On the 21st of April 2016, President Jacob Zuma announced the release of the report of the Commission of Inquiry into allegations of fraud, corruption, impropriety or irregularity in the Strategic Defence Procurement Package (the ‘Arms Deal’). During the same announcement, President Zuma provided a summary of the findings of the Commission.
The Commission found that there was nothing wrong with the Arms Deal in its conception, execution or economic impact, despite considerable evidence in the public domain to the contrary. Most importantly, it found that there was no evidence that any of the contracts in the Arms Deal were tainted by evidence of corruption, fraud or irregularity.
We are disappointed, but hardly surprised, that the Commission has come to these findings, which are tantamount to a cover-up. Indeed, it was abundantly clear during the work of the Commission that it was ill-disposed towards undertaking a full, meaningful and unbiased investigation into the Arms Deal. It routinely failed to either admit or interrogate any evidence of wrongdoing in relation to the Deal.
In August 2014, we withdrew from the Commission of Inquiry in protest at the manner in which it was conducting its investigation. Our withdrawal and subsequent refusal to testify before the Commission in October 2014 was supported by over forty civil society organisations who shared our concerns. We identified four primary problems, which we believed indicated that the Commission was failing to investigate the Arms Deal fully, meaningfully and without favour. These concerns were:
1. During the life of the Commission, a number of employees resigned in protest at the manner in which it was conducting its work. In at least two cases, the employees stated that they were resigning because the Commission did not intend to investigate the Arms Deal. Rather, the Commission was pursuing a ‘second agenda’, namely, to discredit critics of the Arms Deal and find in favour of the State and arms companies’ version of events;
2. The Commission refused to admit vital documentary evidence of wrongdoing during the public hearings. One such document was the Debevoise Plimpton Report, an internal audit of the arms company Ferrostaal, which received contracts in the Arms Deal. The Report indicated that Ferrostaal had made tens of millions of rands in payments to politically connected politicians and procurement officials. The report also quoted senior Ferrostaal employees as stating that the offset program was merely a conduit for bribes. In their resignation from the Commission, evidence leaders Advocates Barry Skinner and Carol Sibiya specifically pointed out that refusing to admit the Report ‘nullifies the very purposes for which the Commission was set up.’
3. The Commission refused to allow critical witnesses to testify about documents that they had not written, or events to which they were not personally witness. One major consequence of this is that the only people who could testify to corruption in the Arms Deal were those who paid or received bribes.
4. The Commission failed to provide documents to which we were entitled under the terms of our subpoena, despite repeated requests. The Commission claimed that it was refusing to do so as we were undertaking a ‘fishing expedition.’ The failure of the Commission to provide us with the documents to which we were legally entitled was typical of the Commission’s attitude of sometimes open hostility to critical witnesses.
Despite the above concerns, we are pleased that the Commission Report is now public. We look forward to interrogating its contents in full, and intend to provide a detailed response to the material therein at the earliest opportunity.
In addition, we are seeking legal advice as to the legality of the Commission’s conduct and the viability of a legal review to have the Report set aside. An announcement on this process will be made in due course.
We believe that the report represents a massive missed opportunity at arriving at the truth. However this is not the end of the road in the struggle for truth justice and accountability of corruption in the arms deal.
CONTACT
HENNIE VAN VUUREN
+27 82 902 1303
hennievvuuren@gmail.com
ANDREW FEINSTEIN
+1 929 392 0133
+44 7809728164
andrewfeinstein@me.com
PAUL HOLDEN
+44 795 088 3329
pauledwardholden@gmail.com
Source: Lawyers for Human Rights
Showing posts with label Money Laundering. Show all posts
Showing posts with label Money Laundering. Show all posts
Thursday, April 21, 2016
Wednesday, April 16, 2014
Reserve Bank fines banks over lack of effective anti-money laundering measures
SOUTH Africa’s big four banks have been fined R125m by the Reserve Bank for failing to have appropriate measures to ensure compliance with the provisions of the Financial Intelligence Centre Act (Fica).
Standard Bank was slammed with the highest financial penalty of R60m, FirstRand was hit with R30m, Nedbank R25m and Absa R10m.
Standard Bank was found to have failed to meet its obligations to report cash transactions above R24,999.99 to the financial intelligence centre. It was also criticised for slack controls for detecting property associated with terrorist activities.
The bank said in a statement it had taken “immediate remedial action to address the issues identified” and initiated a programme to address the findings.
Absa, FirstRand and Nedbank were also penalised for keeping inadequate customer verification details and transactional records.
In terms of Fica, the Reserve Bank is tasked to supervise and enforce compliance with Fica rules to ensure that banks have controls to deal with money laundering and combat the financing of terrorism.
However, the Reserve Bank said the fines did not mean that South Africa’s big four banks had in any way facilitated transactions involving money laundering and the financing of terrorism.
All the big-four banks were directed to take remedial action to address weaknesses when it comes to identifying and verifying customers’ details.
Earlier in the year, Standard Bank plc in the UK was hammered with a £7.6m fine by the UK’s Financial Conduct Authority for failures in its money laundering controls and procedures over corporate customers connected to politically exposed persons.
Source: Business Day
Standard Bank was slammed with the highest financial penalty of R60m, FirstRand was hit with R30m, Nedbank R25m and Absa R10m.
Standard Bank was found to have failed to meet its obligations to report cash transactions above R24,999.99 to the financial intelligence centre. It was also criticised for slack controls for detecting property associated with terrorist activities.
The bank said in a statement it had taken “immediate remedial action to address the issues identified” and initiated a programme to address the findings.
Absa, FirstRand and Nedbank were also penalised for keeping inadequate customer verification details and transactional records.
In terms of Fica, the Reserve Bank is tasked to supervise and enforce compliance with Fica rules to ensure that banks have controls to deal with money laundering and combat the financing of terrorism.
However, the Reserve Bank said the fines did not mean that South Africa’s big four banks had in any way facilitated transactions involving money laundering and the financing of terrorism.
All the big-four banks were directed to take remedial action to address weaknesses when it comes to identifying and verifying customers’ details.
Earlier in the year, Standard Bank plc in the UK was hammered with a £7.6m fine by the UK’s Financial Conduct Authority for failures in its money laundering controls and procedures over corporate customers connected to politically exposed persons.
Source: Business Day
Monday, February 17, 2014
Board Investigations and the Curse of the Mummy’s Tomb – Part I
On this day in 1923, the tomb of King Tut was opened. It created a worldwide stir that has in many ways continued down into the 21st century. Clearly, the boy ruler influenced Steve Martin , (How’d you get so funky?, Funky Tut). Moreover, when the King Tut exhibit first toured the US in the 1970s, it sold out everywhere that it went. And, of course, there was the Curse of the Mummy’s Tomb, which led to some great Universal classic horror pictures. This curse may have killed the dig’s benefactor, Lord Carnarvon who died just months after entering the tomb in November 1923, but the archeologist who discovered King Tut, Howard Carter, seemingly outlived the curse, dying at the age of 64 on the eve of World War II.
I thought about the techniques employed by these two archeologists in the Curse of the Mummy’s Tomb when I read an article in the Corporate Board magazine, entitled “Successful Board Investigations” by David Bayless and Tammy Albarrán, partners in the law firm of Covington & Burling LLP. Why the Curse of the Mummy’s Tomb? It is because if a Board of Directors does not get an investigation which it handles right, the consequences can be quite severe. Over the next two posts I will explore the article by Bayless and Albarrán. Today in Part I, I will review the author’s five key objectives, which they believe a board must pursue to ensure a successful investigation. Tomorrow. in Part II, I will review the authors seven considerations to facilitate a successful board investigation.
The authors recognize that the vast majority of investigations will be handled or directed by in-house counsel. However, if and when such an investigation is needed, it is critical that it be handled with great care and skill. The authors note that “While this task is fraught with peril, there are a number of steps a board can take to ensure that the investigation accomplishes the board’s goals, which will enable it to make informed decisions, and withstands scrutiny by third parties” because it is this third party scrutiny, in the form of regulators, government officials, judges/arbitrators or plaintiffs’ counsel in shareholder actions, who will be reviewing any investigation commissioned by a Board of Directors. The authors believe that there are five key goals that any investigation led by a Board of Directors must meet. They are:
Thoroughness - The authors believe that one of the key, and most critical, questions that any regulator might pose is just how thorough is an investigation; to test whether they can rely on the facts discovered without having to repeat the investigation themselves. Regulators tend to be skeptical of investigations where limits are placed (expressly or otherwise) on the investigators, in terms of what is investigated, or how the investigation is conducted. This question can be an initial deal-killer particularly if the regulator involved views an investigation insufficiently thorough, its credibility is undermined. And, of course, it can lead to the dreaded ‘Where else’ question.
Objectivity - Here the authors write that any “investigation must follow the facts wherever they lead, regardless of the consequences. This includes how the findings may impact senior management or other company employees. An investigation seen as lacking objectivity will be viewed by outsiders as inadequate or deficient.” I would add that in addition to the objectivity requirement in the investigation, the same must be had with the investigators themselves. If a company uses its regular outside counsel, it may be viewed with some askance, particularly if the client is a high volume client of the law firm involved, either in dollar amounts or in number of matters handled by the firm.
Accuracy - As in any part of a best practices anti-corruption compliance program, the three most important things are Document, Document and Document. This means that the factual findings of an investigation must be well supported. For if the developed facts are not well supported, the authors believe that the investigation is “open to collateral attack by skeptical prosecutors and regulators. If that happens, the time and money spent on the internal investigation will have been wasted, because the government will end up conducting its own investigation of the same issues.” This is never good and your company may well lose what little credibility and good will that it may have engendered by self-reporting or self-investigating.
Timeliness - Certainly in the world of Foreign Corrupt Practices Act (FCPA) enforcement, an internal investigation should be done quickly. This has become even more necessary with the tight deadlines set under the Dodd-Frank Act Whistleblower provisions. But there are other considerations for a public company such as an impending Securities and Exchange Commission (SEC) quarterly or annual report that may need to be deferred absent as a timely resolution of the matter. Lastly, the Department of Justice (DOJ) or SEC may view delaying an investigation as simply a part of document spoliation. So timeliness is crucial.
Credibility - One of the realities of any FCPA investigation is that a Board of Directors led investigation is reviewed after the fact by not only skeptical third parties but also sometimes years after the initial events and investigation. So not only is there the opportunity for Monday-Morning Quarterbacking but quite a bit of post event analysis. So the authors believe that any Board of Directors led investigation “must be (and must be perceived as) credible as to what was done, how it was done, and who did it. Otherwise, the board’s work will have been for naught.”
To help manage these five issues the authors have seven tangible considerations they suggest that a Board of Directors follow to help make an investigation successful. Tomorrow I will review and scrutinize these seven considerations.
Source: FPCA Compliance and Ethics Blog by Thomas Fox.
Thomas Fox has practiced law in Houston for 30 years. He is now an Independent Consultant, assisting companies with anti-corruption and anti-bribery compliance and international transaction issues. He was most recently the General Counsel at Drilling Controls, Inc., a worldwide oilfield manufacturing and service company. He was previously division counsel with Halliburton Energy Services, Inc. where he supported Halliburton’s software division and its downhole division. Tom is the author of the award winning FCPA Compliance and Ethics Blog and the international best-selling book “Lessons Learned on Compliance and Ethics”. His second book, “Best Practices Under the FCPA and Bribery Act” was released in April, 2013. He recently released his first eBook, “GSK In China: A Game Changer in Compliance”. He writes and lectures across the globe on anti-corruption and anti-bribery compliance programs.
I thought about the techniques employed by these two archeologists in the Curse of the Mummy’s Tomb when I read an article in the Corporate Board magazine, entitled “Successful Board Investigations” by David Bayless and Tammy Albarrán, partners in the law firm of Covington & Burling LLP. Why the Curse of the Mummy’s Tomb? It is because if a Board of Directors does not get an investigation which it handles right, the consequences can be quite severe. Over the next two posts I will explore the article by Bayless and Albarrán. Today in Part I, I will review the author’s five key objectives, which they believe a board must pursue to ensure a successful investigation. Tomorrow. in Part II, I will review the authors seven considerations to facilitate a successful board investigation.
The authors recognize that the vast majority of investigations will be handled or directed by in-house counsel. However, if and when such an investigation is needed, it is critical that it be handled with great care and skill. The authors note that “While this task is fraught with peril, there are a number of steps a board can take to ensure that the investigation accomplishes the board’s goals, which will enable it to make informed decisions, and withstands scrutiny by third parties” because it is this third party scrutiny, in the form of regulators, government officials, judges/arbitrators or plaintiffs’ counsel in shareholder actions, who will be reviewing any investigation commissioned by a Board of Directors. The authors believe that there are five key goals that any investigation led by a Board of Directors must meet. They are:
Thoroughness - The authors believe that one of the key, and most critical, questions that any regulator might pose is just how thorough is an investigation; to test whether they can rely on the facts discovered without having to repeat the investigation themselves. Regulators tend to be skeptical of investigations where limits are placed (expressly or otherwise) on the investigators, in terms of what is investigated, or how the investigation is conducted. This question can be an initial deal-killer particularly if the regulator involved views an investigation insufficiently thorough, its credibility is undermined. And, of course, it can lead to the dreaded ‘Where else’ question.
Objectivity - Here the authors write that any “investigation must follow the facts wherever they lead, regardless of the consequences. This includes how the findings may impact senior management or other company employees. An investigation seen as lacking objectivity will be viewed by outsiders as inadequate or deficient.” I would add that in addition to the objectivity requirement in the investigation, the same must be had with the investigators themselves. If a company uses its regular outside counsel, it may be viewed with some askance, particularly if the client is a high volume client of the law firm involved, either in dollar amounts or in number of matters handled by the firm.
Accuracy - As in any part of a best practices anti-corruption compliance program, the three most important things are Document, Document and Document. This means that the factual findings of an investigation must be well supported. For if the developed facts are not well supported, the authors believe that the investigation is “open to collateral attack by skeptical prosecutors and regulators. If that happens, the time and money spent on the internal investigation will have been wasted, because the government will end up conducting its own investigation of the same issues.” This is never good and your company may well lose what little credibility and good will that it may have engendered by self-reporting or self-investigating.
Timeliness - Certainly in the world of Foreign Corrupt Practices Act (FCPA) enforcement, an internal investigation should be done quickly. This has become even more necessary with the tight deadlines set under the Dodd-Frank Act Whistleblower provisions. But there are other considerations for a public company such as an impending Securities and Exchange Commission (SEC) quarterly or annual report that may need to be deferred absent as a timely resolution of the matter. Lastly, the Department of Justice (DOJ) or SEC may view delaying an investigation as simply a part of document spoliation. So timeliness is crucial.
Credibility - One of the realities of any FCPA investigation is that a Board of Directors led investigation is reviewed after the fact by not only skeptical third parties but also sometimes years after the initial events and investigation. So not only is there the opportunity for Monday-Morning Quarterbacking but quite a bit of post event analysis. So the authors believe that any Board of Directors led investigation “must be (and must be perceived as) credible as to what was done, how it was done, and who did it. Otherwise, the board’s work will have been for naught.”
To help manage these five issues the authors have seven tangible considerations they suggest that a Board of Directors follow to help make an investigation successful. Tomorrow I will review and scrutinize these seven considerations.
Source: FPCA Compliance and Ethics Blog by Thomas Fox.
Thomas Fox has practiced law in Houston for 30 years. He is now an Independent Consultant, assisting companies with anti-corruption and anti-bribery compliance and international transaction issues. He was most recently the General Counsel at Drilling Controls, Inc., a worldwide oilfield manufacturing and service company. He was previously division counsel with Halliburton Energy Services, Inc. where he supported Halliburton’s software division and its downhole division. Tom is the author of the award winning FCPA Compliance and Ethics Blog and the international best-selling book “Lessons Learned on Compliance and Ethics”. His second book, “Best Practices Under the FCPA and Bribery Act” was released in April, 2013. He recently released his first eBook, “GSK In China: A Game Changer in Compliance”. He writes and lectures across the globe on anti-corruption and anti-bribery compliance programs.
Wednesday, January 8, 2014
How JPMorgan shorted Madoff
Big banks may not be evil. But what's becoming increasingly clear is that the bigger they are, the more evil stuff they are involved with.
Hidden in the document detailing Tuesday's settlement between the Department of Justice and JPMorgan Chase over Bernie Madoff's Ponzi scheme was this nugget: JPMorgan was essentially shorting Madoff.
In other words, it wasn't only that JPMorgan (JPM) ignored and failed to report to authorities the numerous red flags its employees encountered over the 20 years it served as the main banker to the largest financial fraud in history. To be sure, JPMorgan did that. But on top of that, the bank was actually betting that Madoff was a fraud, and presumably expecting to collect when others found out.
Given that fact, it's not much of a surprise that JPMorgan decided to settle for $1.7 billion rather than fight the charges.
JPMorgan is essentially being penalized for being Madoff's banker. But the big bank did a lot of business with Madoff over the years. It had the Madoff funds' main bank account. It also invested in Madoff through feeder funds. And it created derivatives that it sold to people who couldn't get into a Madoff fund but still wanted to profit from the performance of Madoff's hedge fund. The derivatives were supposed to rise and fall with Madoff's performance. But since it was all faked, the derivatives only rose. And people wanted them.
That last bit is how JPMorgan got into the messy business of shorting Madoff, which actually was the right call, but now looks pretty bad.
It is normally very hard to short a hedge fund. Most don't have shares that trade. And when they do, they are for the parent company and not the fund. But when you create a derivative based on a hedge fund, as JPMorgan did, you create the opportunity for a short. The buyer of the derivative is going "long," and the seller is going "short." And in this case, it was JPMorgan that was the seller of Madoff-linked derivatives, at one point as much as a few hundred million.
For a time, JPMorgan hedged its bet, in part by putting some of the bank's own money into Madoff-related funds. But in the fall of 2008, JPMorgan suddenly pulled nearly 80% of that money out. That left it essentially short Madoff.
But it didn't get its short right either. According to the settlement, JPMorgan bankers were worried that they were "exposed to substantial risk in the event that Madoff Securities continue to perform successfully." Madoff, even if it was a fraud, could continue to fake his returns for a while longer. That would mean losses for JPMorgan's short position.
So they eventually decided just to get out of Madoff completely. In late 2008, the bank spent nearly $75 million canceling all the equity derivatives it had left related to Madoff, except for $5 million. It held onto that position even after finally reporting in mid-October 2008 to British authorities that it feared Madoff was a fraud.
In late November 2008, just two weeks before Bernie was arrested, JPMorgan, according to the Justice Department's settlement, got an offer to rip up that last $5 million short bet against Madoff. The bank declined, with a trader replying that they thought the short bet was "as of today ... very valuable."
That was the best Madoff trade JPMorgan made; that is, until Tuesday.
Source: CNN Money
Hidden in the document detailing Tuesday's settlement between the Department of Justice and JPMorgan Chase over Bernie Madoff's Ponzi scheme was this nugget: JPMorgan was essentially shorting Madoff.
In other words, it wasn't only that JPMorgan (JPM) ignored and failed to report to authorities the numerous red flags its employees encountered over the 20 years it served as the main banker to the largest financial fraud in history. To be sure, JPMorgan did that. But on top of that, the bank was actually betting that Madoff was a fraud, and presumably expecting to collect when others found out.
Given that fact, it's not much of a surprise that JPMorgan decided to settle for $1.7 billion rather than fight the charges.
JPMorgan is essentially being penalized for being Madoff's banker. But the big bank did a lot of business with Madoff over the years. It had the Madoff funds' main bank account. It also invested in Madoff through feeder funds. And it created derivatives that it sold to people who couldn't get into a Madoff fund but still wanted to profit from the performance of Madoff's hedge fund. The derivatives were supposed to rise and fall with Madoff's performance. But since it was all faked, the derivatives only rose. And people wanted them.
That last bit is how JPMorgan got into the messy business of shorting Madoff, which actually was the right call, but now looks pretty bad.
It is normally very hard to short a hedge fund. Most don't have shares that trade. And when they do, they are for the parent company and not the fund. But when you create a derivative based on a hedge fund, as JPMorgan did, you create the opportunity for a short. The buyer of the derivative is going "long," and the seller is going "short." And in this case, it was JPMorgan that was the seller of Madoff-linked derivatives, at one point as much as a few hundred million.
For a time, JPMorgan hedged its bet, in part by putting some of the bank's own money into Madoff-related funds. But in the fall of 2008, JPMorgan suddenly pulled nearly 80% of that money out. That left it essentially short Madoff.
But it didn't get its short right either. According to the settlement, JPMorgan bankers were worried that they were "exposed to substantial risk in the event that Madoff Securities continue to perform successfully." Madoff, even if it was a fraud, could continue to fake his returns for a while longer. That would mean losses for JPMorgan's short position.
So they eventually decided just to get out of Madoff completely. In late 2008, the bank spent nearly $75 million canceling all the equity derivatives it had left related to Madoff, except for $5 million. It held onto that position even after finally reporting in mid-October 2008 to British authorities that it feared Madoff was a fraud.
In late November 2008, just two weeks before Bernie was arrested, JPMorgan, according to the Justice Department's settlement, got an offer to rip up that last $5 million short bet against Madoff. The bank declined, with a trader replying that they thought the short bet was "as of today ... very valuable."
That was the best Madoff trade JPMorgan made; that is, until Tuesday.
Source: CNN Money
Friday, December 13, 2013
Volcker Rule: Real Bank Regulation or Smoke and Mirrors?
U.S. regulators have approved new legislation, the Volcker Rule, which seeks to prevent the similar acts of risk-taking on Wall Street that helped trigger the 2008 financial crisis. The rule aims to limit banks’ trading bets, being bared from trading for their own profit. The legislation itself is over 900 pages long, with new narrower exemptions for legitimate trades.
Five U.S. regulatory agencies voted on the rule which seeks to ban a lucrative practice for banks, that is proprietary trading. Aside from the trading, the new legislation also limits banks’ investments in hedge funds and private equity funds. The rule is named for Paul Volcker, a former Federal Reserve chairman who was an adviser to President Obama during the financial crisis.
Banks had hoped to substantially soften the rule, but the infamous “London Whale,” JPMorgan’s $6 billion trading loss in 2012, motivated regulators to devise a tough version. The impact of the regulations will depend on how forcefully the banks are monitored in order to assure that they are not trying to mask speculative bets as permissible trades.
The rule promises surveillance of big banks’ trading operations, the majority of which will be summarized through documentation requirements which force banks to justify trades and strategies, basically the banks will have to monitor themselves, and report their actions honestly and accurately. Regulators will be responsible for checking the banks’ self-reporting.
“The rule is so conceptual it’s all about the implementation,… The regulators didn’t draw really bright lines for hedging or market-making. This thing is one giant loophole if it’s badly implemented.” – Marcus Stanley, policy director for Americans for Financial Reform, a group that represents more than 250 organizations.
The public will be placing their trust in regulators once again, who in the past failed to notice, or neglected to mention, the potential dangers facing the financial market.
“No one will really know whether regulators, who have failed so abysmally in the past, have learned from the crisis and will start regulating the banks for real by aggressively enforcing the Volcker Rule,” – Dennis Kelleher, president of Better Markets, a nonprofit group that advocates stringent rules on big banks.
The Volcker Rule is being portrayed in the media as being tough: restricting the investment decisions of the banks. In reality however, there remains no thorough outline detailing the regulation procedures, and the responsibility lays mostly on the banks to regulate themselves, and for us to trust that they are going to report their actions honestly. We are apparently also expected to trust that the regulators are going to inform the public promptly, and follow proper criminal procedures, if there are any exchanges or actions which diverge from the permitted guidelines set out in Volcker’s new rule.
“At some point someone is going to have to write up a manual for examiners on what to look for and how to enforce that stuff. That’s going to be a really important document,” – Bradley Sabel, legal counsel at Shearman and Sterling.
For now though, we just get to wonder if his is the beginning of real regulation for the banks, or new set of smoke and mirrors.
Source: http://www.exposingthetruth.co
Five U.S. regulatory agencies voted on the rule which seeks to ban a lucrative practice for banks, that is proprietary trading. Aside from the trading, the new legislation also limits banks’ investments in hedge funds and private equity funds. The rule is named for Paul Volcker, a former Federal Reserve chairman who was an adviser to President Obama during the financial crisis.
Banks had hoped to substantially soften the rule, but the infamous “London Whale,” JPMorgan’s $6 billion trading loss in 2012, motivated regulators to devise a tough version. The impact of the regulations will depend on how forcefully the banks are monitored in order to assure that they are not trying to mask speculative bets as permissible trades.
The rule promises surveillance of big banks’ trading operations, the majority of which will be summarized through documentation requirements which force banks to justify trades and strategies, basically the banks will have to monitor themselves, and report their actions honestly and accurately. Regulators will be responsible for checking the banks’ self-reporting.
“The rule is so conceptual it’s all about the implementation,… The regulators didn’t draw really bright lines for hedging or market-making. This thing is one giant loophole if it’s badly implemented.” – Marcus Stanley, policy director for Americans for Financial Reform, a group that represents more than 250 organizations.
The public will be placing their trust in regulators once again, who in the past failed to notice, or neglected to mention, the potential dangers facing the financial market.
“No one will really know whether regulators, who have failed so abysmally in the past, have learned from the crisis and will start regulating the banks for real by aggressively enforcing the Volcker Rule,” – Dennis Kelleher, president of Better Markets, a nonprofit group that advocates stringent rules on big banks.
The Volcker Rule is being portrayed in the media as being tough: restricting the investment decisions of the banks. In reality however, there remains no thorough outline detailing the regulation procedures, and the responsibility lays mostly on the banks to regulate themselves, and for us to trust that they are going to report their actions honestly. We are apparently also expected to trust that the regulators are going to inform the public promptly, and follow proper criminal procedures, if there are any exchanges or actions which diverge from the permitted guidelines set out in Volcker’s new rule.
“At some point someone is going to have to write up a manual for examiners on what to look for and how to enforce that stuff. That’s going to be a really important document,” – Bradley Sabel, legal counsel at Shearman and Sterling.
For now though, we just get to wonder if his is the beginning of real regulation for the banks, or new set of smoke and mirrors.
Source: http://www.exposingthetruth.co
Monday, December 2, 2013
Mdluli wins bid to appeal charges ruling
Suspended police crime intelligence head Richard Mdluli, the National Prosecuting Authority and the Specialised Commercial Crime Unit may appeal against a ruling that charges against him must be reinstated, the high court in Pretoria ruled on Monday.
Freedom Under Law (FUL) did not oppose the application, and said the matter concerned issues of significant public importance which ought to be aired in the Supreme Court of Appeal.
An application by the public interest group to revive a previous interim interdict stopping Mdluli from returning to work would continue only at a later stage.
National police commissioner Riah Phiyega has agreed to give the FUL 30 days' notice if she wants to reinstate Mdluli.
The FUL said it reserved its rights to approach the court again.
Deputy Judge President of the high courts in Johannesburg and Pretoria Aubrey Ledwaba granted leave to appeal against Judge John Murphy's ruling in September in favour of the FUL.
Decision set aside
Murphy had set aside decisions to withdraw charges of money laundering and murder, and disciplinary proceedings, against Mdluli.
Ledwaba said there were compelling reasons to grant leave, and there was a reasonable prospect that another court might come to a different conclusion.
Considering the importance and complexity of the issues, the Supreme Court of Appeal in Bloemfontein would be the correct court to deal with the matter.
Ledwaba said Murphy was not available to hear the application. The application for leave to appeal began before Murphy in October, but due to "some unfortunate altercation" between him and William Mokhari SC, Ledwaba intervened and postponed the matter indefinitely.
The altercation started when Mokhari, who represented the police commissioner, told Murphy it was presumptuous to ask if Phiyega intended reinstating Mdluli.
Murphy repeatedly told Mokhari to sit down and when he refused, Murphy walked out of the court. Mokhari, who is the chairperson of the Johannesburg Bar Council, has since laid a formal complaint about the judge's "demeaning" remarks with the Judicial Service Commission. – Sapa
Freedom Under Law (FUL) did not oppose the application, and said the matter concerned issues of significant public importance which ought to be aired in the Supreme Court of Appeal.
An application by the public interest group to revive a previous interim interdict stopping Mdluli from returning to work would continue only at a later stage.
National police commissioner Riah Phiyega has agreed to give the FUL 30 days' notice if she wants to reinstate Mdluli.
The FUL said it reserved its rights to approach the court again.
Deputy Judge President of the high courts in Johannesburg and Pretoria Aubrey Ledwaba granted leave to appeal against Judge John Murphy's ruling in September in favour of the FUL.
Decision set aside
Murphy had set aside decisions to withdraw charges of money laundering and murder, and disciplinary proceedings, against Mdluli.
Ledwaba said there were compelling reasons to grant leave, and there was a reasonable prospect that another court might come to a different conclusion.
Considering the importance and complexity of the issues, the Supreme Court of Appeal in Bloemfontein would be the correct court to deal with the matter.
Ledwaba said Murphy was not available to hear the application. The application for leave to appeal began before Murphy in October, but due to "some unfortunate altercation" between him and William Mokhari SC, Ledwaba intervened and postponed the matter indefinitely.
The altercation started when Mokhari, who represented the police commissioner, told Murphy it was presumptuous to ask if Phiyega intended reinstating Mdluli.
Murphy repeatedly told Mokhari to sit down and when he refused, Murphy walked out of the court. Mokhari, who is the chairperson of the Johannesburg Bar Council, has since laid a formal complaint about the judge's "demeaning" remarks with the Judicial Service Commission. – Sapa
Thursday, November 21, 2013
Friday, January 25, 2013
FNB: You Can Help campaign is regrettable
FNB met with the leadership of the ANC, led by its secretary general Gwede Mantashe on Thursday. The bank apologised to the ANC on Friday.
"The CEO of FirstRand, Mr Sizwe Nxasana, agreed that the research clippings that were posted online were regrettable; he apologised for the posting of the research clippings online," the ANC said in a statement.
"He then assured the meeting that this regrettable incident will not be repeated."
The FNB campaign features a number of videos of children in school uniform reading their hopes for the country. Opposition parties and activist groups said the ANC's criticism of the campaign showed its intolerance.
During the meeting, the ANC pointed out that the video clips were a deliberate attack on the ANC.
The clips fed into the opposition narrative that sought to project the ANC and government in a negative manner, it said.
The ANC said the clips had a negative impact on business confidence and could undermine the promotion of investment into the country.
"The ANC indicated that its leadership and membership were strongly raising a question why the organisation should continue to bank with a bank that has adopted an oppositional (sic) stance to it."
Nxasa explained to the ruling party the objectives of their youth campaign and stressed that it was meant to inspire all South Africans to work together by helping one another.
FNB expressed its commitment to the National Development Plan in addressing the areas of poverty, inequality and unemployment, the ANC said on Friday.
Source: Mail & Guardian
"The CEO of FirstRand, Mr Sizwe Nxasana, agreed that the research clippings that were posted online were regrettable; he apologised for the posting of the research clippings online," the ANC said in a statement.
"He then assured the meeting that this regrettable incident will not be repeated."
The FNB campaign features a number of videos of children in school uniform reading their hopes for the country. Opposition parties and activist groups said the ANC's criticism of the campaign showed its intolerance.
During the meeting, the ANC pointed out that the video clips were a deliberate attack on the ANC.
The clips fed into the opposition narrative that sought to project the ANC and government in a negative manner, it said.
The ANC said the clips had a negative impact on business confidence and could undermine the promotion of investment into the country.
"The ANC indicated that its leadership and membership were strongly raising a question why the organisation should continue to bank with a bank that has adopted an oppositional (sic) stance to it."
Nxasa explained to the ruling party the objectives of their youth campaign and stressed that it was meant to inspire all South Africans to work together by helping one another.
FNB expressed its commitment to the National Development Plan in addressing the areas of poverty, inequality and unemployment, the ANC said on Friday.
Source: Mail & Guardian
Friday, December 7, 2012
Farm in Limpopo seized
A farm in Limpopo, which is part of an investigation into On-point Engineers, has been seized after the High Court in Pretoria granted a freezing order.
"The order [was granted on Wednesday and] was served this morning [Friday]," National Prosecuting Authority spokesman Makhosini Nkosi said in a statement.
It was served on Gwama Properties, which is registered as the owner of the Schuilkraal farm, and its sole director Lesiba Gwangwa.
The Asset Forfeiture Unit made the court application for the seizure of property based on an investigation by the Hawks and two independent reports into On-Point's activities.
The reports were compiled by Public Protector Thuli Madonsela and Price Waterhouse Coopers.
The court accepted the unit's submission that there were reasonable grounds to believe that the property was acquired with the proceeds of unlawful activities perpetrated against the department of roads and transport in Limpopo.
Gwangwa is also a director of On-point Engineers and faces charges related to tender fraud and corruption in the Polokwane Regional Court.
He previously appeared in court with axed ANC Youth League Julius Malema, who faces a charge of money-laundering and racketeering.
Several others, and four companies On-Point, Gwama Properties, Segwalo Engineering and Oceanside Trading were charged along with them. Gwangwa was released on R40,000 bail.
Court papers revealed that Malema allegedly benefited from corrupt activities amounting to R4 million and had "clear business ties" with Gwangwa.
The State charged that Gwangwa and three others misrepresented themselves to the Limpopo transport department, and a R52 million tender was awarded to On-Point.
Another R1 million gratification was paid for the securing of the tender.
Bid documents submitted by On-Point Engineers to the department contained several misrepresentations. Names given as executive and senior people at On-Point were for people not employed there. On-Point entered into secret agreements with service providers and in return received sums of money for these, the papers said.
Malema allegedly benefited from the tender by using it to fund a farm worth R3.9 million and to make a payment of R382,655 for a Mercedez Viano.
"...Most of the payments... were channelled through other entities... to pay for the farm," the charge sheet said.
It said R1 million was a part payment for a portion of the Schuilkraal farm by the Ratanang Trust.
Malema's Ratanang Family Trust was an indirect shareholder in On-Point and Gwama Properties, said court papers.
In October, Madonsela found that tenders awarded to On-Point were unlawful, and that the department did not follow proper guidelines in awarding them.
Source: The New Age
"The order [was granted on Wednesday and] was served this morning [Friday]," National Prosecuting Authority spokesman Makhosini Nkosi said in a statement.
It was served on Gwama Properties, which is registered as the owner of the Schuilkraal farm, and its sole director Lesiba Gwangwa.
The Asset Forfeiture Unit made the court application for the seizure of property based on an investigation by the Hawks and two independent reports into On-Point's activities.
The reports were compiled by Public Protector Thuli Madonsela and Price Waterhouse Coopers.
The court accepted the unit's submission that there were reasonable grounds to believe that the property was acquired with the proceeds of unlawful activities perpetrated against the department of roads and transport in Limpopo.
Gwangwa is also a director of On-point Engineers and faces charges related to tender fraud and corruption in the Polokwane Regional Court.
He previously appeared in court with axed ANC Youth League Julius Malema, who faces a charge of money-laundering and racketeering.
Several others, and four companies On-Point, Gwama Properties, Segwalo Engineering and Oceanside Trading were charged along with them. Gwangwa was released on R40,000 bail.
Court papers revealed that Malema allegedly benefited from corrupt activities amounting to R4 million and had "clear business ties" with Gwangwa.
The State charged that Gwangwa and three others misrepresented themselves to the Limpopo transport department, and a R52 million tender was awarded to On-Point.
Another R1 million gratification was paid for the securing of the tender.
Bid documents submitted by On-Point Engineers to the department contained several misrepresentations. Names given as executive and senior people at On-Point were for people not employed there. On-Point entered into secret agreements with service providers and in return received sums of money for these, the papers said.
Malema allegedly benefited from the tender by using it to fund a farm worth R3.9 million and to make a payment of R382,655 for a Mercedez Viano.
"...Most of the payments... were channelled through other entities... to pay for the farm," the charge sheet said.
It said R1 million was a part payment for a portion of the Schuilkraal farm by the Ratanang Trust.
Malema's Ratanang Family Trust was an indirect shareholder in On-Point and Gwama Properties, said court papers.
In October, Madonsela found that tenders awarded to On-Point were unlawful, and that the department did not follow proper guidelines in awarding them.
Source: The New Age
Saturday, August 25, 2012
British bank HSBC in money laundering probe
US prosecutors probing whether HSBC was involved in laundering money for Mexican drug cartels and moving cash for Saudi banks tied to terrorists. The New York Times reported Saturday.
Citing unnamed federal authorities with direct knowledge of the investigations, the newspaper said the investigators were also probing whether HSBC circumvented US law by transferring money through its American subsidiary for sanctioned nations, including Iran, Sudan and North Korea.
Last month, HSBC announced that its Mexico unit had paid a fine totalling $27.5-million to Mexico's banking regulators for breaching anti-money laundering controls.
Earlier, HSBC apologised and a senior executive resigned after US lawmakers accused Europe's biggest bank of giving Iran, terrorists and drug dealers access to America's financial system. In a 330-page report, the US Senate found the lender allowed affiliates in countries such as Mexico, Saudi Arabia and Bangladesh to move billions of dollars in suspect funds into the United States without adequate controls. The report said HSBC's Mexican affiliate "transported $7.0 billion in physical US dollars to HBUS from 2007 to 2008… raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States." According to The Times, eager to resolve the investigation, HSBC reached out to federal prosecutors in July in hopes of securing a settlement by September.
But officials said a settlement in the next couple of weeks was highly unlikely, the paper pointed out. – Sapa-AFP
Source: Mail & Guardian
Citing unnamed federal authorities with direct knowledge of the investigations, the newspaper said the investigators were also probing whether HSBC circumvented US law by transferring money through its American subsidiary for sanctioned nations, including Iran, Sudan and North Korea.
Last month, HSBC announced that its Mexico unit had paid a fine totalling $27.5-million to Mexico's banking regulators for breaching anti-money laundering controls.
Earlier, HSBC apologised and a senior executive resigned after US lawmakers accused Europe's biggest bank of giving Iran, terrorists and drug dealers access to America's financial system. In a 330-page report, the US Senate found the lender allowed affiliates in countries such as Mexico, Saudi Arabia and Bangladesh to move billions of dollars in suspect funds into the United States without adequate controls. The report said HSBC's Mexican affiliate "transported $7.0 billion in physical US dollars to HBUS from 2007 to 2008… raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States." According to The Times, eager to resolve the investigation, HSBC reached out to federal prosecutors in July in hopes of securing a settlement by September.
But officials said a settlement in the next couple of weeks was highly unlikely, the paper pointed out. – Sapa-AFP
Source: Mail & Guardian
Wednesday, August 15, 2012
Widespread criminal practices by UK banks
Scandals emerging from the financial services industry on an almost daily basis point to the ongoing criminal practices of British banks. They expose the complicity of the regulators—the Financial Services Authority (FSA) and the Bank of England (BoE), who famously practice “light touch” regulation—and successive governments that function as the advocates and protectors of these financial gangsters.
The Royal Bank of Scotland (RBS) has announced half-year losses of £1.5 billion—double that of the same period last year. It cited the cost of charges for the “mis-selling of financial products.” This loss is before any charge for RBS’s role in rigging the interbank lending rate, Libor.
RBS and other high street banks mis-sold expensive and useless payment protection insurance to more than 3 million people who did not need it. Now RBS is setting aside £850 million to compensate people who bought the payment protection insurance, taking the total charge over the last 18 months to £1.3 billion. Even this pales into insignificance besides Lloyds Banking Group, which has set aside another £700 million, bringing its total to £4.3 billion over the last 18 months. The total compensation across the banks could top £10 billion.
RBS is making a provision of £50 million for compensation to small businesses to which it mis-sold interest rate insurance. It is also setting aside £125 million to compensate its 13 million customers who were locked out of their accounts for at least 10 days when its computer crashed in June—a cost that could rise further.
RBS is one of 18 giant banks at the heart of the rigging of the Libor rate, the interbank lending rate linked to $800 trillion in financial transactions. Barclays has already been fined £290 million and RBS expects to be fined hundreds of millions of pounds and has sacked four people involved in the manipulation.
Between 2005 and 2009, the banks manipulated the rate upwards, robbing millions of people of billions of pounds in inflated loan costs, and downwards, depriving states, cities, pension funds and pensioners with fixed investments of billions in lost income from bond holdings. Documents that have been released implicate the Bank of England and show that neither the bank nor the government did anything to stop it. In its latter stages this was because reducing Libor after 2007 helped to conceal the depth and scale of the banking crisis and thus facilitated the bailout of the kleptocracy.
Stephen Hester, the chief executive of RBS, made it clear that this was not all, saying that there could be further problems as it turned over the “rocks” left by the previous CEO Fred Goodwin. It means that RBS will post its fifth year of losses since the bank’s bailout in 2008. It made losses of £2 billion in 2011, up from a loss of £1.1 billion in 2010.
When RBS, along with Lloyds Bank and HBOS, faced bankruptcy in October 2008, Alistair Darling, then Labour chancellor, organised a massive rescue. It came after secret talks over a weekend, with no strings attached, no discussion in Parliament, much less any public consultation, and was announced to the stock markets early on the Monday morning.
Despite this, there has been no proper examination of the banks’ activities in Britain. The one “report” into the collapse of RBS, which at first the FSA refused to publish, turned out to be just a series of memos and statements, concluding that no rules or statutes had been breached. This was despite cables released by WikiLeaks revealing that Lord Turner, the FSA chair, had been concerned about the directors’ mistakes. According to the cables, Turner had said, “Negligent boards of directors bore much of the responsibility for the crisis,” by “failing to provide oversight or check risky activity,” something that publicly he denied in the context of RBS. The cables show that no less a person than RBS’s new chairman, Sir Philip Hampton, flatly contradicted the FSA’s line, telling visiting congressmen that the former directors were in breach of their fiduciary responsibilities.
Later Mervyn King, the governor of the Bank of England, revealed that the BoE had provided £36.6 billion in secret loans to RBS and the government had agreed to underwrite RBS’s debts should it default on its loans. This was in addition to the £45 billion the government paid the shareholders to acquire an 82 percent stake in the failed bank. As well as providing the ultimate backstop for the banks, the government is currently providing £512 billion of explicit public support, and hundreds of billions in guarantees.
Furthermore, with its “quantitative easing” (QE) programme—essentially printing money—the BoE has provided the banks with a further £375 billion of cash by buying up the banks’ assets—typically financial assets such as government and corporate bonds. While the declared aim was that the banks would to lend to businesses and thus boost the economy, business lending has fallen sharply.
A BoE report claims that the first round of QE had helped to increase gross domestic product by between 1.5 and 2 percent, which if true means that without it, GDP would have fallen by a catastrophic 6 percent since the financial crash.
Less has been said about the losers. RBS laid off 5,700 workers in the past year, bring the total since 2008 to 36,000. HBOS, another government-owned bank, has shed 45,000 jobs in the same period.
QE has led to a massive increase in company pension scheme deficits—to a record £312 billion. This is because the cost of paying pensions on final-salary schemes is based on the yield from government bonds, which have fallen, necessitating an increase in assets to generate the same level of pension income. At the same time, the fall in bond yields has driven down the annual income from any annuity bought with savings in the last two years, leading to a loss in income that will never be recouped.
The ongoing saga over accusations that Standard Chartered hid illegal Iran-linked transactions is beyond the scope of this article. But it should be noted that last month, HSBC, the world’s second largest banking group, was found by a senior US Senate Committee to have laundered billions of dollars in Mexican drug cartel money. This and other legal claims against HSBC could lead to fines of $1 billion.
HSBC is not alone. Six years ago, Barclays Private Bank, a subsidiary of Barclays, laundered drug money from Colombia through five accounts linked to the infamous Medellin cartel.
In March, Coutts, part of RBS, was issued with a final notice from the FSA to pay a penalty of £8.75 million for breach of its money-laundering code. This followed a review of 103 “high-risk customer files” and “deficiencies in 73 files” that showed a “failure to conduct appropriate ongoing monitoring” over three years.
Despite this record of illegality, recklessness and mismanagement, not a single top executive of a major UK bank has been charged with criminal wrongdoing. Neither has there been any substantive change in the regulation of the banking and financial services sector. The fines, so much loose change for the banks, have become part of the cost of the banking business and are simply passed on to customers in innumerable charges while the top executives walk away with massive bonuses.
Successive governments are linked by countless connections to the financial elite, from whom they recruit their advisors, regulators and even ministers. The present minister of state for trade and investment is Lord Green, a former HSBC chairman. Their record confirms that they are merely the puppets of criminals in London’s Square Mile.
Source: World Socialist Web Site
The Royal Bank of Scotland (RBS) has announced half-year losses of £1.5 billion—double that of the same period last year. It cited the cost of charges for the “mis-selling of financial products.” This loss is before any charge for RBS’s role in rigging the interbank lending rate, Libor.
RBS and other high street banks mis-sold expensive and useless payment protection insurance to more than 3 million people who did not need it. Now RBS is setting aside £850 million to compensate people who bought the payment protection insurance, taking the total charge over the last 18 months to £1.3 billion. Even this pales into insignificance besides Lloyds Banking Group, which has set aside another £700 million, bringing its total to £4.3 billion over the last 18 months. The total compensation across the banks could top £10 billion.
RBS is making a provision of £50 million for compensation to small businesses to which it mis-sold interest rate insurance. It is also setting aside £125 million to compensate its 13 million customers who were locked out of their accounts for at least 10 days when its computer crashed in June—a cost that could rise further.
RBS is one of 18 giant banks at the heart of the rigging of the Libor rate, the interbank lending rate linked to $800 trillion in financial transactions. Barclays has already been fined £290 million and RBS expects to be fined hundreds of millions of pounds and has sacked four people involved in the manipulation.
Between 2005 and 2009, the banks manipulated the rate upwards, robbing millions of people of billions of pounds in inflated loan costs, and downwards, depriving states, cities, pension funds and pensioners with fixed investments of billions in lost income from bond holdings. Documents that have been released implicate the Bank of England and show that neither the bank nor the government did anything to stop it. In its latter stages this was because reducing Libor after 2007 helped to conceal the depth and scale of the banking crisis and thus facilitated the bailout of the kleptocracy.
Stephen Hester, the chief executive of RBS, made it clear that this was not all, saying that there could be further problems as it turned over the “rocks” left by the previous CEO Fred Goodwin. It means that RBS will post its fifth year of losses since the bank’s bailout in 2008. It made losses of £2 billion in 2011, up from a loss of £1.1 billion in 2010.
When RBS, along with Lloyds Bank and HBOS, faced bankruptcy in October 2008, Alistair Darling, then Labour chancellor, organised a massive rescue. It came after secret talks over a weekend, with no strings attached, no discussion in Parliament, much less any public consultation, and was announced to the stock markets early on the Monday morning.
Despite this, there has been no proper examination of the banks’ activities in Britain. The one “report” into the collapse of RBS, which at first the FSA refused to publish, turned out to be just a series of memos and statements, concluding that no rules or statutes had been breached. This was despite cables released by WikiLeaks revealing that Lord Turner, the FSA chair, had been concerned about the directors’ mistakes. According to the cables, Turner had said, “Negligent boards of directors bore much of the responsibility for the crisis,” by “failing to provide oversight or check risky activity,” something that publicly he denied in the context of RBS. The cables show that no less a person than RBS’s new chairman, Sir Philip Hampton, flatly contradicted the FSA’s line, telling visiting congressmen that the former directors were in breach of their fiduciary responsibilities.
Later Mervyn King, the governor of the Bank of England, revealed that the BoE had provided £36.6 billion in secret loans to RBS and the government had agreed to underwrite RBS’s debts should it default on its loans. This was in addition to the £45 billion the government paid the shareholders to acquire an 82 percent stake in the failed bank. As well as providing the ultimate backstop for the banks, the government is currently providing £512 billion of explicit public support, and hundreds of billions in guarantees.
Furthermore, with its “quantitative easing” (QE) programme—essentially printing money—the BoE has provided the banks with a further £375 billion of cash by buying up the banks’ assets—typically financial assets such as government and corporate bonds. While the declared aim was that the banks would to lend to businesses and thus boost the economy, business lending has fallen sharply.
A BoE report claims that the first round of QE had helped to increase gross domestic product by between 1.5 and 2 percent, which if true means that without it, GDP would have fallen by a catastrophic 6 percent since the financial crash.
Less has been said about the losers. RBS laid off 5,700 workers in the past year, bring the total since 2008 to 36,000. HBOS, another government-owned bank, has shed 45,000 jobs in the same period.
QE has led to a massive increase in company pension scheme deficits—to a record £312 billion. This is because the cost of paying pensions on final-salary schemes is based on the yield from government bonds, which have fallen, necessitating an increase in assets to generate the same level of pension income. At the same time, the fall in bond yields has driven down the annual income from any annuity bought with savings in the last two years, leading to a loss in income that will never be recouped.
The ongoing saga over accusations that Standard Chartered hid illegal Iran-linked transactions is beyond the scope of this article. But it should be noted that last month, HSBC, the world’s second largest banking group, was found by a senior US Senate Committee to have laundered billions of dollars in Mexican drug cartel money. This and other legal claims against HSBC could lead to fines of $1 billion.
HSBC is not alone. Six years ago, Barclays Private Bank, a subsidiary of Barclays, laundered drug money from Colombia through five accounts linked to the infamous Medellin cartel.
In March, Coutts, part of RBS, was issued with a final notice from the FSA to pay a penalty of £8.75 million for breach of its money-laundering code. This followed a review of 103 “high-risk customer files” and “deficiencies in 73 files” that showed a “failure to conduct appropriate ongoing monitoring” over three years.
Despite this record of illegality, recklessness and mismanagement, not a single top executive of a major UK bank has been charged with criminal wrongdoing. Neither has there been any substantive change in the regulation of the banking and financial services sector. The fines, so much loose change for the banks, have become part of the cost of the banking business and are simply passed on to customers in innumerable charges while the top executives walk away with massive bonuses.
Successive governments are linked by countless connections to the financial elite, from whom they recruit their advisors, regulators and even ministers. The present minister of state for trade and investment is Lord Green, a former HSBC chairman. Their record confirms that they are merely the puppets of criminals in London’s Square Mile.
Source: World Socialist Web Site
Monday, July 9, 2012
Massive Ponzi Scheme Proves Age-Old Adage
If It’s Too Good to Be True…
If a respected member of your community offered you an investment opportunity, you might consider it. Especially if it’s a man of the cloth. For nearly a decade, Martin Sigillito — a bishop in the American Anglican Convocation and a St. Louis attorney — convinced 200-plus people to do more than just consider it: they actually entrusted him with their money to invest in a financial venture. But this venture turned out to be an old-fashioned Ponzi scheme, and in April of this year, Sigillito was convicted of leading a conspiracy that swindled $52 million from victim investors.
How the scam began. In late 2000, Sigillito opened a law office but didn’t actually practice law—instead, he advertised his “international business consulting services.” One of the “services” he offered was participation in the British Lending Program (BLP), transformed by Sigillito into a Ponzi scheme. Through the BLP, investors could “loan” money to a real estate developer in the United Kingdom for short periods of time, mostly one year, at high rates of return—between 10 and 48 percent.
This real estate developer, according to Sigillito, had a knack for spotting undervalued properties he could flip for a profit, had options on land that would become valuable when re-zoned, and had inside connections with British authorities. It sounded like a win-win for investors.
Unfortunately, this British developer was not the wunderkind Sigillito made him out to be—he was just another link in the criminal conspiracy.
How did Sigillito convince his investors to part with their money? He exploited his personal ties to people and particular groups he was affiliated with—like his church, social clubs, professional acquaintances, family, and neighbors—in a technique known as affinity fraud. He also held himself up as an expert in international law and finance and claimed he was a lecturer at Oxford University in England (when in reality he had simply taken part in a summer legal program at Oxford).
Sigillito, who also conspired with another American attorney, insisted that his investors’ funds initially be placed into his trust account, from which he would take exorbitant fees for himself and his co-conspirators. Even though he told investors he would then transmit the money to the U.K., Sigillito actually kept most of the funds in one or more American bank accounts he controlled.
For a while, the scam was self-sustaining: Many investors let their interest payments accrue and rolled their loans over every year, plus Sigillito brought in enough new investors to make interest and principal payments to any previous investor who asked for payment. And all the while, he made enough in “fees” to support his affluent lifestyle: exclusive club memberships, expensive vacations, a country home, a chauffeur, private school for his kids, and collections of rare and antique books, maps, prints, coins, jewelry, and liquor.
How the scam ended. Eventually, an increasing number of investors meant increasing payout requirements, which resulted in the BLP making late interest payments or missing interest payments all together. Then investors began clamoring to withdraw their funds. And finally, Sigillito’s own assistant became suspicious of his activities and contacted the FBI.
The takeaway from this case? Fully investigate any investment opportunity before handing over your hard-earned money—see our sidebar for tips on how to avoid being victimized.
Source: FBI
If a respected member of your community offered you an investment opportunity, you might consider it. Especially if it’s a man of the cloth. For nearly a decade, Martin Sigillito — a bishop in the American Anglican Convocation and a St. Louis attorney — convinced 200-plus people to do more than just consider it: they actually entrusted him with their money to invest in a financial venture. But this venture turned out to be an old-fashioned Ponzi scheme, and in April of this year, Sigillito was convicted of leading a conspiracy that swindled $52 million from victim investors.
How the scam began. In late 2000, Sigillito opened a law office but didn’t actually practice law—instead, he advertised his “international business consulting services.” One of the “services” he offered was participation in the British Lending Program (BLP), transformed by Sigillito into a Ponzi scheme. Through the BLP, investors could “loan” money to a real estate developer in the United Kingdom for short periods of time, mostly one year, at high rates of return—between 10 and 48 percent.
This real estate developer, according to Sigillito, had a knack for spotting undervalued properties he could flip for a profit, had options on land that would become valuable when re-zoned, and had inside connections with British authorities. It sounded like a win-win for investors.
Unfortunately, this British developer was not the wunderkind Sigillito made him out to be—he was just another link in the criminal conspiracy.
How did Sigillito convince his investors to part with their money? He exploited his personal ties to people and particular groups he was affiliated with—like his church, social clubs, professional acquaintances, family, and neighbors—in a technique known as affinity fraud. He also held himself up as an expert in international law and finance and claimed he was a lecturer at Oxford University in England (when in reality he had simply taken part in a summer legal program at Oxford).
Sigillito, who also conspired with another American attorney, insisted that his investors’ funds initially be placed into his trust account, from which he would take exorbitant fees for himself and his co-conspirators. Even though he told investors he would then transmit the money to the U.K., Sigillito actually kept most of the funds in one or more American bank accounts he controlled.
For a while, the scam was self-sustaining: Many investors let their interest payments accrue and rolled their loans over every year, plus Sigillito brought in enough new investors to make interest and principal payments to any previous investor who asked for payment. And all the while, he made enough in “fees” to support his affluent lifestyle: exclusive club memberships, expensive vacations, a country home, a chauffeur, private school for his kids, and collections of rare and antique books, maps, prints, coins, jewelry, and liquor.
How the scam ended. Eventually, an increasing number of investors meant increasing payout requirements, which resulted in the BLP making late interest payments or missing interest payments all together. Then investors began clamoring to withdraw their funds. And finally, Sigillito’s own assistant became suspicious of his activities and contacted the FBI.
The takeaway from this case? Fully investigate any investment opportunity before handing over your hard-earned money—see our sidebar for tips on how to avoid being victimized.
Source: FBI
Saturday, April 14, 2012
These scams hit us right where we live
From foreclosure frauds to subprime shenanigans, mortgage fraud is a growing crime threat that is hurting homeowners, businesses, and the national economy.
The Federal Bureau of Investigation has developed new ways to detect and combat mortgage fraud, including collecting and analyzing data to spot emerging trends and patterns. It uses the full array of investigative techniques to arrest white collar crime.
General Information
- Overview
- Mortgage Fraud Reports: 2010 | 2009 | 2008 | 2007 | 2006
- Response to Article on Mortgage Crisis
Source: FBI
The Federal Bureau of Investigation has developed new ways to detect and combat mortgage fraud, including collecting and analyzing data to spot emerging trends and patterns. It uses the full array of investigative techniques to arrest white collar crime.
General Information
- Overview
- Mortgage Fraud Reports: 2010 | 2009 | 2008 | 2007 | 2006
- Response to Article on Mortgage Crisis
Source: FBI
FNB accused of covering up fraud syndicate
A Johannesburg entrepreneur has accused FNB of covering up fraudulent misrepresentation by one of its officials in a transaction that cost him R1.3-million. FNB client Tamsanqa Moya, who had ordered vehicles from overseas for use in a bus transport venture, is suing the bank and a local car dealer for R6-million in connection with the costly transaction. He believes that FNB is concealing fraudulent activities by one of its forex officials, whom he alleges is operating a syndicate with figures outside the bank.
The Mail & Guardian has seen a letter from the official concerned, Laureley Simpson of FNB's branch at The Glen in Johannesburg, certifying that the bank had transferred R1.3-million to a company in mainland China for two 70-seater luxury coaches that never arrived.
FNB management has since said that Simpson issued the letter in error and that action has been taken against her. It has refused to provide further details. It sent Moya a letter, seen by the M&G, saying that all records of the transaction had disappeared. Police say the absence of these documents is hampering their investigation. Moya entered into an agreement with the dealer, Friedcorp 167 trading as Direct Car Sales, in October 2009 to buy the two coaches. He says that Friedcorp, which claimed it was an agent for Chinese minibus manufacturer Shenyang Brilliance Jinbei Automobile, promised to deliver the vehicles early if he paid up front.
A R1.3-million global transaction was made from his FNB business account to Friedcorp, which also had an account with the bank. When the coaches were not delivered, Moya said he terminated the agreement through his lawyer and demanded a refund. In response, Friedcorp representative Mohamed Azhar Saloojee had shown him documents from China stating that the buses were in production. In a letter seen by the M&G, Saloojee also said that when the coaches were ready, they could not be delivered in South Africa because they did not meet SABS standards and would have to be collected in Zimbabwe.
Moya was also shown the letter from Simpson confirming payment to the Chinese manufacturer. On the strength of the FNB assurance, Moya said he had entered into a second agreement with Friedcorp. "I was told that if I cancel the deal I will lose about 30% of the money, which I couldn't afford. I've been banking with FNB for almost ten years, so I assumed the deal was legitimate when they sent me a letter of confirmation."
Moya said he had got "the shock of his life" when he contacted the Shenyang Brilliance Jinbei Automobile in March 2010 to inquire about progress on the coaches. Revealing that the company does not manufacture coaches, Shenyang general manager Frank Qian denied receiving any order from Friedcorp or payment from FNB. "I was furious and laid a complaint with FNB," said Moya. "I also asked for a refund -- but the bank wouldn't help me. FNB is distancing itself from the matter and my fear is that this case could be closed after three years and I may not get a cent back," he said. He said he laid a fraud charge against Friedcorp with the police commercial crimes unit in Johannesburg.
The investigating officer, Captain Joel Ngobeni, told the M&G that no arrests were possible on the current evidence. "The forex department should have invoices from the Chinese company stating what they would be exporting to South Africa. Those have to be filled in by the bank," Ngobeni said. "We also need to establish if the money was definitely transferred to the said company in China for the buses." He said he had contacted the Chinese company, which said it only manufactured minibuses. He added that it was "puzzling" that such crucial documents should disappear from the bank, especially in a context where one of its officials had given a false assurance that Moya's R1.3-million had been transferred.
The Financial Intelligence Centre Act (Fica) requires banks to keep payment records for at least five years from the date on which transactions are concluded.
In another letter to Moya seen by the M&G, the bank said that after conducting its own investigations it had concluded that Simpson erred in confirming that the transaction was for the purchase of coaches in China. Simpson had not known the reason for the transfer, it said, and had relied mainly on a statement provided by Friedcorp's owners. It said it could not be held liable for Moya's losses and would not involve itself further in the dispute, which was between him and Friedcorp. In papers lodged with the South Gauteng High Court in Johannesburg, Moya is claiming a R1.3-million upfront payment and R5-million in damages in respect of the net profit he would have generated had the buses had been delivered on time.
FNB spokesperson Maryke Wessels said the bank does not believe it is liable for Moya's losses. She declined to comment further as the legal case is still pending, but said the bank was cooperating with the police on the matter.
The M&G has tried for several weeks to contact Mohamed Azhar Saloojee on his cellphone, without success.
Source: Mail & Guardian
The Mail & Guardian has seen a letter from the official concerned, Laureley Simpson of FNB's branch at The Glen in Johannesburg, certifying that the bank had transferred R1.3-million to a company in mainland China for two 70-seater luxury coaches that never arrived.
FNB management has since said that Simpson issued the letter in error and that action has been taken against her. It has refused to provide further details. It sent Moya a letter, seen by the M&G, saying that all records of the transaction had disappeared. Police say the absence of these documents is hampering their investigation. Moya entered into an agreement with the dealer, Friedcorp 167 trading as Direct Car Sales, in October 2009 to buy the two coaches. He says that Friedcorp, which claimed it was an agent for Chinese minibus manufacturer Shenyang Brilliance Jinbei Automobile, promised to deliver the vehicles early if he paid up front.
A R1.3-million global transaction was made from his FNB business account to Friedcorp, which also had an account with the bank. When the coaches were not delivered, Moya said he terminated the agreement through his lawyer and demanded a refund. In response, Friedcorp representative Mohamed Azhar Saloojee had shown him documents from China stating that the buses were in production. In a letter seen by the M&G, Saloojee also said that when the coaches were ready, they could not be delivered in South Africa because they did not meet SABS standards and would have to be collected in Zimbabwe.
Moya was also shown the letter from Simpson confirming payment to the Chinese manufacturer. On the strength of the FNB assurance, Moya said he had entered into a second agreement with Friedcorp. "I was told that if I cancel the deal I will lose about 30% of the money, which I couldn't afford. I've been banking with FNB for almost ten years, so I assumed the deal was legitimate when they sent me a letter of confirmation."
Moya said he had got "the shock of his life" when he contacted the Shenyang Brilliance Jinbei Automobile in March 2010 to inquire about progress on the coaches. Revealing that the company does not manufacture coaches, Shenyang general manager Frank Qian denied receiving any order from Friedcorp or payment from FNB. "I was furious and laid a complaint with FNB," said Moya. "I also asked for a refund -- but the bank wouldn't help me. FNB is distancing itself from the matter and my fear is that this case could be closed after three years and I may not get a cent back," he said. He said he laid a fraud charge against Friedcorp with the police commercial crimes unit in Johannesburg.
The investigating officer, Captain Joel Ngobeni, told the M&G that no arrests were possible on the current evidence. "The forex department should have invoices from the Chinese company stating what they would be exporting to South Africa. Those have to be filled in by the bank," Ngobeni said. "We also need to establish if the money was definitely transferred to the said company in China for the buses." He said he had contacted the Chinese company, which said it only manufactured minibuses. He added that it was "puzzling" that such crucial documents should disappear from the bank, especially in a context where one of its officials had given a false assurance that Moya's R1.3-million had been transferred.
The Financial Intelligence Centre Act (Fica) requires banks to keep payment records for at least five years from the date on which transactions are concluded.
In another letter to Moya seen by the M&G, the bank said that after conducting its own investigations it had concluded that Simpson erred in confirming that the transaction was for the purchase of coaches in China. Simpson had not known the reason for the transfer, it said, and had relied mainly on a statement provided by Friedcorp's owners. It said it could not be held liable for Moya's losses and would not involve itself further in the dispute, which was between him and Friedcorp. In papers lodged with the South Gauteng High Court in Johannesburg, Moya is claiming a R1.3-million upfront payment and R5-million in damages in respect of the net profit he would have generated had the buses had been delivered on time.
FNB spokesperson Maryke Wessels said the bank does not believe it is liable for Moya's losses. She declined to comment further as the legal case is still pending, but said the bank was cooperating with the police on the matter.
The M&G has tried for several weeks to contact Mohamed Azhar Saloojee on his cellphone, without success.
Source: Mail & Guardian
Friday, April 6, 2012
FBI Financial Intelligence Center Getting Ahead of Crime
Investigating financial crime is like working a puzzle—you have to fit all of the pieces of information together in order to see the entire picture. The FBI’s Financial Intelligence Center in Washington, D.C., does just that, linking disparate pieces of data to give our field investigators a clearer picture of possible criminal activity in their regions.
The center was established in the fall of 2009 in response to the financial crisis at that time—its mission was to identify potential investigative targets engaged in mortgage fraud. Because of its success, the center’s focus expanded to include other types of financial crimes, like securities/commodities fraud, health care fraud, money laundering, fraud against the government, and even public corruption (which usually involves financial wrongdoing of some sort).
The center is staffed primarily by intelligence analysts and staff operations specialists. Their first order of business is to review large datasets that come from the FBI, other law enforcement and regulatory agencies, consumer complaint websites, etc. Computer programs cull out data with common themes (i.e., similar scams, similar names). That data is researched and analyzed to help further identify potential subjects and/or activity, and the results are organized using spreadsheets and link analysis in order to draw connections among all the key players. If there is good reason to believe that criminal activity exists, the results are summarized in an intelligence package and sent to the appropriate field office.
During fiscal year 2011, FBI offices opened dozens of investigations based on the center’s intelligence packages.
Current initiatives
In response to some of the most serious financial crimes, the Financial Intelligence Center is working on a number of specific initiatives, such as:
Of course, we don’t do this alone—we work closely with our partners. As a matter of fact, our analysts are currently or will soon be embedded in the Office of the Special Inspector General for the Troubled Asset Relief Program, the SEC, the Internal Revenue Service, the FTC, and the CMS…to expand even further the pool of data that can be used by all to uncover financial crime.
The bottom line of the FBI’s Financial Intelligence Center: to work proactively to help identify the nation’s most egregious criminal enterprises.
Resources: FBI Financial Crimes Report to the Public
The center was established in the fall of 2009 in response to the financial crisis at that time—its mission was to identify potential investigative targets engaged in mortgage fraud. Because of its success, the center’s focus expanded to include other types of financial crimes, like securities/commodities fraud, health care fraud, money laundering, fraud against the government, and even public corruption (which usually involves financial wrongdoing of some sort).
The center is staffed primarily by intelligence analysts and staff operations specialists. Their first order of business is to review large datasets that come from the FBI, other law enforcement and regulatory agencies, consumer complaint websites, etc. Computer programs cull out data with common themes (i.e., similar scams, similar names). That data is researched and analyzed to help further identify potential subjects and/or activity, and the results are organized using spreadsheets and link analysis in order to draw connections among all the key players. If there is good reason to believe that criminal activity exists, the results are summarized in an intelligence package and sent to the appropriate field office.
During fiscal year 2011, FBI offices opened dozens of investigations based on the center’s intelligence packages.
Current initiatives
In response to some of the most serious financial crimes, the Financial Intelligence Center is working on a number of specific initiatives, such as:
- Foreclosure rescue fraud, where analysts collect and analyze deceptive practices complaint data from the Federal Trade Commission (FTC), which is then cross-referenced with suspicious activity reports filed by financial institutions;
- Securities and corporate fraud, in which the center partners with the Commodities and Futures
- Trading Commission and Securities and Exchange Commission (SEC) to review civil referrals for possible criminal violations;
- Health care fraud, which involves us working with the Centers for Medicare and Medicaid (CMS) and the Department of Justice on a new predictive modeling system that uses algorithms to generate lists of medical professionals potentially engaging in health care fraud; and
- Money laundering, in which analysts review incoming intelligence from the FBI’s Southwest Border Initiative to determine if subjects are laundering proceeds from criminal activities.
Of course, we don’t do this alone—we work closely with our partners. As a matter of fact, our analysts are currently or will soon be embedded in the Office of the Special Inspector General for the Troubled Asset Relief Program, the SEC, the Internal Revenue Service, the FTC, and the CMS…to expand even further the pool of data that can be used by all to uncover financial crime.
The bottom line of the FBI’s Financial Intelligence Center: to work proactively to help identify the nation’s most egregious criminal enterprises.
Resources: FBI Financial Crimes Report to the Public
Saturday, March 31, 2012
Foreclosure rescue scheme is a scam
A foreclosure rescue scheme is a scam that targets those whose house is facing potential foreclosure. The scheme preys on desperate homeowners whose mortgages are in default by offering to prevent the foreclosure. There are various ways in which foreclosure rescue schemes work, causing different types of harm to the homeowners, but all ultimately with the likely end result of the owner being forced out of his/her home and losing even more money.
Source: http://en.wikipedia.org/wiki/Foreclosure_rescue_scheme
Source: http://en.wikipedia.org/wiki/Foreclosure_rescue_scheme
Sunday, February 19, 2012
Obama administration brokers pro-bank mortgage fraud settlement
The Obama administration announced on Thursday a settlement between five major banks and the federal and state governments over massive fraud relating to home foreclosures. The terms of the agreement are entirely favorable to the banks, while doing little or nothing to aid the millions of people who have been devastated by the collapse of the US housing market.
Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks.
Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone.
In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.
Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal.
Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program.
Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.
Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures.
About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets.
The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.”
An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.
The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.
Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets.
“I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”
Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.
In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.”
In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.
Source: World Socialist Web Site
Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks.
Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone.
In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.
Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal.
Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program.
Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.
Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures.
About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets.
The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.”
An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.
The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.
Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets.
“I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”
Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.
In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.”
In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.
Source: World Socialist Web Site
Mbeki: $50-billion illegally exported from Africa annually
An estimated $50-billion is exported out of the African continent illegally every year, former president Thabo Mbeki said on Saturday. "This money is exported illegally instead of being invested in the continent," he said. Mbeki was speaking at the launch of a United Nations Economic Commission for Africa (Uneca) high level panel in Johannesburg. The panel, chaired by Mbeki, would investigate illicit and financial flows of finance out of the continent.
Mbeki said the loss needed to be addressed before it undermined the prospect of Africa's development. "Almost $25-billion comes in to the continent. That means it loses twice the capital it receives in financial assistance," he said. "The panel will study the flow of money and understand how it is done. The African continent will expect the panel to provide practical measures to stop the flow." He said it would take a year for the panel to complete its investigation. "This is a matter of vital importance to the continent. In the end [the investigation] should result in action taken by the continent and individual countries," he said. "As a panel, we have no punitive measures. The panel will make proposals to those with punitive power and explain how it [the flow of money] is done."
He said the panel would provide sufficient information about the different methods of the outflow. This would include over-invoicing and under-pricing of exports and money laundering strategies.
Source: Mail & Guardian
Mbeki said the loss needed to be addressed before it undermined the prospect of Africa's development. "Almost $25-billion comes in to the continent. That means it loses twice the capital it receives in financial assistance," he said. "The panel will study the flow of money and understand how it is done. The African continent will expect the panel to provide practical measures to stop the flow." He said it would take a year for the panel to complete its investigation. "This is a matter of vital importance to the continent. In the end [the investigation] should result in action taken by the continent and individual countries," he said. "As a panel, we have no punitive measures. The panel will make proposals to those with punitive power and explain how it [the flow of money] is done."
He said the panel would provide sufficient information about the different methods of the outflow. This would include over-invoicing and under-pricing of exports and money laundering strategies.
Source: Mail & Guardian
Thursday, February 16, 2012
Foreclosures (2012 Robosigning and Foreclosure Abuse Settlement)
The end of the housing boom in 2006 set in motion a vicious circle that led to disaster for millions of homeowners whose property has been seized or threatened, and for the lenders themselves, who have had to write off tens of billions in losses. Foreclosures helped accelerate the fall of property values, helping to spur more foreclosures. The losses they created brought the financial system to the brink of collapse in the fall of 2008. The steep recession that followed led to even greater homeowner delinquencies, as homeowners who lost their jobs often lost their homes. Tens of millions of others found themselves in homes worth less than their mortgages, unable to sell or refinance. All told, roughly four million families lost their homes to foreclosure between the beginning of 2007 and early 2012.
In late 2010, evidenced emerged that the foreclosure process may have been deeply tainted by sloppy recordkeeping, cut corners and possible fraud, epitomized by high-profile cases of “robo-signing’' — cases in which foreclosures took place based on forged or unreviewed documents. More than 40 states attorneys general began investigations into foreclosure abuse, and worries about the legal fallout from the scandal led to a sharp slowdown in the rate of foreclosure filings and of repossessions in 2011. In February 2012, government authorities and five of the nation’s biggest banks agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners.
Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out; earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected. Still, the agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly one million expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000. And because of a complicated formula being used to distribute the money, federal officials say the ultimate benefits provided to homeowners could equal a larger sum — $45 billion in the event all 14 major servicers participate. The aid is to be distributed over three years, but there are incentives for banks to provide the money in the next 12 months. In addition to disagreements over the total amount, negotiations had been held up over the question of how much latitude authorities would have in pursuing investigations into mortgage abuses. In the agreement’s expected final form, the releases are mostly limited to the foreclosure process, like the eviction of homeowners after only a cursory examination of documents.
The prosecutors and regulators still have the right to investigate other elements that contributed to the housing bubble, like the assembly of risky mortgages into securities that were sold to investors and later soured, as well as insurance and tax fraud. Officials will also be able to pursue any allegations of criminal wrongdoing. The banks involved in the settlement in February were Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.
In a sign of how pervasive the problems were, an audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation. The courts have also become more aggressive about challenging foreclosures. In January 2011, Massachusetts’s top court voided the seizure of two homes by Wells Fargo & Company and US Bancorp after the banks failed to show that they held the mortgages at the time of the foreclosures, and courts in several states are considering similar cases.
Background
The root of today’s problems goes back to the boom years, when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing, or collecting and processing monthly payments from homeowners.
Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, unable to devote enough manpower to modify, or ease the terms of, loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to dealwith the foreclosure process.
The revelations about the sloppy paperwork emboldened homeowners and law enforcement officials in many states to challenge notarizations — including those by so-called robo-signers,’ employees who approved hundreds of documents in a day — and to question whether lenders rightfully hold the notes underlying foreclosed properties. Evictions were expected to slow sharply — good news for many homeowners. But at the same time, the freezes further disrupted an already shaky housing market.
As banks’ foreclosure practices have come under the microscope, problems with notarizations on mortgage assignments have emerged. These documents transfer the ownership of the underlying note from one institution to another and are required for foreclosures to proceed. In some cases, the notarizations predated the preparation of the legal documents, suggesting that signatures were not reviewed by a notary. Other notarizations took place in offices far away from where the documents were signed, indicating that the notaries might not have witnessed the signings as the law required.
The swelling outcry over fast-and-loose foreclosures thrust the Obama administration back into the uncomfortable position of sheltering the banking industry from the demands of an angry public. While Mr. Obama did block a law passed by Congress that was seen as unintentionally making it easier to speed up foreclosures, his aides spoke out against calls from many Democrats for a national freeze on evictions, fearing that a moratorium could hurt still-shaky banks.
The Three Waves
Overall, there have been three distinct waves in foreclosures. The initial spike involved speculators who gave up property because of plunging real estate prices, and the secondary shock centered on borrowers whose introductory interest rates expired and were reset higher. The third wave represents standard mortgages, known as prime, written to people who had decent credit ratings, but who have lost their jobs in the economic downturn and are facing the loss of homes they had considered safe.
Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis. Economy.com said in 2009 that it expected that 60 percent of the mortgage defaults that year would be set off primarily by unemployment, up from 29 percent in 2008.
The slowdown in evictions may give such borrowers time to accumulate some capital or more leverage in settlement talks with their lender. Some analysts said that could conceivably help the housing market get back on its feet, by ending the undermining effect of a steady stream of foreclose houses going up for sale. Others, however, worried that blocking sales in an already weak market would drive prices down even further, continuing a spiral that has been deeply destructive to banks and communities.
A Mess Years in the Making
Interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials.
Almost overnight, what had been a factorylike business that relied on workers with high school educations to process monthly payments needed to come up with a custom-made operation that could solve the problems of individual homeowners.
To make matters worse, the banks had few financial incentives to invest in their servicing operations, several former executives said. A mortgage generates an annual fee equal to only about 0.25 percent of the loan’s total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans.
And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids,” walk-in hires who often barely knew what a mortgage was.
At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage. And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.
San Francisco Foreclosure Audit
Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings released in February 2012 suggest how pervasive foreclosure irregularities may be across the nation.
The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.
Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.
In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.
In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.
The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.
The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”
Source: New York Times
In late 2010, evidenced emerged that the foreclosure process may have been deeply tainted by sloppy recordkeeping, cut corners and possible fraud, epitomized by high-profile cases of “robo-signing’' — cases in which foreclosures took place based on forged or unreviewed documents. More than 40 states attorneys general began investigations into foreclosure abuse, and worries about the legal fallout from the scandal led to a sharp slowdown in the rate of foreclosure filings and of repossessions in 2011. In February 2012, government authorities and five of the nation’s biggest banks agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners.
Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out; earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected. Still, the agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly one million expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000. And because of a complicated formula being used to distribute the money, federal officials say the ultimate benefits provided to homeowners could equal a larger sum — $45 billion in the event all 14 major servicers participate. The aid is to be distributed over three years, but there are incentives for banks to provide the money in the next 12 months. In addition to disagreements over the total amount, negotiations had been held up over the question of how much latitude authorities would have in pursuing investigations into mortgage abuses. In the agreement’s expected final form, the releases are mostly limited to the foreclosure process, like the eviction of homeowners after only a cursory examination of documents.
The prosecutors and regulators still have the right to investigate other elements that contributed to the housing bubble, like the assembly of risky mortgages into securities that were sold to investors and later soured, as well as insurance and tax fraud. Officials will also be able to pursue any allegations of criminal wrongdoing. The banks involved in the settlement in February were Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.
In a sign of how pervasive the problems were, an audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation. The courts have also become more aggressive about challenging foreclosures. In January 2011, Massachusetts’s top court voided the seizure of two homes by Wells Fargo & Company and US Bancorp after the banks failed to show that they held the mortgages at the time of the foreclosures, and courts in several states are considering similar cases.
Background
The root of today’s problems goes back to the boom years, when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing, or collecting and processing monthly payments from homeowners.
Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, unable to devote enough manpower to modify, or ease the terms of, loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to dealwith the foreclosure process.
The revelations about the sloppy paperwork emboldened homeowners and law enforcement officials in many states to challenge notarizations — including those by so-called robo-signers,’ employees who approved hundreds of documents in a day — and to question whether lenders rightfully hold the notes underlying foreclosed properties. Evictions were expected to slow sharply — good news for many homeowners. But at the same time, the freezes further disrupted an already shaky housing market.
As banks’ foreclosure practices have come under the microscope, problems with notarizations on mortgage assignments have emerged. These documents transfer the ownership of the underlying note from one institution to another and are required for foreclosures to proceed. In some cases, the notarizations predated the preparation of the legal documents, suggesting that signatures were not reviewed by a notary. Other notarizations took place in offices far away from where the documents were signed, indicating that the notaries might not have witnessed the signings as the law required.
The swelling outcry over fast-and-loose foreclosures thrust the Obama administration back into the uncomfortable position of sheltering the banking industry from the demands of an angry public. While Mr. Obama did block a law passed by Congress that was seen as unintentionally making it easier to speed up foreclosures, his aides spoke out against calls from many Democrats for a national freeze on evictions, fearing that a moratorium could hurt still-shaky banks.
The Three Waves
Overall, there have been three distinct waves in foreclosures. The initial spike involved speculators who gave up property because of plunging real estate prices, and the secondary shock centered on borrowers whose introductory interest rates expired and were reset higher. The third wave represents standard mortgages, known as prime, written to people who had decent credit ratings, but who have lost their jobs in the economic downturn and are facing the loss of homes they had considered safe.
Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis. Economy.com said in 2009 that it expected that 60 percent of the mortgage defaults that year would be set off primarily by unemployment, up from 29 percent in 2008.
The slowdown in evictions may give such borrowers time to accumulate some capital or more leverage in settlement talks with their lender. Some analysts said that could conceivably help the housing market get back on its feet, by ending the undermining effect of a steady stream of foreclose houses going up for sale. Others, however, worried that blocking sales in an already weak market would drive prices down even further, continuing a spiral that has been deeply destructive to banks and communities.
A Mess Years in the Making
Interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials.
Almost overnight, what had been a factorylike business that relied on workers with high school educations to process monthly payments needed to come up with a custom-made operation that could solve the problems of individual homeowners.
To make matters worse, the banks had few financial incentives to invest in their servicing operations, several former executives said. A mortgage generates an annual fee equal to only about 0.25 percent of the loan’s total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans.
And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids,” walk-in hires who often barely knew what a mortgage was.
At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage. And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.
San Francisco Foreclosure Audit
Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings released in February 2012 suggest how pervasive foreclosure irregularities may be across the nation.
The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.
Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.
In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.
In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.
The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.
The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”
Source: New York Times
Friday, February 10, 2012
Obama administration brokers pro-bank mortgage fraud settlement
The Obama administration announced on Thursday a settlement between five major banks and the federal and state governments over massive fraud relating to home foreclosures. The terms of the agreement are entirely favorable to the banks, while doing little or nothing to aid the millions of people who have been devastated by the collapse of the US housing market.
Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks. Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone. In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.
Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal. Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program. Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.
Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures. About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets. The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.” An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.
The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.
Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets. “I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”
Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.
In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.” In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.
Source: World Socialist Web Site
Government officials reported that the final deal is valued at about $25 billion spread out over a multi-year period. This is a paltry sum in relationship to the extent of the housing crisis, the profits of the banks and the scale of corporate criminality. However, only a small portion of this would come from direct financial sanctions on the banks. Forty-nine of the 50 US states signed on to the settlement with the five banks—JPMorgan Chase, Wells Fargo, Citigroup, Bank of America (which bought mortgage firm Countrywide), and Ally Financial Inc. (formerly GMAC, the financial arm of General Motors). These five banks involved had net profits of $46 billion last year alone. In exchange for the settlement, the banks will be released from liability for fraudulent and likely criminal activities. This includes “robo-signing,” in which the banks had employees sign hundreds of thousands of legal foreclosure documents without any knowledge of the underlying mortgages. Banks were also involved in forging documents. The true extent of the illegal operations is not known, and keeping this information secret is one of the aims of the settlement.
Evidence of these actions first emerged in 2010. States launched investigations in response, and the Obama administration stepped in to package these investigations and lead them to a settlement favorable to the banks. Over the past several weeks, the administration has placed heavy pressure on several state holdouts to sign on to the deal. Of particular importance for Bank of America is the fact that the settlement will end a lawsuit filed by Nevada and Arizona over allegations that the bank has been deceiving homeowners seeking to participate in a refinancing program. Only about $5 billion of the settlement will take the form of direct payments, including, according to government officials, a payment of about $2,000 to some individuals who had their homes foreclosed between September 2008 and December 2011.
Despite the evidence of fraud, no one will get their home back. Since 2007, there have been some 4 million home foreclosures. About $17 billion will come from the modification of existing loans, spaced over a three-year time period. Details are still emerging, but it is evident that decisions on what loans to modify will be left to the banks themselves. Many of the loans have already been packaged off and sold to investors (“securitized”), thus minimizing the impact on bank assets. The $17 billion in loan modifications is a tiny fraction of the total negative equity (the value of loans in relation to the value of the underling houses) of $700 billion to $750 billion. The deal will affect less than 10 percent of US homeowners who are “under water.” An additional $3 billion is to come in the form of mortgage refinancing, again left to the discretion of the banks.
The banks will be tasked with self-reporting their actions. The industry and the state attorneys general selected North Carolina banking commissioner Joseph Smith to “oversee” the agreement and determine whether the banks are in compliance based on the bank reports. Smith is a former bank lawyer with close ties to the industry.
Markets reacted enthusiastically to the terms and bank stocks rose Thursday. The banks involved already have set aside funds that cover the amount of the agreement. Indeed, since many banks have written down the value of their existing loans, the agreement could have a positive net impact on their balance sheets. “I wouldn’t say it’s a panacea for the housing industry,” commented Barclays analyst Jason Goldberg, “but it is good for the banks to get this behind them.”
Perversely, the deal will likely lead to a surge in home foreclosures, with banks now confident that they can proceed with business as usual. Bloomberg News commented, “Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year… With today’s agreement, banks are likely to resume property seizures.” Increased foreclosures will also lead to a further fall in home prices.
In hailing the deal, Obama said that it would “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake.” In fact, as with every component of the administration’s policy, the agreement will leave things entirely as they are, while giving a free pass to corporate criminals responsible for the economic crisis.
Source: World Socialist Web Site
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