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HSBC have their pals in the Irish Government

Banking Giant HSBC Sheltered Murky Cash Linked to Dictators and Arms Dealers

 

Team of journalists from 45 countries unearths secret bank accounts maintained for criminals, traffickers, tax dodgers, politicians and celebrities

Secret documents reveal that global banking giant HSBC profited from doing business with arms dealers who channeled mortar bombs to child soldiers in Africa, bag men for Third World dictators, traffickers in blood diamonds and other international outlaws.

The leaked files, based on the inner workings of HSBC’s Swiss private banking arm, relate to accounts holding more than $100 billion. They provide a rare glimpse inside the super-secret Swiss banking system — one the public has never seen before.

The documents, obtained by the International Consortium of Investigative Journalists via the French newspaper Le Monde, show the bank’s dealings with clients engaged in a spectrum of illegal behavior, especially in hiding hundreds of millions of dollars from tax authorities. They also show private records of famed soccer and tennis players, cyclists, rock stars, Hollywood actors, royalty, politicians, corporate executives and old-wealth families.

These disclosures shine a light on the intersection of international crime and legitimate business, and they dramatically expand what’s known about potentially illegal or unethical behavior in recent years at HSBC, one of the world’s largest banks.

The leaked account records show some clients making trips to Geneva to withdraw large wads of cash, sometimes in used notes. The files also document huge sums of money controlled by dealers in diamonds who are known to have operated in war zones and sold gemstones to finance insurgencies that caused untold deaths.

HSBC, which is headquartered in London and has offices in 74 nations and territories on six continents, at first insisted that ICIJ destroy the data.

Late last month, after being informed of the full extent of the reporting team’s findings, HSBC gave a final response that was more conciliatory, telling ICIJ: “We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today.”

The written statement said the bank had “taken significant steps over the past several years to implement reforms and exit clients who did not meet strict new HSBC standards, including those where we had concerns in relation to tax compliance.”

The bank added that it had refocused this part of its business. “As a result of this repositioning, HSBC’s Swiss private bank has reduced its client base by almost 70% since 2007.”

How the offshore banking industry shelters money and hides secrets has enormous implications for societies across the globe. Academics conservatively estimate that $7.6 trillion is held in overseas tax havens, costing government treasuries at least $200 billion a year.

“The offshore industry is a major threat for our democratic institutions and our basic social contract,” French economist Thomas Piketty, author of Capital in the Twenty-First Century told ICIJ. “Financial opacity is one of the key drivers of rising global inequality. It allows a large fraction of top income and top wealth groups to pay negligible tax rates, while the rest of us pay large taxes in order to finance the public goods and services (education, health, infrastructures) that are indispensable for the development process.”

HSBC’s questionable tax tactics

The secret files obtained by ICIJ — covering accounts up to 2007 associated with more than 100,000 individuals and legal entities from more than 200 nations — are a version of the ones the French government obtained and shared with other governments in 2010, leading to prosecutions or settlements with individuals for tax evasion in several countries. Nations whose tax authorities received the French files include the U.S., Spain, Italy, Greece, Germany, Britain, Ireland, India, Belgium and Argentina.

It’s not illegal in most countries to maintain offshore bank accounts, and being identified as holding an HSBC Private Bank account is of itself no indication of any wrongdoing. Some who are named in the files may have had some connection to a Swiss bank account, such as a power of attorney, while not owning the money in the account, or owning only a share of it. Others in the files may not even have had a Swiss bank account.

Tina Turner

Swiss citizen Tina Turner in an ad for Swisscom.Hollywood actor John Malkovich, for instance, said through a representative that he knows nothing about an account listing his name and conjectured that it might have to do with Bernard Madoff, the former stockbroker convicted of fraud who handled some of his finances. A representative for the British actress Joan Collins told ICIJ: “In 1993 my client deposited funds into a bank account in London and subsequently discovered that, without her instructions, the money had been transferred to the Swiss account referred to in your letter.” The representative added that no tax was avoided.

The rock star David Bowie responded to ICIJ media partner The Guardian that he has been a legal resident of Switzerland since 1976. Tina Turner, though seen by many as a quintessentially American singer, has lived in Switzerland for nearly two decades and gave up her U.S. citizenship in 2013.

In many instances the records do describe questionable behavior, such as bankers advising clients on how to take a range of measures to avoid paying taxes in their home countries — and customers telling bankers that their accounts are not declared to their governments.

The reporting by ICIJ and a team of media organizations from 45 countries go deeper into the dark corners of HSBC than a 2012 U.S. Senate investigation, which found that the bank had lax controls that allowed Latin American drug cartels to launder hundreds of millions of ill-gotten dollars through its U.S. operations, rendering the dirty money usable.

The Senate Permanent Subcommittee on Investigations’ extensive report on HSBC also said some bank affiliates skirted U.S. government bans against financial transactions with Iran and other countries. And HSBC’s U.S. division provided money and banking services to banks in Saudi Arabia and Bangladesh believed to have helped fund Al Qaeda and other terrorist groups, the report said.

Later in 2012, HSBC agreed to pay more than $1.9 billion to settle U.S. criminal and civil investigations and entered into a five-year deferred-prosecution agreement.

A subcommittee staff source said Senate investigators had sought the HSBC Private Bank account records from HSBC whistleblower Hervé Falciani and French authorities, but never received the data. The new documents show the bank’s activity in many other parts of the world and reveal a new range of questionable clients and actions by the bank.

The ICIJ revelations also come after The Wall Street Journal reported in January that a progress report by the independent monitor appointed to the bank, a synopsis of which is expected to be made public in April, will show HSBC is failing in its attempts to reform.

An international cast of clients

The documents obtained by ICIJ are based on data originally smuggled away by a former HSBC employee-turned-whistleblower, Hervé Falciani, and handed to French authorities in 2008. Le Monde obtained material from the French tax authority investigation into the files and then shared the French tax authority’s material with ICIJ with the agreement that ICIJ would pull together a team of journalists from multiple countries that could sift through the data from all angles.

ICIJ enlisted more than 140 journalists from 45 countries, including reporters from Le Monde, the BBC, The Guardian, 60 Minutes, Süddeutsche Zeitung and more than 45 other media organizations.

The reporters found the names of current and former politicians from Britain, Russia, Ukraine, Georgia, Kenya, Romania, India, Liechtenstein, Mexico, Tunisia, the Democratic Republic of the Congo, Zimbabwe, Rwanda, Paraguay, Djibouti, Senegal, the Philippines and Algeria, among others. They found several people on the current U.S. sanctions list, such as Selim Alguadis, a Turkish businessman alleged to have supplied sophisticated electrical goods to Libya’s secret nuclear weapons project, and Gennady Timchenko, a billionaire associate of Russian President Vladimir Putin and one of the main targets of sanctions imposed on Russian individuals and businesses in response to the annexation of Crimea and the crisis in eastern Ukraine.

The files do not state either Alguadis’ or Timchenko’s exact roles in relation to the Swiss accounts. A spokesman for Timchenko said the reasons for the sanctions were “far-fetched and deeply flawed” and that his client has “always been fully compliant with all tax related matters.”

Alguadis told ICIJ, “I have had many bank accounts at Turkish and international banks during my life for my personal reasons. At times I felt it prudent to keep some of my savings off-shore.” Alguadis called the U.S. accusations “ridiculous.”

“All our exports were properly declared at Turkish customs and completely legal,” said Alguadis, who denied all links to Libya.

Rami Makhlouf

Rami Makhlouf. Photo: APSome clients linked to millions and sometimes tens of millions of dollars in their accounts are politically-connected figures such as Rachid Mohamed Rachid, the former Egyptian trade minister who fled Cairo in February 2011 amid the uprising against Hosni Mubarak. Rachid, who is listed as having power of attorney over an account worth $31 million, was convicted in absentia for alleged profiteering and squandering public funds. Other names in the files include the late Frantz Merceron, the alleged bagman for the late former Haitian President Jean Claude “Baby Doc” Duvalier, who was accused of having looted up to $900 million before fleeing his country, and Rami Makhlouf, whose cousin and close associate, Syrian President Bashar al Assad, over the past three years has helped cause the deaths of tens of thousands of his citizens in the country’s civil war. Merceron is listed as an attorney on a $1.3 million account belonging to his wife. Makhlouf is listed as a beneficial owner on multiple accounts.

The files feature people who figure in legal proceedings, such as Vladimir Antonov, the former owner of an English soccer club, Portsmouth FC, who faces trial in Lithuania over an alleged €500 million bank fraud; Margulan Seisembayev, a Kazakh banker accused by the Alliance Bank of looting its assets and Tancred Tabone, the former head of the Malta state oil company Enemalta, who is facing prosecution for allegedly demanding bribes.

In a statement, Tabone’s lawyer said his client denies all charges and added that he “has formally authorised the Swiss authorities to provide all that information. … His fiscal affairs in that respect are in order.” Antonov is listed as a beneficial owner on an account worth $65 million. Seisembayev is listed as beneficial owner of multiple accounts.

A representative told ICIJ reporting partner The Guardian, “Mr.Antonov is not and was never a tax resident in the UK. He opened the Swiss accounts you refer to in 2008 for business reasons and because Swiss banks provide a better level of client care and are much more flexible than any UK banks.”

In a reflection of the sheer variety of names in the data, others who appear are Li Xiaolin, the daughter of former Chinese Premier Li Peng, famous for his role in the Tiananmen Square massacre; Joseph Fok, a judge on Hong Kong’s highest court, and Prince and Princess Michael of Kent, the beloved cousin of Queen Elizabeth II of England and his wife.

The account that can be linked to the prince and princess was held in the name of their company, Cantium Services Limited. A representative for the couple said the account “never received nor held any funds” and was closed in 2009. Li Xiaolin is listed, along with her husband, as a beneficial owner of an account that held $2.5 million. Fok is listed as the holder of an account that was closed in 2002. They did not respond to requests for comment.

The files reflect a spectrum of royalty, from King Mohammed VI of Morocco to the Crown prince of Bahrain, Prince Salman bin Hamad bin Isa Al Khalifa,  to dozens of members of Saudi Arabia’s ruling family. Many were partial or full beneficial owners of accounts. The role of the King of Morocco was not specified.

A spokesman for the Crown Prince said, “The Crown Prince invested in a regional hedge fund over which he exercised no control and obtained no tax advantage.”

Business figures and political donors from the U.S. include the financier and philanthropist S. Donald Sussman, whose account predated his marriage to Democratic Congresswoman Chellie Pingree of Maine; the billionaire owner of the Victoria’s Secret lingerie chain, Les Wexner, who in 2012 donated $250,000 to a super PAC supporting former Republican presidential candidate Mitt Romney; and the Israeli diamond-dealing Steinmetz family. The Wall Street Journal reported in 2007 that the Steinmetz family’s venture capital firm Sage Capital Growth paid generous allowances for speeches and other services to Rudy Giuliani, the former New York mayor lauded as an organized crime and corruption fighter who later unsuccessfully pursued the Republican presidential nomination.

A representative of Sussman said the account was not his, adding that he had made a passive investment in a technology venture fund. The representative said it was this fund that had the account, the existence of which he learned for the first time when questioned by ICIJ. “Mr. Sussman’s investments were minority interests,” the spokesman said, “and he had no involvement in the funds’ management, investment decisions, or other activities.” Neither Wexner nor the Steinmetz family responded to requests for comment.

An analysis of the files by ICIJ shows that many individuals linked to accounts took extra precautions to protect their identities, even though HSBC staff repeatedly assured customers they were already bound by tight Swiss banking secrecy.

Many of the accounts were held by companies in offshore tax havens such as the British Virgin Islands, Panama or in the remote Pacific island of Niue, rather than by the individuals who owned the money. Thousands more used de-identified, numbered accounts.

HSBC PB Geneva

HSBC Private Bank in Geneva. Photo: Pascal Frautschi/TamediaIn the documents an HSBC employee refers to one of Australia’s most prominent corporate figures, Charles Barrington Goode, by his initials.

“Acct holder Mr. Ch.B.G. would like to be called Mr. Shaw (acct heading). So the entire discussion we were speaking about Mr. Shaw,” the staff member wrote in one document. Goode’s account was held under the name “SHAW99.”

At the time of the note, Goode was the chairman of ANZ bank, one of Australia’s biggest. In his other role in politics, Goode was called by a senator during debate in the Australian Parliament in 2001 “a man who is the bag carrier, the fundraiser, for the Liberal party,” the current ruling party of the Australian Prime Minister, Tony Abbott.

Two foundations that Goode has been publicly associated with in Australia — The Cormack Foundation and Valpold Pty Ltd — gave more than Aus$30 million to the Victoria branch of the Liberal Party between 1998 and 2013, according to filings with the Australian Electoral Commission.

Goode told ICIJ that he opened his account 30 years ago and the bank insisted he use a pseudonym. “The bank officer told me that, for security purposes, I needed a name, other than my own name, or a number, to identify the account and which I should use in communicating with the bank. I chose the name ‘Shaw.’ ” Goode said “the account was dormant for about 25 years”  and that before he closed the account five years ago he had declared it to Australian tax authorities and paid tax on any income he derived.

Breaking the bank’s own policy

The documents raise new questions about past public statements by HSBC that staff did not help customers engage in tax evasion. In July 2008, for example, Chris Meares, the then head of private banking for HSBC, told a British parliamentary hearing: “We prohibit our bankers from encouraging or being involved in tax evasion.”

Three years earlier one wealthy British client, Keith Humphreys, a director of the English Premier League soccer club Stoke City FC, is described telling his HSBC manager that one of his family’s Swiss accounts was “not declared” to the U.K. tax authorities. The files state it held more than $450,000 at the time.

Humphreys told ICIJ media partner, The Guardian, that the Swiss account was held not by him but by his father and that it was later voluntarily disclosed to authorities. The account, he said, “was established in line with financial advice that he was given at the time” and disclosed to British tax authorities in 2011, with a settlement of £147,165.

“This client is somwhat [sic] paranoid, e.g. whenever he was coming to ZH [Zurich], he flew to Paris and hired a car to drive to ZH”

In another instance, an HSBC employee wrote this note in the file of Irish businessman John Cashell, who would later to be convicted of a tax fraud in his native country: “His pre-occupation is with the risk of disclosure to the Irish authorities. Once again I endeavoured to reassure him that there is no risk of that happening.” Cashell did not respond to requests for comment.

The bank itself became uneasy over a €20 million transaction by a Serbian businessman. But the bank employees merely asked him to act less conspicuously: “Explained that as per today the bank did not interfered [sic] in his money transfer transactions,” the relevant document says, “but would have preferred to reduce those activities on a lower scale. [He] understands our concerns and will use smaller amounts.”

HSBC staff also appeared to show little concern at the description they received of a Canadian doctor, Irwin Rodier. “This client is somwhat [sic] paranoid, e.g. whenever he was coming to ZH [Zurich], he flew to Paris and hired a car to drive to ZH, in order not to re-enact his final destination etc.”

Rodier told ICIJ media partner CBC/Radio-Canada that he had since settled his taxes with Canadian authorities.

In its statement to ICIJ, HSBC said: “In the past, the Swiss private banking industry operated very differently to the way it does today. Private banks, including HSBC’s Swiss private bank, assumed that responsibility for payment of taxes rested with individual clients, rather than the institutions that banked them.”

Getting around a new law

The files show that some European customers were given advice on how to avoid a withholding tax on bank savings that came into effect in European Union countries in 2005. Switzerland had agreed to implement the tax — called the European Savings Directive, or ESD.

But the ESD pertained only to individuals, not to corporations. The files show HSBC Private Bank seized on this loophole to market products that transformed individuals into corporations for tax-reporting purposes.

The documents record that day by day throughout 2005, clients arrived in Switzerland to make cash withdrawals in British pounds, Euros, Swiss francs, U.S. dollars, even Danish krone — sometimes asking for small used notes.

One of those being provided with cash supplies of dollars and euros was Arturo del Tiempo Marques, a property developer sentenced in 2013 to a seven-year jail sentence in Spain for smuggling cocaine. He controlled up to 19 HSBC accounts containing more than $3 million. He did not respond to requests for comment.

In one transaction, the British business tycoon Richard Caring, accompanied by security, was depicted in September 2005 collecting more than five million Swiss francs in cash.

HSBC staff explained handing Caring the huge sum of cash by quoting a statement by him that he planned to deposit the cash with another Swiss bank, and did not want either bank to be aware of the other. They wrote: “RC goes to great lengths to maintain discretion.”

A representative of Caring told The Guardian that he did not avoid taxes and that his “use of offshore funds was conducted under widely used and accepted tax principles.”

The files show Caring, a major donor to British politics, transferring $1 million to the Clinton Foundation, a nonprofit set up by the former U.S. President Bill Clinton with the stated mission to “strengthen the capacity of people in the United States and throughout the world to meet the challenges of global interdependence.”

The donation to the Clinton Foundation was requested in December 2005. The previous month, Caring funded a champagne and caviar extravaganza at Catherine the Great’s Winter Palace in St Petersburg, Russia, flying in 450 guests to be entertained by Sir Elton John and Tina Turner and addressed by Bill Clinton. The event raised more than £11 million for a children’s charity.

More Clinton donors

Hillary, Chelsea and Bill Clinton

Bill Clinton speaking at a Clinton Foundation event with wife Hillary and daughter Chelsea. Photo: JStone / Shutterstock.comA number of other prominent donors to the Clinton Foundation appear in the files, including the Canadian businessman Frank Giustra and German motor racing superstar Michael Schumacher, a seven-time Formula One champion. A representative of Schumacher, who is listed as a beneficial owner of an account closed in 2002, told ICIJ that he is a long-term resident of Switzerland.

The records show Giustra is the only person listed in an HSBC account holding more than $10 million in 2006/2007, although his role in the account is not specified

The New York Times reported in 2008 that Giustra donated to the Clinton Foundation shortly after Bill Clinton accompanied Giustra on a trip to Kazakhstan in 2005. When they landed, Nursultan A. Nazarbayev, who has served for decades as Kazakhstan’s president, met his two visitors over a sumptuous midnight banquet.

The Times reported that Clinton made a public declaration of support for Nazarbayev that was at odds with the stance of the U.S. government and of Clinton’s wife, then-Senator Hillary Rodham Clinton, who had criticized Kazakhstan’s record on human rights. Two days later, corporate records showed, Giustra’s company won the right to buy into three state-owned uranium projects in Kazakhstan.

Both Clinton and Giustra told the Times that Giustra traveled with Clinton to Kazakhstan to see first-hand the foundation’s philanthropic work. A spokesman for Clinton told the newspaper that the former president was generally aware of Giustra’s mining interests in Kazakhstan but did nothing to help those interests.

A representative for Giustra disputed the New York Times story and said that Giustra is “in full compliance and disclosure regarding any and all bank accounts.” A spokesman for the Clinton Foundation told The Guardian it “has strong donor integrity and transparency practices that go well beyond what is required of U.S. charities, including the full disclosure of all of our donors.”

Data disappears in Greece

The data shared by French authorities with other governments is now the basis of formal investigations in several countries. French magistrates are examining whether the bank helped some clients avoid paying 2006 and 2007 taxes. French authorities have required HSBC to deposit a bail bond of €50 million. Belgian prosecutors late last year also accused the bank of tax fraud.

In August 2014, Argentine tax agents raided HSBC’s offices in Buenos Aires. The Buenos Aires Herald has reported that Argentine tax chief Ricardo Echegaray has accused HSBC of “rolling out a fraud-enabling platform” as “a maneuver to hide bank account information from tax collectors.”

HSBC said in its statement to ICIJ that it was “fully committed to the exchange of information with relevant authorities” and was “actively pursuing measures that ensure clients are tax transparent, even in advance of a regulatory or legal requirement to do so. We are also cooperating with relevant authorities investigating these matters.”

The documents raise questions about why there were investigations in some countries and not in others — and whether some investigations were less than painstaking.

For instance, some of the most extensive material relates to the bank’s U.K. clients. Initial investigations by French tax authorities identified more than 5,000 British clients linked to $61 billion in HSBC deposits — more clients and more money than from any other country.

Though the French investigators likely initially over-estimated the true amounts held by clients, the British tax office concluded that 3,600 of the 5,000 names it received from the French in 2010 were “potentially non-compliant.” A report to a House of Commons committee in September 2014 said the tax office had recovered just £135 million in back taxes from individuals on the list, compared to £220 million collected by Spain and £188 million collected by France. Lord Stephen Green, the head of HSBC during the period the records cover, later became trade minister in the Cameron government in Britain, a position he held until 2013.

Apart from isolated court cases in U.S. federal courts, it appears that the U.S. Internal Revenue Service has also gone about its work quietly despite French tax investigators having identified 1,400 people with U.S. connections, holding some $16 billion. Again, that figure was higher than the amounts identified by ICIJ.

In a statement to ICIJ media partner 60 Minutes, the IRS said that since U.S. taxpayers were first encouraged to voluntarily come forward with details of their offshore holdings in 2009, “there have been more than 50,000 disclosures and we have collected more than $7 billion from this initiative alone.” The agency declined to disclose how many, if any, of those who came forward had accounts with HSBC.

What happened after France sent Greece the names of more than 2,000 Greek HSBC clients touched off a furor that now has Greece’s former finance minister facing trial.

Hot Doc, Lagarde list

Hot Doc magazine, which published the Lagarde list.Greece received the names in 2010, but nothing happened until October 2012, when a Greek magazine, Hot Doc, published the names and noted the lack of an investigation into whether rich Greeks were evading taxes while the country was undergoing austerity measures, including pay cuts and tax increases for those who paid.

In contrast to the reluctance with which they had gone after possible tax evasion, Greek authorities were quick to arrest Hot Doc editor Kostas Vaxevanis and charge him with violating privacy laws. He was quickly acquitted, and his trial provoked anger when two former heads of the financial police testified that neither the former finance minister Giorgos Papakonstantinou nor his successor had ordered an investigation into the list. Papakonstantinou said it had been lost.

When the list finally surfaced, it was missing the names of three relatives of Papakonstantinou. He now faces criminal charges alleging breach of trust, doctoring an official document and dereliction of duty growing out of the removal of his relatives’ names and out of his failure to act on the list when he received it.

Doing business with arms dealers

Links to arms dealing emerge repeatedly in the files obtained by ICIJ.

HSBC kept  Aziza Kulsum and her family as clients even after Kulsum was named by the United Nations as financing the bloody Burundian civil war in the 1990s.

The 2001 United Nations report also said that Kulsum was a key player in the Democratic Republic of the Congo in the illicit trade in coltan, a strategically important mineral used in electronic devices. A big part of the world’s supply of coltan comes from conflict zones in Central Africa, where armed factions control many mines, extort miners and profit from the sale of illegal ore.

While two of Kulsum’s accounts were closed before 2001, a third account worth $3.2 million was frozen (though not closed) for unspecified “compliance reasons” at an unknown date. Kulsum’s husband had an unspecified connection to a further account that was not closed and held an additional $1.6 million at one point in 2006/2007. HSBC referred to Kulsum as a “businesswoman (stone and noble metals)” and the owner of a cigarette factory.

Soldiers in Liberia in 2003Soldiers stand guard on a bridge in Liberia during fighting in 2003. Photo: APAnother questionable account appears under the name of Katex Mines Guinee. According to a 2003 report by the United Nations, Katex Mines was a front company used by Guinea’s Ministry of Defense to traffic arms to rebel soldiers in Liberia during fighting in 2003. Inexperienced child soldiers were fighting on both sides; hundreds of people were killed and more than 2,000 were injured. The account is shown with $7.14 million in it three years after UN reports about Katex Mines were made public.

Other notes show HSBC staff meeting a customer, Shailesh Vithlani, in Dar es Salaam, Tanzania, in 2005, to advise him how best to invest his money. The Guardian reported in 2007 that Vithlani, who is listed as a beneficial owner of one account, was an alleged middleman who arranged for the British arms company BAE to secretly pay $12 million into an unspecified Swiss bank account in return for the Tanzanian government buying an overpriced military radar system. Vithlani, who could not be reached for comment, told The Guardian in 2007 that he did not pay money from Switzerland to officials in Tanzania.

Another HSBC customer linked to BAE was Fana Hlongwane, a South African political adviser and businessman.  The U.K. Serious Fraud Office said in statements submitted to South African prosecutors in 2008 that Hlongwane received money from BAE through a disguised chain of offshore intermediaries in order to promote arms deals.

Hlongwane’s lawyers did not respond to repeated requests for comment.

In a 2014 affidavit made to an ongoing inquiry into the arms contracts, Hlongwane denied “any evidence implicating myself and/or my Companies in any corruption or wrongdoing.”

Hlongwane is listed as the beneficial owner of an account, Leynier Finance SA, that contained $888,000. Two other accounts that held $12 million at one point in 2006/2007 do not specify his exact role.

Another account holder appears to be linked to the so-called Angolagate scandal.

In 2008, French prosecutors began proceedings against more than 40 people implicated in corrupted arms sales to Angola in the 1990s. The scandal, which was alleged to have involved more than $50 million in bribes exchanged for contracts worth nearly $800 million, named high-profile French figures, including the son of former French President Francois Mitterrand.

The account likely linked to Angolagate, under the name Micheline Arlette Manuel, was dubbed Corday and was open from 1994 to 1999. Manuel’s exact role with the account was not specified.

Corday is the name on a series of accounts at HSBC and other banks that have been publicly linked to Micheline Arlette Manuel’s husband, Yves, who also held an account with HSBC and who died following a conviction for his role in the scandal. A French court ruling in October 2011 said Yves Manuel received and concealed $2.59 million that he knew had come from the company that disbursed bribes to French and Angolan officials. She did not respond to requests for comment.

Yet another account can be found under the name Wang Chia-Hsing, the son of the alleged middleman in an infamous Taiwan arms deal, Andrew Wang Chuan-pu.

Wang Chuan-pu is a fugitive wanted in Taiwan over his alleged role in the murder of Taiwanese Navy Capt. Yin Ching-feng and a series of kickback and corruption scandals implicating Taiwan, France and China.

The South China Morning Post reported that Wang Chuan-pu left Taiwan shortly after the body of Yin – who was about to blow the whistle on alleged kickbacks and corruption in the navy’s purchase of six French frigates – was found floating off the island’s north coast in December 1993. Despite Chuan-pu’s death earlier this year, announced by his Swiss lawyers on 30 Jan., court cases continue in Switzerland and Taiwan.

The HSBC documents show conversations between Wang Chia-Hsing, who is described as an interior decorator and shown with an upmarket London address, and HSBC staff even during a period when the account with more than $38 million was under a court blocking order. The files do not make clear what Wang Chia-Hsing’s exact role in the account was. However, the files record that he asked the bank to recognize his non-domicile residency status in the U.K., a reference to a foreign national living in the U.K. who doesn’t pay income tax or capital gains tax on earnings abroad. It is generally regarded as a form of legal tax avoidance. The bank’s notes further indicate that a HSBC staff member was willing to backdate a form.

A representative for Wang Chia-Hsing said he has “paid all proper taxes due and has not acted in any way improperly or unlawfully.”

Diamond Traders

An analysis by ICIJ shows that almost 2,000 of HSBC clients who appear in the files are associated with the diamond industry. Among them is Emmanuel Shallop, who was subsequently convicted of dealing in blood diamonds.

Blood diamonds, or conflict diamonds, are terms used for gems mined in war zones that are later sold to finance further war. Diamonds mined during the recent civil wars in Angola, Cote d’Ivoire, Sierra Leone and other nations have been given the label.

“Diamonds have a long history of being linked to conflict and violence,” said Michael Gibb of the international human rights group Global Witness. “The ease with which diamonds can be converted into tools of war, when not sourced responsibly, is astonishing.”

The documents show that HSBC was aware that Shallop was under investigation by Belgian authorities at the time it was helping him.  “We have opened a company account for him based in Dubai. … The client is very cautious currently because he is under pressure from the Belgian tax authorities, who are investigating his activities in the area of diamond fiscal fraud.”

Shallop’s lawyer told ICIJ, “We dot [sic] not want to give any comment on this issue. My client does not want his name to be mentioned in any article because of reasons of privacy.”

Other HSBC account holders can be linked to Omega Diamonds, which in 2013 settled a tax dispute in Belgium for $195 million, without admitting liability. Belgian authorities alleged in their civil suit that Omega shifted profits into Dubai by trading falsely valued diamonds from mines in Congo and Angola. During the period of these alleged transactions, the firm’s two principals, Ehud Arye Laniado and Sylvain Goldberg, each had HSBC accounts. A third Omega shareholder, Robert Liling, appears in the files as the owner of several accounts.

An attorney for the three men said none were prosecuted for tax offences. “The tax dispute between Omega Diamonds and the Belgian tax authorities involved Omega Diamonds only, neither Mr Laniado, Mr Goldberg or Mr Liling were involved in this. The Omega Diamonds tax dispute has been settled in an amicable settlement.”

Links to Al Qaeda?

HSBC’s clients’ links to Al Qaeda were first publicly raised in the July 2012 U.S. Senate report, which cited an alleged internal Al Qaeda list of financial benefactors. The Senate report said the list came to light after a search of the Bosnian offices of the Benevolence International Foundation, a Saudi-based nonprofit organization that the U.S. Treasury Department has designated as a terrorist organization.

Osama bin Laden, the mastermind behind the 9/11 attacks, referred to the handwritten list of the 20 names as the “Golden Chain.”

From the moment the names on the Golden Chain list were made public in news reports in the spring of 2003, the Senate subcommittee stated that HSBC should have been “on notice” and aware these powerful business figures were high risk clients.

Though the significance of the Golden Chain list has since been questioned, the ICIJ found what appear to be three Golden Chain names with HSBC Swiss accounts that existed after that date.

Documents also reveal irony

Elias Murr

Elias Murr. Photo: InterpolThe documents reveal so many grim stories, but at least one is ironic.

People on the Most Wanted list of Interpol, the international police agency, such as the diamond dealers Mozes Victor Konig and Kenneth Lee Akselrod, are among the HSBC account holders — and so is Elias Murr, who is president of the board of Interpol’s Foundation for a Safer World, an organization aimed at fighting terrorism and organized crime. Murr, who was a prominent businessman before entering politics, was interior minister of Lebanon in 2004 when an HSBC account owned by him was held through a company called Callorford Investments Limited. By 2006-2007, the account would contain $42 million.

A spokesman for Murr said his client’s wealth and that of his family is public knowledge, and his family has held accounts in Switzerland since before he was born. The account was not connected to his political role. “It is not illegal and it is not suspicious that a Lebanese national opens and holds accounts anywhere.”

CORRECTION: This article initially said the U.S. Senate Permanent Subcommittee on Investigations requested the data from HSBC management and was refused. The subcommittee reached out to whistleblower Hervé Falciani and French authorities, but never received the data.

Ireland’s Manufacturing PMI for November 2012

by

NCB Purchasing Manager Indices for Manufacturing for Ireland are out this morning with a deserved upbeat soundings on foot of the core data showing continued growth in the sector. Here are some details, both worth a positive overall note and some warning signs of potential tightness ahead.

Business conditions continued to improve in the Irish manufacturing sector during November, marking the ninth consecutive month of such increases, though there were slower rises in output and new orders.

Overall PMI was running at 52.4 in November, slightly up on October 52.1. November reading was the highest since July 2012. Strictly-speaking, both October and November indices were statistically indistinguishable from 50.0, however, with the last index reading that was statistically significantly above 50.0 was July 2012 and the last time this happened before then was April 2011.

Not to rain too much on the parade, 12mo MA through November 2012 is at 51.1 and 6mo MA is at 52.4,

full article at source : http://trueeconomics.blogspot.de/

 

Vaxevanis’ court hearing postponed to November 1

For your attention …..

Vaxevanis’ court hearing postponed to November 1
29 Oct 2012 4:04 pm
Journalist Kostas Vaxevanis arrives in court, 29 October 2012 (Reuters)
Journalist Kostas Vaxevanis arrives in court, 29 October 2012 (Reuters)
Journalist Kostas Vaxevanis’ hearing on charges of violating personal data for publishing the Lagarde list has been postponed to November 1.
Friends, colleagues and supporters of the Hot Doc magazine publisher gathered outside the court house at noon on Monday, when the hearing was due to take place, including MPs and journalist union representatives.
Vaxevanis appeared in court on charges of violating personal data, two days after his news magazine Hot Doc published a leaked list of 2,059 Greek residents with accounts in Swiss bank HSBC. The list published by the magazine contained only names without the size of the bank accounts.
The defence requested that the hearing be postponed because a number of people whose names are on the list had expressed their intention to testify as witnesses, defence lawyer Charis Oikonomopoulos said.
Vaxevanis’ other lawyer, Nikos Konstantopoulos, stated the defence’s intention to highlight the political dimension of the case.
Exiting the court Vaxevanis said among others that it was his duty to publish the list because “everything else is public relations”.
ARREST
Vaxevanis was arrested in the northern suburbs of Athens on Sunday, in execution of a warrant issued ex officio by an Athens prosecutor on Saturday night, just hours after the publication of the list.
Minutes before his arrest he had tweeted his whereabouts and challenged police waiting outside to pick him up.
The journalist was briefly detained at the GADA police general headquarters on Alexandras Avenue and was released three hours later, to the cheers of waiting supporters, after appearing before a public prosecutor.
PARTY REACTION
Syriza in an announcement called the ex officio action against Vaxevanis “provocative and unacceptable”, noting that “justice hastened to act against those who reveal, whereas it displays sluggishness vis-a-vis those who conceal”.
“The prosecution is political, and as such should be faced by the entirety of the Greek people who are called on these days to suffer the consequences of the harshest and class-oriented policy ever known to Greece since the restoration of democracy, and also the consequences of the long-standing and systematic tax evasion by ‘those who have’,” Syriza charged.
In a similar statement, the Communist Party of Greece (KKE) also called the action against Vaxevanis “unacceptable and provocative”.
“The mockery and deception of the Greek people (with ‘lists’) by those who conceal them, hide them or use them according to their political and economic expediencies must stop,” the KKE said, adding that “the economic system and prevailing political forces do not want the people to learn the truth, and it is in their interest to disorient and deceive them.”
THE LIST
The list had ended up in the hands of French authorities roughly four years ago when they seized digital evidence from the house of former HSBC employee Herve Falciani, who was wanted by the Swiss authorities and who had illegally copied details of bank accounts that belonged to roughly 20,000 people.
The list was sent to then finance minister George Papaconstantinou by his French counterpart Christine Lagarde. Papaconstantinou claimed to have had the original list, sent in CD format, copied on a USB stick which he turned over to the ministry’s financial crimes squad SDOE for investigation, and that he turned over the original CD and accompanying documents to his office for “confidential safekeeping” and was unaware of its current whereabouts.
Pasok leader Evangelos Venizelos produced the memory stick containing the list a few days later, saying he had received from SDOE Special Secretary Ioannis Diotis when the former was deputy prime minister and minister for finance in the Papandreou government. (Athens News/dv, AMNA)

Money laundering: JP Morgan in the frame for Venezuelan drugs link

From the Slog  larest article :

Those slightly dense British politicians convinced that American attacks on our banks involved in drug-money laundering were motivated by envy may be in for a few jolts in the next few weeks, I hear. The first of these comes in the shape of US regulators being on the verge of filing such charges against that most un-British of banks (save for the presence of Tony Blair) JP Morgan.

While the extent of the inquiry taking place into JPM is for the moment vague, I’m told the liabilities could be gigantic. Morgan has already gone public to say it expects ‘heightened scrutiny’ of its compliance with laundry regulations. But I understad that, in turn, the Office of the Comptroller of the………………………..

full article at source:  http://hat4uk.wordpress.com/2012/09/15/money-laundering-jp-morgan-in-the-frame-for-venezuelan-drugs-link/

HSBC Laundering Billions?

by Staff Report

A former employee of one of the world’s largest international banks has provided WND with more than 1,000 pages of documents, including customer account ledgers for dozens of companies through which the financial institution was laundering money each month, according to the whistleblower. “I found many accounts through which hundreds of thousands of dollars were being flowed as a conduit on a monthly basis,” John Cruz, an account relationship manager who worked in the HSBC southern New York region, told WND. − WorldNetDaily

Dominant Social Theme: What a shock! This is perhaps the biggest bank in the world! Where were the regulators? What’s going on? How could this happen? It’s really impossible to believe …

Free-Market Analysis: Jerome Corsi better hire pretty good security. In Georgia, a lawsuit that Corsi has helped promote seems close to knocking US President Barack Obama off the ballot due to questions about his parents and whether he is US “natural born” – and thus eligible to be president.

And now Corsi has apparently helped reveal the underbelly of the Western world’s banking system by exposing “thousands of pages” of documents that, according to Corsi, seem to prove fairly conclusively that HSBC was involved in a massive money laundering scheme that involved people at the very top of the bank.

As of 2011, according to Wikipedia, British-based HSBC was the world’s second-largest banking and financial services group and second-largest public company per a composite measure by Forbes magazine … “In February 2008, HSBC was named the world’s most valuable banking brand by The Banker magazine.”

Given that HSBC is the most valuable banking brand in the world, systemic corruption at the top of HSBC is big news. What’s funny in a sad way is that this probably has been going on for decades. It is only now, however − thanks to the Internet − that these sorts of things can be publicized. It seems like there is fairly significant

full report at source:http://www.thedailybell.com/3580/HSBC-Laundering-Billions

Call for the Resignation of the Governor of the Central Bank

Brian Cowen on Morning Ireland.

Image via Wikipedia

Ireland’s Bailout Scandal EFSF Funds to Cost Irish Taxpayer 9% Per Annum

 

Call for the Resignation of the Governor of the Central Bank

European Wire service: 26th. January 2011:

Frankfurt – European Financial Stability Facility (EFSF) today placed its inaugural bond for an amount of €5 billion as part of the EU/IMF financial support package agreed for Ireland. The issuance spread was fixed at mid-swap plus 6 basis points. This implies borrowing costs for EFSF of 2.89%. Investor interest was exceptionally strong, a record breaking order book of €44.5 billion from more than 500 investors. Investor demand came from around the world and from all types of institutions. Very strong demand came from Asia. The Government of Japan purchased over 20% of the issue, reflecting its early commitment with the intention of contributing to European financial stability.

Klaus Regling, EFSF’s CEO commented “I am delighted with the outcome of our inaugural issue. The huge investor interest confirms confidence in the strategy adopted to restore financial stability in the euro area”. Citi, HSBC and Société Générale acted as lead managers for this first EFSF issue and Deutsche Finanzagentur, the German Debt Management Office, acted as Issuance Agent. Klaus Regling expressed his gratitude to all participants for the successful placement of EFSF’s first issue.

The funds will be disbursed to Ireland on 1 February (5 business days settlement). This will match Ireland’s request for a loan of €3.3 billion. The difference between the amount raised on the markets and the amount disbursed to Ireland is due to EFSF’s credit enhancements using a cash reserve and loan-specific cash buffer to secure a triple A rating. The cash reserve comprises a margin rate and a one-off service fee. It is also explained by EFSF’s structure which requires both the principal and interest to be covered by guarantees. The final cost charged to Ireland and the exact loan amount will only be known once the cash reserve and the loan specific cash buffer, which are retained by EFSF, have been reinvested.

The scandal surrounding Ireland’s IMF/EU bailout continues to gather momentum following the collapse of Brian Cowen’s position as Taoiseach (Prime Minister) of Ireland.

There are now growing calls for the resignation of Mr. Paddy Honohan, the embattled Governor of the Irish Central bank, due to the fact that he was the lead negotiator during the disastrous bailout talks.

It turns out that even though the EFSF is borrowing funds at 2.89%, Ireland is in effect being charge nearly 9%. This is a higher rate charged on come credit cards in mainland Luxemburg where the private EFSF is based (it is a structured investment vehicle a la Enron fame).

Ostensibly Ireland is paying approximately 6% but in fact the Emerald Isle will receive only 66% of funds raised, though taxpayers  must fully guarantee 100% of the principal and interest. Thus when you add fees and funds withheld the real rate, according to my math, is 9% approx.

Clearly something went wrong and it looks like heads are set to roll.

It is expected that Brian Cowen will dissolve the Irish Parliament before next Wednesday February 2nd.  The election campaign that will follow is set to be one of the most contentious in living memory with implications for the future of the Irish parliamentary system and the stability of the  wider Euro project.

Watch this space folks it’s going to be a wild ride.

Comment:

something stinks ,this is sheer robbery!

Why is this not on the national air waves instead of waffling on about Martin talking to Edna or Eamon! Who gives a damn “where are these billions going”? Who is responsible?

Who agreed to this scam? So we the taxpayers are been fleeced all over again!

 What are the politicians talking about while this scandal is unfolding under their noses?

The people who have been involved in the setting up of this so called bailout are in fact earning a fortune on our misery and our officials, we expected to look after our interests are just as incompetent as the politicians who caused this travesty in the first place it would seem!

The fraud squad should be immieadetely be brought in and prosecutions should follow .The Central Bank Governor should be brought in for questioning and until the outcome of this enquire, he  should be relieved of this post.

we are supposed to be getting 5 billion but end up with 3.5 billion and the rest goes to persons unknown as fees  this is the last straw we must not let this go unanswered the guilty are having a laugh ?

Related Articles

Citigroup to Double Hong Kong Consumer Bank Client Base

“At last some good news on the jobs front  in Ireland “
Citigroup to Double Hong Kong Consumer Bank Client Base, Challenging HSBC
By Stephanie Tong – Dec 12, 2010 4:01 PM GMT
 

Citigroup Inc. aims to double the number of clients at its consumer banking unit in Hong Kong as it challenges HSBC Holdings Plc and Standard Chartered Plc by adding branches, cash machines and online services.

The New York-based bank targets two million consumer- banking customers in the city in three to five years, up from a million now, Jonathan Larsen, Citigroup’s head of consumer banking for the Asia-Pacific region, said in a Dec. 9 interview.

“Hong Kong is an attractive market,” Larsen said. “We think that we deserve a much larger slice of that market and we think we can achieve that.”

Citigroup stepped up expansion in the city of 7 million people this year, almost doubling its number of branches to 43 and adding more than 60 automated teller machines. The company is signing up more than 10,000 new retail banking customers a month in Hong Kong, a fivefold increase from the pace at the start of the year, according to spokesman James Griffiths.

HSBC, based in London and founded in Hong Kong in 1865, is the largest bank in the city with around 100 branches and more than 4 million clients at its personal financial services unit. Standard Chartered, the British bank that gets most of its profit from Asia, has about 80 branches and operates more than 200 ATMs.

Citigroup’s consumer banking unit oversees retail banking, wealth management for individuals with up to $10 million of assets, credit cards and small and medium-sized businesses. HSBC includes retail banking, credit cards, insurance, pension savings and investments in its personal financial services operations.

Asian Plans

Hong Kong, where the economy grew 6.8 percent in the third quarter, is part of Citigroup’s push to expand in Asia. The U.S. bank plans to boost its branch network in the region to more than 1,000 in the next three to four years from 710 now, Larsen said. Citigroup aims to triple its number of outlets in China to about 100 within three years.

Standard Chartered said last week that intensifying competition among banks is driving staff costs higher, predicting expenses will rise faster than revenue this year.

In Hong Kong, Citigroup is chipping away at HSBC’s dominant position by expanding the range of outlets where customers can access banking services. The bank said in October it agreed to install ATMs in 7-Eleven stores across the city.

“We are not going to stop,” said Larsen. “We will keep adding ATM locations. We are going to keep finding partners that can help us to add value. We are going to keep making sure that we are a very visible player.”

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

Dec 9 (Reuters) – U.S. financial services group Citigroup (C.N) will hire 250 people in Ireland next year in operations, funds, technology and product development, the company said on Thursday.Citigroup already employs more than 2,200 workers in Dublin and Waterford, around 100 miles south of the capital, and has hired 300 people in the past 12 months.

The jobs announcement was a rare piece of good news for Ireland which has been rocked by a financial crisis that has seen unemployment soar, emigration return and its application for an 85 billion euros ($113 billion) bailout from the IMF and European Union last month. (Reporting by Carmel Crimmins; Editing by Dan Lalor)

Comment :

I have for the past year thought that this bank is one of the few I would invest in now more so as they are investing in Ireland again!

China’s is overheating!

By: Mike_Shedlock

 Consumer prices in aggregate rose at an annual rate of 4.4% as of October. Food prices are up 10.1 percent according to China Financial Daily.

Moreover, accelerating inflation is hurting profit margins in China’s service sector. China’s non-manufacturing PMI fell to a nine-month low in November, with new orders in consumer service industries showing outright contraction.

In response to these inflationary price pressures, China declared a shift to a “prudent monetary policy”, including price controls at Walmart.

This begs the question: Since when do price controls constitute “prudent policy”? Price controls have never worked in history and this time will be no different.

This is a pretty long post, but please stay tuned until the end for an analysis of Multiple Simultaneous Games of “Chicken”.

Topics include a comparison of monetary and credit growth in the US vs China, a look at the problems in Japan, a detailed look at various games of “chicken” central banks play with each other, and a detailed look at various games of chicken that speculators play with the market.

To fill in the details however, we need to start from the top with a look at China’s overheating manufacturing sector.

Chinese Manufacturing Growth Accelerates

To date, interest rate hikes have not yet have any effects on industrial output. China’s latest PMI survey shows Manufacturing Growth Accelerates

China’s manufacturing grew at a faster pace for a fourth straight month in November, indicating the economy can withstand higher interest rates as price pressures escalate.

The Purchasing Managers’ Index rose to 55.2 from 54.7 in October, China’s logistics federation said on its website today.

Cement prices have climbed to a record, the state-run China Daily reported today. Consumer prices may have climbed 4.8 percent in November after October’s 4.4 percent gain, which was the biggest in 25 months, according to China International Capital Corp.

Spot prices of power-station coal at Qinhuangdao port, a Chinese benchmark, rose to a two-year high this week.

The Irish Times reports the biggest increase in China’s PMI came in the sub-index for input prices, which climbed to 73.5 from 69.9 a month earlier.

Service Sector Contraction

Unable to pass on price hikes, China’s Services Industry Slows as Inflation Erodes Margins.

China’s non-manufacturing purchasing managers’ index fell to a nine-month low in November as accelerating inflation eroded service companies’ margins.

The index dropped to 53.2 from 60.5 in October, according to a statement today by the Beijing-based National Bureau of Statistics and the Federation of Logistics and Purchasing. A reading above 50 indicates an expansion. A separate service PMI released by HSBC Holdings Plc fell to 53.1, a near two-year low.

Inflationary pressure has started to show a negative impact on service expansion,” the logistics federation said in today’s statement.

The non-manufacturing measure encompasses business and consumer services as well as construction and real estate. The non-manufacturing new-order index fell to 50.1 last month from 56.3 in October, and new orders in consumer service industries indicated a contraction, with a reading of 47, today’s data show.

Shift to “Prudent” Monetary Policy

In response to the huge yet likely understated price inflation, China declares shift to “prudent” monetary policy

China will switch to a prudent monetary policy from a moderately loose stance, the Communist Party’s top leaders decided on Friday, a change that could pave the way for more interest rate increases and lending controls.

At the same time, the Politburo elected to maintain China’s proactive fiscal policy, an indication that the government wants to continue to ramp up investment spending even while taking tightening steps to control inflation.

“It means that all sorts of monetary policy tools to control liquidity and to control inflation can now be used,” said Ken Peng, an economist with Citigroup in Beijing.

“In the past we’ve been clearly focusing on administrative measures. Going forward we could be using more price adjustments via interest rates,” he said, adding that he expected five rate increases by the end of next year.

China Places Price Controls on Wal-Mart

Would five rate hikes by the end of 2011 be enough? Since the answer is unknown, prudence would dictate for China to start hiking now in order to slow rampant credit expansion.

Instead, Wal-Mart Among Companies Facing China Price Controls.

The southwestern Chinese city of Kunming, where Wal-Mart Stores Inc. and Carrefour SA have operations, has imposed temporary price ceilings on daily necessities to counter inflation.

Kunming’s government asked five retailers — three non- Chinese, one Chinese and one based in Hong Kong — to report any price adjustments and give reasons for the changes two days in advance of making any alterations, the National Development and Reform Commission’s local branch said on its website yesterday.

Besides the five companies, other food, cooking-oil and beverage producers are requested to apply for government approval 10 working days before making price changes, the statement said.

The city government also imposed temporary price ceilings on daily necessities in major parts of the city starting from yesterday to the end of February, according to the statement. Prices of grain, cooking oil, meat, eggs, milk and noodles are to be kept at levels before Nov. 17, the statement said.

The city limited retail prices of vegetables, depending on type, to 40 percent to 100 percent higher than wholesale prices, the statement said.

Price Controls Never Work

Not once in history have price controls ever accomplished anything good, unless you consider shortages a good thing. Expect shortages and black market pricing if the service sector and grocery stores cannot pass on input price increase.

The market’s response last Friday was swift and severe as noted by the following commodity charts.

Grains

Metals

Crude

Chicken

It’s not chicken prices that are important but rather the very dangerous game of chicken that China is playing. Money supply and credit are soaring in China and along with that explosion of credit is rampant inflation.

Economics Junkie has a nice set of charts comparing Money Supply in the US vs. China.

M1 in China

M1 (China) vs TMS1 (US)

Domestic Credit Contraction in US

According to the Fed Z1 Flow of Funds Report US domestic nonfinancial credit has been in contraction for 9 consecutive quarters, while domestic financial credit has been in contraction for 6 consecutive quarters.

This means one or more of the following conditions are true, most likely all of them.

  • US banks are reluctant to lend
  • US businesses and consumers are reluctant to borrow
  • Banks are capital impaired and do not want to lend
  • Chargeoffs exceed new loans

Total debt is up 4.8% but only because of massive government spending (much of it completely wasted on futile stimulus measures).

Moreover, the mark-to-market valuation of debt sitting on the balance sheets of banks is likely an absolute disaster. What cannot be paid back won’t, and real estate loans are still extremely problematic.

Unfortunately, we don’t have an accurate assessment of just how bad things are from a mark-to-market perspective because the FASB has suspended rule changes and the Fed and FDIC purposely looks the other way on horrendous bank balance sheets for as long as they can.

We do know the official problem bank list according to the 3rd Quarter 2010 Quarterly Banking Profile rose from 829 to 860. The unofficial total is 919.

The problem banks total would be higher yet judging from Texas Ratios. Meanwhile, in China ….

Credit Up by 9.3 Trillion Yuan

Please consider Fitch says slower credit rise premature

China’s credit growth this year has not slowed materially from the rapid pace in 2009 despite headline data pointing to a slowdown, Fitch Ratings said in a report yesterday.

The rating agency said that Chinese banks have been off-loading trillions of yuan in loans this year by artificially reducing their holdings of discounted bills and by re-packaging the loans into investment products for sale to investors.

The report came on the same day that China said it would change to a “prudent” monetary policy in 2011 from a “relatively easing” stance.

According to the report, the balance of Chinese banks’ discounted bills was understated by as much as 1.65 trillion yuan (US$250 billion) at end of the third quarter.

A discounted bill is an accepted draft against which a loan is made and the interest is deducted immediately. Through the action, bill holders can acquire cash before its maturity date at lower rate. It could be a channel for companies to get capital while bypassing the loan quota.

Banks held more than 2.5 trillion yuan (US$375 billion) in credit not reflected in their balance sheets in wealth management products at the end of November.

“Adjusting for these factors, the amount of new credit extended through the end of the third quarter was on par with the 9.3 trillion yuan extended in the same period a year ago,” Chu said. “Credit conditions remain loose, which explains why inflation and property prices stay stubbornly high.”

 

China’s Credit Expansion is 28% of GDP

US GDP is close to $15 trillion. This year’s borrowing, including government deficit spending is roughly $1.7 trillion, or 11% of GDP. Money supply growth is 5%.

In contrast, China’s GDP is about $5 trillion with annual credit growth of 9.3 trillion Yuan (about $1.4 trillion), a whopping 28% of GDP. China’s money supply growth has been over 20%, most of the time since 2007.

Credit Bubble on Borrowed Time

The Royal Bank of Scotland says China’s Credit Bubble on Borrowed Time, Warns of Sovereign Default by China

According to The Telegraph “Property prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China’s eastern cities has risen by over 200pc since 2004”.

Citing Fitch, The Telegraph reports “private credit in China has grown to 148pc of GDP, compared to a median of 41pc for emerging markets.”

Yes Virginia, there is rampant inflation, in China, not the US.

A Bit About Hyperinflation

Several misguided writers cite rising commodity prices and money supply growth in the US and warn of hyperinflation in the US by the end of 2011 or early 2012.

They ignore the fact that inflation in China is the primary driver for commodity price hikes; they ignore currency debasement the world over; they ignore extremely important trends in consumer credit and bank lending; and they especially ignore consumer and business attitudes regarding debt and credit.

That’s one hell of a lot of things to ignore.

Bear in mind that hyperinflation is a complete loss of faith in currency. Political, not monetary events kick off hyperinflation.

Given that the US is one of the most politically stable countries in the world, with large gold reserves, with the world’s strongest military, and with an increasingly conservative Congress, the idea that hyperinflation will hit the US anytime soon is preposterous.

Multiple Simultaneous Games of Chicken

As noted above, China plays chicken with commodity prices, credit expansion, and price controls. That is not the only game of chicken.

Internationally, there are multiple simultaneous games of chicken.

For example, Bernanke plays chicken with China via a QE policy hoping to force China to jack up its interest rate, something China does not want to do.

Bernanke plays a second game of chicken with Congress, treading on fiscal policy while demanding Congress not comment on monetary policy.

Bernanke plays a third game of chicken attempting to spur inflation in the US while simultaneously holding down long-term interest rates. Can that possibly work? For how long? At what cost?

Bernanke Plays Chicken with the Bond Market

Trichet Plays Chicken with the Euro

Trichet and the EU are in various games of chicken regarding the on-again-off-again strategy of buying sovereign bonds while offering “unlimited cash” to fight the alleged attack on the Euro (See ECB Offers “Unlimited Cash” for 3 Months at 1%, Buys Government Bonds to Fight Acute Tensions; Ireland, Take the Money and Buy Gold)

The only thing that can save Europe is if senior bond holders take a haircut on debt owed by Greece, Ireland, Spain, and Portugal that cannot possibly be paid back.

Instead of admitting the above, Trichet pulled out the “unlimited cash” bazooka. The problem with offering unlimited cash is that it is a high-interest loan that leaves the debt intact and puts a huge interest-rate penalty on top of it.

Ireland cannot possibly pay back its debt even at 0% interest. Yet the EU and IMF expect Ireland to come up with interest at 5.8%, on a huge loan, when its budget deficit is 30% of GDP, and its economy is in contraction. Mathematically this Ponzi scheme cannot possibly work.

Australian and Canadian Chicken

The Reserve Bank of Australia played its own games of chicken, letting property bubbles get sky high in order to prevent a recession in 2008. Now, in spite of still rising commodity prices, Australia is on the brink of recession, with 3rd quarter GDP falling to .2%.

Those plowing into Australian dollars in belief it is a safe haven just may have another thing coming when the Reserve Bank is forced to cut rates to combat a recession it refused to allow the last go around.

Australia is finally poised to crash with massively rising housing inventory and multiple failed property auctions. The Australian economy will be in shambles when housing collapses. Imagine what happens when China slows and commodity prices sink as well. The Australian stock market could be in for one nasty spill.

Canada has its own property bubble to reckon with, much the same as Australia. Indeed, most Canadian and Australian housing proponents are in their own Fantasyland bubble chanting “It can’t happen here.”

It will.

Chicken Japanese-Style

In one of the biggest games of chicken the world has ever seen, Japan is hell-bent on defeating deflation. The result is staggering. Japanese government debt is 200% of GDP and growing, but inflation is nowhere to be found.

Why is there no inflation in Japan? Because like the US, and unlike China, there is little to no credit expansion in Japan.

This shows the importance of credit expansion as opposed to monetary expansion alone. Nearly everyone gets this wrong in spite of overwhelming evidence that rampant credit growth is the driver for inflation.

Actually, to be far more accurate, net expansion of credit is inflation, not a driver of inflation.

To understand the paramount importance of credit, please see:

In spite of ever-expanding national debt, Japan’s long-term interest rates are the lowest in the world. Yet, because of demographics and a rapidly aging population, Japan will soon have to draw down on its “savings”, all of which went into treasury bonds at 1%, all of it already spent, and 200% more, in various nonsensical deflation-fighting efforts.

The problem for Japan is interest on the national debt will consume all revenues if Japan’s long-term interest rates rise to a mere 3%. Yet, demographics show higher interest rates are nearly guaranteed unless Japan decides to default.

The interesting thing about default is that countries frequently default on external debt but seldom default on debt owed to its own citizens. Nearly all of Japan’s debt is internal. Will Japan default on that debt or will Japan attempt to print its way out?

Should Japan try printing instead of defaulting, it faces a currency crash. If taken to extreme measures, Japan could conceivably see a complete loss of faith in the Yen (hyperinflation). At this juncture, hyperinflation is far more likely in Japan than the US.

The critical question for Japan is “How long can this imbalance continue before it blows up in one direction or the other?” Interestingly, Japan may blowup both ways, first in one direction then the other, so the order and timing of bets is important.

Yuan Chicken

Interestingly, myopic, dollar-centric eyes remain focused on a US currency crash even though a Japanese Yen or Euro crash seems far more likely.

However, the ultimate currency irony pertains to the Yuan, especially with Bernanke and Congress pleading for China to allow the Yuan to strengthen.

Here is the reason: Hot money is flowing into China in speculation of rising interest rates, 10% perpetual growth, and a rising value of the Yuan.

Few bother to think ahead as to what happens when that hot-money flow reverses or what happens if China cannot expand at the expected rate of growth for any reason. The kicker is that China cannot possibly grow at 10% perpetually and peak-oil is the reason.

Peak-oil stares China-bulls straight in the face, but they are too blind to see it.

Crude Chicken

Crude prices are soaring higher and higher, not only because of peak-oil but also because of the game of chicken Bernanke plays with QE and the game of chicken China plays with interest rates. In response, shipping and manufacturing costs rise, China overheats, and a price squeeze mounts on businesses unable to pass along all the input price hikes.

Meanwhile, China-bulls (nearly everyone) cheer that which is unsustainable, and China itself thinks it can control prices with price-controls. As icing on the speculative cake, hedge funds, pension plans, and other speculators continually rollover ever-increasing numbers of futures and other derivatives which increases the risk for everyone.

All things considered, it seems likely that such speculation, in conjunction with China finally hiking interest rates enough to matter, will cause a second crash in commodity prices (including crude) before peak-oil finally takes its toll.

Investing Chicken

Bernanke and China together have acted in a manner that puts huge price pressures on the service sector, especially small businesses that cannot pass on prices. This will end, and it will not be pretty when it does end.

Yet, hedge funds, pension plans, and other investors plow into commodities, currencies, and emerging market equities as if growth in China, Asia, and Australia and their currencies is a “sure-thing”.

Getting out in time is the key to success of hedge-fund and investing chicken, yet many do not even understand the nature of the game they are playing.

Chicken-Math

Every country including the US wants to export its way out of this mess. It’s mathematically impossible. It’s also mathematically impossible for Europe to grow its way out of its problem with the tactics taken by Trichet and the EU.

It’s mathematically impossible for the US to cut its budget deficit, be the world’s policeman, and not reduce entitlement spending. It’s impossible to grow our way out of pension problems.

It’s mathematically impossible for tariffs to solve our problems, yet Congress plays chicken with China on that score every month. Bernanke and Geithner have recently joined Congress in that game of chicken.

Collective Chicken

I hope you now see how interrelated and complicated this mess is, complete with simultaneous central-bank competitive currency devaluation tactics in Japan, China, and the US, with no possible currency tactics in Ireland, Greece, Portugal, and Spain (countries that arguably need currency tactics)!

Chicken End-Game

From Bernanke to Trichet, to China, to Australia and Canada, to hedge funds and investors, to currency and carry-trade speculators, very few understand the inevitable end-result of chicken.

It’s called a crash.

We are in a currency endgame that no one on this planet can be sure how or when it ends, or who blows up first. I highly doubt the US is first, and certainly none of the above suggests US hyperinflation. Nonetheless, the order in which things blowup is very important, depending on which side of each trade you are on.

If that was not bad enough, the odds of a multiple simultaneous crash (or rapid series of crashes) is high and growing as central bankers pull out ever-increasing, counter-productive, and clearly destabilizing bazooka-stops, hoping-against-hope to keep a lid on things.

Is it any wonder the price of gold keeps soaring?

In the meantime, various pressures mount. At some point the global pressure cooker will blow sky high. I suspect the Eurozone or Japan will be the first of the big boys, but any number of scenarios are possible. When this complicated mess does blowup (and it will), all the “sure thing” traders on the wrong side of a bet will realize too late, that they played one game of chicken too many.

 

By Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Lies and dam Lies from Brian Lenihan!

Quotes from Brian Lenihan since the bank guarantee:

Source http://www.thestory.ie


photo Machholz

On Breakfast with Newstalk, April 26 2010.

First of all, that’s the position in 2009, Eurostat hasn’t decided it yet, that’s our assesment of how they will decide it, we’ll still argue the toss with them. We have to deal with 2010 yet, but let’s assume that you’re right for a minute and that all the €8bn has to be added on in 2010. Let’s assume that. We won’t be borrowing the money, we’ll be borrowing the money over a period of ten or fifteen years. We’ll actually be up fronting – in accountancy terms – the figure, but we will not in fact be borrowing… – April 26 2010.

Also on Breakfast with Newstalk

Now that I’m the shareholder in Irish Nationwide I will clearly ensure that whatever money is owed by Mr Fingleton is paid by Mr Fingleton. – April 26 2010.

Also on Breakfast with Newstalk

BL: No, no, listen, listen. This not good for the country , and it’s inaccurate. If next year we’re obliged to include the €8bn, the €8bn will not actually be borrowed next year the device of the promissory note means we borrow…

Ivan Yates: No, I know the promissory note is over ten years. You’re missing the point…

BL: No you’re missing the point! This is an accounting device! This is not real borrowing! What the markets look at is real borrowing. Not accountancy devices… – April 26 2010.

Speaking to media…

“The decisive and bold steps we have taken are not popular; and the honest and full disclosure by the Government and its agencies of the appalling mess we have uncovered within our banks has shocked the nation,” Mr Lenihan told the Dail.  “But I do believe that there is recognition among the citizens that the measures we have taken are necessary. And I believe the work of NAMA in cleaning up the banks’ balance sheets and forcing them and their borrowers to face up to their losses is winning the respect of the public.” – April 21 2010,  Irish Independent

“One of the good things about the steep discount, averaging 47 per cent, is that the residential property market will now be stabilised at a realistic level… You can now buy in confidence that the price is realistic.” – April 4 2010, Irish Independent

[Submitted by CO’D]:

The Financial Regulator has advised that all the financial institutions in Ireland will continue to be subject to normal ongoing  regulatory requirements. This very important initiative by the Government is designed to safeguard the Irish financial system and to remedy a serious disturbance in the economy caused by the recent turmoil in the international financial markets. As far as the question of ‘moral hazard’ is concerned, it will be a priority for the Government to ensure that the highest regulatory standards and standards of corporate governance apply in all of the institutions concerned including in relation to lending practices to safeguard the interests of taxpayers against any risk of financial loss. – Department of Finance statement, September 30 2008

[Submitted by CO’D]: During Dáil debate on credit institutions and financial support,

Olivia Mitchell (FG): We need to see the terms and conditions to know what will happen with regard to these people. Is there any requirement for the banks to restructure their loans? Will they be allowed to make a massive number of repossessions and have fire sales, driving house prices down further and sending the economy into even deeper recession? Has the Government any plan to deal with this?

Brian Lenihan: This is the plan.

Olivia Mitchell: […] However, we need a return to the banks of old — to the image we had of them as being dull, staid, boring, cautious and careful. We no longer have that image. What is the Government’s plan to create the conditions that will ensure this happens? What will happen to restore confidence in the banking system? If we do not restore confidence in the banking system, what the Minister is doing now——. I do not know what the Minister is laughing at.

Brian Lenihan: I am not laughing. I am allowed to smile. – October 1 2008

[Submitted by DC]: As reported by Simon Carswell in The Irish Times…

MINISTER FOR Finance Brian Lenihan has said the bank guarantee scheme was “a necessary first step” and “the cheapest bailout in the world so far”.

Mr Lenihan said the guarantee was “the cheapest bailout” compared with bank rescues in other countries, including the UK and the US, where “billions and billions of taxpayers’ money are being poured into financial institutions” – October 24 2008

Irish Times…

“We are not rushing into the banks without knowing precisely what the position is in those banks” – Nov 20 2008

During the Stabilisation of Public Finances debate, Dáil Eireann

In the context of any capitalisation the due diligence exercise will yield further information to enable us to do a far more precise identification of risk before we formulate policy on it. I would be reluctant to commit the taxpayer on any issue connected with risk without a full and definitive assessment of the risk in the institutions themselves and we must await this assessment. – Feb 5 2009

Following the publication of Anglo Irish Bank’s 2009 results. Minister Lenihan said he welcomed the increased scrutiny of Anglo as an opportunity to bring openness to the bank…

“which will ultimately allow us to draw a line under past activities”. “It is an opportunity for Anglo to employ a fully transparent approach to addressing the inappropriate activities that took place at the bank and provide comprehensive details to all stakeholders who deal with Anglo and who deal with Irish financial institutions generally.” – Irish Independent, Feb 21 2009

When challenged as to why he was not nationalising banks (at this time the State had already nationalised Anglo Irish Bank and taken a 25 per cent stake in Bank of Ireland and AIB).

“I do really want to scotch the idea that there are huge risks to the taxpayer in the valuation process because we are not nationalising these institutions.” – Irish Times,
May 18 2009

Nama Bill, Dáil Eireann.

NAMA will ensure that credit flows again to viable businesses and households by cleansing the balance sheets of Irish banks. This is essential for economic recovery and the generation of employment. It will ensure that we avoid the Japanese outcome of zombie banks that are just ticking over and not making a vibrant contribution to economic growth. – Sept 16 2009

Nama Bill, Dáil Eireann.

I am not prepared to contemplate the establishment of an entity that has no responsibility or accountability to this House. – Sept 16 2009

Nama Bill, Dáil Eireann

Nothing in the NAMA legislation will result in more repossessions of family homes. – October 14 2009

On the nationalisation of Anglo, during a debate on banking regulation in the Dáil

This decisive step was taken to safeguard the interest of the depositors of Anglo Irish Bank and the stability of the economy. I want to assure the House that this decisive step was taken to ensure the new nationalised bank will collect all debts due from persons who owe moneys to the institution. – Feb 18 2009

In response to written question from Kathleen Lynch

Taking account of the advice received the Government has proceeded with a comprehensive recapitalisation of Ireland’s two main banks and with the nationalisation of Anglo Irish Bank. The Government is also in discussions with the other covered institutions, Irish Life & Permanent, Educational Building Society and Irish National Building Society concerning their respective positions. – Feb 18 2009

In response to a written question from Arthur Morgan

The recapitalised banks have reconfirmed their commitment to an extensive credit package which will help to increase lending capacity to small and medium enterprises by 10% and to provide an additional 30% capacity for lending to first time buyers in 2009. The credit package also provides for a €100m environmental and clean energy innovation fund to be established by each bank. All the steps that I have outlined have been taken by the Government to ensure that the public interest is secured so that the financial system in Ireland meets the everyday financial needs of individuals, businesses and the overall economy. – March 26 2009

Written answer to Arthur Morgan

Our approach will facilitate a sustained flow of credit on a commercial basis to individuals, households and businesses in the real economy. – July 8 2009

When questioned on the delays in implementing Nama legislation on Morning Ireland

“We can’t have a lawyers’ bonanza and that is another good reason why we have to get this right.” – May 18 2009

Kicker; written answer to Joan Burton

Arthur Cox solicitors have been engaged by my Department since September 2008 to provide advice in relation to general banking matters including the Bank Guarantee scheme, the nationalisation of Anglo Irish Bank and the recapitalisation of AIB, Bank of Ireland and Anglo Irish Bank. The company was paid €1,628,024 in 2008 and €2,254,263 has been paid to date in 2009. The sum of €5.4 million has been allocated for legal advice for 2009 and an estimate of €3 million has been set aside for legal advice in 2010.

PriceWaterhouseCoopers was retained by the Financial Regulator in late 2008 to assist the Financial Regulator with a review of the financial and capital positions of Irish banks and to enable the Financial Regulator to advise the Government on what action needed to be taken. The work undertaken involved an initial high level assessment of the capital and liquidity levels of the institutions, stress testing of the institution’s loan portfolios over a three year period, and review the valuation of properties held as collateral against the main property loans.

The total fees paid by the Financial Regulator to the company in respect of the work was €3.8 million, which has been completed. In addition, the Financial Regulator has paid €0.84 million to Jones Lang La Salle for financial and property consultancy services in relation to the Bank Guarantee Scheme.

The National Treasury Management Agency paid a total of €7.3 million to Merrill Lynch for investment banking advice up to 30 June 2009. Following a competitive tender process in July, Rothschild have now been awarded the contract for investment banking advice. The NTMA has also retained an economist however the terms of his contract with the NTMA were agreed on a confidential basis. In addition, following a competitive tender process, the NTMA engaged HSBC and Arthur Cox to provide advice in relation to NAMA. – Sept 22 2009


NOTE: I’ve gone through the Dáil record and archives of the Times and Indo, but haven’t listened to radio or TV interviews. If anyone has a bit of time to go back and listen to a Morning Ireland/Prime Time/The Last Word/Whatever interview… t’would be useful.

* a word members of our Government like to use when scripting excuses for the negative outcomes that result from badly implemented policy or regulation. Usually follows “unforeseen”.

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