This week's Bill Black Financial and Fraud Report - August 13, 12
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William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.
Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.
Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore. And welcome to this week's segment of Bill Black's Financial and Fraud Report. And now joining us is Bill Black.Bill, if you don't know already, is an associate professor of economics and law at the University of MissouriâKansas City. He's a white-collar criminologist, a former financial regulator. He's the author of the book The Best Way to Rob a Bank Is to Own One. Thanks for joining us again, Bill.WILLIAM K. BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.JAY: So what do you got for us this week?BLACK: So we have the Brits, in addition to holding the Olympics, are holding the Fraud-lympics. And every fortnight, as they would say, they roll out a new scandal. We had Barclays with the Libor rigging, and then we had HSBC, which was the new Bank of Crooks and Criminals International, with all of its money laundering.And nowâlow are the mighty fallenâStandard Chartered, which claimed to be the pure bank, the reasonable bank, and whose head was rumored to be potentially the new head of the Bank of England. Why? Because the Barclays guys discredited all the other candidates with their frauds. And now the New York banking and securities regulator is charging that Standard Chartered wasâand I'm quotingâa rogue bank that deliberately stripped away identifiers to hide illegal money laundering to Iran, which it said was goingâwhich the New York banking authorities said was going to fund terror and, of course, potentially, nuclear weapons. So that's the biggie that we're dealing with today.JAY: What did they find? What were examples of what they did?BLACK: Well, they stripped away the identifiers so that the regulators would not be able to tell that it was a transaction involving Iran. And according to the New York banking authorities, this was so ingrained and institutionalized that they had a procedures manual that taught people how to strip it away. And when U.S. senior banking executives for Standard Chartered objected to this and noted that it was a violation of the law and could expose the bank to enormous penalties, got back this response: well, who is the United States to tell us how we should be dealing with Iran?And, you know, a footnote on that: Standard Chartered started as a British bank, but like most of the big banks, it really transcends any nationality at this point, and its management does not identify, really, as being British or working on behalf of the British people.Standard Chartered is unusual in beingâthe huge bulk of its operations deal with the Middle East in particular and other oil-producing nations and with Asia. And so it has surged with the petrodollars and with the rise, spectacular rise, of China and India. As I said, it has cultivated a reputation for being the responsible, reasonable bank. And so to find that under that veneer was actually, you know, not only mass transactions in violation of the law, but books about how to get away with it, and then squashing the messengers who threatened to blow the whistle, it all sounds a whole lot like HSBC, which we had thought might be the dirtiest of the dirty.JAY: Now, the reason they're subject to U.S. regulatory authority is 'cause they do some banking in the U.S., and if you have one foot here, you getâyou come under U.S. regulations. Is that it?BLACK: Well, they do an estimated $250Â billion U.S. transactions a day out of their New York office. So it's not like they have some itty-bitty footprint here. The United States operation is critical to everything they do worldwide.And one of the things that the New York authorities could doâthey have not in the past done this, but they could remove the authority of Standard Chartered to operate in the United States, and if they were to do that, that would be by far the most significant penalty that has been imposed for money laundering, becauseâand I know listeners and viewers will understand this oneâguess what? None of these violations, these really massive violations of the money laundering rules and laws by the giant banks, has resulted in anybody going to prison in the recent era.JAY: Right. I should add just one piece of context, which is not really a financial piece of this story, but we've reported this often on The Real News, which is there absolutely no evidence, in fact, that Iran has a nuclear weapons program. There is no evidence they're in violation of the nuclear proliferation treaty. The IAEA has no finding against them. And, in fact, the American intelligence agenciesâall of themâin the last report said there's no evidence there's an active weapons program. And in spite of all that, there is these severe sanctions against Iran. But I guess the point here is they are violating the law, and that'sâand whether it's Iran or whether it's justified or not justified, the bank is still violating law and carrying on secret dealings, as we know. This and other banks are doing it, and not just about Iran. They seem to be doing it on a whole range of things. Anyway, what else have you got for us, Bill?BLACK: Well, two other things on Standard Chartered. First, well before any suspicions about nuclear weapons, Iran, the issue was its support for Hezbollah, and Iran makes, you know, very little effort to deny that it is the leading funder for Hezbollah. So the United States considers Hezbollah a terrorist organization.The second thing is viewers need to know that the other U.S. banking agencies are in an uproar not against Standard Chartered, but against the New York regulators, claiming that they don't think there is a massive violation and that the New York folks should not have gone ahead on their own. And so there's quite a war between the federal and state regulators.JAY: Well, what's that about?BLACK: Well, from the perspective of the state regulators, this is a continuation of the crisis that we've been going through for ten years, where the federal regulators not only failed to take any action that was meaningful against massive violations of law and the rules, but actually tried to prevent the states from taking action, through what is called preemption. From the federal perspective, they think that everybody in New York is running for higher office. And, of course, both Attorney General Spitzer and Attorney General Cuomo became governors of New York on the basis of, in large part, their record in going after the Wall Street crooks. So they're very suspicious the New York banking regulator has the same political ambitions.JAY: Well, there's another political aspect, too. I mean, here they're going after them because of the Iran thing, but howâyou know, they don't seem very serious about going after bilking of the American people through all kinds of levels of fraud.BLACK: Well, that's not necessarily fair about the New York banking authorities. They have tended to be aggressive in multiple areas. But it is true that there is next to no aggressiveness at the federal levelâsome exception. You've got to give the Commodity Futures Trading Commission some credit for continuing to go forward for years over British opposition and getting documents that helped bust the Libor scandal.JAY: Yeah, I'm talking more about the Justice Department. That's what I have in mind.BLACK: Ah. Well, the Justice Department is not involved in this action at all at this point. And that's one of the questions: will the Justice Department, which has vastly more resources than the New York State, actually bring a prosecution?JAY: Right. Okay, what else you got for us this week?BLACK: We have something from the heartland. I'm here in Kansas City, Missouri, less than a mile from Kansas, and we have just had primary elections here. And there has been an enormous development in Kansas in Republican politics, and that is that there has been the wiping out of the moderate voice of Republicans in Kansas. And those moderates had key positions in the leadership in the state legislature. And so Governor Brownback, who is extremely conservative, helped lead this revolt. And it did so in the context, in particular, of trying to get a dramatic change in taxation in Kansas that's going to have great effect on Kansas in multiple ways and are important to the rest of the nation because Kansas may actually be quite a leader in some of these movements.So what have they done? What they've done is to deliberately make taxesâconsiderably greater inequality in their taxation system. And they did so primarily by reducing taxes for wealthier people in Kansas and dramatically increasing taxes for the working poor by eliminating the state earned income tax credit and starting taxation at a much lower point in income than used to be in the past. So this is a income transfer overwhelmingly from working-class people inâcitizens of Kansas to the wealthiest folks in Kansas.The effort to get this tax change and the effort to wipe out the moderates in the Republican Party was led by the Chamber of Commerce in Kansas, which was funded overwhelmingly by the Koch brothers.And why this is important is, first, it's going to cause significant fiscal problems down the road in Kansas, because it's part of a program to eliminate the income tax that is likely to lead to deficits unless we get a very strong recovery quickly. And second, it's going to really threaten Kansas's claim to fameâand if you are not from the heartland, you may not know that Kansas has really superb elementary and secondary education in some of the suburbs near Kansas City and a really superb university system. Well, all of that's going to be imperiled by this change.And this change in politics is also going to bring to power folks who are far more likely to oppose teaching of evolution as science. And, of course, last time Kansas went this route it became more difficult for Kansas students to get positions in major universities, you know, because people thought, you must be from someplace kind of crazy, and such.So big doings.JAY: Now, Bill, so this was Republican primaries that we're talking about, where the more moderate Republicans were defeated?BLACK: This is Republican primaries. But these are in exceptionally safe districts for Republicans.JAY: What are the demographics of those districts?BLACK: They vary, but it includesâso a brief tour of Kansas. Kansas, as people probably think who are listening to this, is primarily rural and agricultural. It doesn't really have classic big cities. So one of its biggest cities is really a suburb of Kansas City, Missouriâit's Johnson County, which tends to be more moderate.But increasingly, primary politics are dominated by exceptionally conservative folks. So even in the more moderate sections of Kansas, the Republican Party now is saying that a moderate cannot survive.So it's these counties like Johnson County that have the really good elementary and secondary systems. They're very rich suburbs. They want to send their kids to become doctors and lawyers and physicists and such. And so the assault that's going to come on education, and especially, of course, on evolution, will turn out to be very bad.So what's happening in Kansas is the rural counties are overwhelmingly losing population. And they're of course not only losing population, but in many cases they lose their best and brightest kids. They go to university elsewhere and they never come back to those rural areas. And that process is likely to increase.One of the wars in Kansas politics was about illegal immigration, but in an odd way that the rest of the nation may not realize, because the Republican Party in Kansas was split among those that were closest to business interests who wanted no crackdown on illegal immigration and those who are more socially conservative who wanted an intense crackdown on undocumented workers.JAY: Right. Right. So someone might send a message that Dorothy might want to stay in Oz.BLACK: Well, in terms of Tom Frank's book What's the Matter with Kansas?, it's time for the update, you know, What's Going to Be the Matter with Kansas? They really are taking the crown jewels of Kansas, which has been their educational system, and endangering them very badly.JAY: Alright. Thanks for joining us, Bill.BLACK: Thank you.JAY: And if you want to see more of Bill Black's weekly financial report, don't forget there's a "Donate" button over here, 'cause if you don't click on that, we can't do this.
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