The developments in the banking scandal are somewhat confusing. That is mainly due to the war unfolding on several fronts simultaneously:
1) The most apparent is the LIBOR scandal where the larger banks of the western world fixed the interbank interest rates – but not with the object of lending each other liquidity, but in order to hoodwink their costumers – which is basically dishonesty in not quoting the costumer the correct price. Maybe the right price for the loan was f.i. the 5% the costumer ended up paying and not the 4% the costumer was led to believe. But try that in the local supermarket, and irate consumers will stand up for their right.
This mainly affects private costumers plus small and medium businesses entities that do not have the resources to enforce the right price by spending the time needed or hiring the proper specialists.
The larger companies generally couldn’t care less, as they have access to the investors directly. Example:
Maersk shipping line resorts to issuing their own bonds which yield considerably less than some sovereign bonds at approximately 2% for a 5-10 year maturity. The investors are happy as well as f.i. PFA that generates 13% yield (perhaps a bit optimistic claim – but leave it at that).
2) The tax fraud front where banks facilitates hiding untaxed funds – at the moment specifically in Swiss banks. Other minor tax shelters have for some time now been whacked at convenience and relative to importance. But this is serious for Switzerland where other countries tax fraud has been a significant part of the GDP since before WW2.
The principal combatant on this front is Germany where the traditional Swiss perfidity is being countered with robust countermeasures such as purchasing stolen bank information, espionage and international treaties.
There is a rather neat piece in Frankfurter Allgemeine Zeitung if that sort of thing appeals to your sense of humour (I’m still wiping tears from my eyes):
Most noticeable is Finance Minister Wolfgang Schäuble’s remark:
Quote from FAZ: ”As Schäuble’s spokesperson pointed out: Those purchases of purloined data will die out, when the agreement between Germany and Switerland takes effect [next year]. Then untaxed fortunes in Switzerland will be taxed with between 21 to 41 percent. Schäuble said personally to ”Bild”-Zeitung: ”Random buys of CD’s can only be a temporary crutch, they are not a covering basis for satisfactory taxation.”
Comment: Of course Germany does not enter into such an agreement without being able to back up the tough talking.
(The alpha male in a pride of lions don’t swear at antelope kids – he calls them: “Lunch”)
But this is far from restricted to Germany. There is another “cute” piece in Danish JyllandsPosten:
Where the main points are:
a) Between July 1st 2012 and June 30th 2013 there is a “safe-conduct” for Danish tax-evaders; but notice: Clemency only extends as far as a prison sentence is concerned.
b) Not only is back taxes to be paid, plus interest; but there is also a fine of up to 60% of the “undeclared” amount – not the embezzled tax!
Wait a minute! What is up to 60% plus 41%? Pretty darned near 100% by my abacus!
c) This tender hearted feeling is only valid for accounts in countries where Denmark cannot get the information about taxable deposits.
Comment: There is too much coincidence between the timing, the tax-shelters, the taxation and so forth to think this is just a coincidence. Furthermore the last year or two Danish banks have been closing down their operations in Switzerland – where even the smallest local “Savings-And-Loans” have had a “Branch Office”. This probably means that from June 30th 2013 the national tax authorities WILL have access to accounts in Switzerland!
What I think is happening: The tax-authorities all over Europe (in Denmark at least) is contacting the banks and “tax-advisers” that they better “advise” their clients to come forward – that is if they themselves want to avoid up to 8 years jail time. The IRS knows where you live!
If I’m right: This has severe repercussions especially in Mediterranean parts of the EU. I have – among other things – noticed the precarious situation of Cyprus where the banks have not only been severely hit by the Greek default, but are also trying to fight off Russian mafia money – or being led by the hand to throw unsavoury clients out. I wonder where the first collapsed country (Iceland) fits into this picture.
The wider perspective is that it is no secret that the national sports in Italy and Spain is tax evasion. I had wondered about the reluctance in both Spain and Italy to taxing the pension funds – perhaps the timing wasn’t right?
I) IMF-CEO Christine Lagarde’s advice still rings in my ears: “Pay your taxes!”
II) I’ll stick to my old dictum: “To deposit money in a Swiss bank is easy – very easy; but retrieving them is quite another matter!”
3) There appears to be yet a third theatre of war concerning anti-terrorism and money laundering. I’ve already touched upon it in connection with Cyprus.
The repercussions outside Europe should not be entirely forgotten New York Times has:
”Even as lawmakers in London hammered a top Barclays PLC (LON:BARC) (NYSE:BCS) executive over the bank’s role in a rate-rigging scandal, another financial firm that is largely owned by the British government is fighting an investigation into the vast scheme.
The bank, which is 82 percent owned by the British government, is an unlikely foe.”
The Canadian court documents, collected over the last year, hinted that two other big banks were aiding authorities. Those banks are UBS AG (NYSE:UBS) and Citigroup Inc. (NYSE:C), according to people close to the matter.
In another article NYT has:
“The global bank HSBC Holdings plc (HKG:0005) (LON:HSBA) (NYSE:HBC) has been used by Mexican drug cartels looking to get cash back into the United States, by Saudi Arabian banks that needed access to dollars despite their terrorist ties and by Iranians who wanted to circumvent United States sanctions, a Senate report says.
The 335-page report released Monday also says that executives at HSBC and regulators at the Office of the Comptroller of the Currency ignored warning signs and failed to stop the illegal behavior at many points between 2001 and 2010.
In one case, an HSBC executive successfully argued that the bank should resume business with a Saudi Arabian bank, Al Rajhi Bank, despite the fact that Al Rajhi’s founder had been an early benefactor of Al Qaeda. HSBC’s American branch ended up supplying a billion dollars to the bank.”
The Guardian has to the same story:
The report says that the Mexico business had a branch in the Cayman Islands that in 2008 handled 50,000 client accounts and $2.1bn in holdings – but had no staff or offices. It also shipped bank notes by car or aircraft to the HSBC in the US. The bank shipped $7bn to the US from Mexico in 2007 and 2008, according to the report.
The bank circumvented US sanctions on countries including Cuba and Iran, says the report. In one case examined by the committee, two HSBC affiliates processed 25,000 transactions involving $19.4bn over seven years without disclosing the transactions’ links to Iran.
The bank provided US dollars and banking services to banks in Saudi Arabia and Bangladesh despite links to terrorist financing, says the report.
In another example of lax controls the report says HSBC cleared $290m over four years in suspicious US travellers cheques for a Japanese bank, benefiting Russians who claimed to be in the used car business.
Comment: Now before dismissing all this as just another tin foil hat conspiracy theory some axioms in police work should be noted:
Investigation into one matter might very well reveal information about something entirely different. It is in fact actively encouraged when dealing with criminals: “Could You tell me something more interesting?”
There is no doubt that – especially the USA – has for years followed the money trail in the War on Terrorism. That involves intensive sifting through vast amounts of banking data. When such a large forest is shaken something more than nuts might fall off.
Not everybody understands how effective and efficient police work really is. F.i. in murder cases (were resources generally are available) the police end up knowing more about the victim, than the victim ever knew about himself – literally.
Another thing is: Whenever a name comes up in an investigation the first question the investigator puts to himself: Has he got “form”. Investigations follow procedures – because they WORK – that can even be proven mathematically. The brilliant mastermind detective is a romantic myth – the mundane truth is that the police have done this a million times before.