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 and Banking. Show all posts
Showing posts with label Money and Banking. Show all posts
Thursday, April 21, 2016
Wednesday, April 30, 2014
Why Only One Top Banker Went to Jail for the Financial Crisis
On the evening of Jan. 27, Kareem Serageldin walked out of his Times Square apartment with his brother and an old Yale roommate and took off on the four-hour drive to Philipsburg, a small town smack in the middle of Pennsylvania. Despite once earning nearly $7 million a year as an executive at Credit Suisse, Serageldin, who is 41, had always lived fairly modestly. A previous apartment, overlooking Victoria Station in London, struck his friends as a grown-up dorm room; Serageldin lived with bachelor-pad furniture and little of it — his central piece was a night stand overflowing with economics books, prospectuses and earnings reports. In the years since, his apartments served as places where he would log five or six hours of sleep before going back to work, creating and trading complex financial instruments. One friend called him an “investment-banking monk.”
Serageldin’s life was about to become more ascetic. Two months earlier, he sat in a Lower Manhattan courtroom adjusting and readjusting his tie as he waited for a judge to deliver his prison sentence. During the worst of the financial crisis, according to prosecutors, Serageldin had approved the concealment of hundreds of millions in losses in Credit Suisse’s mortgage-backed securities portfolio. But on that November morning, the judge seemed almost torn. Serageldin lied about the value of his bank’s securities — that was a crime, of course — but other bankers behaved far worse. Serageldin’s former employer, for one, had revised its past financial statements to account for $2.7 billion that should have been reported. Lehman Brothers, AIG, Citigroup, Countrywide and many others had also admitted that they were in much worse shape than they initially allowed. Merrill Lynch, in particular, announced a loss of nearly $8 billion three weeks after claiming it was $4.5 billion. Serageldin’s conduct was, in the judge’s words, “a small piece of an overall evil climate within the bank and with many other banks.” Nevertheless, after a brief pause, he eased down his gavel and sentenced Serageldin, an Egyptian-born trader who grew up in the barren pinelands of Michigan’s Upper Peninsula, to 30 months in jail. Serageldin would begin serving his time at Moshannon Valley Correctional Center, in Philipsburg, where he would earn the distinction of being the only Wall Street executive sent to jail for his part in the financial crisis.
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American financial history has generally unfolded as a series of booms followed by busts followed by crackdowns. After the crash of 1929, the Pecora Hearings seized upon public outrage, and the head of the New York Stock Exchange landed in prison. After the savings-and-loan scandals of the 1980s, 1,100 people were prosecuted, including top executives at many of the largest failed banks. In the ’90s and early aughts, when the bursting of the Nasdaq bubble revealed widespread corporate accounting scandals, top executives from WorldCom, Enron, Qwest and Tyco, among others, went to prison.
The credit crisis of 2008 dwarfed those busts, and it was only to be expected that a similar round of crackdowns would ensue. In 2009, the Obama administration appointed Lanny Breuer to lead the Justice Department’s criminal division. Breuer quickly focused on professionalizing the operation, introducing the rigor of a prestigious firm like Covington & Burling, where he had spent much of his career. He recruited elite lawyers from corporate firms and the Breu Crew, as they would later be known, were repeatedly urged by Breuer to “take it to the next level.”
But the crackdown never happened. Over the past year, I’ve interviewed Wall Street traders, bank executives, defense lawyers and dozens of current and former prosecutors to understand why the largest man-made economic catastrophe since the Depression resulted in the jailing of a single investment banker — one who happened to be several rungs from the corporate suite at a second-tier financial institution. Many assume that the federal authorities simply lacked the guts to go after powerful Wall Street bankers, but that obscures a far more complicated dynamic. During the past decade, the Justice Department suffered a series of corporate prosecutorial fiascos, which led to critical changes in how it approached white-collar crime. The department began to focus on reaching settlements rather than seeking prison sentences, which over time unintentionally deprived its ranks of the experience needed to win trials against the most formidable law firms. By the time Serageldin committed his crime, Justice Department leadership, as well as prosecutors in integral United States attorney’s offices, were de-emphasizing complicated financial cases — even neglecting clues that suggested that Lehman executives knew more than they were letting on about their bank’s liquidity problem. In the mid-’90s, white-collar prosecutions represented an average of 17.6 percent of all federal cases. In the three years ending in 2012, the share was 9.4 percent.
After the evening drive to Philipsburg, Serageldin checked into a motel. He didn’t need to report to Moshannon Valley until 2 p.m. the next day, but he was advised to show up early to get a head start on his processing. Moshannon is a low-security facility, with controlled prisoner movements, a bit tougher than the one portrayed on “Orange Is the New Black.” Friends of Serageldin’s worried about the violence; he was counseled to keep his head down and never change the channel on the TV no matter who seemed to be watching. Serageldin, who is tall and thin with a regal bearing, was largely preoccupied with how, after a decade of 18-hour trading days, he would pass the time. He was planning on doing math-problem sets and studying economics. He had delayed marrying his longtime girlfriend, a private-equity executive in London, but the plan was for her to visit him frequently.
Other bankers have spoken out about feeling unfairly maligned by the financial crisis, pegged as “banksters” by politicians and commentators. But Serageldin was contrite. “I don’t feel angry,” he told me in early winter. “I made a mistake. I take responsibility. I’m ready to pay my debt to society.” Still, the fact that the only top banker to go to jail for his role in the crisis was neither a mortgage executive (who created toxic products) nor the C.E.O. of a bank (who peddled them) is something of a paradox, but it’s one that reflects the many paradoxes that got us here in the first place.
Part of the Justice Department’s futility can be traced to the rise of its own ambition. Until the 1980s, government prosecutors generally focused on going after individual corporate criminals. But after watching their fellow prosecutors successfully take down entire mafia families, like the Gambino and Bonanno clans, many felt that they should also be going after more high-profile convictions and that the best way to root out corruption was to take on the whole organization. A long-ignored Supreme Court ruling, from 1909, conveniently opened the door for criminal charges against entire corporations. And in 2001, Michael Chertoff, George W. Bush’s new criminal division chief, arrived at the Justice Department ready to put it to use.
Chertoff, who worked at the U.S. Attorney’s office under Rudolph W. Giuliani, the godfather of the Wall Street perp walk, seemed like just the guy to jump-start the initiative — and he arrived at an opportune moment. Prosecutors were beginning their investigation of Enron and probe into Arthur Andersen, the accounting firm that had blessed the energy-trading giant’s phony balance sheets and shredded documents shortly after it detonated. Early in his tenure, Chertoff found himself sitting in a conference room at Justice Department headquarters on Pennsylvania Avenue, listening with growing irritation as lawyers for Arthur Andersen tried to dispose of the Enron case with yet another settlement. The company previously oversaw the fraudulent books of Waste Management and Sunbeam, and it dealt with those previous scrapes by reaching settlements and a consent decree with regulators, vowing never to commit such a crime again. For its Waste Management infractions, the firm paid $7 million. Then, it was the largest civil penalty ever paid.
Andersen was expecting the same kind of wrist-slap. As Chertoff recalls, one high-ranking executive noted brazenly that such settlements were merely “a cost of doing business” — the routine surcharges applied to the nation’s largest corporations. That comment enraged Chertoff, and soon after, his prosecutors indicted the firm. “Destroy documents?” he told me. “It’s hard to view that as a stumble outside of its core business.” In June 2002, Arthur Andersen was convicted by a jury, and within months, the firm closed down, costing tens of thousands of people their jobs.
The Andersen case was supposed to embolden the Justice Department, but it quickly backfired. Chertoff’s chutzpah shocked much of the corporate world and even many prosecutors, who thought the department had abused its powers at the cost of thousands of innocent workers. Almost immediately, the Andersen verdict resulted not in more boldness but in more caution on the part of federal prosecutors, including Chertoff himself. In 2003, his investigators were digging into questionable off-balance-sheet deals between the Pittsburgh-based PNC Bank and AIG Financial Products. They contemplated indicting the bank, which spurred Herbert Biern, at the time a top banking-supervision official at the Fed, to demand a meeting with Chertoff to warn him against it. Chertoff told Biern, according to attendees, that if the Justice Department “can’t bring these cases because it may bring harm, then maybe these banks are too big.” In the end, though, Chertoff and the Justice Department blinked. They didn’t indict, and PNC entered into a deferred prosecution agreement. No bank executives were prosecuted. Two years later, the Supreme Court overturned the Arthur Andersen conviction.
From 2004 to 2012, the Justice Department reached 242 deferred and nonprosecution agreements with corporations, compared with 26 in the previous 12 years, according to a study by David M. Uhlmann, a former prosecutor and law professor at the University of Michigan. And while companies paid large sums in the settlements — the days of $7 million cost-of-doing-business fees were over — several veteran Justice Department officials told me that these settlements emboldened defense lawyers. More crucial, they allowed the Justice Department’s lawyers to “succeed” without learning how to develop important prosecutorial skills. Investigations of individuals are more time-consuming and require a different approach than those of a corporation. Indeed, the department now effectively outsources many of its investigations of corporate executives to outside firms, which invariably produce reports that exculpate those at the top. Jed Rakoff, the U.S. District Court judge and former federal prosecutor who has become the most prominent legal critic of the Justice Department, explained the process to me this way: “The report says: ‘Mistakes were made. We are here to take our lumps’ ” — in other words, settlements and, if the transgressions are particularly bad, further oversight. “Lost in that whole thing,” Rakoff said, “was anyone trying to investigate whether the individuals did something wrong.”
The Bush administration may have earned a reputation as being friendly to business interests, but it wasn’t always that way. Around the time of the Andersen investigation, Larry Thompson, the deputy attorney general, was summoned to the White House to defend his department. He and Robert Mueller, the director of the F.B.I., met with the president in the Roosevelt Room of the White House, where they decided not to present legal theory but to show evidence that prosecutors had amassed in matters like the Enron case, demonstrating that executives had made up numbers and lied to the public. Bush seemed stunned. He turned to Mueller and Thompson and said, “Bobby and L.T., continue what you are doing.”
If Chertoff had signaled a green light for going after entire companies, Thompson drafted a memo in 2003 that offered a post-Andersen playbook that went right at the heart of how large corporations protected themselves. For years, big businesses, like tobacco companies, shielded questionable conduct by invoking attorney-client privilege, which could render details of troubling executive dealings inadmissible in court. If a company came under federal scrutiny, it typically paid its executives’ legal bills, hiring some of the nation’s best firms, those who could slow or derail any inquiries. And when multiple executives fell under suspicion, their lawyers would often sign joint defense agreements allowing them to share with one another what they learned about the feds’ case.
Thompson’s memo declared that prosecutors could, in essence, offer a deal, but it wasn’t a very generous one. Companies could win Brownie points for being cooperative only if they eschewed privileges like joint defense agreements. Almost immediately, members of the white-collar bar asserted that this overreach eroded a fundamental right, but they didn’t have to argue incessantly; once again, the Justice Department’s ambition backfired. In the summer of 2006, the government’s once-promising prosecution of executives from KPMG, an accounting and consulting firm suspected of selling illegal tax shelters to wealthy clients, started going bad. (The U.S. attorney’s office in Manhattan felt so confident that it indicted 17 KPMG executives.) The case fell apart when the judge ruled that those prosecutors had violated constitutional rights by pressuring the firm to waive attorney-client privilege and stop paying employees’ legal fees; the government’s zeal, he noted, had gotten “in the way of its judgment.” With the “greatest reluctance,” he threw out the cases against 13 of the executives. (Two others were convicted.)
Soon after, the counteroffensive to the Justice Department’s overreach peaked, led by the white-collar bar and corporate lobbies and aided by The Wall Street Journal’s editorial page, the U.S. Chamber of Commerce and even the American Civil Liberties Union. Senator Patrick Leahy, Democrat of Vermont, contended that the department was abusing corporations; his colleague Arlen Specter, then a Republican from Pennsylvania, readied a bill to prevent the Justice Department from receiving attorney-client privilege waivers. To cut that off, Paul McNulty, the deputy attorney general, released a revised set of rules stating, among other things, that no federal prosecutor could ask a company to waive attorney-client privilege without permission from higher-ups.
Over the years, the KPMG debacle and the corporate revolt would lead the Justice Department to roll back the Thompson memo to nearly the point of reversal. Today prosecutors are prohibited from even asking companies to waive their attorney-client privilege. They are also prohibited from pushing a company to cut off the legal fees for indicted executives or pressuring it to forgo joint defense agreements. “It was very much a game-changer in the business of investigating and defending in those cases,” says Michael Bromwich, a top white-collar lawyer and former inspector general of the Department of Justice.
In the decade since, the courts dulled other prosecutorial tools. A Supreme Court ruling allowed sentences to be set below previously determined mandatory minimums (which made executives less likely to “flip”). Another narrowed an often-used legal theory that said employees were guilty of fraud if they deprived their companies of “honest services” (which helped nab Enron’s former C.E.O., Jeffrey Skilling, among others). No change was momentous on its own — and some may have legitimately restored the rights of defendants — but taken together they marked a significant, if almost unnoted, shift toward the defense. After Lanny Breuer entered the Department of Justice, he testified in front of Congress to restore the honest-services charge for corrupt government officials. But he didn’t even try to broach the topic of a private-sector fix.
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Life on Wall Street is often portrayed as hours of kinetic fury with billions on the line, but the work is more often suited to wonks who are comfortable digesting Excel spreadsheets. Serageldin, who joined Credit Suisse’s information-technology department right out of Yale in 1994, was assigned the late-night job of “cracking tapes” — transferring magnetic tape reels of data, decoding them and running analyses. Senior bankers quickly identified his talent and brought him over to the moneymaking side, where he was soon working in the bank’s catastrophe-bonds business, or securities that transfer the risk of earthquakes and hurricanes from seller to investor. It required mastering geology, fault lines and property-damage projections. In order to achieve the kind of informational advantages that Wall Street requires to make money, Serageldin had to put the statistical runs on a personal computer, waking up in the middle of the night for days at a time to reset it. By 2007, he oversaw about 70 people and generated $1.3 billion in trading revenue.
Serageldin’s group made so much money that some colleagues believed his bosses gave him a pass on risk controls. But by disposition, and by practice, he was anything but a swashbuckler. When the value of mortgage securities began to crater, on what became known as the Valentine’s Day Massacre of February 2007, most traders kept trading, pumping out securities, boosting their personal earnings while endangering — and in some cases destroying — their institutions. Serageldin, however, began ordering his traders to get out of their riskiest positions. The bank’s head of fixed income at the time, James Healy, would later note that Serageldin’s decisions “took courage and personal conviction, in the face of immense pressure” from the sales force.
Yet Serageldin’s caution failed him in one crucial moment. Later that summer, traders in one of his portfolios began to avoid taking the necessary losses on their mortgage-backed securities. Traders are required to hold securities at their current value, known as marking to market, determining how much the portfolio made or lost that day. At one desperate point, one of Serageldin’s traders approached a friend at a small regional bank to give him a so-called independent price that happened to be nearly identical to the prices in the portfolio, enabling them to conceal the size of the losses. In early December, that spreadsheet tallying the losses made its way to Serageldin, who would later admit to recognizing that the prices should have been lower. He had assumed the positions were hedged, a friend of his told me, but instead of saying anything, he tried to protect his reputation. By early 2008, he was out at Credit Suisse. The bank reported him to the U.S. attorney’s office in the Southern District of New York.
In a matter of months, the markets plummeted in a financial crisis that made Enron look like small-time pilfering. And as tens of millions of Americans lost their jobs or homes, an inchoate but palpable demand for justice — for a crackdown — emerged. Breuer may have come with the right pedigree, but he now faced troubles that hurt as much as the debacles of Arthur Andersen and KPMG, or the retreat from the Thompson memo: austerity. The department faced periodic hiring freezes. The F.B.I., which assigned dozens of agents to Enron, had shifted resources to terrorism. The Postal Service wound down an elite unit that had specialized in complex financial investigations. President Obama’s Fraud Enforcement and Recovery Act, which was designed to give hundreds of millions to prosecute financial criminals, was able to deliver only $65 million in 2010 and 2011. Prosecutors reporting to Breuer proposed setting up a mortgage-fraud initiative, a “Prosecutorial Strike Force,” as one July 2009 memo put it, but the Justice Department dithered. Finally it set up the Financial Fraud Enforcement Task Force, an enormous coordinating committee with essentially no investigative operation. One former Justice Department official derided it as “the turtle.”
Resources aside, the erosion of the department’s actual trial skills would soon become apparent. In November 2009, the U.S. attorney’s office in Brooklyn lost the first criminal case of the crisis against two Bear Stearns executives accused of misleading investors. The prosecutors rushed into trial, failing to prepare for the exculpatory emails uncovered by the defense team. After two days, the jury acquitted the two money managers. “For sure,” one former federal prosecutor told me, “it put a chill” on investigations. “Politicos care about winning and losing.”
The fear first wrought by the Andersen case, meanwhile, ossified around financial firms. In early 2009, the Obama administration deliberated over serious tax misconduct by UBS, the Swiss bank, but top Treasury and Justice department officials worried about the effects criminal charges could have on the financial system. UBS settled with the government. Breuer had another shot, in 2012, when the department was moving toward a resolution of a six-year investigation into HSBC, which had become the preferred bank for Mexican and Colombian drug cartels and conducted transactions with countries under American sanctions, including Iran and Libya. Breuer surveyed Washington and London regulators and policy hands and sought assurance that the system could weather an indictment. A top Treasury Department official told Breuer, in carefully couched language, that an indictment could cause broader problems in the financial system. Breuer even went as far as discussing whether banks were too big to indict with H. Rodgin Cohen, a partner at Sullivan & Cromwell, who was representing HSBC in his very own case. Cohen told Breuer that while the Justice Department can’t have a rule not to indict a large bank, prosecutors should, well, take into account how the target has cooperated and what changes it has made to fix the problems. Of course, HSBC happened to have taken those very measures. The Justice Department blinked again. That December, the bank was fined $650 million and forfeited almost $1.3 billion in profits. No one went to jail.
It would be easy to blame the Justice Department’s ineptitude on past mistakes alone. But again, the very ambitions of its prosecutors played a prominent role. Top governmental lawyers generally don’t want to spend their entire careers in the public sector. Many want to score marquee victories and avoid mistakes and eventually leave for prominent corporate firms with starting salaries at 10 times what they make at the Department of Justice. According to numerous former criminal-division employees, Breuer almost immediately signaled his interest in bigger things. In October 2009, Steven Fagell, his deputy chief of staff and former Covington colleague, sent an email to the division. “Do you like giving toasts? Do you think it should have been you accepting the writing Emmy for ‘30 Rock?’ ” Fagell wrote. “If so, we need your wit, smarts and gift for the written word! We’re putting together a speechwriting team for the assistant attorney general.” Prosecutors developing cases against Mexican drug cartels and Al Qaeda members found it more than a little tone deaf. (Fagell says the email request was intended “both to foster internal morale and to send a message of deterrence to the public.”)
According to numerous sources from the Justice Department, the Breu Crew instilled a careerist culture that was fearful of sullying its reputation by losing cases. Kathy Ruemmler, who worked on the Enron task force and later became Obama’s counsel, would needle Breuer: “How many cases are you dismissing this week?” Later Ruemmler was upset when the Justice Department decided against retrying a case against Merrill Lynch executives who helped Enron boost its earnings with an infamous transaction involving a Nigerian barge. (Breuer was recused from the barge case.) A former prosecutor at the Justice Department in Washington concurred that Breuer’s staff didn’t “want to pursue cases where they feel the person is 100 percent guilty but they are only 70 percent sure they can win at trial.” Prosecutors contrasted that with previous eras, some fondly recalling a line favored by James Comey, who served as one of George W. Bush’s deputy attorneys general and emphasized the need for “real-time” white-collar prosecutions. “We have a name for prosecutors who have never lost — the ‘Chicken(expletive) Club.’ ” (In a statement, Breuer said he had a strong record of white-collar enforcement: “Where there were cases to bring, we brought them, and where there were not, we took a pass.”)
But given that Washington rejected a unified national task force, these career motivations would prove particularly relevant. When Preet Bharara, former chief counsel for Senator Charles E. Schumer, arrived in the Southern District of New York in 2009, he had a decision to make. There were cases arising from the financial crisis, which could take years to investigate and, after all that, never make it to a jury. Or there were insider-trading cases, which were far more straightforward. Someone improperly learns nonpublic details about a company and makes a killing on the stock market. “You do have a tough choice,” one former Southern District prosecutor says. “Am I going to chase after crimes I don’t know were committed and don’t know who by, or do we go after crimes we do know were committed and by whom?”
Bharara focused on insider trading, and his office has amassed a stunning 80-0 record of prosecutions, locking up the hedge-fund titan Raj Rajaratnam and Rajat Gupta, the former managing director of McKinsey & Company and a director at Goldman Sachs. They took down eight former employees of Steven A. Cohen’s notorious SAC Capital hedge fund. (Notably, however, they haven’t been able to bring charges against the man himself.) Time magazine put Bharara on its cover, with the bold headline: “This Man Is Busting Wall Street.” Yet Bharara didn’t touch Wall Street’s real players — top bankers. The former prosecutor was almost sheepish about the insider-trading cases when I spoke to him: “They made our careers, but they don’t change the world.” In fact, several former prosecutors in the office told me that going after bankers was never a real priority. “The government failed,” another former prosecutor said. “We didn’t do what we needed to do.”
As a result, Bharara and his team neglected seemingly winnable cases in their own backyard, including one particularly big one. After Lehman imploded, the Justice Department’s Washington headquarters split responsibility investigating what the bank’s executives knew among three U.S. attorney’s offices: the Southern and Eastern districts of New York and the New Jersey operation. But for all of that manpower, to those closest to the Lehman probe, the government’s case was seemingly conducted by one lawyer, Bonnie Jonas, an assistant U.S. attorney for the Southern District. She would make pilgrimages to the offices of Jenner & Block, a prestigious law firm that had been assigned to investigate the Lehman bankruptcy. Jonas would pore over the 40 million-odd pages of Lehman documents the firm assembled. (The Southern District says it devoted multiple people and ample resources to the investigation.)
Nonetheless, the Justice Department never aggressively pursued what may have been the most promising angle. On Sept. 10, 2008, the chief financial officer of Lehman Brothers, Ian Lowitt, told shareholders and the public that the bank had $42 billion of available cash, or liquidity. The bank’s position, Lowitt reassured, “remains very strong.” Lehman would file for bankruptcy five days later. “What they were saying was not just wrong but materially wrong,” Robert Byman, a Jenner & Block partner, told me.
Over 14 months, Jenner & Block would put about 130 lawyers on the case to prepare a report on the collapse. At one point, recalls Stephen Ascher, a partner, one of them discovered “this wonderful chart” breaking down the liquidity figure into three categories: high, moderate and low. Of those billions, $15 billion was in the “low” category, generally because it had been pledged as collateral to other banks. One former Lehman executive told me that several other company managers understood that they could not tap much, if any, of that encumbered money. And at least two executives objected to how the bank was representing its liquidity, including its international treasurer, Carlo Pellerani, according to the Jenner & Block report. The law firm found that regulators, credit-rating agencies and Lehman’s outside lawyer had no idea that the liquidity pool wasn’t, in fact, all that liquid. When Lowitt came to talk to Jenner & Block, he explained that he had not fully understood the issues when he assured investors of its liquid assets. That may be a reasonable defense, but it does not appear that prosecutors and federal investigators made a serious attempt to test how much Lehman’s chief financial officer knew about his own books. Three Lehman executives and one regulator at the Federal Reserve, all of whom were involved in the bank’s desperate attempts to keep itself liquid, told me they were never even interviewed by any federal-government officials.
When Wall Street bankers are arrested, they often do what is known in finance as an expected-value analysis: They weigh the cost of fighting, how long it would take and the chances of the best and worst outcomes. Serageldin was a Wall Street banker with a foreign name who helped make securities that played a role in blowing up the global economy. He seemed to reach a logical conclusion: Plead guilty and take his chances with a judge’s sentence. Other bankers made the opposite choice. After ignoring the risks of the housing and credit bubbles, they took the high-risk-high-reward gamble again, hiring top lawyers and claiming that they never intended to deceive. As it turned out, they benefited from a decade of subtle changes that favored corporate executives under investigation. Serageldin took the sucker’s bet. Prosecutors simply got their man by default.
In his first months in prison, Serageldin has tried to remain upbeat. The investment-banking monk is now spending his nights in a basketball-court-size room with about 70 others. If the problem sets don’t occupy him, he is allowed five books at a time. After explaining that he had lived abroad, Serageldin became known as London. The extent of his crime, meanwhile, has been revised. Initially prosecutors implied that the trader had been part of a conspiracy to hide $540 million worth of losses. By the time he was sentenced, the government was down to accusing him of conspiring to hide about $100 million. An internal Credit Suisse analysis put the misstatement at $37 million. “There’s not a moment’s doubt on my part” that such mismarking happened elsewhere during the crisis, Fiachra O’Driscoll, a friend and former colleague of Serageldin’s, who has been an expert witness in private litigation, told me. “I have seen evidence along the way that similar things happened dozens of times.”
Federal prosecutors have their own explanation for how only one Wall Street executive landed in jail in the wake of the financial crisis. The cases were complex to investigate and would have been infernally difficult to explain to juries, some told me. Much of the crisis and banker transgressions stemmed from recklessness, not criminality. They also suggest that deferred prosecutions — with their billions in settlements and additional oversights — can be stricter punishments than indictments. Still, while the Department of Justice has not been without its successes — it won a guilty plea from BP in the Deepwater Horizon spill, and it’s currently going after traders in the wake of the JPMorgan Chase London Whale trading loss — these remain exceptions even beyond the financial sector. Federal prosecutors almost never bring criminal charges against top executives of large corporations, from banking to pharmaceuticals to technology. In March, the Justice Department entered into a deferred prosecution against Toyota but did not indict the company or any top executives. As the economy limps back from the Great Recession, compensation has recovered, corporate profits are at record levels and executives see that few, if any, of their peers ever go to prison anymore. Perhaps one reason Americans have come to begrudge the wealthy is a resentment of their culture of impunity.
Larry Thompson became known for his memo, but back in the Clinton administration, the deputy attorney general Eric Holder laid out his own memo for strengthening corporate prosecutions. But he undermined his own words by also explaining that prosecutors needed to take into account the collateral economic consequences. In testimony in front of the Senate in March, Holder, who is now the U.S. attorney general, seemed to lament the position government enforcers had found themselves in. “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy.” Holder quickly walked back the remarks. Soon after, Lanny Breuer returned to Covington & Burling as a vice chairman.
Source: New York Times
Serageldin’s life was about to become more ascetic. Two months earlier, he sat in a Lower Manhattan courtroom adjusting and readjusting his tie as he waited for a judge to deliver his prison sentence. During the worst of the financial crisis, according to prosecutors, Serageldin had approved the concealment of hundreds of millions in losses in Credit Suisse’s mortgage-backed securities portfolio. But on that November morning, the judge seemed almost torn. Serageldin lied about the value of his bank’s securities — that was a crime, of course — but other bankers behaved far worse. Serageldin’s former employer, for one, had revised its past financial statements to account for $2.7 billion that should have been reported. Lehman Brothers, AIG, Citigroup, Countrywide and many others had also admitted that they were in much worse shape than they initially allowed. Merrill Lynch, in particular, announced a loss of nearly $8 billion three weeks after claiming it was $4.5 billion. Serageldin’s conduct was, in the judge’s words, “a small piece of an overall evil climate within the bank and with many other banks.” Nevertheless, after a brief pause, he eased down his gavel and sentenced Serageldin, an Egyptian-born trader who grew up in the barren pinelands of Michigan’s Upper Peninsula, to 30 months in jail. Serageldin would begin serving his time at Moshannon Valley Correctional Center, in Philipsburg, where he would earn the distinction of being the only Wall Street executive sent to jail for his part in the financial crisis.
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American financial history has generally unfolded as a series of booms followed by busts followed by crackdowns. After the crash of 1929, the Pecora Hearings seized upon public outrage, and the head of the New York Stock Exchange landed in prison. After the savings-and-loan scandals of the 1980s, 1,100 people were prosecuted, including top executives at many of the largest failed banks. In the ’90s and early aughts, when the bursting of the Nasdaq bubble revealed widespread corporate accounting scandals, top executives from WorldCom, Enron, Qwest and Tyco, among others, went to prison.
The credit crisis of 2008 dwarfed those busts, and it was only to be expected that a similar round of crackdowns would ensue. In 2009, the Obama administration appointed Lanny Breuer to lead the Justice Department’s criminal division. Breuer quickly focused on professionalizing the operation, introducing the rigor of a prestigious firm like Covington & Burling, where he had spent much of his career. He recruited elite lawyers from corporate firms and the Breu Crew, as they would later be known, were repeatedly urged by Breuer to “take it to the next level.”
But the crackdown never happened. Over the past year, I’ve interviewed Wall Street traders, bank executives, defense lawyers and dozens of current and former prosecutors to understand why the largest man-made economic catastrophe since the Depression resulted in the jailing of a single investment banker — one who happened to be several rungs from the corporate suite at a second-tier financial institution. Many assume that the federal authorities simply lacked the guts to go after powerful Wall Street bankers, but that obscures a far more complicated dynamic. During the past decade, the Justice Department suffered a series of corporate prosecutorial fiascos, which led to critical changes in how it approached white-collar crime. The department began to focus on reaching settlements rather than seeking prison sentences, which over time unintentionally deprived its ranks of the experience needed to win trials against the most formidable law firms. By the time Serageldin committed his crime, Justice Department leadership, as well as prosecutors in integral United States attorney’s offices, were de-emphasizing complicated financial cases — even neglecting clues that suggested that Lehman executives knew more than they were letting on about their bank’s liquidity problem. In the mid-’90s, white-collar prosecutions represented an average of 17.6 percent of all federal cases. In the three years ending in 2012, the share was 9.4 percent.
After the evening drive to Philipsburg, Serageldin checked into a motel. He didn’t need to report to Moshannon Valley until 2 p.m. the next day, but he was advised to show up early to get a head start on his processing. Moshannon is a low-security facility, with controlled prisoner movements, a bit tougher than the one portrayed on “Orange Is the New Black.” Friends of Serageldin’s worried about the violence; he was counseled to keep his head down and never change the channel on the TV no matter who seemed to be watching. Serageldin, who is tall and thin with a regal bearing, was largely preoccupied with how, after a decade of 18-hour trading days, he would pass the time. He was planning on doing math-problem sets and studying economics. He had delayed marrying his longtime girlfriend, a private-equity executive in London, but the plan was for her to visit him frequently.
Other bankers have spoken out about feeling unfairly maligned by the financial crisis, pegged as “banksters” by politicians and commentators. But Serageldin was contrite. “I don’t feel angry,” he told me in early winter. “I made a mistake. I take responsibility. I’m ready to pay my debt to society.” Still, the fact that the only top banker to go to jail for his role in the crisis was neither a mortgage executive (who created toxic products) nor the C.E.O. of a bank (who peddled them) is something of a paradox, but it’s one that reflects the many paradoxes that got us here in the first place.
Part of the Justice Department’s futility can be traced to the rise of its own ambition. Until the 1980s, government prosecutors generally focused on going after individual corporate criminals. But after watching their fellow prosecutors successfully take down entire mafia families, like the Gambino and Bonanno clans, many felt that they should also be going after more high-profile convictions and that the best way to root out corruption was to take on the whole organization. A long-ignored Supreme Court ruling, from 1909, conveniently opened the door for criminal charges against entire corporations. And in 2001, Michael Chertoff, George W. Bush’s new criminal division chief, arrived at the Justice Department ready to put it to use.
Chertoff, who worked at the U.S. Attorney’s office under Rudolph W. Giuliani, the godfather of the Wall Street perp walk, seemed like just the guy to jump-start the initiative — and he arrived at an opportune moment. Prosecutors were beginning their investigation of Enron and probe into Arthur Andersen, the accounting firm that had blessed the energy-trading giant’s phony balance sheets and shredded documents shortly after it detonated. Early in his tenure, Chertoff found himself sitting in a conference room at Justice Department headquarters on Pennsylvania Avenue, listening with growing irritation as lawyers for Arthur Andersen tried to dispose of the Enron case with yet another settlement. The company previously oversaw the fraudulent books of Waste Management and Sunbeam, and it dealt with those previous scrapes by reaching settlements and a consent decree with regulators, vowing never to commit such a crime again. For its Waste Management infractions, the firm paid $7 million. Then, it was the largest civil penalty ever paid.
Andersen was expecting the same kind of wrist-slap. As Chertoff recalls, one high-ranking executive noted brazenly that such settlements were merely “a cost of doing business” — the routine surcharges applied to the nation’s largest corporations. That comment enraged Chertoff, and soon after, his prosecutors indicted the firm. “Destroy documents?” he told me. “It’s hard to view that as a stumble outside of its core business.” In June 2002, Arthur Andersen was convicted by a jury, and within months, the firm closed down, costing tens of thousands of people their jobs.
The Andersen case was supposed to embolden the Justice Department, but it quickly backfired. Chertoff’s chutzpah shocked much of the corporate world and even many prosecutors, who thought the department had abused its powers at the cost of thousands of innocent workers. Almost immediately, the Andersen verdict resulted not in more boldness but in more caution on the part of federal prosecutors, including Chertoff himself. In 2003, his investigators were digging into questionable off-balance-sheet deals between the Pittsburgh-based PNC Bank and AIG Financial Products. They contemplated indicting the bank, which spurred Herbert Biern, at the time a top banking-supervision official at the Fed, to demand a meeting with Chertoff to warn him against it. Chertoff told Biern, according to attendees, that if the Justice Department “can’t bring these cases because it may bring harm, then maybe these banks are too big.” In the end, though, Chertoff and the Justice Department blinked. They didn’t indict, and PNC entered into a deferred prosecution agreement. No bank executives were prosecuted. Two years later, the Supreme Court overturned the Arthur Andersen conviction.
From 2004 to 2012, the Justice Department reached 242 deferred and nonprosecution agreements with corporations, compared with 26 in the previous 12 years, according to a study by David M. Uhlmann, a former prosecutor and law professor at the University of Michigan. And while companies paid large sums in the settlements — the days of $7 million cost-of-doing-business fees were over — several veteran Justice Department officials told me that these settlements emboldened defense lawyers. More crucial, they allowed the Justice Department’s lawyers to “succeed” without learning how to develop important prosecutorial skills. Investigations of individuals are more time-consuming and require a different approach than those of a corporation. Indeed, the department now effectively outsources many of its investigations of corporate executives to outside firms, which invariably produce reports that exculpate those at the top. Jed Rakoff, the U.S. District Court judge and former federal prosecutor who has become the most prominent legal critic of the Justice Department, explained the process to me this way: “The report says: ‘Mistakes were made. We are here to take our lumps’ ” — in other words, settlements and, if the transgressions are particularly bad, further oversight. “Lost in that whole thing,” Rakoff said, “was anyone trying to investigate whether the individuals did something wrong.”
The Bush administration may have earned a reputation as being friendly to business interests, but it wasn’t always that way. Around the time of the Andersen investigation, Larry Thompson, the deputy attorney general, was summoned to the White House to defend his department. He and Robert Mueller, the director of the F.B.I., met with the president in the Roosevelt Room of the White House, where they decided not to present legal theory but to show evidence that prosecutors had amassed in matters like the Enron case, demonstrating that executives had made up numbers and lied to the public. Bush seemed stunned. He turned to Mueller and Thompson and said, “Bobby and L.T., continue what you are doing.”
If Chertoff had signaled a green light for going after entire companies, Thompson drafted a memo in 2003 that offered a post-Andersen playbook that went right at the heart of how large corporations protected themselves. For years, big businesses, like tobacco companies, shielded questionable conduct by invoking attorney-client privilege, which could render details of troubling executive dealings inadmissible in court. If a company came under federal scrutiny, it typically paid its executives’ legal bills, hiring some of the nation’s best firms, those who could slow or derail any inquiries. And when multiple executives fell under suspicion, their lawyers would often sign joint defense agreements allowing them to share with one another what they learned about the feds’ case.
Thompson’s memo declared that prosecutors could, in essence, offer a deal, but it wasn’t a very generous one. Companies could win Brownie points for being cooperative only if they eschewed privileges like joint defense agreements. Almost immediately, members of the white-collar bar asserted that this overreach eroded a fundamental right, but they didn’t have to argue incessantly; once again, the Justice Department’s ambition backfired. In the summer of 2006, the government’s once-promising prosecution of executives from KPMG, an accounting and consulting firm suspected of selling illegal tax shelters to wealthy clients, started going bad. (The U.S. attorney’s office in Manhattan felt so confident that it indicted 17 KPMG executives.) The case fell apart when the judge ruled that those prosecutors had violated constitutional rights by pressuring the firm to waive attorney-client privilege and stop paying employees’ legal fees; the government’s zeal, he noted, had gotten “in the way of its judgment.” With the “greatest reluctance,” he threw out the cases against 13 of the executives. (Two others were convicted.)
Soon after, the counteroffensive to the Justice Department’s overreach peaked, led by the white-collar bar and corporate lobbies and aided by The Wall Street Journal’s editorial page, the U.S. Chamber of Commerce and even the American Civil Liberties Union. Senator Patrick Leahy, Democrat of Vermont, contended that the department was abusing corporations; his colleague Arlen Specter, then a Republican from Pennsylvania, readied a bill to prevent the Justice Department from receiving attorney-client privilege waivers. To cut that off, Paul McNulty, the deputy attorney general, released a revised set of rules stating, among other things, that no federal prosecutor could ask a company to waive attorney-client privilege without permission from higher-ups.
Over the years, the KPMG debacle and the corporate revolt would lead the Justice Department to roll back the Thompson memo to nearly the point of reversal. Today prosecutors are prohibited from even asking companies to waive their attorney-client privilege. They are also prohibited from pushing a company to cut off the legal fees for indicted executives or pressuring it to forgo joint defense agreements. “It was very much a game-changer in the business of investigating and defending in those cases,” says Michael Bromwich, a top white-collar lawyer and former inspector general of the Department of Justice.
In the decade since, the courts dulled other prosecutorial tools. A Supreme Court ruling allowed sentences to be set below previously determined mandatory minimums (which made executives less likely to “flip”). Another narrowed an often-used legal theory that said employees were guilty of fraud if they deprived their companies of “honest services” (which helped nab Enron’s former C.E.O., Jeffrey Skilling, among others). No change was momentous on its own — and some may have legitimately restored the rights of defendants — but taken together they marked a significant, if almost unnoted, shift toward the defense. After Lanny Breuer entered the Department of Justice, he testified in front of Congress to restore the honest-services charge for corrupt government officials. But he didn’t even try to broach the topic of a private-sector fix.
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Life on Wall Street is often portrayed as hours of kinetic fury with billions on the line, but the work is more often suited to wonks who are comfortable digesting Excel spreadsheets. Serageldin, who joined Credit Suisse’s information-technology department right out of Yale in 1994, was assigned the late-night job of “cracking tapes” — transferring magnetic tape reels of data, decoding them and running analyses. Senior bankers quickly identified his talent and brought him over to the moneymaking side, where he was soon working in the bank’s catastrophe-bonds business, or securities that transfer the risk of earthquakes and hurricanes from seller to investor. It required mastering geology, fault lines and property-damage projections. In order to achieve the kind of informational advantages that Wall Street requires to make money, Serageldin had to put the statistical runs on a personal computer, waking up in the middle of the night for days at a time to reset it. By 2007, he oversaw about 70 people and generated $1.3 billion in trading revenue.
Serageldin’s group made so much money that some colleagues believed his bosses gave him a pass on risk controls. But by disposition, and by practice, he was anything but a swashbuckler. When the value of mortgage securities began to crater, on what became known as the Valentine’s Day Massacre of February 2007, most traders kept trading, pumping out securities, boosting their personal earnings while endangering — and in some cases destroying — their institutions. Serageldin, however, began ordering his traders to get out of their riskiest positions. The bank’s head of fixed income at the time, James Healy, would later note that Serageldin’s decisions “took courage and personal conviction, in the face of immense pressure” from the sales force.
Yet Serageldin’s caution failed him in one crucial moment. Later that summer, traders in one of his portfolios began to avoid taking the necessary losses on their mortgage-backed securities. Traders are required to hold securities at their current value, known as marking to market, determining how much the portfolio made or lost that day. At one desperate point, one of Serageldin’s traders approached a friend at a small regional bank to give him a so-called independent price that happened to be nearly identical to the prices in the portfolio, enabling them to conceal the size of the losses. In early December, that spreadsheet tallying the losses made its way to Serageldin, who would later admit to recognizing that the prices should have been lower. He had assumed the positions were hedged, a friend of his told me, but instead of saying anything, he tried to protect his reputation. By early 2008, he was out at Credit Suisse. The bank reported him to the U.S. attorney’s office in the Southern District of New York.
In a matter of months, the markets plummeted in a financial crisis that made Enron look like small-time pilfering. And as tens of millions of Americans lost their jobs or homes, an inchoate but palpable demand for justice — for a crackdown — emerged. Breuer may have come with the right pedigree, but he now faced troubles that hurt as much as the debacles of Arthur Andersen and KPMG, or the retreat from the Thompson memo: austerity. The department faced periodic hiring freezes. The F.B.I., which assigned dozens of agents to Enron, had shifted resources to terrorism. The Postal Service wound down an elite unit that had specialized in complex financial investigations. President Obama’s Fraud Enforcement and Recovery Act, which was designed to give hundreds of millions to prosecute financial criminals, was able to deliver only $65 million in 2010 and 2011. Prosecutors reporting to Breuer proposed setting up a mortgage-fraud initiative, a “Prosecutorial Strike Force,” as one July 2009 memo put it, but the Justice Department dithered. Finally it set up the Financial Fraud Enforcement Task Force, an enormous coordinating committee with essentially no investigative operation. One former Justice Department official derided it as “the turtle.”
Resources aside, the erosion of the department’s actual trial skills would soon become apparent. In November 2009, the U.S. attorney’s office in Brooklyn lost the first criminal case of the crisis against two Bear Stearns executives accused of misleading investors. The prosecutors rushed into trial, failing to prepare for the exculpatory emails uncovered by the defense team. After two days, the jury acquitted the two money managers. “For sure,” one former federal prosecutor told me, “it put a chill” on investigations. “Politicos care about winning and losing.”
The fear first wrought by the Andersen case, meanwhile, ossified around financial firms. In early 2009, the Obama administration deliberated over serious tax misconduct by UBS, the Swiss bank, but top Treasury and Justice department officials worried about the effects criminal charges could have on the financial system. UBS settled with the government. Breuer had another shot, in 2012, when the department was moving toward a resolution of a six-year investigation into HSBC, which had become the preferred bank for Mexican and Colombian drug cartels and conducted transactions with countries under American sanctions, including Iran and Libya. Breuer surveyed Washington and London regulators and policy hands and sought assurance that the system could weather an indictment. A top Treasury Department official told Breuer, in carefully couched language, that an indictment could cause broader problems in the financial system. Breuer even went as far as discussing whether banks were too big to indict with H. Rodgin Cohen, a partner at Sullivan & Cromwell, who was representing HSBC in his very own case. Cohen told Breuer that while the Justice Department can’t have a rule not to indict a large bank, prosecutors should, well, take into account how the target has cooperated and what changes it has made to fix the problems. Of course, HSBC happened to have taken those very measures. The Justice Department blinked again. That December, the bank was fined $650 million and forfeited almost $1.3 billion in profits. No one went to jail.
It would be easy to blame the Justice Department’s ineptitude on past mistakes alone. But again, the very ambitions of its prosecutors played a prominent role. Top governmental lawyers generally don’t want to spend their entire careers in the public sector. Many want to score marquee victories and avoid mistakes and eventually leave for prominent corporate firms with starting salaries at 10 times what they make at the Department of Justice. According to numerous former criminal-division employees, Breuer almost immediately signaled his interest in bigger things. In October 2009, Steven Fagell, his deputy chief of staff and former Covington colleague, sent an email to the division. “Do you like giving toasts? Do you think it should have been you accepting the writing Emmy for ‘30 Rock?’ ” Fagell wrote. “If so, we need your wit, smarts and gift for the written word! We’re putting together a speechwriting team for the assistant attorney general.” Prosecutors developing cases against Mexican drug cartels and Al Qaeda members found it more than a little tone deaf. (Fagell says the email request was intended “both to foster internal morale and to send a message of deterrence to the public.”)
According to numerous sources from the Justice Department, the Breu Crew instilled a careerist culture that was fearful of sullying its reputation by losing cases. Kathy Ruemmler, who worked on the Enron task force and later became Obama’s counsel, would needle Breuer: “How many cases are you dismissing this week?” Later Ruemmler was upset when the Justice Department decided against retrying a case against Merrill Lynch executives who helped Enron boost its earnings with an infamous transaction involving a Nigerian barge. (Breuer was recused from the barge case.) A former prosecutor at the Justice Department in Washington concurred that Breuer’s staff didn’t “want to pursue cases where they feel the person is 100 percent guilty but they are only 70 percent sure they can win at trial.” Prosecutors contrasted that with previous eras, some fondly recalling a line favored by James Comey, who served as one of George W. Bush’s deputy attorneys general and emphasized the need for “real-time” white-collar prosecutions. “We have a name for prosecutors who have never lost — the ‘Chicken(expletive) Club.’ ” (In a statement, Breuer said he had a strong record of white-collar enforcement: “Where there were cases to bring, we brought them, and where there were not, we took a pass.”)
But given that Washington rejected a unified national task force, these career motivations would prove particularly relevant. When Preet Bharara, former chief counsel for Senator Charles E. Schumer, arrived in the Southern District of New York in 2009, he had a decision to make. There were cases arising from the financial crisis, which could take years to investigate and, after all that, never make it to a jury. Or there were insider-trading cases, which were far more straightforward. Someone improperly learns nonpublic details about a company and makes a killing on the stock market. “You do have a tough choice,” one former Southern District prosecutor says. “Am I going to chase after crimes I don’t know were committed and don’t know who by, or do we go after crimes we do know were committed and by whom?”
Bharara focused on insider trading, and his office has amassed a stunning 80-0 record of prosecutions, locking up the hedge-fund titan Raj Rajaratnam and Rajat Gupta, the former managing director of McKinsey & Company and a director at Goldman Sachs. They took down eight former employees of Steven A. Cohen’s notorious SAC Capital hedge fund. (Notably, however, they haven’t been able to bring charges against the man himself.) Time magazine put Bharara on its cover, with the bold headline: “This Man Is Busting Wall Street.” Yet Bharara didn’t touch Wall Street’s real players — top bankers. The former prosecutor was almost sheepish about the insider-trading cases when I spoke to him: “They made our careers, but they don’t change the world.” In fact, several former prosecutors in the office told me that going after bankers was never a real priority. “The government failed,” another former prosecutor said. “We didn’t do what we needed to do.”
As a result, Bharara and his team neglected seemingly winnable cases in their own backyard, including one particularly big one. After Lehman imploded, the Justice Department’s Washington headquarters split responsibility investigating what the bank’s executives knew among three U.S. attorney’s offices: the Southern and Eastern districts of New York and the New Jersey operation. But for all of that manpower, to those closest to the Lehman probe, the government’s case was seemingly conducted by one lawyer, Bonnie Jonas, an assistant U.S. attorney for the Southern District. She would make pilgrimages to the offices of Jenner & Block, a prestigious law firm that had been assigned to investigate the Lehman bankruptcy. Jonas would pore over the 40 million-odd pages of Lehman documents the firm assembled. (The Southern District says it devoted multiple people and ample resources to the investigation.)
Nonetheless, the Justice Department never aggressively pursued what may have been the most promising angle. On Sept. 10, 2008, the chief financial officer of Lehman Brothers, Ian Lowitt, told shareholders and the public that the bank had $42 billion of available cash, or liquidity. The bank’s position, Lowitt reassured, “remains very strong.” Lehman would file for bankruptcy five days later. “What they were saying was not just wrong but materially wrong,” Robert Byman, a Jenner & Block partner, told me.
Over 14 months, Jenner & Block would put about 130 lawyers on the case to prepare a report on the collapse. At one point, recalls Stephen Ascher, a partner, one of them discovered “this wonderful chart” breaking down the liquidity figure into three categories: high, moderate and low. Of those billions, $15 billion was in the “low” category, generally because it had been pledged as collateral to other banks. One former Lehman executive told me that several other company managers understood that they could not tap much, if any, of that encumbered money. And at least two executives objected to how the bank was representing its liquidity, including its international treasurer, Carlo Pellerani, according to the Jenner & Block report. The law firm found that regulators, credit-rating agencies and Lehman’s outside lawyer had no idea that the liquidity pool wasn’t, in fact, all that liquid. When Lowitt came to talk to Jenner & Block, he explained that he had not fully understood the issues when he assured investors of its liquid assets. That may be a reasonable defense, but it does not appear that prosecutors and federal investigators made a serious attempt to test how much Lehman’s chief financial officer knew about his own books. Three Lehman executives and one regulator at the Federal Reserve, all of whom were involved in the bank’s desperate attempts to keep itself liquid, told me they were never even interviewed by any federal-government officials.
When Wall Street bankers are arrested, they often do what is known in finance as an expected-value analysis: They weigh the cost of fighting, how long it would take and the chances of the best and worst outcomes. Serageldin was a Wall Street banker with a foreign name who helped make securities that played a role in blowing up the global economy. He seemed to reach a logical conclusion: Plead guilty and take his chances with a judge’s sentence. Other bankers made the opposite choice. After ignoring the risks of the housing and credit bubbles, they took the high-risk-high-reward gamble again, hiring top lawyers and claiming that they never intended to deceive. As it turned out, they benefited from a decade of subtle changes that favored corporate executives under investigation. Serageldin took the sucker’s bet. Prosecutors simply got their man by default.
In his first months in prison, Serageldin has tried to remain upbeat. The investment-banking monk is now spending his nights in a basketball-court-size room with about 70 others. If the problem sets don’t occupy him, he is allowed five books at a time. After explaining that he had lived abroad, Serageldin became known as London. The extent of his crime, meanwhile, has been revised. Initially prosecutors implied that the trader had been part of a conspiracy to hide $540 million worth of losses. By the time he was sentenced, the government was down to accusing him of conspiring to hide about $100 million. An internal Credit Suisse analysis put the misstatement at $37 million. “There’s not a moment’s doubt on my part” that such mismarking happened elsewhere during the crisis, Fiachra O’Driscoll, a friend and former colleague of Serageldin’s, who has been an expert witness in private litigation, told me. “I have seen evidence along the way that similar things happened dozens of times.”
Federal prosecutors have their own explanation for how only one Wall Street executive landed in jail in the wake of the financial crisis. The cases were complex to investigate and would have been infernally difficult to explain to juries, some told me. Much of the crisis and banker transgressions stemmed from recklessness, not criminality. They also suggest that deferred prosecutions — with their billions in settlements and additional oversights — can be stricter punishments than indictments. Still, while the Department of Justice has not been without its successes — it won a guilty plea from BP in the Deepwater Horizon spill, and it’s currently going after traders in the wake of the JPMorgan Chase London Whale trading loss — these remain exceptions even beyond the financial sector. Federal prosecutors almost never bring criminal charges against top executives of large corporations, from banking to pharmaceuticals to technology. In March, the Justice Department entered into a deferred prosecution against Toyota but did not indict the company or any top executives. As the economy limps back from the Great Recession, compensation has recovered, corporate profits are at record levels and executives see that few, if any, of their peers ever go to prison anymore. Perhaps one reason Americans have come to begrudge the wealthy is a resentment of their culture of impunity.
Larry Thompson became known for his memo, but back in the Clinton administration, the deputy attorney general Eric Holder laid out his own memo for strengthening corporate prosecutions. But he undermined his own words by also explaining that prosecutors needed to take into account the collateral economic consequences. In testimony in front of the Senate in March, Holder, who is now the U.S. attorney general, seemed to lament the position government enforcers had found themselves in. “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy.” Holder quickly walked back the remarks. Soon after, Lanny Breuer returned to Covington & Burling as a vice chairman.
Source: New York Times
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
Tuesday, January 7, 2014
Africa Loses Billions in Potential Trade Earnings, Falls Short of Vast Promise in Cross-Border Business
Press Release No:2012/239/AFR
Washington, February 7, 2012 – With African leaders now calling for a continental free trade area by 2017 to boost trade within the continent, a new World Bank report shows how African countries are losing out on billions of dollars in potential trade earnings every year because of high trade barriers with neighboring countries, and that it is easier for Africa to trade with the rest of the world than with itself.
According to the new report―De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services―regional fragmentation could become even more costly for the continent with new World Bank forecasts suggesting that economic slowdown in the Eurozone could shave Africa’s growth by up to 1.3 percentage points this year. As the authors write, “while uncertainty surrounds the global economy and stagnation is likely to continue in traditional markets in Europe and North America, enormous opportunities for cross-border trade within Africa in food products, basic manufactures and services remain unexploited.”
The reports says this situation deprives the continent of new sources of economic growth, new jobs, and sharply falling poverty, factors which accompanied significant trade integration in East Asia and other regions. The cross-border production networks that have spurred economic dynamism in other regions, especially East Asia, have yet to materialize in Africa.
“It is clear that Africa is not reaching its potential for regional trade, despite the fact that its benefits are enormous—they create larger markets, help countries diversify their economies, reduce costs, improve productivity and help reduce poverty.” says Obiageli "Oby" Ezekwesili, The World Bank’s Vice President for Africa, and a former Nigerian Minister of Extractive Industries. “Yet trade and non-trade barriers remain significant and fall most heavily and disproportionately on poor traders, most of whom are women. African leaders must now back aspiration with action and work together to align the policies, institutions and investments needed to unblock these barriers and to create a dynamic regional market on a scale worthy of Africa’s one billion people and its roughly $2 trillion economy."
In a special World Bank video produced for the report, women traders on the border with the Democratic Republic of Congo (DRC) and neighboring countries in the Great Lakes region describe how they routinely encounter violence, threats, demands for bribes, and sexual harassment, at the hands of the large numbers of customs and other government officials at the border. As one egg and sugar trader from Goma says on the video: “I buy my eggs in Rwanda; as soon as I cross to Congo I give one egg to every official who asks me. Some days I give away more than 30 eggs!”
Barriers blunt trade in goods as well as services
The report says that until the onset of the financial crisis, most sub-Saharan African (SSA) countries grew rapidly and often at much higher rates than the world average. Economic growth in these countries was robust and driven by the boom in commodity prices, which led to very high growth in export values, especially for minerals, to new fast-growing markets such as India and China.
While exports have grown strongly over the last decade, and the region’s trade has recovered well from the global crisis, the impact on unemployment and poverty has been disappointing in many countries. Unemployment remains around 24 percent in South Africa. In Tanzania, extreme income-poverty appears to have remained broadly constant at around 35 percent of the population. This shows that export growth has typically been fueled by a small number of mineral and primary products with limited impacts on the wider economy and that formal sectors remain small in many countries.
As a result, the report suggests that Africa will have to diversify its exports from depending solely on precious metals and other commodities and encourage more people to trade goods and professional services in accounting, law, education, healthcare, among others. The region’s large number of young people also calls for significant numbers of new jobs, intensive trade, and growth.
“Imagine the benefits of allowing African doctors, nurses, teacher, engineers and lawyers to practice anywhere in the continent, but responsibility for making this happen lies with countries first and foremost,” says Marcelo Giugale, the World Bank’s Africa Director for Poverty Reduction and Economic Management. “The final prize is clear: helping Africans trade goods and services with each other. Few contributions carry more development power than that.”
Changes are needed in three areas
To escape the current straightjacket of trade fragmentation, the report says that African leaders, need to pursue changes in three key areas.
1. Improving cross-border trade, especially by small poor traders, many of whom are women, by simplifying border procedures, limiting the number of agencies at the border and increasing the professionalism of officials, supporting traders associations, improving the flow of information on market opportunities, and assisting in the spread of new technologies such as cross-border mobile banking that improve access to finance.
2. Removing a range of non-tariff barriers to trade, such as restrictive rules of origin, import and export bans, and onerous and costly import and export licensing procedures
3. Reforming regulations and immigration rules that limit the substantial potential for cross-border trade and investment in services.
In one notable example of trade barriers, report co-editors Paul Brenton and Gozde Isik of the World Bank describe how the South African supermarket chain Shoprite spends US$20,000 a week on import permits to distribute meat, milk, and plant-based goods to its stores in Zambia alone. For all countries it operates in, approximately 100 (single entry) import permits are applied for every week; this can rise up to 300 per week in peak periods. As a result of these and other requirements, there can be up to 1,600 documents accompanying each truck Shoprite sends with a load that crosses a border in the region.
As the co-editors write, “lack of coordination across government ministries and regulatory authorities also causes significant delays, particularly in authorizing trade for new products. Another South African retailer took three years to get permission to export processed beef and pork from South Africa to Zambia.”
How the World Bank supports regional integration
Trade and regional integration are core elements of the Bank’s new Africa strategy, launched in March 2011, to help countries create opportunities for their transformation and sustained growth. The Bank has doubled its investment in regional integration from US$2.1 billion in 2008 to US$4.2 billion in July 2011, and it will rise to $5.7 billion by July 2012.
Source: World Bank
Washington, February 7, 2012 – With African leaders now calling for a continental free trade area by 2017 to boost trade within the continent, a new World Bank report shows how African countries are losing out on billions of dollars in potential trade earnings every year because of high trade barriers with neighboring countries, and that it is easier for Africa to trade with the rest of the world than with itself.
According to the new report―De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services―regional fragmentation could become even more costly for the continent with new World Bank forecasts suggesting that economic slowdown in the Eurozone could shave Africa’s growth by up to 1.3 percentage points this year. As the authors write, “while uncertainty surrounds the global economy and stagnation is likely to continue in traditional markets in Europe and North America, enormous opportunities for cross-border trade within Africa in food products, basic manufactures and services remain unexploited.”
The reports says this situation deprives the continent of new sources of economic growth, new jobs, and sharply falling poverty, factors which accompanied significant trade integration in East Asia and other regions. The cross-border production networks that have spurred economic dynamism in other regions, especially East Asia, have yet to materialize in Africa.
“It is clear that Africa is not reaching its potential for regional trade, despite the fact that its benefits are enormous—they create larger markets, help countries diversify their economies, reduce costs, improve productivity and help reduce poverty.” says Obiageli "Oby" Ezekwesili, The World Bank’s Vice President for Africa, and a former Nigerian Minister of Extractive Industries. “Yet trade and non-trade barriers remain significant and fall most heavily and disproportionately on poor traders, most of whom are women. African leaders must now back aspiration with action and work together to align the policies, institutions and investments needed to unblock these barriers and to create a dynamic regional market on a scale worthy of Africa’s one billion people and its roughly $2 trillion economy."
In a special World Bank video produced for the report, women traders on the border with the Democratic Republic of Congo (DRC) and neighboring countries in the Great Lakes region describe how they routinely encounter violence, threats, demands for bribes, and sexual harassment, at the hands of the large numbers of customs and other government officials at the border. As one egg and sugar trader from Goma says on the video: “I buy my eggs in Rwanda; as soon as I cross to Congo I give one egg to every official who asks me. Some days I give away more than 30 eggs!”
Barriers blunt trade in goods as well as services
The report says that until the onset of the financial crisis, most sub-Saharan African (SSA) countries grew rapidly and often at much higher rates than the world average. Economic growth in these countries was robust and driven by the boom in commodity prices, which led to very high growth in export values, especially for minerals, to new fast-growing markets such as India and China.
While exports have grown strongly over the last decade, and the region’s trade has recovered well from the global crisis, the impact on unemployment and poverty has been disappointing in many countries. Unemployment remains around 24 percent in South Africa. In Tanzania, extreme income-poverty appears to have remained broadly constant at around 35 percent of the population. This shows that export growth has typically been fueled by a small number of mineral and primary products with limited impacts on the wider economy and that formal sectors remain small in many countries.
As a result, the report suggests that Africa will have to diversify its exports from depending solely on precious metals and other commodities and encourage more people to trade goods and professional services in accounting, law, education, healthcare, among others. The region’s large number of young people also calls for significant numbers of new jobs, intensive trade, and growth.
“Imagine the benefits of allowing African doctors, nurses, teacher, engineers and lawyers to practice anywhere in the continent, but responsibility for making this happen lies with countries first and foremost,” says Marcelo Giugale, the World Bank’s Africa Director for Poverty Reduction and Economic Management. “The final prize is clear: helping Africans trade goods and services with each other. Few contributions carry more development power than that.”
Changes are needed in three areas
To escape the current straightjacket of trade fragmentation, the report says that African leaders, need to pursue changes in three key areas.
1. Improving cross-border trade, especially by small poor traders, many of whom are women, by simplifying border procedures, limiting the number of agencies at the border and increasing the professionalism of officials, supporting traders associations, improving the flow of information on market opportunities, and assisting in the spread of new technologies such as cross-border mobile banking that improve access to finance.
2. Removing a range of non-tariff barriers to trade, such as restrictive rules of origin, import and export bans, and onerous and costly import and export licensing procedures
3. Reforming regulations and immigration rules that limit the substantial potential for cross-border trade and investment in services.
In one notable example of trade barriers, report co-editors Paul Brenton and Gozde Isik of the World Bank describe how the South African supermarket chain Shoprite spends US$20,000 a week on import permits to distribute meat, milk, and plant-based goods to its stores in Zambia alone. For all countries it operates in, approximately 100 (single entry) import permits are applied for every week; this can rise up to 300 per week in peak periods. As a result of these and other requirements, there can be up to 1,600 documents accompanying each truck Shoprite sends with a load that crosses a border in the region.
As the co-editors write, “lack of coordination across government ministries and regulatory authorities also causes significant delays, particularly in authorizing trade for new products. Another South African retailer took three years to get permission to export processed beef and pork from South Africa to Zambia.”
How the World Bank supports regional integration
Trade and regional integration are core elements of the Bank’s new Africa strategy, launched in March 2011, to help countries create opportunities for their transformation and sustained growth. The Bank has doubled its investment in regional integration from US$2.1 billion in 2008 to US$4.2 billion in July 2011, and it will rise to $5.7 billion by July 2012.
Source: World Bank
Wednesday, January 1, 2014
The Foreclosure Crisis
What happened to all the homes foreclosed on when the housing bubble burst? Millions of people lost their homes and most of their life savings when the value of their homes plummeted during the most recent financial collapse. Many found they could not keep up with mortgage payments, either because they lost their jobs during the recession or because they were overextended financially for some other reason. Some would say many never should have been offered the loans in the first place. The fact remains that many people went from pursuing the “American Dream” of home ownership to struggling just to keep a roof over their heads by renting in a very short span of time.
The banks lost tons of money on loans that would never be paid in full, but they did have something very tangible in place of the money – the property. The real estate still belonged to them. Home buyers were left with nothing after pouring thousands of dollars into the effort to purchase a home, only to be turned out when they simply did not have the resources to complete the transaction. The banks were promptly bailed out by the taxpayers, despite questionable lending practices that ultimately resulted in sizable settlements. Little of the proceeds of these settlements ultimately made it into the hands of the people actually wronged. Some of the states used large chunks of the settlement money to fill budget holes instead of compensating former homeowners for their losses.
Many contend that being able to just pay some money, often obtained by questionable means to begin with, without admitting any guilt on the part of the lending institutions or any of their executives was inadequate punishment for the serious nature of the wrongs perpetrated. That the companies were willing to spend that much money to avoid criminal prosecution or admission of any guilt indicates our government may have let them off too lightly. Certainly many of those most affectedly believe that is the case.
The result of all the foreclosure activity was the availability of enormous numbers of homes to be resold, often in bulk, for vastly reduced prices. Who better to step into the void created by the individuals forced into foreclosure than large institutional buyers – hedge funds and other private equity companies capable of raising large amounts of capital to invest in the family home market. This happened to a large degree. particularly in areas of the country where the housing market became the most depressed in terms of property values. The idea was often to turn these properties into rental units until such time as property values returned to levels that would allow them to be sold at a tidy profit. The result could then end up being that people who had lost their homes to foreclosure would end up renting similar property from one of these large institutional owners. They would have a place to live, but be unable to accumulate any equity in the property to be used in the future as a cushion against possible financial difficulties, or to pass on to heirs.
In effect, this trend has resulted in even further redistribution of wealth in this country upward – from the poor and particularly the middle working class people to the wealthy. Investors in private equity companies and hedge funds on this scale do not, for the most part, supplement their low wage incomes with food stamps or social security checks. People who live from paycheck to paycheck (believe me, there are many more of us than the Wall Street crowd would like us to believe) do not have spare change to put into a hedge fund waiting for the profits to start rolling in.
So the banks either get their money back from the bailout, or from the proceeds from reselling the repossessed real estate. The large investors get their money back with a profit for just collecting rent or repairing and reselling the properties. The only people who have little or nothing to show for their efforts are those who toiled to earn enough money to start trying to purchase a home, only to see it all evaporate in a sudden economic downturn. Their money ended up in the hands of the flimflam artists who sold them the rotten loans in the first place, along with those wealthy enough to buy the properties at rock bottom prices and further profit from them upon a resurgence in the real estate market.
Something is drastically wrong with a system such as ours which enables a very small percentage of the population to profit greatly at the expense of so many more others. The notion that only minimal amounts of money (in terms of the enormous wealth gained in the process) are seen by the powers that be to be adequate recompense for the misery created by these transactions is appalling. These companies and people produced far more economic damage to far more people than Bernie Madoff ever dreamed of. He was sentenced to 150 years in prison. They received bonuses. Attempts begun at effectively regulating the responsible financial institutions to ensure that a repeat performance can be avoided have been stymied at every turn by politicians, many of whom are beholden to the very interests they claim to want to regulate.
Some say we have the best government money can buy. It certainly serves the moneyed interests far better than rest of us. There are some elected officials willing to stand up to them and fight for rest of us. Unfortunately, they are currently a small minority in Congress and the legislatures of most states. Until we get effective regulation of the financial services industry to prevent future robbery of this sort, the economic inequality and impoverishment of ever more members of our society will continue. We need to back those who are willing to stand up for us and increase their numbers and influence in our government at every opportunity. Never again should this sort of disaster be allowed to be perpetrated on such a large segment of the American people with absolutely no accountability on the part of those responsible for it. Never again should the victims (in this case, the American taxpayers) be held responsible for financing this sort of economic chicanery, while those responsible stash their take in tax shelters and pay not a dime of their own money in fines or spend as much as a day in prison. This is a case where the punishment has to this point fallen far short of the seriousness of the crime.
Further Suggested Readings:
Wall Street Hedge Funds Buy Up Rental Properties
Hedge Funds As Landlords? In Search of Returns, Wall Street Buys Up Foreclosed Homes
Hedge Fund Blackstone Buying $100 Million in Foreclosed Homes Every Week
Hedge Funds Crowd First-Time Buyers Out of Housing Market
Foreclosure Bulk Sales Program Allows Banks and Hedge Funds to Buy Low After Selling High
Hedge Funds Are Fueling Foreclosure Inflation
Private Equity Has Too Much Money to Spend on Homes
Source: Rcooley123's Blog
The banks lost tons of money on loans that would never be paid in full, but they did have something very tangible in place of the money – the property. The real estate still belonged to them. Home buyers were left with nothing after pouring thousands of dollars into the effort to purchase a home, only to be turned out when they simply did not have the resources to complete the transaction. The banks were promptly bailed out by the taxpayers, despite questionable lending practices that ultimately resulted in sizable settlements. Little of the proceeds of these settlements ultimately made it into the hands of the people actually wronged. Some of the states used large chunks of the settlement money to fill budget holes instead of compensating former homeowners for their losses.
Many contend that being able to just pay some money, often obtained by questionable means to begin with, without admitting any guilt on the part of the lending institutions or any of their executives was inadequate punishment for the serious nature of the wrongs perpetrated. That the companies were willing to spend that much money to avoid criminal prosecution or admission of any guilt indicates our government may have let them off too lightly. Certainly many of those most affectedly believe that is the case.
The result of all the foreclosure activity was the availability of enormous numbers of homes to be resold, often in bulk, for vastly reduced prices. Who better to step into the void created by the individuals forced into foreclosure than large institutional buyers – hedge funds and other private equity companies capable of raising large amounts of capital to invest in the family home market. This happened to a large degree. particularly in areas of the country where the housing market became the most depressed in terms of property values. The idea was often to turn these properties into rental units until such time as property values returned to levels that would allow them to be sold at a tidy profit. The result could then end up being that people who had lost their homes to foreclosure would end up renting similar property from one of these large institutional owners. They would have a place to live, but be unable to accumulate any equity in the property to be used in the future as a cushion against possible financial difficulties, or to pass on to heirs.
In effect, this trend has resulted in even further redistribution of wealth in this country upward – from the poor and particularly the middle working class people to the wealthy. Investors in private equity companies and hedge funds on this scale do not, for the most part, supplement their low wage incomes with food stamps or social security checks. People who live from paycheck to paycheck (believe me, there are many more of us than the Wall Street crowd would like us to believe) do not have spare change to put into a hedge fund waiting for the profits to start rolling in.
So the banks either get their money back from the bailout, or from the proceeds from reselling the repossessed real estate. The large investors get their money back with a profit for just collecting rent or repairing and reselling the properties. The only people who have little or nothing to show for their efforts are those who toiled to earn enough money to start trying to purchase a home, only to see it all evaporate in a sudden economic downturn. Their money ended up in the hands of the flimflam artists who sold them the rotten loans in the first place, along with those wealthy enough to buy the properties at rock bottom prices and further profit from them upon a resurgence in the real estate market.
Something is drastically wrong with a system such as ours which enables a very small percentage of the population to profit greatly at the expense of so many more others. The notion that only minimal amounts of money (in terms of the enormous wealth gained in the process) are seen by the powers that be to be adequate recompense for the misery created by these transactions is appalling. These companies and people produced far more economic damage to far more people than Bernie Madoff ever dreamed of. He was sentenced to 150 years in prison. They received bonuses. Attempts begun at effectively regulating the responsible financial institutions to ensure that a repeat performance can be avoided have been stymied at every turn by politicians, many of whom are beholden to the very interests they claim to want to regulate.
Some say we have the best government money can buy. It certainly serves the moneyed interests far better than rest of us. There are some elected officials willing to stand up to them and fight for rest of us. Unfortunately, they are currently a small minority in Congress and the legislatures of most states. Until we get effective regulation of the financial services industry to prevent future robbery of this sort, the economic inequality and impoverishment of ever more members of our society will continue. We need to back those who are willing to stand up for us and increase their numbers and influence in our government at every opportunity. Never again should this sort of disaster be allowed to be perpetrated on such a large segment of the American people with absolutely no accountability on the part of those responsible for it. Never again should the victims (in this case, the American taxpayers) be held responsible for financing this sort of economic chicanery, while those responsible stash their take in tax shelters and pay not a dime of their own money in fines or spend as much as a day in prison. This is a case where the punishment has to this point fallen far short of the seriousness of the crime.
Further Suggested Readings:
Wall Street Hedge Funds Buy Up Rental Properties
Hedge Funds As Landlords? In Search of Returns, Wall Street Buys Up Foreclosed Homes
Hedge Fund Blackstone Buying $100 Million in Foreclosed Homes Every Week
Hedge Funds Crowd First-Time Buyers Out of Housing Market
Foreclosure Bulk Sales Program Allows Banks and Hedge Funds to Buy Low After Selling High
Hedge Funds Are Fueling Foreclosure Inflation
Private Equity Has Too Much Money to Spend on Homes
Source: Rcooley123's Blog
Tuesday, December 31, 2013
Antony Jenkins admits 'it could take 10 years to rebuild trust in Barclays'
Barclays’ chief executive, Antony Jenkins, has said that it could take up to a decade for the bank to regain public trust in the aftermath of a series of scandals.
Mr Jenkins made the comment in a speech to students at Brooke House Sixth Form College in East London.
In the chat, which was broadcast on this morning's Today programme on BBC Radio 4, Mr Jenkins said: “Trust is a very easy thing to lose, and a very hard thing to win back.
"In my view it will takes several years - probably five to ten - to rebuilt trust in Barclays."
Barclays was the first bank to be implicated in the Libor scandal, in which traders rigged the London inter-banking rate, leading to a £290 million fine in June 2012, and the bank was also involved in the PPI mis-selling scandal.
Mr Jenkins vowed to restore Barclay’s reputation when he was made CEO in August last year, after the Libor scandal brought down his predecessor, Bob Diamond. In February he revealed his plan to overhaul the bank by fundamentally changing the culture under which its traders operate.
He added in his speech that he hoped the future actions of Barclays would help rebuild confidence in the wider banking sector.
Mr Jenkins chose as his theme “the importance of long-term thinking and planning, and proper leadership”.
“Trust is lost in weeks and months, and regained in years and decades,” he said.
"My point is not that short term markets are bad or inaccurate. They serve a very useful purpose. It is susceptible to elevator analysis – this is up this is down. In addition to looking at the short term and what that tells us how do we focus on longer term drivers of the economy."
British economist John Kay told the Today programme, which Mr Jenkins was guest editing, that bankers' now spend more time than religious leaders telling the public that they are ethical, while simultaneously working in an industry that has acted anything but ethically.
“Over the last 20 years banks have systematically destroyed their relationship with their customers,” Mr Kay said, adding that he was not very optimistic that things would improve.
Mr Jenkins responded by saying that that the cure to a rotten culture is proper leadership from the top, but that the process is a slow one.
"In my view leadership sets the culture in big organisations and culture drives organisational performance. If you want a different sort of organisational performance, a more ethical business, you’re going to have to change culture. Culture takes time to change and it comes back to leadership. If you take a long term perspective you’ll build the right culture," he said.
Mr Jenkins added that he was setting a target for Barclays to be more trusted than not by 2018.
It is one of eight commitments Jenkins will make to staff, customers, shareholders and what he calls society in a few months.
Source: Independent
Mr Jenkins made the comment in a speech to students at Brooke House Sixth Form College in East London.
In the chat, which was broadcast on this morning's Today programme on BBC Radio 4, Mr Jenkins said: “Trust is a very easy thing to lose, and a very hard thing to win back.
"In my view it will takes several years - probably five to ten - to rebuilt trust in Barclays."
Barclays was the first bank to be implicated in the Libor scandal, in which traders rigged the London inter-banking rate, leading to a £290 million fine in June 2012, and the bank was also involved in the PPI mis-selling scandal.
Mr Jenkins vowed to restore Barclay’s reputation when he was made CEO in August last year, after the Libor scandal brought down his predecessor, Bob Diamond. In February he revealed his plan to overhaul the bank by fundamentally changing the culture under which its traders operate.
He added in his speech that he hoped the future actions of Barclays would help rebuild confidence in the wider banking sector.
Mr Jenkins chose as his theme “the importance of long-term thinking and planning, and proper leadership”.
“Trust is lost in weeks and months, and regained in years and decades,” he said.
"My point is not that short term markets are bad or inaccurate. They serve a very useful purpose. It is susceptible to elevator analysis – this is up this is down. In addition to looking at the short term and what that tells us how do we focus on longer term drivers of the economy."
British economist John Kay told the Today programme, which Mr Jenkins was guest editing, that bankers' now spend more time than religious leaders telling the public that they are ethical, while simultaneously working in an industry that has acted anything but ethically.
“Over the last 20 years banks have systematically destroyed their relationship with their customers,” Mr Kay said, adding that he was not very optimistic that things would improve.
Mr Jenkins responded by saying that that the cure to a rotten culture is proper leadership from the top, but that the process is a slow one.
"In my view leadership sets the culture in big organisations and culture drives organisational performance. If you want a different sort of organisational performance, a more ethical business, you’re going to have to change culture. Culture takes time to change and it comes back to leadership. If you take a long term perspective you’ll build the right culture," he said.
Mr Jenkins added that he was setting a target for Barclays to be more trusted than not by 2018.
It is one of eight commitments Jenkins will make to staff, customers, shareholders and what he calls society in a few months.
Source: Independent
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
Tuesday, December 3, 2013
South Africans losing trust in political and business ethics
According to research by Transparency International, South Africa is perceived as being more corrupt this year than it was last year.
What is considerably alarming is that 50% of persons interviewed perceived the judiciary as corrupt; 70% perceived parliament as corrupt and a staggering 83% perceived the South African Police Service as corrupt.
In a statement on Tuesday, local civil society organization Corruption Watch (CW) said the perceptions were indicative of a public that was losing trust in political, public, and business leadership.
Source: the Sowetan
Thursday, November 21, 2013
Thursday, October 17, 2013
Marikana funding case hints at larger problems with gaining access to justice
Most South Africans do not have effective access to justice. Without adequate legal representation, which few people can afford, not many litigants or criminal defendants will truly savour the sweet taste of justice. While banks, other large corporations, the very wealthy and organs of state will have the funds to employ an army of lawyers to exploit every legal loophole and to pursue every legal argument to win their case, most ordinary persons of moderate means will not. Unless the legal system is substantially reformed or the state pumps billions of rands into the Legal Aid system, this will not change – despite the quixotic court victory of the survivors of the Marikana massacre to legal representation at state expense.
The Marikana massacre, in which the South African Police Service (SAPS) killed 34 striking mine workers, may well turn out to have been a watershed moment in South African politics. From where I sit, it looks suspiciously as if the ruling elite (ab)used its control of the SAPS (or its political access to those who control the SAPS) to teach miners taking part in a violent and unprotected strike a “lesson”, because these striking miners threatened its financial and class interests. As a result, 34 striking and protesting miners were killed by the SAPS and more than 78 people were injured.
The Farlam Commission of Inquiry into the massacre, and the events that led up to it, may not come to the same conclusion. Commissions of Inquiry – even Commissions that do a good job – are usually better at determining the small truths than at uncovering the larger political truths of a tragic event like this. It is also not yet clear to what extent the alleged SAPS cover-up of the event and the possible protection of political principals and mine company executives will succeed.
This does not mean that the work done by the Farlam Commission is not important. Like the Truth and Reconciliation Commission it might uncover at least part of the truth, creating a factual matrix within which, over time, we will come to understand the political significance of the events on 16 August 2012. For that reason it is essential that the Commission must be seen to be acting fairly: if its findings are not trusted by everyone, it will be difficult to rely on these findings as a springboard for more searching analysis of the political import of the Marikana massacre.
The Commission’s legitimacy was threatened by the withdrawal of the legal teams representing the families of the killed miners as well as of the injured and arrested miners because of a dispute about the funding of the lawyers of the injured and arrested miners (led by Adv. Dali Mpofu). It therefore came as a great relief when the North Gauteng High Court (in a legally daring judgment by Makgoka J) in the case of Magidiwana and Another v President of the Republic of South Africa and Others ordered Legal Aid SA to fund Adv. Mpofu and his team.
I am delighted that Legal Aid SA has now agreed to fund Adv. Mpofu’s team. However, Legal Aid SA may still appeal the judgment because of the potentially far-reaching consequences the judgment poses to the continued financial viability of Legal Aid SA and it will not at all be surprising if such an appeal succeeds.
The bulk of the judgment focuses on the right of surviving miners to be represented by legal representatives and does an admirable job of showing why section 34 of the Constitution – which states that everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing – entitles miners to such legal representation.
What the judgment fails to do convincingly, in my opinion, is to show that this right must translate into a right to have those lawyers funded at state expense through Legal Aid SA.
As Legal Aid SA eventually conceded, its CEO does have the general discretion to fund the lawyers of interested parties who appear before a Commission of Inquiry. In fact, Legal Aid SA funded the lawyers of families of the deceased miners in accordance with this general discretion. The question is whether its decision to fund the lawyers representing the families of deceased miners (but not the injured and arrested miners) could be declared unconstitutional on the basis that it was irrational to fund the former but not the latter.
The court found that the injured and arrested miners did have a right to state funded legal representation in general, given their substantial and direct interest in the outcome of the commission; their vulnerability and financial position; the complexity of the proceedings and the capacity of the applicants to represent themselves; the procedures adopted by the commission; the need for an “equality of arms” between the parties; and the potential consequences of the findings and recommendations of the commission for the injured and arrested miners.
In a wonderful passage that could easily apply to the vast majority of litigants and accused persons of modest means who need legal representation in South Africa, the court stated:
Moreover, the court pointed out that the SAPS legal team is said to comprise five advocates (three senior counsel and two senior-junior counsel). In addition, the SAPS also use the services of a private firm of attorneys in Rustenburg, instead of State Attorney. Furthermore, the Minister of Police, whose interests should ordinarily coincide with those of SAPS, for some reason maintains a separate legal team on a so-called “watching brief” at the Commission (a fact that raises its own set of questions about the possible political involvement in the events of 16 August 2012).
According to the court, the State parties’ legal representation costs approximately R2 million to R3 million per month.
The judgment therefore concludes that considerations of fairness and the need for “equality of arms” between the parties require the state to fund the legal representatives of the miners. The interests of justice and the rule of law would be undermined by a failure to fund their lawyers.
It would be difficult to argue with the court that it would be fundamentally unfair for one party to be represented by lawyers to the cost of up to R3 million a month while another party with a direct interest in the outcome of the Commission have no legal representation at all. After all, those involved in the killing and injuring of the miners are represented by an army of lawyers, ever alert to protect the interest of their clients, who would obviously like to pin the blame for the massacre on the miners themselves in order to absolve the SAPS and its political principal from any blame. It seems extremely unfair that the one side is so well protected while one of the other parties is not.
However, apart from the profound political importance of the case, this situation is not fundamentally different from that faced daily by many litigants or potential litigants who wish to go to court to enforce their legal rights or to challenge the abuse of power or the flouting of the law by big banks, other large corporations, wealthy individuals or the state. Legal Aid SA very seldom provides funding for such litigants due to an acute shortage of Legal Aid funds. It is mandated by its rules and by the Constitution to fund lawyers for indigent criminal defendants “if substantial injustice would otherwise result”, but the Constitution does not explicitly impose a duty on the state (and hence Legal Aid SA) to fund civil matters (nor matters relating to Commissions of Inquiry).
Because of a lack of funds to pay good lawyers capable of taking on the “big boys” (and the difficulty of securing the services of such lawyers, given the financial interests many lawyers have in representing the “big boys” instead), ordinary people – both poor people and middle class people – often face insurmountable hurdles in securing justice in court.
There are no quick fix solutions to secure better access to justice for most South Africans. It would help if the state pumped additional billions of rands into the legal aid system – but that is not going to happen. Funds are needed for other “important” state matters – like upgrading the private residence of the president.
Establishing a system in which recent law graduates do one year of community service – similar to medical graduates – to assist indigent litigants may also help to secure better access to justice, but that would require a gargantuan administrative effort from the Department of Justice. The Department currently probably does not have the financial and human resources to pull this off successfully.
Simplifying legal rules and moving away from the absurdly rigid application of these rules by some courts, will also help. Many procedural rules unnecessary complicate litigation and increase costs – often to the advantage of those litigants with the deepest pockets and hence the best lawyers. It goes without saying that litigants without lawyers are often unfairly disadvantaged by these rules or are precluded from benefiting from access to the legal system at all because of their lack of knowledge of the rules.
But because of the formalistic legal culture – often inculcated and perpetuated by untransformed legal training provided at Law Schools – and because lawyers often benefit financially from the complicated and formalistic legal rules, there seems to be little appetite among elites in the legal profession to champion the streamlining and simplification of procedural rules.
It is judged against this background that the ultimate decision of the court in the Marikana case gets to look a bit shaky. This is so, not because it would have been fair to deny the injured and arrested miners legal representation at state expense, but because it is not clear that the decision of Legal Aid SA not to fund the lawyers can be said to have been irrational, given its many other commitments and the almost infinite demands on its limited funds.
Legal Aid SA provided three reasons for funding the legal team representing the families of the killed miners but not the legal team of the injured and arrested miners. First it claimed that the former group had a “substantial, proximate, and material interest in the outcome of the commission” to a degree that the latter did not. Second, it claimed that the latter group’s interests would be adequately protected by labour unions, NUM and AMCU. Third, it claimed that due to budgetary constraints it could not fund both parties.
The court (seemingly confusing or conflating the requirements for legality contained in section 1 of the Constitution and the test for a breach of section 9(1) of the Constitution) affirmed, correctly, that the exercise of public power by the executive and other functionaries should not be irrational. The court, more controversially, concluded that the refusal by Legal Aid SA to provide legal aid to the injured and arrested miners was not rationally related to the purpose of the Legal Aid Act, (as far as I can tell) because it found that this was not done to pursue a legitimate purpose.
The court did not really explain why this was the case. If the purpose of the decision was to manage Legal Aid SA’s funds properly, it is unclear why it would be irrational for Legal Aid SA to fund the one group but not the other. There is also clearly a difference in the position between the two groups: the loved ones of one group were killed, while the members of the other group are still alive.
Rationality review does not allow the court to set aside a decision of a public body because that body acted unwisely or because another decision would have resulted in a fairer outcome. It only allows the court to interfere if it can be shown that there was no rational reason for its decision: in other words, when the decision is arbitrary or capricious. In this case one can argue about the wisdom of the Legal Aid SA decision, but I am not sure one can say with confidence that it was irrational. To hold otherwise would have potentially catastrophic consequences for the financial viability of Legal Aid SA.
Despite the shaky legal argumentation, the judgment must be welcomed. Hopefully the clear injustice illustrated by the case may well spark a broader debate about the lack of access to justice and about what steps can be taken by the government and by the legal profession to provide ordinary people with a better chance to access the skills of competent lawyers.
Source: Constitutionally Speaking
The Marikana massacre, in which the South African Police Service (SAPS) killed 34 striking mine workers, may well turn out to have been a watershed moment in South African politics. From where I sit, it looks suspiciously as if the ruling elite (ab)used its control of the SAPS (or its political access to those who control the SAPS) to teach miners taking part in a violent and unprotected strike a “lesson”, because these striking miners threatened its financial and class interests. As a result, 34 striking and protesting miners were killed by the SAPS and more than 78 people were injured.
The Farlam Commission of Inquiry into the massacre, and the events that led up to it, may not come to the same conclusion. Commissions of Inquiry – even Commissions that do a good job – are usually better at determining the small truths than at uncovering the larger political truths of a tragic event like this. It is also not yet clear to what extent the alleged SAPS cover-up of the event and the possible protection of political principals and mine company executives will succeed.
This does not mean that the work done by the Farlam Commission is not important. Like the Truth and Reconciliation Commission it might uncover at least part of the truth, creating a factual matrix within which, over time, we will come to understand the political significance of the events on 16 August 2012. For that reason it is essential that the Commission must be seen to be acting fairly: if its findings are not trusted by everyone, it will be difficult to rely on these findings as a springboard for more searching analysis of the political import of the Marikana massacre.
The Commission’s legitimacy was threatened by the withdrawal of the legal teams representing the families of the killed miners as well as of the injured and arrested miners because of a dispute about the funding of the lawyers of the injured and arrested miners (led by Adv. Dali Mpofu). It therefore came as a great relief when the North Gauteng High Court (in a legally daring judgment by Makgoka J) in the case of Magidiwana and Another v President of the Republic of South Africa and Others ordered Legal Aid SA to fund Adv. Mpofu and his team.
I am delighted that Legal Aid SA has now agreed to fund Adv. Mpofu’s team. However, Legal Aid SA may still appeal the judgment because of the potentially far-reaching consequences the judgment poses to the continued financial viability of Legal Aid SA and it will not at all be surprising if such an appeal succeeds.
The bulk of the judgment focuses on the right of surviving miners to be represented by legal representatives and does an admirable job of showing why section 34 of the Constitution – which states that everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing – entitles miners to such legal representation.
What the judgment fails to do convincingly, in my opinion, is to show that this right must translate into a right to have those lawyers funded at state expense through Legal Aid SA.
As Legal Aid SA eventually conceded, its CEO does have the general discretion to fund the lawyers of interested parties who appear before a Commission of Inquiry. In fact, Legal Aid SA funded the lawyers of families of the deceased miners in accordance with this general discretion. The question is whether its decision to fund the lawyers representing the families of deceased miners (but not the injured and arrested miners) could be declared unconstitutional on the basis that it was irrational to fund the former but not the latter.
The court found that the injured and arrested miners did have a right to state funded legal representation in general, given their substantial and direct interest in the outcome of the commission; their vulnerability and financial position; the complexity of the proceedings and the capacity of the applicants to represent themselves; the procedures adopted by the commission; the need for an “equality of arms” between the parties; and the potential consequences of the findings and recommendations of the commission for the injured and arrested miners.
In a wonderful passage that could easily apply to the vast majority of litigants and accused persons of modest means who need legal representation in South Africa, the court stated:
The fact that they [the miners] are poor should never be a basis to summarily dismiss their potential substantial prejudice. It is unthinkable and deeply offensive to basic fairness and the rule of law in a democratic state that the poor and vulnerable be left to their own devices, in a manner that will deny them exercise of their constitutional right in terms of s. 34 of the Constitution.
Moreover, the court pointed out that the SAPS legal team is said to comprise five advocates (three senior counsel and two senior-junior counsel). In addition, the SAPS also use the services of a private firm of attorneys in Rustenburg, instead of State Attorney. Furthermore, the Minister of Police, whose interests should ordinarily coincide with those of SAPS, for some reason maintains a separate legal team on a so-called “watching brief” at the Commission (a fact that raises its own set of questions about the possible political involvement in the events of 16 August 2012).
According to the court, the State parties’ legal representation costs approximately R2 million to R3 million per month.
The judgment therefore concludes that considerations of fairness and the need for “equality of arms” between the parties require the state to fund the legal representatives of the miners. The interests of justice and the rule of law would be undermined by a failure to fund their lawyers.
It would be difficult to argue with the court that it would be fundamentally unfair for one party to be represented by lawyers to the cost of up to R3 million a month while another party with a direct interest in the outcome of the Commission have no legal representation at all. After all, those involved in the killing and injuring of the miners are represented by an army of lawyers, ever alert to protect the interest of their clients, who would obviously like to pin the blame for the massacre on the miners themselves in order to absolve the SAPS and its political principal from any blame. It seems extremely unfair that the one side is so well protected while one of the other parties is not.
However, apart from the profound political importance of the case, this situation is not fundamentally different from that faced daily by many litigants or potential litigants who wish to go to court to enforce their legal rights or to challenge the abuse of power or the flouting of the law by big banks, other large corporations, wealthy individuals or the state. Legal Aid SA very seldom provides funding for such litigants due to an acute shortage of Legal Aid funds. It is mandated by its rules and by the Constitution to fund lawyers for indigent criminal defendants “if substantial injustice would otherwise result”, but the Constitution does not explicitly impose a duty on the state (and hence Legal Aid SA) to fund civil matters (nor matters relating to Commissions of Inquiry).
Because of a lack of funds to pay good lawyers capable of taking on the “big boys” (and the difficulty of securing the services of such lawyers, given the financial interests many lawyers have in representing the “big boys” instead), ordinary people – both poor people and middle class people – often face insurmountable hurdles in securing justice in court.
There are no quick fix solutions to secure better access to justice for most South Africans. It would help if the state pumped additional billions of rands into the legal aid system – but that is not going to happen. Funds are needed for other “important” state matters – like upgrading the private residence of the president.
Establishing a system in which recent law graduates do one year of community service – similar to medical graduates – to assist indigent litigants may also help to secure better access to justice, but that would require a gargantuan administrative effort from the Department of Justice. The Department currently probably does not have the financial and human resources to pull this off successfully.
Simplifying legal rules and moving away from the absurdly rigid application of these rules by some courts, will also help. Many procedural rules unnecessary complicate litigation and increase costs – often to the advantage of those litigants with the deepest pockets and hence the best lawyers. It goes without saying that litigants without lawyers are often unfairly disadvantaged by these rules or are precluded from benefiting from access to the legal system at all because of their lack of knowledge of the rules.
But because of the formalistic legal culture – often inculcated and perpetuated by untransformed legal training provided at Law Schools – and because lawyers often benefit financially from the complicated and formalistic legal rules, there seems to be little appetite among elites in the legal profession to champion the streamlining and simplification of procedural rules.
It is judged against this background that the ultimate decision of the court in the Marikana case gets to look a bit shaky. This is so, not because it would have been fair to deny the injured and arrested miners legal representation at state expense, but because it is not clear that the decision of Legal Aid SA not to fund the lawyers can be said to have been irrational, given its many other commitments and the almost infinite demands on its limited funds.
Legal Aid SA provided three reasons for funding the legal team representing the families of the killed miners but not the legal team of the injured and arrested miners. First it claimed that the former group had a “substantial, proximate, and material interest in the outcome of the commission” to a degree that the latter did not. Second, it claimed that the latter group’s interests would be adequately protected by labour unions, NUM and AMCU. Third, it claimed that due to budgetary constraints it could not fund both parties.
The court (seemingly confusing or conflating the requirements for legality contained in section 1 of the Constitution and the test for a breach of section 9(1) of the Constitution) affirmed, correctly, that the exercise of public power by the executive and other functionaries should not be irrational. The court, more controversially, concluded that the refusal by Legal Aid SA to provide legal aid to the injured and arrested miners was not rationally related to the purpose of the Legal Aid Act, (as far as I can tell) because it found that this was not done to pursue a legitimate purpose.
The court did not really explain why this was the case. If the purpose of the decision was to manage Legal Aid SA’s funds properly, it is unclear why it would be irrational for Legal Aid SA to fund the one group but not the other. There is also clearly a difference in the position between the two groups: the loved ones of one group were killed, while the members of the other group are still alive.
Rationality review does not allow the court to set aside a decision of a public body because that body acted unwisely or because another decision would have resulted in a fairer outcome. It only allows the court to interfere if it can be shown that there was no rational reason for its decision: in other words, when the decision is arbitrary or capricious. In this case one can argue about the wisdom of the Legal Aid SA decision, but I am not sure one can say with confidence that it was irrational. To hold otherwise would have potentially catastrophic consequences for the financial viability of Legal Aid SA.
Despite the shaky legal argumentation, the judgment must be welcomed. Hopefully the clear injustice illustrated by the case may well spark a broader debate about the lack of access to justice and about what steps can be taken by the government and by the legal profession to provide ordinary people with a better chance to access the skills of competent lawyers.
Source: Constitutionally Speaking
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, January 18, 2013
FNB launches "You can help" campaign
South Africa is rich in values, tradition and culture, a truly wonderful country, and one that is admired around the world. Yet, as South Africans, we sometimes forget what our great nation has achieved and remains capable of achieving. It is in times like these that we need to be reminded of the greatness inside all of us, and what is possible when help is joined to common purpose and courage to necessity.
At 18:57, on 17 January 2013, FNB launched a new brand campaign with a live broadcast to South Africa. The broadcast carried a message from the voices we don't often hear, the children of our great country. A message we believe will inspire the nation.
In September 2012, we undertook what is likely the most current snapshot of the opinions of the youth, their views on our country and the role of help. Help, not in terms of coordinated interventions, but little, everyday help; and the power help has to make a big difference. The survey was completed by HDI Youth Marketeers, an independent research firm.
In assembling these views and opinions, we spoke to over 1300 learners and students (ages 10 to 22) from around the country and from all walks of life. We learnt that today's youth are losing their innocence, not to apartheid, but to the many social ills and tragedies that came after it. One child said, "If I was President for a day, I would make South Africa safe for children, women and teens who are abused." Another 10-year-old boy added the following, "I get scared when people are killing each other."
But though some of what they had to say was hard to hear, we learnt too that our youth carry inside them a fire that burns with hope and positivity. Their sense of identity is astounding, and they have an unprecedented interest in working as a community to improve our society and environment. A 12 year old said, "When we help people, we make them feel like they're somebody". Another child said, "If we help each other, we raise our country". Yet another student, aged 10, said "In the future I want to live in South Africa... I know South Africa is full of crime, but if I didn't live here I don't know who I would be." A 15 year old said, "We help each other because we are one blood, one soul, with a 13 year old saying, "If we don't help each other, who will help us".
"The intention of the campaign is not to talk about ourselves, but rather to be a brand for betterment by providing the youth of our country with a stage to voice what impacts the daily reality of many South Africans through the lens of our brand's core positioning of 'Help', says Bernice Samuels, FNB Chief Marketing Officer.
"FNB is a brand of high ideals and has a long history of leading from the front, not just in terms of product and service innovation, but also in terms of its social focus on building a stronger, unified and values-based nation, referring to our Praise Singer, Anthem, and Dog ads to mention a few" adds Samuels.
The chosen venue for the live advert, Naledi Secondary School, played an integral role in the events of 1976, a time when the youth of South Africa sent a message that could not be ignored, and in doing so, helped change the future of our country.
Jason Levin, Managing Director of HDI Youth Marketeers said; "The survey provided a good overall snapshot of the South African youth opinion and was hugely rewarding as it helped us gain insight into how the youth view South Africa. The research was truly inspiring. It is only through projects like this, that true feelings are clearly reflected."
FNB also created a dynamic online portal to support the campaign and everyone is encouraged to visit the blog site, youcanhelp.co.za to participate in the ongoing national discussion we believe will be triggered by the campaign. The campaign is integrated across all platforms, including TV, OOH, digital (youcanhelp.co.za) and social media on Facebook and Twitter (#littlehelps).
"All of the great things we've done, we've done together by helping each other. Perhaps it's time for us to listen to the voices we seldom hear, the youth of our country, because it is the South Africa we build today that will be the country they will inherit tomorrow," concludes Samuels.
In Nelson Mandela's words, "If there are dreams about a beautiful South Africa, there are also roads that lead to their goal. Two of these roads could be named Goodness and Forgiveness." Let us join hands in helping to build this beautiful South Africa we all dream of.
Issued by FNB, January 18 2013
Source: Politicsweb
At 18:57, on 17 January 2013, FNB launched a new brand campaign with a live broadcast to South Africa. The broadcast carried a message from the voices we don't often hear, the children of our great country. A message we believe will inspire the nation.
In September 2012, we undertook what is likely the most current snapshot of the opinions of the youth, their views on our country and the role of help. Help, not in terms of coordinated interventions, but little, everyday help; and the power help has to make a big difference. The survey was completed by HDI Youth Marketeers, an independent research firm.
In assembling these views and opinions, we spoke to over 1300 learners and students (ages 10 to 22) from around the country and from all walks of life. We learnt that today's youth are losing their innocence, not to apartheid, but to the many social ills and tragedies that came after it. One child said, "If I was President for a day, I would make South Africa safe for children, women and teens who are abused." Another 10-year-old boy added the following, "I get scared when people are killing each other."
But though some of what they had to say was hard to hear, we learnt too that our youth carry inside them a fire that burns with hope and positivity. Their sense of identity is astounding, and they have an unprecedented interest in working as a community to improve our society and environment. A 12 year old said, "When we help people, we make them feel like they're somebody". Another child said, "If we help each other, we raise our country". Yet another student, aged 10, said "In the future I want to live in South Africa... I know South Africa is full of crime, but if I didn't live here I don't know who I would be." A 15 year old said, "We help each other because we are one blood, one soul, with a 13 year old saying, "If we don't help each other, who will help us".
"The intention of the campaign is not to talk about ourselves, but rather to be a brand for betterment by providing the youth of our country with a stage to voice what impacts the daily reality of many South Africans through the lens of our brand's core positioning of 'Help', says Bernice Samuels, FNB Chief Marketing Officer.
"FNB is a brand of high ideals and has a long history of leading from the front, not just in terms of product and service innovation, but also in terms of its social focus on building a stronger, unified and values-based nation, referring to our Praise Singer, Anthem, and Dog ads to mention a few" adds Samuels.
The chosen venue for the live advert, Naledi Secondary School, played an integral role in the events of 1976, a time when the youth of South Africa sent a message that could not be ignored, and in doing so, helped change the future of our country.
Jason Levin, Managing Director of HDI Youth Marketeers said; "The survey provided a good overall snapshot of the South African youth opinion and was hugely rewarding as it helped us gain insight into how the youth view South Africa. The research was truly inspiring. It is only through projects like this, that true feelings are clearly reflected."
FNB also created a dynamic online portal to support the campaign and everyone is encouraged to visit the blog site, youcanhelp.co.za to participate in the ongoing national discussion we believe will be triggered by the campaign. The campaign is integrated across all platforms, including TV, OOH, digital (youcanhelp.co.za) and social media on Facebook and Twitter (#littlehelps).
"All of the great things we've done, we've done together by helping each other. Perhaps it's time for us to listen to the voices we seldom hear, the youth of our country, because it is the South Africa we build today that will be the country they will inherit tomorrow," concludes Samuels.
In Nelson Mandela's words, "If there are dreams about a beautiful South Africa, there are also roads that lead to their goal. Two of these roads could be named Goodness and Forgiveness." Let us join hands in helping to build this beautiful South Africa we all dream of.
Issued by FNB, January 18 2013
Source: Politicsweb
Tuesday, December 4, 2012
Africa: The Landgrabbers - the New Fight Over Who Owns the Earth
In his recent book, Fred Pearce examines the dynamics behind large-scale land acquisitions and their social, environmental and developmental effects.
"Buy land. They are not making it anymore."
This statement uttered more than one hundred years ago by Mark Twain still holds a sad and powerful truth and makes a telling start for Fred Pearce's account in The Landgrabbers: The New Fight Over Who Owns the Earth about the struggle over the Earth's most precious resources: land and water.
In the book, the reader is taken on a whirlwind tour around the globe to witness, through Pearce's eyes, a new kind of colonialism driven not by countries, but by powerful private capitalists.
We encounter figures such as George Soros and Richard Branson; we learn about the effects of the conflicts in the Democratic Republic of the Congo and Liberia; we find out why President Robert Mugabe's land seizures in Zimbabwe were not so bad after all for small-scale farmers; and we see how the global financial crisis and the intricate mechanisms of stock market speculations in commodities exacerbate the problem.
Pearce's passion and outrage about the selling off of communal resources shines through the book.
Each chapter is dedicated to a certain country, where protagonists change, yet the storyline stays the same: governments around the globe grant large concessions to wily investors in the hope of advancing their economies but displace and disadvantage large parts of their own population in the process.
As Mike Ogg, an agriculture specialist from Swaziland, told Think Africa Press: "I fundamentally believe that agriculture can lead development in Africa. The quandary is: How do you create a win-win situation where investors and the community benefit?"
Pearce's dystopia
Pearce presents a bleak picture of increasingly prevalent 'land grabs' by corporations for agriculture or resource exploitation as well as by well-meaning environmentalists for so-called "green grabs".
This is, Pearce argues, encircling the last remaining habitats of indigenous peoples and the landless poor, destroying their past and forever altering their future.
Pearce mixes this narrative with historical references to imperialism and colonialism giving the impression of a continuous cycle of exploitation. But his greatest achievement in the book is to give those exploited a voice.
He recounts their stories in numerous interviews, as well as talking to those involved in the land acquisitions and a variety of experts.
Pearce concludes that the bulk of the blame rests with foreign buyers though it is crucial to recognise that most deals are also pursued by respective governments which may give out large land concessions, tax breaks and other incentives to draw foreign capital into their country in the first place. And politicians are not only accomplices, but often also carve out deals in return for money or land for themselves.
This is enabled by an environment in which laws are either non-existent or easily circumvented. As Graziano da Silva, director-general of the United Nations Food and Agricultural Organisation, notes: "It appears to be like the Wild West and we need a sheriff and law in place."
Proposing solutions
Although Pearce does not go so far as to propose possible solutions, there is a range of opinion and ideas as to how to begin to tackle the problem.
Olivier De Schutter, UN special rapporteur on the right to food, has suggested that when national governments are unable or unwilling to devise regulations, the international community should step in to monitor whether the rights of land users are being respected. Oxfam's recent report 'Our Land, Our Lives' highlights the pivotal role of the World Bank as an advisor to governments in reforming their laws.
But this is easier said than done. As a representative from USAID in Dar es Salaam admitted to Think Africa Press, "Land tenure, we know, is at the heart of many problems as it is difficult for poor people to feed themselves with limited and insecure access to land, but we are not touching this subject, because it's too contentious and complicated".
Another way the negative impacts of large-scale land acquisitions could be mitigated is through emerging sustainability standards.
The World Bank and its private sector funding arm, the International Finance Corporation, have strict regulations regarding social and environmental sustainability. These include standards on development-induced displacement and there are growing calls for wider implementation of such regulations.
An example of a private sector-driven initiative is Bonsucro, a certification scheme which aims to ensure companies involved in the production of sugar and ethanol from sugarcane meet environmental, social and business standards.
With consumers believed to be increasingly concerned about the impacts of the goods they buy, the Bonsucro certification is meant to reassure buyers that companies are acting in sustainable ways and taking account of human rights and pollution control.
Moving forwards
Pearce acknowledges these developments in his last chapter where he analyses some of the attempts at solutions though he does not put forward his own. Nevertheless, Pearce's book is a worthwhile read. His writing style is highly engaging and reveals the duplicity of investors and interest groups.
He not only presents complicated and contentious issues such as the correlation of Wall Street speculations and rising food prices in an accessible manner, but also masterfully interweaves stories and issues across countries and continents achieving a well-researched, logical and informative account.
Although Pearce's focus lies on the problems at hand rather than solutions, the book certainly contributes to a growing awareness about the issues and will hopefully inspire others to find suitable ways to move forwards.
Katharina Neureiter holds an MSc in History of International Relations from the London School of Economics specialising in African colonial history and war cultures. She is currently working as a consultant in East Africa and blogs at hearabout.wordpress.com.
Source: All Africa
"Buy land. They are not making it anymore."
This statement uttered more than one hundred years ago by Mark Twain still holds a sad and powerful truth and makes a telling start for Fred Pearce's account in The Landgrabbers: The New Fight Over Who Owns the Earth about the struggle over the Earth's most precious resources: land and water.
In the book, the reader is taken on a whirlwind tour around the globe to witness, through Pearce's eyes, a new kind of colonialism driven not by countries, but by powerful private capitalists.
We encounter figures such as George Soros and Richard Branson; we learn about the effects of the conflicts in the Democratic Republic of the Congo and Liberia; we find out why President Robert Mugabe's land seizures in Zimbabwe were not so bad after all for small-scale farmers; and we see how the global financial crisis and the intricate mechanisms of stock market speculations in commodities exacerbate the problem.
Pearce's passion and outrage about the selling off of communal resources shines through the book.
Each chapter is dedicated to a certain country, where protagonists change, yet the storyline stays the same: governments around the globe grant large concessions to wily investors in the hope of advancing their economies but displace and disadvantage large parts of their own population in the process.
As Mike Ogg, an agriculture specialist from Swaziland, told Think Africa Press: "I fundamentally believe that agriculture can lead development in Africa. The quandary is: How do you create a win-win situation where investors and the community benefit?"
Pearce's dystopia
Pearce presents a bleak picture of increasingly prevalent 'land grabs' by corporations for agriculture or resource exploitation as well as by well-meaning environmentalists for so-called "green grabs".
This is, Pearce argues, encircling the last remaining habitats of indigenous peoples and the landless poor, destroying their past and forever altering their future.
Pearce mixes this narrative with historical references to imperialism and colonialism giving the impression of a continuous cycle of exploitation. But his greatest achievement in the book is to give those exploited a voice.
He recounts their stories in numerous interviews, as well as talking to those involved in the land acquisitions and a variety of experts.
Pearce concludes that the bulk of the blame rests with foreign buyers though it is crucial to recognise that most deals are also pursued by respective governments which may give out large land concessions, tax breaks and other incentives to draw foreign capital into their country in the first place. And politicians are not only accomplices, but often also carve out deals in return for money or land for themselves.
This is enabled by an environment in which laws are either non-existent or easily circumvented. As Graziano da Silva, director-general of the United Nations Food and Agricultural Organisation, notes: "It appears to be like the Wild West and we need a sheriff and law in place."
Proposing solutions
Although Pearce does not go so far as to propose possible solutions, there is a range of opinion and ideas as to how to begin to tackle the problem.
Olivier De Schutter, UN special rapporteur on the right to food, has suggested that when national governments are unable or unwilling to devise regulations, the international community should step in to monitor whether the rights of land users are being respected. Oxfam's recent report 'Our Land, Our Lives' highlights the pivotal role of the World Bank as an advisor to governments in reforming their laws.
But this is easier said than done. As a representative from USAID in Dar es Salaam admitted to Think Africa Press, "Land tenure, we know, is at the heart of many problems as it is difficult for poor people to feed themselves with limited and insecure access to land, but we are not touching this subject, because it's too contentious and complicated".
Another way the negative impacts of large-scale land acquisitions could be mitigated is through emerging sustainability standards.
The World Bank and its private sector funding arm, the International Finance Corporation, have strict regulations regarding social and environmental sustainability. These include standards on development-induced displacement and there are growing calls for wider implementation of such regulations.
An example of a private sector-driven initiative is Bonsucro, a certification scheme which aims to ensure companies involved in the production of sugar and ethanol from sugarcane meet environmental, social and business standards.
With consumers believed to be increasingly concerned about the impacts of the goods they buy, the Bonsucro certification is meant to reassure buyers that companies are acting in sustainable ways and taking account of human rights and pollution control.
Moving forwards
Pearce acknowledges these developments in his last chapter where he analyses some of the attempts at solutions though he does not put forward his own. Nevertheless, Pearce's book is a worthwhile read. His writing style is highly engaging and reveals the duplicity of investors and interest groups.
He not only presents complicated and contentious issues such as the correlation of Wall Street speculations and rising food prices in an accessible manner, but also masterfully interweaves stories and issues across countries and continents achieving a well-researched, logical and informative account.
Although Pearce's focus lies on the problems at hand rather than solutions, the book certainly contributes to a growing awareness about the issues and will hopefully inspire others to find suitable ways to move forwards.
Katharina Neureiter holds an MSc in History of International Relations from the London School of Economics specialising in African colonial history and war cultures. She is currently working as a consultant in East Africa and blogs at hearabout.wordpress.com.
Source: All Africa
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