Jail time needed for Citigroup’s Mexican drug money-laundering

Banamex branch in San Diego, now closedCoStar Group

❝When Antonio Peña Arguelles opened an account in 2005 at Citigroup’s Banamex USA, the know-your-customer documents said he had a small business breeding cattle and white-tailed deer, ranch-raised for their stately antlers. About $50 a month would come into the account, according to the documents.❞

❝A week later, Peña Arguelles wired in $7.09 million from an account in Mexico, allegedly drug money from Los Zetas, a violent cartel founded by former Mexican soldiers, documents in his money-laundering case in Texas say. In all, Peña Arguelles shuttled $59.4 million through the account, according to a confidential report by banking regulators that berated Banamex USA in 2013 for its failure to comply with anti-money-laundering rules.

❝Banamex USA didn’t file a suspicious activity report about the account, according to regulators, even after Peña Arguelles’s brother Alfonso was killed in late 2011, his body dumped at the Christopher Columbus monument in Nuevo Laredo, Mexico, with a banner draped above it accusing Antonio of being a money launderer and stealing from the Zetas. The bank didn’t produce an activity report after U.S. prosecutors asked for the account documents at the end of that year or when Peña Arguelles was indicted in early 2012 for conspiracy to launder monetary instruments. And it didn’t file one until May 2013, months after the Federal Deposit Insurance Corp. and the California Department of Business Oversight issued a written order in August 2012 demanding the bank check old accounts.❞

❝So in June 2013, when more than a dozen Citigroup and Banamex USA executives walked into a meeting to discuss progress on satisfying that order, they faced a group of angry state and national regulators. “Management and board supervision of the bank’s affairs has been critically deficient,” the FDIC and the California agency wrote about Banamex USA in the confidential report, reviewed by Bloomberg, which has never been publicly disclosed. “The willingness to accept and maintain a customer relationship identified with major illicit activity is revealing as to the board’s appetite for reputational and money laundering risk.” The report blasted Banamex USA for looking the other way and for failing to fix problems…❞

❝What the regulators’ account of the Peña Arguelles case and interviews with more than a dozen former Citigroup employees and consultants show is that Banamex USA tolerated a culture of negligence during years of moving money across the U.S.-Mexico border. And they provide a rare look into how Citigroup failed to oversee a small but risky business in one corner of its global operation. Regulators use the words failed and failure more than 60 times in their report to describe how Banamex USA didn’t comply with anti-money-laundering rules before and after being ordered to do so. The lapses are now the subject of a government investigation that could cost Citigroup hundreds of millions of dollars in fines…❞

RTFA. It goes on and on, detailing criminal practices at the behest of some of the most dangerous and corrupt gangsters on Earth.

In the words of Jerry Robinette, a former JP Morgan compliance officer, “Until you start sending people to jail, the pockets are there to satisfy the penalties…” The Department of Justice acts more like an elementary school principal than a federal agency dedicated to upholding the law. Ruling time and again that fines are sufficient punishment for moneybags banks – and the crooks who run them on behalf of thugs lower down the social ladder – is about as phony as the average Congressional re-election campaign.

If you’re a bank, big enough and powerful enough to assure drug lords safe haven for their ill-gotten gains apparently you’re also big enough not to have any of your pimps go to jail. That should end and it should end, now.

China to introduce deposit insurance — and more!

China is to adopt a deposit insurance scheme to better protect savers and free up interest rates.

The Legislative Affairs Office of China’s State Council published a set of draft regulations containing 23 articles on its website on Sunday to solicit public opinion…

Financial institutions will be required to pay insurance premiums to a special fund and an agency will be set up to manage the money. Domestic banks’ overseas branches and foreign banks’ China branches are exempt.

The fund will pay maximum compensation of 500,000 yuan ($81,500) per depositor if a bank suffers insolvency or bankruptcy.

This covers 99.6% of China’s depositers.

Banks will cover losses more than 500,000 yuan with their own assets, according to the regulations.

The scheme will significantly improve the competitiveness of medium and small-sized banks as the insurance will assure depositors of the safety of their savings, according to the central bank…

Deposit insurance is implemented in 112 economies to protect depositors, in full or in part, from losses caused by a bank’s inability to pay its debts when due…

“With the scheme in place, the government will retreat and leave banks to bear their own risks,” said Guo Tianyong, a banking researcher with the Central University of Finance and Economics.

The deposit insurance scheme is considered a precondition for China to free up deposit rates — the last and most important step of interest rate liberalization, according to Lian Ping, chief economist with the Bank of Communications.

The important paragraph in this post is next-to-last above. The way this proposal is being promulgated – there will not be any possibility of banks treated as Too Big To Fail.

Hmmm. Didn’t we used to have a similar style of management in the United States? Before George W. Bush’s second term, anyway.

FDIC sues banks over Libor manipulation and fraud

Bank of America, Citigroup and Credit Suisse Group AG were among 16 of the world’s biggest banks sued by the U.S. Federal Deposit Insurance Corp. for allegedly manipulating the London interbank offered rate from 2007 to 2011.

The FDIC, acting as receiver for 38 failed banks…claimed that institutions sitting on the U.S. dollar Libor panel “fraudulently and collusively suppressed” the rate. Also named in the suit, filed yesterday in Manhattan federal court, is the British Bankers Association, an industry group that oversaw Libor.

Regulators around the world have been probing whether firms colluded to manipulate interest-rate benchmarks including Libor, which affects more than $300 trillion of securities worldwide. Financial institutions have paid about $6 billion so far to resolve criminal and civil claims in the U.S. and Europe that they manipulated benchmark interest rates.

The cost for global investment banks could climb to $46 billion, analysts at KBW, a unit of Stifel Financial Corp., said in a report last year…

The failed banks “reasonably expected that accurate representations of competitive market forces, and not fraudulent conduct or collusion,” would determine the benchmark, the FDIC said in its complaint…

Investigators claim the banks altered submissions used to set the benchmark to profit from bets on interest-rate derivatives or to make the lenders’ finances appear healthier…

The FDIC alleges the banks committed fraud and violated U.S. antitrust laws in fixing the U.S. dollar Libor benchmark. It’s seeking unspecified damages on behalf of the failed banks, including punitive damages and triple damages for price-fixing.

The FDIC still echos the standards of Sheila Bair. It’s been a little while since she left; but, she set critical standards. Required reading for anyone interested in earning a living in finance and still maintaining the odd principle or two her book: Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself.

Within the FDIC and the American banking community she always stands for small banks, community banks vs Wall Street’s version of Gargantua. She sat down and negotiated with the biggest bank presidents as equals and she tried like hell to be more equal than they – even with Congress ready and willing to give away the farm, the treasury and every taxpayer’s contribution to some of the worst examples of American capitalism.

She left the FDIC to work for a spell for the Pew Charitable Trusts; but, banking is what she knows best and she chose to leave the United States to work for a Spanish bank with a cleaner reputation than most of our own. She still asks out loud why no big American bank has ever offered a directorship to a bank reformer like Simon Johnson – or, I’d say, Sheila Bair.

And when she gives a talk to the staff of a bank she used to oversee as regulator – her fee goes to charity. A practice I don’t expect to witness every day from any of our former Congress-critters.

Georgia banker missing — so is $17 million!

A Georgia banker who went missing last month is being sought by federal authorities for allegedly embezzling millions of dollars from a south Georgia bank…Aubrey “Lee” Price, 46, is charged with wire fraud, and is suspected of defrauding more than 100 investors of at least $17 million dollars over the course of two years…

In late 2010, Price was celebrated by his peers and written up in newspaper articles after a company he controlled bought a controlling portion of the troubled Montgomery Bank & Trust in Ailey, Georgia. He was supposed to invest the bank’s capital. Instead, prosecutors say Price used a New York-based “clearing firm” — a dummy company set up to hide money — to coverup fraudulent wire transfers and investments…

Price disappeared about two weeks ago after telling his friends he had lost “a large sum of money through his trading activities”…Price indicated he planned to commit suicide off the Florida coast by “jumping off a ferry boat”…

But federal investigators, including the FBI, believe Price, who owns property in Venezuela and Guatemala, may be on the run. FBI Special Agent Michael Howard said in the complaint that investigators believe Price “may own a boat that would be large enough to travel to Venezuela from Florida…”

Given the delightfully friendly relations our various Federal administrations have cultivated with Venezuela – the likelihood of Price being extradited seem to be zilch. He could get up to 30 years in prison if captured, tried and found guilty. Or he could sit in some country which doesn’t enjoy the favor of Congress or the White House – sipping juleps and enjoying his early retirement.

It is time to break up the “too big to fail” banks

Daylife/Reuters Pictures used by permission

America is downsizing. Whether it’s the food we eat, the cars we drive, or the houses we live in, Americans are concluding that smaller is better. Even U.S. corporations are starting to see the benefit of more Lilliputian institutions; the impending — and widely hailed — breakups of McGraw-Hill and Kraft are two examples.

So what about banks? It would surely be in the government’s interest to downsize megabanks. Sen. Sherrod Brown (D-Ohio) continues to push his bill to split apart the largest institutions. Regulators have new authority to order divestitures under the Dodd-Frank financial reform law. From a shareholder standpoint, government breakups have a pretty good outcome. It worked out well for John D. Rockefeller, whose shares in Standard Oil doubled after it was ordered to break up. Ditto for those who owned stock in AT&T.

Yet with gridlock in Washington, don’t count on politicians for a solution. Shareholders, however, have an interest in demanding that big banks split apart. Comparing the valuation for the supersize banks – Citigroup, Bank of America, and J.P. Morgan Chase with their simpler, leaner competitors isn’t pretty. Price/earnings per share for the supersizers averages 5.8, compared with 8.1 for smaller, more focused Wells Fargo and 8.1 for the bigger regional banks like U.S. Bancorp and PNC. More telling is the ratio of share price to tangible book value. For the supersizers, the average is 72% of book, compared with 165% for Wells and 142% for the big regionals. Chase’s strong performance holds up the average for the supersizers, but even its price to book is only 110%…

Supersizers argue that their scale is necessary to meet the financial needs of multinational corporations. But it’s not clear that multinationals find it advantageous to do business with a handful of financial titans. Dealing with smaller, more focused institutions provides specialized expertise and less risk of conflicts. If there were really that much value in supersizer services, presumably it would show up in shareholder returns. But it doesn’t…

So, shareholders, get ye to the boards that represent you and ask them loudly about whether your company would be worth more in easier-to-understand pieces. The public-policy benefits of smaller, simpler banks are clear. It may be in the enlightened self-interest of shareholders as well.

Regular readers know that I would vote for Sheila Bair for President of the United States – even if she ran as a Republican. I don’t have to worry about that because [1] she doesn’t want the job and [2] the Republican Party is led by idiots who would never support her. She might take the job as Secretary of the Treasury, someday – and the Kool Aid Party would oppose that, too.

Don’t confuse her criticism of “too big to fail” with two other aspects of national financial policy. When push came to shove – even where we might not agree on which financial institutions should be offered aid or not – what was offered was loans which have mostly been repaid with interest. A profit to US taxpayers. The same is even more true for the auto industry. The motivation had more to do with structural importance to the US economy. The result has been more dynamic, a healthier marketplace and, again, we’re being paid back at a profit.

Exit interview with Sheila Bair as she prepares to leave the FDIC

‘They should have let Bear Stearns fail,” Sheila Bair said.

It was midmorning on a crisp June day, and Bair, the 57-year-old outgoing chairwoman of the Federal Deposit Insurance Corporation — the federal agency that insures bank deposits and winds down failing banks — was sitting on a couch, sipping a Starbucks latte. We were in the first hour of several lengthy on-the-record interviews. She seemed ever-so-slightly nervous.

Long viewed as a bureaucratic backwater, the F.D.I.C. has had a tumultuous five years while being transformed under Bair’s stewardship. Not long after she took charge in June 2006, Bair began sounding the alarm about the dangers posed by the explosive growth of subprime mortgages, which she feared would not only ravage neighborhoods when homeowners began to default — as they inevitably did — but also wreak havoc on the banking system. The F.D.I.C. was the only bank regulator in Washington to do so.

During the financial crisis of 2008, Bair insisted that she and her agency have a seat at the table, where she worked — and fought — with Henry Paulson, then the treasury secretary, and Timothy Geithner, the president of the New York Federal Reserve, as they tried to cobble together solutions that would keep the financial system from going over a cliff. She and the F.D.I.C. managed a number of huge failing institutions during the crisis, including IndyMac, Wachovia and Washington Mutual. She was a key player in shaping the Dodd-Frank reform law, especially the part that seeks to forestall future bailouts.

Since the law passed, she has made an immense effort to convince Wall Street and the country that the nation’s giant banks — the same ones that required bailouts in 2008 and became known as “too big to fail” institutions — will never again be bailed out, thanks in part to new powers at the F.D.I.C.

Just a few months ago, she went so far as to send a letter to Standard & Poor’s, the credit-ratings agency, suggesting that its ratings of the big banks were too high because they reflected an expectation of government support. If a too-big-to-fail bank got into trouble, she wrote, the F.D.I.C. would wind it down, not bail it out…

She didn’t spend a lot of time fretting over bank profitability; if banks had to become less profitable, postcrisis, in order to reduce the threat they posed to the system, so be it. (“Our job is to protect bank customers, not banks,” she told me.) And she was a fierce, and often lonely, proponent of widespread mortgage modification, for reasons both compassionate (to help struggling homeowners stay in their homes) and economic (fewer foreclosures would help the troubled housing market recover more quickly).

I’m just giving you a taste of the beginning of this interview. It’s quite long, detailed, and near as I can tell an accurate picture of the individual who acted throughout the crisis of the Great Recession to defend local community banks, the historic integrity of banking regulation – how this was corrupted and almost destroyed along with our national economy – and as an aside, a reminder to younger folks who know only the deceit and corruption of Bush, Cheney, the racism of Nixonian Republicans, the nutballs of the Kool Aid Party – what a traditional American conservative used to sound like.

Global FDIC supported at Davos

World’s leading bankers at the World Economic Forum in Davos have decided to support a new insurance levy on financial institutions to fund a bailout in future.

Led by Deutsche Bank, most major banks have agreed to back the idea, which the International Monetary Fund (IMF) has described as “practical”. The levy would go into a fund to rescue banks in financial distress, instead of using taxpayers’ money for the purpose…

US President Barack Obama had earlier revealed plans to force banks to pay into a pool fund to provide compensation for a failing financial institution.

David Cameron and Chancellor Darling have both backed the plan.

The levy is among a number of options outlined by the IMF, which will be presented to G20 ministers in April.

So, we get a few sentences of agreement, right now. The details will be presented to the G20 in a couple of months when we’ll have a clearer picture, the financial institutions in question will have a finished agreement to vote up or down.

To me, it makes as much sense as the FDIC did back when it was born in 1933 – to cover the buns of American banks. It’s worked ever since.

In fact, if the Republican flunkey-monkeys in Congress hadn’t killed the Glass-Steagall bill in 1999 – and the matching range of oversight regulations – we might not have fallen into this killer recession.

Keeping you up-to-date on latest Phishing phoolery

Cyber criminals are using fake messages claiming to be from the Federal Deposit Insurance Corporation (FDIC) to deliver a virus capable of stealing unsuspecting victims’ bank passwords and other sensitive personal information, says Gary Warner, the director of research in computer forensics at the University of Alabama at Birmingham (UAB).

Warner says the spam is being delivered with one of two subject lines:

FDIC has officially named your bank a failed bank

You need to check your Bank Deposit Insurance Coverage

Warner says that once the message is opened the spam asks users to visit a specific Web site, a link to which is included in the message. Those that follow the link are taken to a page that asks them to click and download a copy of “your personal FDIC insurance file.”

“Unfortunately, anyone who clicks that download link will be downloading a version of the Zeus Bot virus, which has the capacity to steal bank passwords and other financial and personal information,” Warner says.

I know this is nothing new to many of our regular geek readers. Just offering the latest tale of social engineering so you can pass it along to your more gullible kith and kin.

Typically, these creeps are sending these emails out just after banking hours close on a Friday. No way to phone your bank to see if everything is OK – though, I’d think you would know something about who you’re banking with, eh?

This way, people have two days over the weekend to get nervous and pull the trigger.

Head of FDIC says ‘open bank’ assistance should be prohibited

Daylife/AP Photo used by permission

“So-called ‘open bank’ assistance for large complex firms should be prohibited,” Bair said at an event at Georgetown University… “This assistance puts the interest of shareholders and creditors before that of the public.”

Bair wants Congress to set up a resolution mechanism for large financial institutions so that an institution’s failure doesn’t create chaos in the markets. Bair argues that such a system would eliminate the need to use tax dollars to prop up institutions that otherwise would pose a risk to the financial system.

Lawmakers are debating whether legislation to create a resolution authority would have that collection take place up front, periodically, as Bair has proposed, or after a collapse to cover a taxpayer-funded infusion, as the White House is seeking.

Bair wants Congress to set up a system so the FDIC could collect fees from broker-dealer investment banks, insurance companies, private-equity firms and large, systemically significant hedge funds. Those fees would go to creating a systemic risk-insurance fund that would exist separately from the deposit-insurance fund the FDIC already has for retail banks.

In the event of a collapsing financial firm, fees from the fund would be used to partially pay off the insolvent institution’s counterparts so that its failure wouldn’t cause a domino effect of other failures.

I think when Sheila Bair finishes up at the FDIC, Obama should consider appointing her Treasury Secretary.

Geithner ain’t bad. She’s just better.

FDIC analyst indicted – for bank robbery!

An economist on leave from the federal agency that insures bank deposits has been indicted for allegedly attempting to rob an Independence bank last month.

Jeff W. Walser, 51, worked as regional economist for the Kansas City office of the Federal Deposit Insurance Corp., which protects bank depositors against losses, though not those from robbery. He was on leave at the time of the robbery and will remain on leave until his case his is resolved, said FDIC spokesman Andrew Gray.

He never left the bank and asked to be arrested.

Walser surrendered peacefully and is being held without bond.

He told investigators that he suffered from health problems and was “alone, discouraged and tired of working,” according to court records. He purportedly told authorities that his plan was to be arrested but not tell police that he required thrice-weekly dialysis treatments to survive.

“I wanted to be arrested and I wanted to die,” Walser is quoted as telling interviewers. “But after my arrest, I did not have the will to kill myself.”

Phew! This dude was trying for suicide by cop.