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Money laundering redux

CharteredLondon-based Standard Chartered Bank stands accused by New York regulators of laundering $250 billion in oil money for Iran.

It follows a string of similar scandals, such as one uncovered at HSBC, in which offices in Buffalo helped to launder money from Mexican drug cartels, shady Russian business men and terrorists. HSBC ended up setting aside $700 million to cover penalties for that activity.

The New York Times has an interesting story today that looks at how each of the banks exploited a weak law in order to make money laundering easier:

Foreign banks until 2008 were allowed to transfer money for Iranian clients through their American subsidiaries to a separate offshore institution. In the so-called U-turn transactions, the banks had to provide scant information about the client to their American units as long as they had thoroughly vetted the transactions for suspicious activity. Suspecting that Iranian banks were financing nuclear weapons and missile programs, the loophole was finally closed in 2008 . . . .

Foreign banks until 2008 were allowed to transfer money for Iranian clients through their American subsidiaries to a separate offshore institution. In the so-called U-turn transactions, the banks had to provide scant information about the client to their American units as long as they had thoroughly vetted the transactions for suspicious activity. Suspecting that Iranian banks were financing nuclear weapons and missile programs, the loophole was finally closed in 2008 . . . . 

Since the tighter sanctions went into effect, there have been no charges brought on post-2008 conduct, although Treasury’s letter says that investigations are ongoing.

Gina Talamona, a Justice Department spokeswoman, said that the lack of recent illegal conduct is because the settlements with foreign banks “required the banks to implement rigorous compliance programs and other safeguards” against further violations of sanctions. She said that the department’s enforcement program “has had a significant impact on banking industry practices involving sanctions.”

- Samantha Maziarz Christmann

No victory in swipe fee settlement

CCMerchants have been fighting credit card companies over swipe fees for years. As the battle drags on, you may have noticed more mom-and-pop retailers have instituted a minimum purchase amount for credit card purchases.

Thanks to a recent settlement, merchants will now be able to pass swipe fees on to consumers rather than incurring them themselves.

The Wall Street Journal interviewed about two dozen retailers, many of whom said they aren't sure whether they want to risk alienating their customers by passing the cost of swipe fees on to them:

Steven Resnick, a partner at the accounting firm Resnick Amsterdam Leshner in Blue Bell, Pa., which sued Visa and Mastercard, says he would "definitely not" impose a surcharge on clients because "it would be like we're nickel-and-diming them," he says.

SwipeAfter complaining about being nickel-and-dimed by the credit card companies, one would hope merchants wouldn't want to turn around and do the same to their own customers.

The swipe fee settlement is a messy victory for merchants. They are no longer required to pay the surcharge themselves, but they still have to figure out who pays it. The credit card companies still get their money, which amounts to about 1 percent to 3 percent per transaction. But it begs the question, especially in a society where one almost cannot function without plastic, what is so costly about the system that every swipe costs so much?

According to swipe fee reform group the Merchants Payments Coalition, the money brought in through swipe fees far exceed the cost of doing business. In fact, they bring in twice as much money as ATM fees and overdraft charges:

What started in the 1960s as a fee to cover the transaction costs of using plastic is now a cash-cow for the big banks that issue 90% plus of all MasterCard and Visa cards.  According to a consultant for the big banks, only 13% of the credit card interchange fee goes to processing credit card transactions; much of the rest goes to pay for billions of pieces of unsolicited junk mail annually among other dubious credit card marketing activities aimed at students or those with bad credit histories.

The more people you ask, the more it sounds like the recent settlement was a victory for no one but the banks, who get to keep the status quo.

The lighter side of the health care issue...

With the Supreme Court's decision on President Obama's health care plan looming, let's take a look at the issue through the eyes of some editorial cartoonists.

Here's one from the Washington Post's Lisa Benson:


Jeff Parker's take:


Here's one from Walt Handelsman:


David Fitzsimmons from the Arizona Daily Star has a go:


Here's one from Dana Summers at the Orlando Sentinel:



Birmingham News' Scott Stantis weighs in:


One from Rome News Tribune's Mike Lester:


And how about two from Tom Toles?


And two:


How health care changes will affect you...


There's an interesting Q&A in today's Business section explaining some of the finer points of what the passage of so-called "Obamacare" might mean for owners of small businesses.

Bill Frist, a heart surgeon writing in The Week magazine describes how the Supreme Court ruling on Obamacare will affect every American citizen:

If you are poor, the ruling may decide whether or not you have coverage. If you are not poor, it will impact how much you pay for health care. If you own a small business, it might determine if you must purchase health insurance for your employees. And if you work for a large business, it may determine whether you still receive your insurance from your employer. If you're a doctor, it will likely affect your reimbursement. If you're a patient, it will determine your benefits . . . . This one is worth following. It will be a game-changer. And not just for the politicians and pundits in Washington. It's a game-changer for you, too.


In a blog on the U.S. News & World Report Web site, Phil Moeler describes how Obamacare might affect seniors:

Older Americans in their 50s and early 60s who are too young to qualify for Medicare often face enormous challenges—and costs—finding private health insurance. Losing the individual mandate could hurt their health insurance prospects, depending on whether the court also rules on related provisions of the act.

Beyond the individual mandate, the law's most significant shift is its requirement that insurers must sell policies to anyone who applies, and can no longer refuse to insure a person because of preexisting health conditions. It is hard to imagine the court invalidating the individual mandate while still forcing private insurers to approve all applicants. Again, the impact on seniors of these provisions affects non-Medicare coverage.

In a blog on, Avik Roy talks about how passage of the bill might affect young workers:  

Many of the people who go uninsured are young people. The young are just entering the work force, and therefore typically have below-average incomes. In addition, the young are healthy, and have much less use for expensive health insurance.

Obamacare forces insurers to charge their eldest beneficiaries no more than 3 times what they charge their youngest ones: a policy known as “community rating.” This, despite the fact that these older beneficiaries typically have six times the health expenditures that younger people face. The net effect of this “community rating” provision is the redistribution of insurance costs from the old to the young.

Also on, David Whelan and Brian Wingfield talk about how Obamacare might affect those with different types of insurance.

SurgeryFor those who buy their own private insurance, they predict:

The market for individual and small business insurance plans is where health care is the most dysfunctional and the root of the swelling ranks of uninsured. There's a lot of good news here. If you suffer from a pre-existing condition that prevented you from getting an affordable policy in the past, those days are over. Also, individuals and families buying coverage through the state-run exchanges in the Senate bill may be eligible for large subsidies if they make less than four times the federal poverty level. Otherwise, buying insurance for one's self will likely be similar, though perhaps cheaper because the private exchanges will cut out expensive middleman brokers.

In the Wall Street Journal, Dr. Scott Gottlieb opines about how Obamacare will affect doctors:

While the public option is meant for the uninsured, employers will realize it's easier -- and cheaper -- to move employees into the government plan than continue workplace coverage . . . . As patients shift to a lower-paying government plan, doctors' incomes will decline by as much as 15% to 20% depending on their specialty. Physician income declines will be accompanied by regulations that will make practicing medicine more costly, creating a double whammy of lower revenue and higher practice costs, especially for primary-care doctors who generally operate busy practices and work on thinner margins.

This tool from the White House allows you to select the situation that best describes you and purports to explain how Obamacare will affect you personally.

Banker's mea culpa

DimonA contrite Jamie Dimon testified before the Senate Banking Committee Wednesday. While the JP Morgan CEO acknowledged the company's faults in the bank's $2 billion trading loss, he didn't back down from his anti-regulation stance. (You can see his testimony here).

A Bloomberg article by Christine Harper said his testimony highlights how complex and intertwined with government banking has become. Ironically, author Ron Chernow said in an interview, government programs such as FDIC insurance are what make banks feel safe enough to make big gambles in the first place:

Testimony“You can just imagine in this environment if there wasn’t deposit insurance how much money would be left in these banks,” Chernow said in a telephone interview. “The tradeoff was that in exchange for federally insured deposits that bankers would behave in a particularly cautious and responsible manner.”

JPMorgan, now the biggest U.S. bank with $2.3 trillion of assets, grew during the 2008 financial crisis when it acquired Washington Mutual Inc. and Bear Stearns Cos. with the federal government’s support.

“It was quite counterintuitive that, to this day, the government’s response to the crisis was to create yet bigger and more complicated institutions,” Chernow said. “In addition to the deposit insurance and the regulated nature, another reason why the government has a special stake in this firm is because it was partly a creation of the government during the financial crisis.”

Plenty of folks, such as the New York Times' editorial board, thought senators went too easy on him: DimonSmiles

In brief, he didn’t say much that everyone didn’t already know — and he didn’t give an inch on his fierce opposition to the tough financial regulations needed to ensure that banks’ risky behavior does not again threaten to bring down the financial system. The senators did not press him nearly hard enough. Some Republicans even praised Mr. Dimon for his bank leadership and let him critique proposed financial regulations, while one Democrat sought his advice on how to fix the deficit.

Oregon Senator Jeff Merkley probably went at him the hardest. He released this statement after the hearing:

“While it wasn’t his intention, Jamie Dimon today made the case for a strong Volcker Rule. I was pleased to hear him say that he doesn’t want to be in the hedge fund business and that these proprietary trades should not have been made. These large gambling losses are exactly why we need a strong loophole-free Volcker firewall that separates traditional banking and hedge-fund style trading. We cannot continue to allow massive proprietary trades disguised as risk management, hedging, or market-making.”

Here is a bit of Dimon's testimony:


Main Street banks vs. Wall Street banks

Robert G. Wilmers, chairman and CEO of M&T Bank, penned a letter to the editor that appeared in today’s paper. He felt that a recent editorial unfairly lumped responsible Main Street banks, like M&T, in with the same irresponsible Wall Street banks that brought the country to its knees during the 2008 subprime mortgage crisis.


“To be sure, the handful of gigantic Wall Street banks deserve criticism for putting taxpayers and our overall financial system at great risk,” he writes. “But Main Street banks are very different. They adhere to a much safer strategy. Rather than gambling capital on uncertain investments, they utilize deposits to extend credit to local families and businesses.”

It’s not the first time he’s made his case.

He spoke in detail about the issue in M&T’s 2011 annual report, something that was lauded as a must-read:

We have reached a point at which not only do public demonstrations specifically target the financial industry but when a leading national newspaper would opine that regulation which might lower bank profits would be “a boon to the broader economy.” What’s worse is that such a view is far from entirely illogical, even if it fails to distinguish between Wall Street banks who, in my view, were central to the financial crisis and continue to distort our economy, and Main Street banks who were often victims of the crisis and are eager, under the right conditions, to extend credit to businesses that need it.

He goes on to say that “fear-driven rulemaking” meant to rein in irresponsible banks will harm community banks and the local economies they serve.

He’s not the only one who feels that way.

“Ironically, the larger ‘Wall Street’ banks will likely be more able, at least initially, to maximize opportunities for growth in strategic areas even in this new, more restrictive environment, while smaller, ‘Main Street’ focused banks may suffer under the weight of new rules and regulations, at least at the outset,” writes Amy Markham DeCesare in the New England Real Estate Journal.

  FirstNiagaraThe Wall Street Journal did a story a few months back about a small Texas bank that decided to close its doors rather than deal with tightened regulation:

 "The regulatory environment makes it very difficult to do what we do," said Thomas Depping, Main Street Bank’s chairman.

A group of U.S. Senators also outlined how tightened restrictions on Main Street banks would adversely affect Main Street businesses. They came together last year to seek an amendment to the Dodd-Frank Act that would loosen credit for Main Street businesses: 

“End-users from manufacturing to energy to farming rely on financial risk management tools like over-the-counter derivatives to conduct regular business,” said Sen. Mike Crapo, (R-Idaho) in a statement.  “This amendment provides certainty for Main Street businesses by providing American companies with a clear exemption from excessive margin requirements that without change will lead to a higher cost of doing business.”

Will a big soda ban make people drink more?

He may be supportive of Gov. Andrew M. Cuomo's proposal to decriminalize small amounts of marijuana, but New York City Mayor Michael Bloomberg still wants to ban super-sized sugary drinks.

ZyglisMore than half of New Yorkers surveyed said they are against the ban, but Bloomberg hasn't flinched.

"We didn't propose it because we thought it would be popular," Bloomberg said in a statement.

As usual, the rest of the world just thinks we're crazy--for instituting the ban and for offering such huge portions to begin with.

"It's so weird for us, the idea that a person would drink more than a liter of soda - that's huge! Of course there should be a law to stop that," said Arthur Trigo, a 19-year-old student in Sao Paulo told the Associated Press. "Americans are such exaggerated consumers, they really need to consume less."

Ruth Marcus at the Washington Post says Bloomberg is doing nothing but stoking the public's basest fears about a nanny state:

Bloomberg’s Mayor-Knows-Best paternalism feeds — pardon the pun — into a broader public anxiety about overbearing government. The bank and auto bailouts, the massive stimulus package, and sweeping new regulations of health care and the financial industry — all justified, by the way — have contributed to a public sense that the era of big government is back with a vengeance.

John Lott Jr. at National Review Online insists that despite the best of intentions, laws like this just aren't effective:

It is really very difficult to force people to live more healthily than they want. The federal government has mandated safer cars, but research has consistently shown that such mandates lead people to drive more recklessly. (See also this study from the Review of Economics and Statistics.) The number of accidents actually increases after safety features such as seat belts are mandated for cars. True, the occupants of a car are more likely to survive an individual accident, but generally the number of accidents increases by enough to offset the safety benefits. In addition, more pedestrians and bicyclists are struck by cars.

This finding also applies to NASCAR drivers. And bicyclists are more likely to get hit by cars when they wear safety helmets.

This phenomenon is so pervasive that economists have even given it a name: the Peltzman effect, after the University of Chicago economist who first discovered it in 1975.

Has Cuomo gone too far? Or not far enough?


Gov. Andrew M. Cuomo's proposal to decriminalize the possession of small amounts of marijuana is getting widespread support. It's an attempt to curb frivolous arrests (see statewide numbers for pot arrests and convictions here).

Indeed, many feel the move doesn't go far enough. First, because plenty of people feel the "stop and frisk" policy the decriminalization is meant to simplify should just be abolished outright. And second, because more and more Americans believe marijuana should be completely legalized, regulated and taxed.

In fact, 56 percent of those polled recently by Rasmussen Reports claimed to be in favor of legalizing marijuana and treating it the same way as alcohol and cigarettes.

There is even a movement among law enforcement officers  to legalize drugs. According to a statement on its Web site, Law Enforcement Against Prohibition believes that:


Drug prohibition is the true cause of much of the social and personal  damage that has historically been attributed to drug use. It is prohibition that makes these drugs so valuable –  while giving criminals a monopoly over their supply. Driven by the huge profits from this monopoly, criminal gangs bribe and kill each other, law enforcers, and children. Their trade is unregulated and they are, therefore, beyond our control.

History has shown that drug prohibition reduces neither use nor abuse. After a rapist is arrested, there are fewer rapes. After a drug dealer is arrested, however, neither the supply nor the demand for drugs is seriously changed. The arrest merely creates a job opening for an endless stream of drug entrepreneurs who will take huge risks for the sake of the enormous profits created by prohibition. Prohibition costs taxpayers tens of billions of dollars every year, yet 40 years and some 40 million arrests later, drugs are cheaper, more potent and far more widely used than at the beginning of this futile crusade.


We believe that by eliminating prohibition of all drugs for adults and establishing appropriate regulation and standards for distribution and use, law enforcement could  focus  more on crimes of violence, such as rape, aggravated assault, child abuse and murder, making our communities much safer. We believe that sending parents to prison for non-violent personal drug use destroys families. We believe that in a regulated and controlled environment, drugs will be safer for adult use and less accessible to our children. And we believe that by placing drug abuse in the hands of medical professionals instead of the criminal justice system, we will reduce rates of addiction and overdose deaths.

After all, until just a few months ago, this stuff was legal and being sold over the counter at your corner gas station. It's still legal in several states:


Behind HSBC's money laundering scandal


HSBC Bank will further shrink its presence in Western New York by laying off 77 employees here and shifting its money-laundering prevention unit from Buffalo to New York City and Delaware.

Jonathan Epstein gives some background in Friday's Buffalo News:

HSBC has been bulking up its compliance division in response to federal investigations and accusations that the global bank -- which operates in 82 countries around the world -- has been violating U.S. money-laundering rules, particularly provisions of the Bank Secrecy Act, as well as bans on U.S. banks doing business with certain countries or certain foreign individuals.

The laws are designed to prevent the U.S. financial system from being used to support criminal activities, including but not exclusively terrorism. They're also aimed at punishing certain foreign leaders or governments that have been identified as threats or violators of international law.


But the full story is much juicier. It's almost surreal. 

This special report from Reuters  digs into what's behind the allegations, uncovering what is said to be flagrant flouting of the law and a willful cover-up for known money launderers in order to keep large accounts.

Here's an excerpt from the article by Carrick Mollenkamp, Brett Wolf and Brian Grow:

HSBC [violated the law on a massive scale] by not adequately reviewing hundreds of billions of dollars in transactions for any that might have links to drug trafficking, terrorist financing and other criminal activity.

In some of the documents, prosecutors allege that HSBC intentionally flouted the law. The bank created an operation that was a “systemically flawed sham paper-product designed solely to make it appear that the Bank has complied” with the Bank Secrecy Act and is able to detect money laundering, wrote William J. Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia, in a draft of a 2010 letter addressed to Justice Department officials.

In that letter, Ihlenfeld compared HSBC unfavorably to Riggs Bank. In 2004 and 2005, that scandal-plagued Washington bank was fined a total of $41 million after it was found to have violated anti-money laundering laws, and it was acquired by PNC Financial Services.

“HSBC is to Riggs, as a nuclear waste dump is to a municipal land fill,” Ihlenfeld wrote.

Fracking study has some cracks?

Hydrofracking is getting safer, thanks to better oversight and industry practices, according to a new report from the University at Buffalo.


The study found that environmental violations related to newly-drilled wells were cut in half from 2008 to 2011.

 "While prior research has anecdotally reviewed state regulations, now we have comprehensive data that demonstrates, without ambiguity, that state regulation coupled with improvements in industry practices results in a low risk of an environmental event occurring in shale development, and the risks continue to diminish year after year," said Timothy J. Considine, a University of Wyoming economics professor and the lead author of the UB report.

But Considine himself has come under fire for his ties to the oil and gas industry. He has been called "the energy industry's go-to academic for highlighting the positives, and not the negatives, of fossil fuel development."

While at Penn State, Considine published a report paid for by the Marcellus Shale Coalition that exaggerated the number of jobs that could potentially be created through fracking and ignored the dangers associated with it. Considine's work has been used by many groups in lobbying for a lift on the hydrofracking ban, as it was In June at the Manhattan Institute.

Funding of UB's Shale Resources and Society Institute has also come into question. And other UB students and professors have come out against it.

"Like the shale itself, UB's reputation is being looted, leaving a mess and a stink. What a forked-tongue piece of laundered frackaganda this is," wrote UB professor Jim Holstun in the Buffalo News comments section under a recent article about the study.

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