Sergey Ivanov, the Russian deputy prime minister, spoke at a Council on Foreign Relations lunch today. I asked if he thought the U.S. and Russia should get together to put a stop to offshore tax evasion. He smiled and agreed that the two countries need to deal with the international offshore system. That was something to consider in the future. And then he said, There are more than 1,000 banks in Russia. They are not banks but launderers.
June 30, 2010 – Last night I accepted a Gerald Loeb award trophy for the Allen Stanford investigation. The Loeb awards are the highest honors in U.S. financial journalism. I and my colleagues, Miami Herald reporters Michael Sallah and Rob Barry, won in the category of medium & small newspapers. The prize submission was entitled Keys to the Kingdom: How State Regulators Enabled a $7 Billion Ponzi Scheme.
The American Interest, July-Aug 2010 (online May 18, 2010) –
As I write this, the U.S. Senate is debating a major financial reform bill in which the credit default swap, a kind of derivative, plays a significant part. An amendment to that bill, proposed by Senators Carl Levin (D-MI) and Jeff Merkley (D-OR), would ban banks from proprietary trading. There are a lot of high-rolling bankers who do not want that amendment to pass, because it will mess up their plans to repatriate foreign profits into the United States, untaxed, by trading in derivatives on their own accounts. The clearinghouse ICE Trust U.S. forms a central part of these plans.
What is ICE Trust U.S., and who owns it? ICE US Holding Co., which was established in 2008 as the parent of ICE Trust U.S., is located in the Cayman Islands. Yet none of the owners of ICE US Holding Co. are based in the Caymans. Among the owners of the Cayman‘s company are Citigroup, Goldman Sachs, J.P. Morgan, Merrill Lynch and Morgan Stanley, which are headquartered in New York. Bank of America, which now owns Merrill Lynch, is based in Charlotte, North Carolina.
One year ago, a group of financial institutions quietly launched ICE Trust, a new and theoretically safer way to trade derivatives, a key element of the financial crisis. As lawmakers debate reform, banks at the center of the storm are remaking the market”and stand to profit.
As the financial crisis exploded with full force in 2008, it was obvious that something was gravely wrong with the huge, unregulated market for derivatives.
Lehman Brothers had $738 billion of these contracts”which are based on the value of some other asset, such as a stock or a bond or a hog belly”on its books when it failed on September 14, 2008.
Lehman certainly wasn‘t alone. Over the next few months, insurer AIG reported as much as $53.5 billion of derivatives losses”losses that were linked to nearly one third of its $182.5 billion federal
The global bank HSBC may be running offshore accounts for central banks. According to a U.S. Senate investigation, an HSBC subsidiary in London called HSBC Equator Bank had a sister bank in the Bahamas.
According to an internal e-mail, the bank told HSBC USA it had been providing offshore accounts to central banks for 20 years, because the banks wanted to avoid Mareva injunctions, legally enforceable orders to freeze funds.
The NY Times reports today that Charles Prince, CEO of Citigroup, is planning to cut the corporation‘s compliance staff. Reporter Eric Dash says it‘s “to keep the bank from getting bogged down” because “the compliance overhang has made it difficult to be competitive” and “unnecessarily slowed the company down.”
Translation: other banks are laundering profits or running scams to help clients cheat tax authorities and investors, and they make good money at it. Why shouldn‘t we?
Dash noted that Citigroup had beefed up its compliance staff after scandals, including its dealings with Enron. He skimps on details: that Citigroup set up offshore shell companies to help Enron cook the books.
Reporter Eric Dash says it‘s “to keep the bank from getting bogged down” because “the compliance overhang has made it difficult to be competitive” and “unnecessarily slowed the company down.”