost amidst their prattle about the merits of investing in firms which cater to the rich ("do I buy Bulgari, Burberry and Coach or do I limit my options to Hermes and Toll Brothers?" The consensus opinion: "Buy them all!"), was any discussion of the social costs of these massive frauds, bloody imperialist wars of conquest or the hyperinflation of bank balance sheets with veritable "wealth waves" generated by the global drug trade and organized crime, some "3.6 percent of GDP (2.3-5.5 percent) or around US$2.1 trillion in 2009," according to the United Nations Office on Drugs and Crime (UNODC).
There you have it, "market wisdom" in all its glory from an insolvent, bailed out bank!
Handed some $45 billion (£29.78bn) in TARP funds, the Treasury Department and Federal Reserve secretly backstopped more than $300 billion (£197.31bn) in toxic assets on their books in addition to the "$2.5 trillion [£1.64tn] of support from the American taxpayer through capital infusions, asset guarantees and low-cost loans," as financial analyst Pam Martens pointed out in Wall Street on Parade.
'Dark Alliance' 2.0
Although journalists and researchers have spent decades documenting the links between secret state intelligence agencies like the CIA and organized crime conglomerates who butter their bread through global narcotics rackets, the role of major financial institutions in the grisly trade continues to be relegated by corporate media to the realm of "conspiracy theory."
But in the wake of rising public anger over the Obama administration's collusion with Wall Street drug banks, we were informed by The New York Times that the "Federal Reserve hit Citigroup with an enforcement action on Tuesday over breakdowns in money laundering controls that threatened to allow tainted money to move through the United States."
According to the Times, the Federal Reserve "took aim at Citigroup and its subsidiary Banamex USA over failure to monitor cash transactions for potentially suspicious activity."
The Fed's Consent Order charged that Citigroup and Banamex USA "lacked effective systems of governance and internal controls to adequately oversee the activities of the Banks with respect to legal, compliance, and reputational risk related to the Banks' respective BSA/AML [Bank Secrecy Act/Anti-Money Laundering] compliance programs."
An unnamed bank spokeswoman told the Times, "Citi has made substantial progress in a comprehensive manner across products, business lines and geographies," and will continue "to take the appropriate steps to address remaining requirements and build a strong and sustainable program."
Nothing to see here, right?
Tellingly however, neither Citigroup nor Banamex USA admitted wrongdoing. In what is standard boilerplate in such agreements, the Fed meekly submitted that their "enforcement action" was issued "without this Order constituting an admission or denial by Citigroup of any allegation made or implied by the Board of Governors." Nor did the Fed "give specific examples of problems" at either bank, Reuters reported.
During Senate Banking Committee hearings last month, Senator Elizabeth Warren (D-MA) grilled federal banking regulators over their non-prosecution of Wall Street drug banks.
Referencing penalties levied against HSBC after the British banking giant was caught red-handed laundering billions of dollars for Colombian and Mexican drug cartels, Warren demanded: "What does it take? How many billions of dollars do you have to launder for drug lords" before a criminal prosecution?
Judging by the actions of Obama's Justice Department, apparently the sky's the limit.
But if history is any guide to current Citigroup "lapses," you can bet that the bank's balance sheet is awash with dirty money.
As a prelude to the Federal Reserve's Consent Order, last April the Office of the Currency (OCC) issued a cease-and-desist order charging Citigroup with "deficiencies in its BSA/AML compliance program."
OCC regulators stated that the bank had "failed to adopt and implement a compliance program that adequately covers the required BSA/AML program elements due to an inadequate system of internal controls and ineffective independent testing."
According to OCC, Citigroup "did not develop adequate due diligence on foreign correspondent bank customers and failed to file Suspicious Activity Reports ('SARs') related to its remote deposit capture/international cash letter instrument activity in a timely manner."
In their infinite wisdom, the Federal Reserve did not include fines against the bank, but the Board of Governors hastened to assure Citigroup's masters (their future employers?) that the Consent Order was issued "solely for the purpose of settling this matter without a formal proceeding being filed and without the necessity for protracted or extended hearings or testimony."
You bet it was!
Citigroup and Banamex: The Salinas Affair
If all this sounds familiar, it should.
One of the more infamous cases involving taxpayer bailed-out Citigroup's ties to money laundering drug cartels emerged in the late 1990s when Raúl Salinas de Gortari, the brother of former Mexican President Carlos Salinas, was arrested after his wife, Paulina Castañón, attempted to withdraw $84 million from a Swiss account controlled by Raúl under an alias.
Salinas, who spent ten years in prison over the murder of his brother-in-law, political rival José Francisco Ruiz, was released in 2005 when a Mexican appeals court overturned that conviction.
After nearly 13 years of legal proceedings into the origins of the Salinas fortune, SwissInfo reported that "Switzerland will hand over $74 million (SFr77.3 million) to Mexico from bank accounts linked to the brother of a former Mexican president."
"The funds--more than $110 million in bank accounts linked to Raúl Salinas--were originally frozen after the Swiss authorities initiated criminal proceedings against Salinas in 1995 for money laundering."
But as Narco News investigative journalist Al Giordano reported back in 2000, "The Chief Operating Officers of drug trafficking are not Mexicans, nor Colombians: they are US and European bankers, those who launder the illicit proceeds of drug trafficking. Institutions like Citibank of New York--as this report documents--are the true beneficiaries of the prohibition on drugs and its illegal profits."
Indeed, "some of these men," Giordano asserted, "like Banamex CEO Roberto Hernández Ramírez--are rags-to-riches stories. Hernández, according to Forbes magazine, could not afford to finance an American Express credit card in 1980. Today he earns the largest annual salary in Mexico--reported as $29 million dollars--and is a billionaire presiding over Mexico's top banking institution."
According to Narco News, when former President Carlos Salinas initiated bank privatization during the 1990s at the urging of the Bush and Clinton administrations, "the single biggest winner" was none other than his old pal Roberto Hernández. And Hernández, according to investigative journalist Mario R. Menéndez Rodríguez, the editor of Por Esto!, was "the financial engineer of the Gulf Cartel, launched in the 1980s by Juan N. Guerra and based in the Texas border city of Matamoros, Tamaulipas."
Reprising their earlier investigations, Giordano reported that "Hernández had been accused--publicly and via a criminal complaint--by the daily newspaper Por Esto! of trafficking tons of Colombian cocaine through his Caribbean costa properties on that peninsula since 1997."
"The newspaper," Narco News averred, "published photos of the drugs, the smuggling boats, the Colombian garbage strewn upon the shores, the airfield and small airplanes that, witnesses testified, brought the cocaine north to the United States, with confirmation from sources as diverse as local fishermen and high officials of the Mexican Armed Forces."
For their investigative efforts both Giordano and Menéndez were sued for libel by Banamex and Hernández in 2000, a case summarily dismissed by the New York Supreme Court, which "established, for the first time, First Amendment protections for Internet journalists in the United States."
Banamex was bought by Citigroup in 2001 for the then princely sum of $12.5 billion (£8.21bn).
As El Universal Gráfico journalist José Martínez reported at the time of the Citibank-Banamex buy out, "One of the mechanisms utilized by Mexican investors is the opening of secret accounts in foreign banks that have business in this country. There, the exclusive Citibank, for decades, has been the preferred bank of the elite of wealthy and powerful people involved in the middle of scandal. In recent years this financial institution has been involved in innumerable cases connected to the management of dirty money."
According to Martínez, "Citibank has been linked to the political scandals derived from the diversion of funds by part of the Mexican elite, among them some narco-traffickers."
And as Mexico City's Milenio newspaper columnist Jorge Fernández Menéndez detailed in his 1999 book Narcotráfico y Poder in reference to Raúl Salinas:
The relation of of Raúl Salinas with the Gulf Cartel presumably surged at the end of the 1980s and began with Juan N. Guerra, who since the middle of the decade had led this organization dedicated to drug trafficking (above all, marijuana) and contraband. In 1989, Guerra made various investments in construction projects, mainly in Villahermosa, with Raúl Salinas. But, already an old man with grave health problems, with a limited vision of his activity, Juan N. Guerra was not the ideal individual to head the project that would be settled by the strong growth of the Cali Cartel: the change from marijuana to cocaine.
Fernández noted that when the Gulf Cartel was taken over by Juan García Abrego, "...as the person responsible for the operation of the cartel, Raúl Salinas de Gortari [w]as the presumed chief of political relations and power of the same."
Never mind that before his arrest on money laundering charges, Raúl only earned an annual salary of $190,000 as a "public servant," Swiss and US investigators uncovered an illicit cash horde to the tune of hundreds of millions of dollars.
Where did Salinas' money come from?
In addition to the outright theft of funds from the Treasury as alleged by federal prosecutors in Mexico, according to a 1995 Los Angeles Times report, Salinas "amassed at least $100 million in suspected drug money."
Switzerland's top prosecutor at the time, Carla del Ponte, "launched the investigation after the U.S. Drug Enforcement Administration supplied information that led Swiss agents to the accounts in Geneva, where they arrested Raúl Salinas' wife and her brother on Nov. 15 as the pair attempted to withdraw more than $83 million."
Del Ponte told the Los Angeles Times that after observing Salinas' interrogation by Mexican federal prosecutors the sums found in those accounts were "suspected to be from the laundering of money related to narcotics trafficking."
In 1998, when Swiss prosecutors completed their Salinas investigation, The New York Times disclosed that "Swiss police investigators have concluded that a brother of former President Carlos Salinas de Gortari played a central role in Mexico's cocaine trade, raking in huge bribes to protect the flow of drugs into the United States."
That Swiss report stated, "When Carlos Salinas de Gortari became President of Mexico in 1988, Raúl Salinas de Gortari assumed control over practically all drug shipments through Mexico. Through his influence and bribes paid with drug money, officials of the army and the police supported and protected the flourishing drug business."
Leveraging "a low-profile position in the administration's food-distribution agency," Swiss investigators revealed that "Raúl Salinas commandeered Government trucks and railroad cars to haul cocaine north, skimming payoffs that the Swiss estimate at upwards of $500 million. On what some of his reputed former associates referred to as 'green light days,' he arranged for drug loads to transit Mexico without concern that they might be checked by the army, the coast guard or the federal police."
But without the complicity of major banks, amassing and then hiding, that much loot would be impossible. Enter Citibank's "Private Banking" division.
A 1998 report by the General Accounting Office (GAO) pointed a finger directly at Citibank. Investigators revealed that "Mr. Salinas was able to transfer $90 million to $100 million between 1992 and 1994 by using a private banking relationship formed by Citibank New York in 1992. The funds were transferred through Citibank Mexico and Citibank New York to private banking investment accounts in Citibank London and Citibank Switzerland."
With the connivance of bank officials, in 1992 Salinas was able to "effectively disguise" the source of those funds and their destination.
Indeed, with hefty fees secured from assisting their well-connected client Salinas, Citibank "set up an offshore private investment company named Trocca, to hold Mr. Salinas's assets, through Cititrust (Cayman) and investment accounts in Citibank London and Citibank Switzerland."
Forget due diligence or "know your customer" (KYC) rules firmly in place under the Bank Secrecy Act (BSA), Citibank "waived bank references for Mr. Salinas and did not prepare a financial profile on him or request a waiver for the profile, as required by then Citibank know your customer policy" and "facilitated Mrs. Salinas's use of another name to initiate fund transfers in Mexico."
This should have triggered alarm bells over at OCC, but like today's banking scandals involving Wachovia, HSBC and JPMorgan Chase, US "regulators" sat on their hands and did nothing.
Eager to extract those fees from a dodgy client, Citibank's Vice President for Legal Affairs was forced to admit to GAO investigators that the bank "only" violated one aspect of their KYC policy, their failure to prepare a financial profile of Salinas.
However, a 1999 Senate Permanent Subcommittee on Investigations report on "Private Banking and Money Laundering" revealed that "a culture of secrecy pervades the private banking industry."
"For example," Senate investigators disclosed, "in the case of Raul Salinas . . . the private bank hid Mr. Salinas' ownership of Trocca by omitting his name from the Trocca incorporation papers and naming still other shell companies as the shareholders, directors, and officers. Citibank consistently referred to Mr. Salinas in internal bank communications by the code name 'Confidential Client Number 2' or 'CC-2.' The private bank's Swiss office opened a special name account for him under the name of 'Bonaparte'."
And despite the fact, as Senate staff averred, "Federal Reserve examiners stated in internal documents that the Citibank private bank lagged behind other private banks they had reviewed," and that Citi's Swiss headquarters had received the "worst possible audit rating" in 1995, and that Citibank's "poor audit score were 'not taken seriously' within the private bank," no regulatory action was taken.
Two years later, a Federal Reserve examiner wrote: "The auditors are a key asset of [the private bank]. The problem is that for years audit has been identifying problems and nothing has been done about it. In 1992 [the private bank had] 66% favorable audits in 1997 the percentage of favorable audits was 62%. ... It appears that there are no consequences for bad audits as long as [the private bank] meets their financial goals."
As Time Magazine investigative journalist S.C. Gwynne reported at the time, Citibank and the soon-to-be-merged with Travelers behemoth now known as Citigroup (that 1998 merger was illegal under Glass-Steagall, but that's another story, one which directly correlates to the Act's 1999 repeal by the Clinton crime family and their Republican co-conspirators in Congress), private banking for upscale clients with the means to invest at $1 million "is now the crown jewel in the financial giant's strategy for growth."
"That strategy," Gwynne wrote, "calls for Citibank and its parent, Citigroup, to reduce their reliance on cyclical corporate and real estate lending, which tends to be high risk and relatively low profit. It will emphasize the lower-risk, higher-margin business of consumer banking--and especially one-stop financial shopping for the world's booming population of the newly rich."
Keep in mind, Gwynne was writing in 1998 before the real estate bubble was inflated and Wall Street banksters dove head first into the dubious "residential mortgage" marketing machine that nearly sunk, and still threatens to sink, the capitalist economy under endless waves of fraud and corruption.
"At Citigroup and like-minded institutions around the world," Gwynne noted, "folks with six- and seven-figure portfolios can find not only traditional banking services like checking and savings accounts but also strategic financial advice; introduction to high-yield investment vehicles like hedge funds; tax advice and accounting; estate planning and all manner of insurance. They can also get help in protecting their assets from potential claimants like creditors and ex-spouses, which can involve moving money discreetly from country to country."
Indeed, private banking funds were "part of a $17 trillion global pool of money belonging to what bankers euphemistically call 'high-net-worth individuals'--a pool that generates more than $150 billion a year in banking revenue."
Hidey holes in the Cayman Islands and other destinations used for squirreling-away illicit cash, such as the world's largest financial black holes, the US State of Delaware and the City of London, remain convenient resting places for loot amassed by various global narcotics combines.
Limited at the time by an "ongoing Department of Justice investigation," a lawyerly dodge that prevents corporate criminality from ever coming to light, GAO investigators "could not determine whether Citibank's actions violated law or regulation."
The Federal Reserve were also less than forthcoming and "did not comment on whether Citibank's actions were violations because information available to it at the time we inquired was insufficient for it to make a determination."
According to asleep at the wheel regulators at OCC, Citibank's "actions did not violate civil aspects of the Bank Secrecy Act" since under rules then in place "private banking's know your customer policies are voluntary and not governed by law or regulation."
But as the Mexican weekly news magazine Proceso reported in 2001 during the Salinas affair, "Citibank of New York was transferring Juárez drug cartel money to Uruguay and Argentina, where Mexican drug lord Amado Carrillo Fuentes and his associates went calmly about their business, with help from local politicians and businessmen. Not long after, investigations would reveal that in 1998-99, more than $300 million belonging to Mexican drug traffickers went through Citibank."
As El Universal Gráfico noted, when the self-described "Lord of the Heavens" sought refuge in South America, he "had account # 36111386 in Citibank of New York. From this place, the financial operators of the narco-trafficker passed large sums in millions of dollars to ghost banks like MA Bank of the fiscal paradise of the Cayman Islands."
In late 2000, when the Senate Permanent Subcommittee on Investigations again began looking into drug money laundering allegations against Citibank, they received information from Argentine legislators who claimed there was "a gigantic political-financial conspiracy involving even Citibank President John Reed."
Years later, those suspicions were corroborated when a US investigation, Operation Casablanca, "revealed that [money from] the Juárez cartel entered Argentina through two Citibank accounts and others in shell banks in the Cayman Islands and the Bahamas."
Juan Miguel Ponce, the head of Mexico's Interpol branch, "took advantage of Operation Casablanca to explore the vein of Juárez cartel allies in Argentina. He claims to have discovered documents in Mexico proving that large contributions were made by the cartel to 1999 campaign in Argentina of Peronist presidential and vice presidential candidates Eduardo Duhalde and Ramon 'Palito' Ortega," Proceso disclosed
As James Petras reported in 2001, when Salinas was arrested "and his large-scale theft of government funds was exposed, his private bank manager at Citibank, Amy Elliott, said in a phone conversation with colleagues (the transcript of which was made available to Congressional investigators) that 'this goes [on] in the very, very top of the corporation, this was known ... on the very top. We are little pawns in this whole thing'."
Fast forward twelve years: More than 120,000 Mexican citizens have paid with their lives as a result of the grisly trade and the American people are still the pawns of "plutonomic" banksters whose "wealth waves" come from the perverse influence bought by oceans of drug money flowing through a thoroughly corrupt capitalist system.
Sunday, March 24, 2013
Obama's New SEC 'Sheriff.' No Conflict of Interest When it Comes to Shielding Wall Street's Pin Striped Mafia
One indelible sign of state capture by pirate corporations and the financial jackals holding sway on Wall Street and the City of London is the ease with which former "regulators" slip into plum positions with the firms whom they supposedly "regulated" as "public servants."
While the drone kill-crazy Obama regime has done yeoman's work cementing in place extra-constitutional policies first enacted by the Bush gang--only to exceed Bushist depredations by a whole order of magnitude--kool-aid sipping "progressives" and troglodytic "conservatives" have given the president a free pass when it comes to policing the financial criminals who blew up the world economy.
But when it comes to US spy agencies probing and sweeping up your financial information, well, the sky's the limit!
As Reuters reported last week, the administration "is drawing up plans" to give securocrats "full access to a massive database that contains financial data on American citizens and others who bank in the country, according to a Treasury Department document."
That Treasury plan would give secret state apparatchiks, including those ensconced at CIA, NSA and the Pentagon free reign to rummage through the Financial Crimes Enforcement Network's (FinCEN) massive database of "suspicious activity reports" routinely filed by "banks, securities dealers, casinos and money and wire transfer agencies." The FBI and DHS already have full access to that database under the Orwellian USA Patriot Act.
Under the proposal, FinCen data will be linked "with a computer network used by US defense and law enforcement agencies to share classified information called the Joint Worldwide Intelligence Communications System," according to Reuters.
And since requirements for filing SARs are "so strict," banks often "over-report," this "raises the possibility that the financial details of ordinary citizens could wind up in the hands of spy agencies," where it will live in perpetuity, "criminal evidence, ready for use in a trial," as Cryptohippie famously warned.
Got that? While Wall Street drug banks are handled with care because of the "collateral consequences" that might result from a criminal referral for laundering billions of narco-dollars, the average citizen's financial data will be fair game.
Which brings us back to Obama's anemic regulatory regime and the "sheriffs" eager to do the bankster's bidding.
Wall Street's Choice
As one of the filthiest dens of corruption in Washington, the Securities and Exchange Commission (SEC) is in a league of its own.
In late January, when the president announced he was nominating former federal prosecutor Mary Jo White to lead the Securities and Exchange Commission (SEC), The New York Times, as they are wont to do, proclaimed that the "White House delivered a strong message to Wall Street."
A rather ironic assertion considering the tens of millions of dollars "earned" defending Wall Street criminals by Debevoise & Plimpton partner Mary Jo and her millionaire lawyer husband John, a partner at the white shoe corporate litigation shop Cravath, Swaine & Moore, as Above the Law disclosed.
Keep in mind that White will soon lead an agency that for years covered-up financial crimes by routinely shredding tens of thousands of case files on everything from insider trading, securities fraud, market manipulation and the Madoff and Stanford Ponzi schemes, as a 2011 Rolling Stone investigation disclosed.
As I reported nearly three years ago during my investigation into now-convicted fraudster Allen Stanford's ties to the CIA over his role in laundering oceans of cash for the Agency's narcotrafficking assets, the SEC's Fort Worth office "stood down" multiple probes "at the request of another federal agency," which regional head of enforcement Stephen J. Korotash "declined to name."
Indeed, a 2010 report by the SEC's Office of the Inspector General found that another "former head of Enforcement in Fort Worth," Spencer C. Barasch, "played a significant role in multiple decisions over the years to quash investigations of Stanford," and sought to represent the dodgy banker "on three separate occasions after he left the Commission, and in fact represented Stanford briefly in 2006 before he was informed by the SEC Ethics Office that it was improper to do so."
Barasch eventually paid a $50,000 fine for ethics violations and "moved on."
Despite the SEC's documented history of sleaze and lax enforcement of rules that would earn the average citizen a one-way ticket to the slammer, on March 19 the Senate Banking Committee approved White's nomination by a vote of 21-1; the lone dissenter was Sherrod Brown (D-OH). A vote by the full Senate could come as early as next week and she is expected to be confirmed easily.
As a former US Attorney for the Southern District in New York (1993-2002), White has been described by corporate media as a "tough as nails" prosecutor for her role in bringing down Mafia wise guy John Gotti and for running to ground criminal mastermind Ramzi Yousef, the architect of the 1993 World Trade Center bombing. (For a gripping account of how the FBI and US prosecutor's office botched that investigation and "foamed the runway" for the mass murder of 3,000 people on 9/11, readers should train their sights on Peter Lance's exposé, 1000 Years for Revenge).
White's record when it came to holding financial criminals to account however, was even more dubious; in fact, for more than a decade she's defended them.
Times' stenographers dialed back their glowing encomiums for the Obama nominee, writing that "translating that message into action will not be easy, given the complexities of the market and Wall Street's aggressive nature."
As reliable hands on the financial beat, Dealbook reporters routinely trumpet everything from the Justice Department's sweetheart deal with drug money laundering and terrorist coddling banking giant HSBC to kissing Jamie Dimon's hem over billions of JPMorgan Chase losses last year in what were euphemistically described as a "bad bet on derivatives."
In the January puff-piece, reporters Ben Protess and Benjamin Weiser outdid themselves, claiming that with the White nomination "the president showed a renewed resolve to hold Wall Street accountable for wrongdoing."
However, a less than laudatory piece published by Bloomberg News took those fatuous claims to task. Financial columnist Jonathan Weil observed that while "The Securities and Exchange Commission couldn't get Ken Lewis on any securities-law violations after he helped drive Bank of America Corp. into the ground as its chief executive officer," the agency "is poised to get his attorney as its new chairman--and Morgan Stanley's, too."
But hey, it's not like the SEC is chock-a-block with conflicts of interest, right? Well, if a bracing read is what the doctor ordered, then turn your attention to a damning study released last month by the Project on Government Oversight (POGO). Entitled, Dangerous Liaisons: Revolving Door at SEC Creates Risk of Regulatory Capture, author Michael Smallberg takes us on a 60-page tour of insider dealing and corruption that would make a Roman emperor blush.
According to Smallberg: "Between 2001 and 2010, more than 400 SEC alumni filed nearly 2,000 disclosure statements saying they planned to represent employers or clients before the agency. These alumni have represented companies during SEC investigations, lobbied the agency on proposed regulations, obtained waivers to soften the blow of enforcement actions, and helped clients win exemptions from federal law. On the other side of the revolving door, when industry veterans join the SEC, they may be in a position to oversee their former employers or clients, or may be forced to recuse themselves from working on crucial agency issues."
Talk about an agency blind in both eyes by design!
A Counsel with 'Juice'
One of the more egregious cases which came to light was SEC's handling of a 2005 insider trading case involving former agency enforcement head, Linda Thomsen, White and her client, Morgan Stanley CEO John Mack.
Before her tenure as the agency's chief enforcement officer, Thomsen was in private practice at the powerhouse New York law firm, Davis, Polk & Wardell. During the capitalist financial meltdown, the company represented upstanding corporate citizens such as AIG, Freddie Mack, Lehman Brothers and drug-tainted Citigroup. Bulking up a stable of attorneys well-versed in regulatory matters, the firm has hired other former SEC officials, including Commissioner Annette Nazareth and Linda Thomsen.
Before sailing off to greener shores at Davis, Polk, Nazareth's claim to fame was standing up a voluntary "supervisory regime" for the largest "investment bank holding companies" who "policed" themselves by cratering the economy and costing taxpayers trillions in bailouts.
That program, the Consolidated Supervised Entity was scrapped in 2008. Why? According to a press release by then SEC head Christopher Cox (no slouch himself when it came to defending his corporatist masters): "The last six months have made it abundantly clear that voluntary regulation does not work. When Congress passed the Gramm-Leach-Bliley Act, it created a significant regulatory gap by failing to give to the SEC or any agency the authority to regulate large investment bank holding companies, like Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns." (emphasis added)
A "gap" large enough to fly a fleet 747s through and still have enough wiggle room to launch a dozen Saturn 5s into deep space!
And that insider trading case?
According to Matt Taibbi's Rolling Stone investigation, in September 2004 SEC investigator Gary Aguirre was tasked to look into an insider trading complaint against "a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial."
Samberg was the founder of the multibillion dollar hedge fund, Pequot Capital Management, a firm which invested in a multitude of private and public equities and what are known as "distressed securities." These are investment instruments held by firms or government entities (paging Fannie Mae!) that are either in default, under bankruptcy protection or will soon be heading south. The most common securities of this type are bonds and bank debt (think residential mortgage backed securities and other toxic assets). Since the financial crisis, a booming market in distressed securities have earned savvy hedge fund mangers billions in fees as they seek influence with regulators over how that debt is restructured.
And since "influence" in Washington and the "juice" that comes with it on Wall Street is the name of the game, well, you get the picture.
"'It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller,' Aguirre recalls. 'And he wasn't just buying shares--there were some days when he was trying to buy three times as many shares as were being traded that day.' A few weeks later, Heller was bought by General Electric--and Samberg pocketed $18 million."
"After some digging," Taibbi wrote, "Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg's who had just stepped down as president of Morgan Stanley."
According to Taibbi, "Mack flew to Switzerland to interview for a top job at Credit Suisse First Boston. Among the investment bank's clients, as it happened, was a firm called Heller Financial. We don't know for sure what Mack learned on his Swiss trip; years later, Mack would claim that he had thrown away his notes about the meetings."
Rather conveniently, one might say.
In any event after returning from his Swiss Alps sojourn, in a classic case of "you scratch my back" Samberg cut his buddy Mack into a deal with a tech firm called Lucent, "a favor that netted him [Mack] more than $10 million." Shortly thereafter, "Samberg began buying-up every Heller share in sight, right before it was snapped up by GE."
An insider trading case worthy of further scrutiny, right? But when Aguirre told his boss [Robert Hanson] that he intended to interview Mack and the other principals, "things started getting weird." Taibbi noted that Aguirre's boss told the investigator that Mack "had powerful political connections."
Indeed he did. Like other Wall Street banksters, Mack had been a fundraising "Ranger" for the 2004 George W. Bush campaign, and when it became clear that a new product line needed to be rolled out, Mack crossed party lines and backed Hillary Clinton's ill-starred 2008 bid for the Oval Office.
How's that for clubby "bipartisanship"!
A 2007 report (large PDF file) published by the Senate Finance Committee titled The Firing of an SEC Attorney and the Investigation of Pequot Management, disclosed that "at least three experienced SEC officials believed in the summer of 2005 that questioning John Mack was an appropriate next step in the Pequot Investigation."
Indeed, Senate investigators revealed that "the most significant aspect" of Mack's 2006 SEC testimony (after the statute of limitations for prosecution had expired) "is his acknowledgement that he went to Switzerland to discuss becoming CSFB's CEO from July 26-28, 2001."
"In view of the fact that Mack also spoke with Samberg immediately upon his return to the United States on July 29, 2001," Senate staff disclosed, "the trading day before Samberg began heavily betting on Heller Financial stock, and on the same night Mack was permitted into a lucrative deal, there was more than a sufficient basis to justify taking Mack's testimony in the summer of 2005."
After first being given the go-ahead to interview Mack, "Aguirre's direct line of supervisors" including Hanson, Mark Kreitman and Paul Berger, got cold feet. Unfortunately for Aguirre, this came after he had briefed attorneys at Mary Jo White's old stomping ground and "criminal authorities in the Southern District opened their own investigations" into dubious deals between Samberg and Mack.
At that point, Senate investigators averred, "his supervisors' attitudes shifted dramatically," that is, "when officials from Morgan Stanley began contacting the SEC to learn about the potential impact of the investigation on its prospective CEO, John Mack." Only then did Hanson warn Aguirre that "it would be difficult to subpoena John Mack because of his 'powerful political connections'."
Aguirre told Senate investigators that "in a face-to-face meeting" with his boss, "Hanson said it would be very difficult to get permission to question Mack because of Mack's 'powerful political connections'."
Hanson however, denied everything and said during his Senate testimony "That doesn't sound like something I would say."
"As a general matter," Hanson testified, "I try to alert folk above me about significant developments in investigations that may trigger calls and the like so that they are not caught flat footed. I also think that Paul [Berger] and Linda [Thomsen] would want to know if and when we are planning to take Mack's testimony so that they can anticipate the response, which may include press calls that will likely follow. Mack's counsel will have 'juice' as I described last night--meaning that they will reach out to Paul and Linda (and possibly others)."
And who was Mack's "juiced" attorney? Why none other than Mary Jo White!
Unbeknownst to Aguirre, his supervisors were trading emails about his imminent firing from the agency. "With no knowledge of those emails," Senate investigators disclosed that Aguirre wrote Hanson again stating, that "before and after the Mack decision, you have told [me] several times that the problem in taking Mack's exam is his political clout, e.g., all the people that Mary Jo White can contact with a phone call."
At the same time that Aguirre was seeking to subpoena Mack's testimony, Morgan Stanley's board hired Debevoise & Plimpton to vet their soon-to-be reinstalled CEO. "Only two days after being retained," the Senate reported, "White did what the SEC did not do until more than a year later. She questioned John Mack: 'The other thing that I did for the board to gather what information I could on that time frame was to interview John Mack himself,'" White told investigators.
But she did more than that, demonstrating she indeed had plenty of "juice."
"That evening," the Senate disclosed, "White sent Thomsen an e-mail message marked 'URGENT' and asked that Thomsen return the call 'this evening.' Aguirre complained that the next day White delivered the e-mails that he had subpoenaed from Morgan Stanley directly to Linda Thomsen."
"On June 27," Aguirre testified, "I learned that Mack-Samberg emails, which I had subpoenaed from Morgan Stanley, had been delivered directly to the Director of Enforcement, Linda Thomsen. Neither I nor other staff had heard of this happening before. Indeed, the subpoena explicitly stated that the documents were to be delivered to me."
Evidence reviewed by the Senate Finance Committee "suggests that the reluctance to question Mack represents a much more subtle and pervasive problem than an individual partisan political favor. SEC officials were overly deferential to Mack--not because of his politics--but because he was an 'industry captain' who could hire influential counsel to represent him."
"In a shocking move that was later singled out by Senate investigators," Taibbi wrote, "the director actually appeared to reassure White, dismissing the case against Mack as 'smoke' rather than 'fire'."
"Aguirre didn't stand a chance," Taibbi noted. "A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. 'It all happened so fast, I needed a seat belt,' recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal."
It gets better.
In a subsequent piece, Taibbi followed-up and discovered "not only did the SEC ultimately delay the interview of Mack until after the statute of limitations had expired, and not only did the agency demand an investigation into possible alternative sources for Samberg's tip (what Aguirre jokes was like 'O.J.'s search for the real killers'), but the SEC official who had quashed the Mack investigation, Paul Berger, took a lucrative job working for Morgan Stanley's law firm, Debevoise and Plimpton, just nine months after Aguirre was fired."
As it turned out, at the exact moment that Aguirre's investigation was being sabotaged, Senate investigators "uncovered an email to Berger from another SEC official, Lawrence West, who was also interviewing with Debevoise and Plimpton at the time."
"The e-mail was dated September 8, 2005 and addressed to Paul Berger with the subject line, 'Debevoise.' The body of the message read, 'Mary Jo [White] just called. I mentioned your interest'."
Taibbi observed: "So Berger was passing notes in class to Mary Jo White about wanting to work for Morgan Stanley's law firm while he was in the middle of quashing an investigation into a major insider trading case involving the CEO of the bank. After the case dies, Berger later gets the multimillion-dollar posting and the circle is closed."
In later testimony to the Inspector General into Debevoise & Plimpton's eventual hiring of Berger by a firm that boasts on their web site that she leads a "team" which "includes eleven former Assistant US Attorneys," White's comments on whether Berger was considered too "aggressive" in prosecuting Wall Street criminals is all-too-revealing.
"You always have a spectrum on the aggressiveness scale for government types and was this an issue that was beyond real commitment to the job and the mission and bringing cases," White affirmed, "which is a positive thing in the government, to a point. Or was it a broader issue that could leave resentment in the business community or in the legal community that would hamper his ability to function well in the private sector?"
"It's certainly strange that White has to qualify the idea that bringing cases is a positive thing in a government official--that bringing cases is a 'positive thing . . . to a point'," Taibbi noted. "Can anyone imagine the future head of the DEA saying something like, 'For a prosecutor, bringing drug cases is a positive, to a point'?"
And what about Linda Thomsen? In 2008, the SEC's inspector general, H. David Kotz, urged disciplinary action against her over her role in Aguirre's squashed investigation of Samberg and Mack. While Samberg was eventually forced out of business, barred from working as an investment adviser and paid a $28 million fine for his shenanigans, Thomsen landed on her feet.
After refusing to answer relevant questions in 2009 before the House Committee on Financial Services probe into the SEC's failure to investigate the Bernie Madoff Ponzi scheme, due to a "collective desire to preserve the integrity of the investigative and prosecution processes" mind you, Thomsen resigned and rejoined Davis, Polk and Wardell.
Later that year, Kotz released a report to Congress of the IG's investigation into a "Senior Officer" who provided "inside information" to a "former official." As it turns out that "Senior Officer" was Linda Thomsen and that "official" was her former boss Stephen Cutler who had jumped ship and joined JPMorgan Chase.
According to The New York Times, "Kotz said his office has concluded its well-publicized investigation into whether the SEC's enforcement director, Linda Chatman Thomsen, inappropriately provided inside information to her former boss, Stephen Cutler, now the general counsel of JPMorgan Chase, amid the bank's negotiations to buy Bear Stearns in March 2008."
"The inquiry," the Times reported, "which began in response to an anonymous tip, confirmed that Mr. Cutler sought assurances from Ms. Thomsen before the takeover that JPMorgan would not be sued for prior actions by Bear Stearns."
And who was representing JPMorgan Chase in the wake of the Bear Stearns collapse? If you guessed Mary Jo White, you'd be right again.
Less than three years later, during Senate Banking Committee confirmation hearings, White told the panel that "the American people will be my client, and I will work as zealously as possible on behalf of them."
But when questioned by Sherrod Brown (D-OH) whether or not White agreed with US Attorney General Eric Holder's statement which affirmed that "federal prosecutors are instructed . . . to look at . . . collateral consequences" should a financial institution or its officers be criminally charged, White agreed.
In a follow-up question, Brown wondered whether there is "a two-tiered system where we exempt the biggest banks because they have the most employees and shareholders who could be affected by criminal prosecution?"
White's answer pretty much sums up everything that's bent about Washington's culture of impunity when it comes to the Wall Street crimes: "It's a factor that prosecutors are directed to consider."
"I do think the deferred prosecution instrument," White asserted, "has been used a great deal on a number of companies, [and] was designed to be tough in terms of monetary sanctions, monitors--everything but the charge itself that might cause what the prosecutor might consider to be negative and undesirable collateral consequences to the public interest."
But what about harsher sanctions such as stripped assets, handcuffs and a jail cell for drug money laundering and securities scamming banksters, punishments that might actually deter corporate crime?
Saturday, March 2, 2013
You can get much farther with a kind word and a gun than you can with a kind word alone. -- Al Capone
In Reckless Endangerment, a lively exposé of the frauds at the heart of the subprime meltdown, journalists Gretchen Morgenson and Joshua Rosner wrote that if "mortgage originators like NovaStar or Countrywide were the equivalent of drug pushers hanging around a schoolyard and the ratings agencies were the narcotics cops looking the other way, brokerage firms providing capital to the anything-goes lenders were the overseers of the cartel."
Their observations are all the more relevant given the outrageous behavior by major banks which polluted an already terminally corrupt financial system with blood-spattered cash siphoned-off from the global drug trade.
It wouldn't be much of a stretch to insist that drug money laundered by financial giants like HSBC and Wachovia were in fact, little more than "hedges" designed to offset losses in residential mortgage backed securities (RMBS), sliced and diced into toxic collateralized debt obligations, as the 2007-2008 global economic crisis cratered the capitalist "free market."
And like Wachovia's ill-fated $25.5 billion (£16.96bn) buy-out of Golden West Financial/World Savings Bank at the top of the market in 2006, HSBC's 2002 purchase of Household International and its mortgage unit, Household Finance Corporation for the then princely sum of $15.2 billion (£10.02bn) also proved to be a proverbial deal too far.
Evidence suggests that HSBC stepped up money laundering for their cartel clients as the hyperinflated real estate bubble collapsed. Along with other self-styled masters of the universe who were bleeding cash faster than you can say credit default swaps, HSBC posted 2008 projected first quarter losses of "$17.2 billion (£8.7bn) after the decline in the US housing market hit the value of its loans," BBC News reported.
From there RMBS deficits skyrocketed. By 2010, as Senate and Justice Department investigators were taking a hard look at bank shenanigans, Reuters reported that HSBC Holdings was "working off $20 billion [£13.19bn] worth of loans per year in its US Household Finance Corp. unit" where "liabilities stood at about $70 billion [£46.17bn]."
However you slice today's epidemic of financial corruption, a trend already clear two decades ago when economists George Akerlof and Paul Romer published their seminal paper, Looting: The Economic Underworld of Bankruptcy for Profit, incentives were huge as senior bank executives inflated their balance sheets with "criminal proceeds ... likely to have amounted to some 3.6 per cent of GDP (2.3-5.5 per cent) or around US$2.1 trillion in 2009," according to a 2011 estimate by the United Nations Office on Drugs and Crime (UNODC).
To make matters worse, willful criminality at the apex of the financial pyramid was aided and abetted by the US Justice Department and the federal regulatory apparatus who allowed these storied economic predators to walk.
'Change' that Banksters Can Believe In
In late January, Bloomberg News reported that US prosecutors have "asked a federal judge to sign off on HSBC Holdings Plc (HSBA)'s $1.9 billion [£1.2bn] settlement of charges it enabled drug cartels to launder millions of dollars in trafficking proceeds."
Prosecutors justified the settlement on grounds that "it includes the largest-ever forfeiture in the prosecution of a bank and provides for monitoring to prevent future violations," arguing that "strict conditions, and the unprecedented forfeiture and penalties imposed, serve as a significant deterrent against future similar conduct."
Let's get this sick joke straight: here's a bank that laundered billions of dollars for Colombian and Mexican drug lords, admittedly amongst the most violent gangsters on earth (120,000 dead Mexicans and counting since 2006) and we're supposed to take this deal seriously. Seriously? Remember, this an institution whose pretax 2012 profits will exceed $23.5 billion (£15.63bn) when earnings are reported next week and the best the US government can do is extract a promise to "do better"--next time.
That deal, a deferred prosecution agreement (DPA) was cobbled together between the outgoing head of the Justice Department's Criminal Division, Lanny A. Breuer and HSBC, Europe's largest bank. At the urging of former Treasury Secretary Timothy Geithner, no criminal charges were sought--or brought--against senior bank executives.
Why might that be the case?
During a press conference trumpeting the government's "shitty deal," Breuer breezily declared that DOJ's decision not to move forcefully against HSBC was in everyone's best interest: "Had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking license in the US, the future of the institution would have been under threat and the entire banking system would have been destabilized."
As if allowing drug-connected money launderers license to pollute one of the world's largest financial institutions hadn't already "destabilized" the banking system!
Although Obama's Justice Department smeared "lipstick" on this pig of a deal, their own "Statement of Facts" submitted to US District Judge John Gleeson paints a damning picture of criminal negligence that crossed the line into outright collusion with their Cartel clients:
From 2006 to 2010, HSBC Bank USA violated the BSA and its implementing regulations. Specifically, HSBC Bank USA ignored the money laundering risks associated with doing business with certain Mexican customers and failed to implement a BSA/AML program that was adequate to monitor suspicious transactions from Mexico. At the same time, Grupo Financiero HSBC, S.A. de C.V. ("HSBC Mexico"), one of HSBC Bank USA's largest Mexican customers, had its own significant AML problems. As a result of these concurrent AML failures, at least $881 million in drug trafficking proceeds, including proceeds of drug trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia, were laundered through HSBC Bank USA without being detected. HSBC Group was aware of the significant AML compliance problems at HSBC Mexico, yet did not inform HSBC Bank USA of these problems and their potential impact on HSBC Bank USA's AML program.
As with Wachovia, oceans of cash generated through drug trafficking were laundered by HSBC via the Black Market Peso Exchange (BMPE), a nexus of interconnected firms controlled by Colombian and Mexican drug cartels.
According to the DPA, "peso brokers purchase bulk cash in United States dollars from drug cartels at a discounted rate, in return for Colombian pesos that belong to Colombian businessmen. The peso brokers then use the US dollars to purchase legitimate goods from businesses in the United States and other foreign countries, on behalf of the Colombian businessmen. These goods are then sent to the Colombian businessmen, who sell the goods for Colombian pesos to recoup their original investment."
"In the end," the Justice Department informed us, "the Colombian businessmen obtain US dollars at a lower exchange rate than otherwise available in Colombia, the Colombian cartel leaders receive Colombian pesos while avoiding the costs associated with depositing US dollars directly into Colombian financial institutions, and the peso brokers receive fees for their services as middlemen."
Got that? And it wasn't only plasma TVs, diamond-studded Rolexes or armored-up SUVs that cartel heavies were buying from enterprising businessmen on this side of the border. Add to their list of must-haves: fleets of airplanes and enough weapons to equip an army!
DOJ investigators discovered that "drug traffickers were depositing hundreds of thousands of dollars in bulk US currency each day into HSBC Mexico accounts. In order to efficiently move this volume of cash through the teller windows at HSBC Mexico branches, drug traffickers designed specially shaped boxes that fit the precise dimensions of the teller windows. The drug traffickers would send numerous boxes filled with cash through the teller windows for deposit into HSBC Mexico accounts. After the cash was deposited in the accounts, peso brokers then wire transferred the US dollars to various exporters located in New York City and other locations throughout the United States to purchase goods for Colombian businesses. The US exporters then sent the goods directly to the businesses in Colombia."
The investigation further revealed that "because of its lax AML controls, HSBC Mexico was the preferred financial institution for drug cartels and money launderers. The drug trafficking proceeds (in physical US dollars) deposited at HSBC Mexico as part of the BMPE were sold to HSBC Bank USA through Banknotes."
What's the "get" for the bank? Former Senate investigator Jack Blum told Rolling Stone's Matt Taibbi: "If you have clients who are interested in 'specialty services'--that's the euphemism for the bad stuff--you can charge 'em whatever you want." Blum said "the margin on laundered money for years has been roughly 20 percent."
How's that for an incentive!
'Big Audits, Big Problems. No Audits, No Problems'
In cobbling together the HSBC deal, the Justice Department ignored Senate testimony by whistleblowers, some of whom were fired or eventually resigned in disgust when higher-ups thwarted their efforts to get a handle on AML "lapses" by the North American branch during a critical period when it was becoming clear that losses in the subprime market would be huge.
We were informed that senior level officials at HBUS were keep in the dark about the extent of problems plaguing HBMX by HSBC Group (London) executives, "including the CEO, Head of Compliance, Head of Audit, and Head of Legal," all of whom were aware "that the problems at HSBC Mexico involved US dollars and US dollar accounts."
We're supposed to believe that Canary Wharf "did not contact their counterparts at HSBC Bank USA to explain the significance of the problems or the potential effect on HSBC Bank USA's business." This fairy tale is further enlarged upon when we're informed that "HSBC North America's General Counsel/Regional Compliance Officer first learned of the problems at HSBC Mexico and their potential impact on HSBC Bank USA in 2010 as a result of this investigation."
According to the suspect narrative concocted by government prosecutors, HBUS's General Counsel was informed by HSBC Group Compliance Chief, David Bagley, that she wasn't told about "potential problems" at HBMX because the bank doesn't "air the dirty linen of one affiliate with another . . . we go in and fix the problems."
Keep in mind that the Office of the Comptroller of the Currency had issued not one, but two toothless cease-and-desist orders between 2003 and 2010 ordering HSBC to clean up their act, all of which revolved around strengthening anti-money laundering controls which were promptly ignored.
But as the US Senate Permanent Subcommittee on Investigations revealed in their 335-page report (large PDF file) and related hearings last summer, despite the fact that "Compliance and AML staffing levels were kept low for many years as part of a cost cutting measure," Senate investigators learned through HSBC internal correspondence that those charged with monitoring suspicious transactions were "struggling to 'handle the growing monitoring requirements' associated with the bank's correspondent banking and cash management programs, and requested additional staff."
"Despite requests for additional AML staffing," the Senate reported that "HBUS decided to hold staff levels to a flat headcount."
"After being turned down for additional staff, Carolyn Wind, longtime HBUS Compliance head and AML director, raised the issue of inadequate resources with the HNAH board of directors. A month after the board meeting, after seven years as HBUS' Compliance head Ms. Wind was fired," Senate investigators disclosed.
Wind, who had met with HNAH's board in October 2007 to discuss staffing, was reprimanded by her supervisor, Regional Compliance Officer and Senior Executive Vice President Janet L. Burak, for raising the issue. In an email to disgraced Group Compliance chief David Bagley, who dramatically resigned on camera during those Senate hearings, Burak "expressed displeasure" with Wind and told Bagley:
"I indicated to her my strong concerns about her ability to do the job I need her to do, particularly in light of the comments made by her at yesterday's audit committee meeting .... I noted that her comments caused inappropriate concern with the committee around: our willingness to pay as necessary to staff critical compliance functions (specifically embassy banking AML support), and the position of the OCC with respect to the merger of AML and general Compliance."
In marked contrast to the government's version, it appears that HBUS had been fully apprised of "cash management" problems three years earlier than claimed in the DPA, yet senior level executives choose to look the other way--so long as the cash keep flowing.
Burak's firing of Wind should have raised eyebrows at the Justice Department. As Regional Legal Department Head for North America, Burak was appointed by the HNAH board to serve as the bank's Regional Compliance Officer, a move which was even criticized by Bagley, but he was overruled by his Canary Wharf masters.
Her appointment as Regional Compliance Officer shouldn't come as a surprise however, considering that before joining the HSBC team, Burak "was group general counsel, Household International . . . as well as for Household's federal regulatory coordination and compliance function," according to a 2004 BusinessWire profile. And with the bank on the hook for some $70 billion (£46.17bn) and counting in toxic Household International mortgage liabilities, her choice by London to supervise AML operations was a slam dunk.
In her new dual-hatted role, Burak was taken to the woodshed by both the Office of the Comptroller of the Currency and the Federal Reserve "for her lack of understanding of AML risks or controls" according to the Senate report. Indeed, OCC stated that Burak had "not regularly attended key committee or compliance department meetings" and had failed to keep herself and other bank executives "fully informed about issues and risks within the BSA/AML compliance program."
But if the task at hand was to keep AML staff to a "flat headcount" and not make waves with pesky audits that might force compliance with trivial matters such as legal requirements under the Bank Secrecy Act, well you get the picture! Senate investigators learned however, that BSA compliance issues were legion and what they found was just a tad troubling:
The identified problems included a once massive backlog of over 17,000 alerts identifying possible suspicious activity that had yet to be reviewed; ineffective methods for identifying suspicious activity; a failure to file timely Suspicious Activity Reports with U.S. law enforcement; a failure to conduct any due diligence to assess the risks of HSBC affiliates before opening correspondent accounts for them; a 3-year failure by HBUS, from mid-2006 to mid-2009, to conduct any AML monitoring of $15 billion [£9.53bn] in bulk cash transactions with those same HSBC affiliates, despite the risks associated with large cash transactions; poor procedures for assigning country and client risk ratings; a failure to monitor $60 trillion [£38.14tn] in annual wire transfer activity by customers domiciled in countries rated by HBUS as lower risk; inadequate and unqualified AML staffing; inadequate AML resources; and AML leadership problems.
But wait, there's more!
After Wind's dismissal, the HNAH board hired Lesley Midzain to fill the posts of Compliance head and AML director. But as Senate investigators revealed, "Ms. Midzain had no professional experience and little familiarity with US AML laws." Indeed, in December 2008 "HNAH's regulator, the Federal Reserve, provided a negative critique of Ms. Midzain's management of the bank's AML program."
According to Senate staff, the Federal Reserve complained that "Ms. Midzain did 'not possess the technical knowledge or industry experience to continue as the BSA/AML officer'." It noted that she "was interviewed by OCC examiners from another team and they supported the conclusion of the OCC resident staff that Midzain's knowledge and experience with BSA/AML risk is not commensurate to HNAH's BSA/AML high risk profile, especially when compared to other large national banks."
As a result of these rather pointed criticisms, Midzain was removed from the AML post and HBUS hired a new director, Wyndham Clark, a former US Treasury official. According to the Senate report, Clark "was required to report to Curt Cunningham, an HBUS Compliance official who freely admitted having no AML expertise, and through him to Ms. Midzain, whom the OCC had also found to lack AML expertise."
Call it a small world.
It soon became clear to Clark that although the bank had an "extremely high risk business model from AML perspective," as director he was "granted only limited authority to the AML director to remedy problems." According to a memorandum sent by Clark to his boss Curt Cunningham, he complained that "AML Director has the responsibility for AML compliance, but very little control over its success."
If one were a "conspiracy buff" one might even argue this was precisely as intended.
Senate investigators revealed that as he continued his work, "Clark grew increasingly concerned that the bank was not effectively addressing its AML problems. In February 2010, Mr. Clark met with the Audit Committee of the HNAH board of directors and informed the committee that he had never seen a bank with as high of an AML risk profile as HBUS."
In May 2010, he wrote to a more senior compliance officer: "With every passing day I become more concerned...if that's even possible."
Less than a year after taking the thankless job, in July 2010 Clark quit. He wrote HSBC Group Compliance chief David Bagley that he had neither the authority nor the support from senior managers needed to do his job. He told Bagley in no uncertain terms:
[T]he bank has not provided me the proper authority or reporting structure that is necessary for the responsibility and liability that this position holds, thereby impairing my ability to direct and manage the AML program effectively. This has resulted in most of the critical decisions in Compliance and AML being made by senior Management who have minimal expertise in compliance, AML or our regulatory environment, or for that matter, knowledge of the bank (HBUS) where most of our AML risk resides. Until we appoint senior compliance management that have the requisite knowledge and skills in these areas, reduce our current reliance on consultants to fill our knowledge gap, and provide the AML Director appropriate authority, we will continue to have limited credibility with the regulators.
According to the DPA, despite the risks associated with HSBC's highly-profitable Banknotes business, used and abused by all manner of shady customers, "from 2006 to 2009, Banknotes' AML compliance consisted of one, or at times two, compliance officers."
In 2006, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued an Advisory warning that "US law enforcement has observed a dramatic increase in the smuggling of bulk cash proceeds from the sale of narcotics and other criminal activities from the United States into Mexico. Once the US currency is in Mexico, numerous layered transactions may be used to disguise its origins, after which it may be returned directly to the United States or further transshipped to or through other jurisdictions."
What was HSBC's response? The Justice Department informed us that despite the FinCEN notification "Banknotes stopped regular monthly monitoring of transactions for HSBC Group Affiliates, including HSBC Mexico, in July 2006."
And despite multiple notifications from government regulators, the bank accelerated their shady purchases: "Banknotes purchased approximately $7 billion [£4.51bn] in US currency from Mexico each year, with nearly half of that amount supplied by HSBC Mexico. From July 2006 to December 2008, Banknotes purchased over $9.4 [£6.06bn] billion in physical US dollars from HSBC Mexico, including over $4.1 billion [£2.64bn] in 2008 alone."
As a result of these rather willful "lapses" by senior executives, the Justice Department's "Statement of Facts" cited HSBC's,
a. Failure to obtain or maintain due diligence or KYC information on HSBC Group Affiliates, including HSBC Mexico; b. Failure to adequately monitor over $200 trillion [£126.9tn] in wire transfers between 2006 and 2009 from customers located in countries that HSBC Bank USA classified as "standard" or "medium" risk, including over $670 billion [£425.1bn] in wire transfers from HSBC Mexico; c. Failure to adequately monitor billions of dollars in purchases of physical US dollars ("banknotes") between July 2006 and July 2009 from HSBC Group Affiliates, including over $9.4 billion [£5.96bn] from HSBC Mexico; and d. Failure to provide adequate staffing and other resources to maintain an effective AML program.
Yet in the face of evidence that laundering drug money was anything but a mistake, Judge Gleeson was told that DOJ's decision not to criminally prosecute senior HSBC executives was predicated on the fiction that the $1.9 billion settlement's "strict conditions, and the unprecedented forfeiture and penalties imposed, [will] serve as a significant deterrent against future similar conduct."
Never mind the lack of evidence that DPA's are a "deterrent" to financial crimes. Indeed, a 2009 study by the US Government Accountability Office (GAO) concluded "that the Department of Justice (DOJ) lacked performance measures to assess how Deferred Prosecution Agreements (DPA) and Non-Prosecution Agreements (NPA) contribute to its efforts to combat corporate crime."
Well, if the Justice Department lacked "metrics" as to whether or not their agreements with corporate criminals act as a deterrent to future crimes, were there other considerations behind the sweetheart deals forged between the Criminal Division, HSBC and other banks?
You bet there were and it's worth recalling statements by former UNODC director Antonio Maria Costa in this regard. In 2009, Costa told The Observer that "he has seen evidence that the proceeds of organised crime were 'the only liquid investment capital' available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result."
Costa said that "in many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor."
"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Although Costa declined to identify the banks involved because it would not be "appropriate," he told The Observer that "money is now a part of the official system and had been effectively laundered."
"That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another," Costa averred. "The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was."
In other words, as illegal cash propped up the banks while the crisis was being sorted out, at the expense of the working class mind you, the financial pirates responsible for the capitalist meltdown have become even larger, thanks to taxpayer bailouts, in effect holding the economy hostage as they became "too big" to either "fail or jail."
As Matt Taibbi observed in Rolling Stone, "At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses with the lunatic aim of preserving the bank's license, it succeeded, finally, in making crime mainstream."
What we are dealing with here is nothing less than a perverse economic system thoroughly criminalized by its elites; a bizarro world as Michel Chossudovsky pointed out where "war criminals legitimately occupy positions of authority, which enable them to decide 'who are the criminals', when in fact they are the criminals."