bank fiascos – Page 3 – Attestation Update

Yet another banking fiasco – Opening two million fake accounts to meet sales targets

1 Comment / Accounting, Fraud / By Jim Ulvog

Wells Fargo Concord stagecoach. April 2012 photo by James Ulvog. — Wells Fargo Concord stagecoach. Notice the only suspension for running over rough roads is those leather straps under the passenger compartment. Those didn’t smooth out the rocks and bumps very much. April 2012 photo by James Ulvog.

Deep sigh. Another banking fiasco hit the papers yesterday. The Wall Street Journal reported Wells Fargo to Pay $185 Million Fine Over Account Openings.

The bank will pay a mere $185M to settle claims brought by OCC, CFPB (Consumer Finance Protection Bureau, the new creation of the Dodd-Frank legislation), and LA city attorney.

This scheme involved customer-facing employees opening fake bank accounts in the name of existing customers without the customer’s permission. Another variation is opening a fake account in the name of a nonexistent customer. Article says sometimes money would be transferred from a customer’s account into the new, fake account with occasional NSF fees because there wasn’t enough money in the legitimate account to cover legitimate checks.

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Litigation cases that could possibly take down a Big 4 firm

1 Comment / Audits, Fraud / By Jim Ulvog

If a judgment at trial were big enough, it could mean the end of a large firm. Writing on August 13th at Market Watch, Francine McKenna explains PwC faces 3 major trials that threaten its business.

That threaten its business phrase in the headline actually means could take down the entire firm.

There are three major cases, each with a serious enough impact, that an adverse ruling in any one could take out the firm. One is in court now, another expected next February, with the final one in court within a year.

Work with me as I try to process through the cases. Here is the thumbnail version.

Two lawsuits over one client

Taylor Bean & Whitaker Mortgage Corp allegedly generated massive amounts of fraudulent loans, a large portion of which were sold to Colonial Bancgroup. Both companies failed during the financial crisis.

PwC audited Colonial Bank and allegedly did not discover the bad loans that their client, Colonial Bank, bought from PwC’s non-client Taylor Bean.

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A few more updates in the ongoing world-wide banking fiascos

Leave a Comment / Other stuff / By Jim Ulvog

A few recent reports: Reason for no criminal prosecution of one too-big-to-fail bank is that it was TBTF, an indictment and a settlement in forex cases, and progress in the money laundering investigations.

Since I use the term a lot, here is a definition of fiasco from Google:

a thing that is a complete failure, especially in a ludicrous or humiliating way. Synonyms: failure, disaster, catastrophe, debacle, shambles, farce, mess, wreck.

Seems to me throwing away $530 million of bank capital because bank staff and leaders wanted to cheat customers meets the definition of fiasco.

7/11 – Francine McKenna at Market Watch – HSBC wasn’t prosecuted because it was ‘too big to fail’: House Committee – A House committee concluded that HSBC wasn’t prosecuted for willful AML violations because it was TBTF. One part of the violations was intentionally leaving out of wire instructions any indication that the funds were related to activity in countries with bans.

Staff recommendations were to pursue a criminal prosecution. Attorney General Eric Holder determined the systemic risk was too high and thus agreed to a deferred prosecution agreement.

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A few more updates in the ongoing world-wide banking fiascosRead More »

A few convictions of traders. Several walk.

Leave a Comment / Fraud, Other stuff / By Jim Ulvog

An ongoing challenge for law enforcement in pursuing charges against bankers is actually getting convictions at trial. Even manipulating Libor is a tough sell to juries.

For those who wanted to see bunches of bankers in prison stripes, keep in mind there is that hurdle of persuading a jury a crime was committed. It may be difficult, but is possible to do.

7/4 – Bloomberg – Guilty Ex-Barclays Trio Ends Another Libor Chapter for London – …

A few convictions of traders. Several walk.Read More »

Update on Panama Papers – 6/27

Leave a Comment / Fraud, Other stuff / By Jim Ulvog

Here are a few recent articles on the Panama Papers leak. Doesn’t seem to be a lot of new developments since my last post three weeks ago.

6/5 – New York Times – Panama Papers Show How Rich United States Clients Hid Millions Abroad – The NYT has finally gained access to the Panama Papers.

In their research they have only found 2,400 Americans who ran money through companies set up by Mossack Fonseca, none of them high-profile, and apparently none of them from the political world.

Article tells the tale visible from correspondence for a few people who had already built a private fortune and then decided to park money overseas.

The basic asset protection shell structure includes two entities: a for-profit into which money is moved from the US, and a Panamanian based foundation which receives a contribution from the first shell, thus protecting the money from litigation, taxation, or disclosure.

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Update on Panama Papers – 6/27Read More »

News on regulatory oversight; insider trading, livings wills, manipulating interest rates.

Leave a Comment / Other stuff / By Jim Ulvog

Interesting news from the financial world:

How NASDAQ watches for insider trading
Why bank regulators not disclosing the criteria for evaluating “living wills” causes more systemic financial risk
Enforcement efforts on two interest-rate manipulation fiascos

Here is how you get caught for trading on inside information

6/10 – Francine McKenna at MarketWatch – How NASDAQ watches for insider trading – Deep background on how NASDAQ monitors all the trading in the market for suspicious activity. They have a variety of tools and techniques to identify anomalies and drill down to eventually reach the individual trades.

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News on regulatory oversight; insider trading, livings wills, manipulating interest rates.Read More »

Societe Generale and their trading fiasco is back in the news. Oh, firing someone who lost $5 billion in unauthorized trades is a wrongful termination.

1 Comment / Accounting, Fraud, Pondering / By Jim Ulvog

I can now add the French judicial system to the reeeeeally long list of things I just do not understand:

6/7 – Wall Street Journal – Court Finds Kerviel, Whose Bets Lost Bank Billions, Was Fired Unfairly – A French court awarded a fired banker US$511,000 for what we would call wrongful termination in the US.

Why was he fired? He merely cost the bank €4.9B back in 2008 after they unwound his unauthorized trades. That is only $5,530,000,000 at today’s exchange rate.

First, some background. You can check out the WSJ article on 10/6/10 for more details: Rogue French Trader Sentenced to 3 Years.

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Societe Generale and their trading fiasco is back in the news. Oh, firing someone who lost $5 billion in unauthorized trades is a wrongful termination.Read More »

More reactions to Panama Papers leak

Leave a Comment / Fraud, Other stuff / By Jim Ulvog

Here are a few more recent articles on the offshore banking industry that were of interest to me:

Proposed U.S. rules that won’t do much
Law firm at center of the leaks is closing some remote offices

5/10 – Salon – The Obama administration’s Panama Papers misfire: Why new rules to curtail global tax avoidance could actually make things worse – This article follows up on my previous comments that the proposals from the feds to counter offshore banking will do very little to stop the practices.

Article says the details of the proposals accomplish very little and could actually make things worse.

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Update on Panama Papers – 6/1

Leave a Comment / Fraud, Other stuff / By Jim Ulvog

Seems there was a lull in the interesting articles on Panama Papers. Here are few articles catching my eye to get caught up.

How to prepare for a media firestorm
Searchable database released
A mere 35 Americans are visible in the Panama Papers database

5/9 – Nelson Granados at Forbes – Are You Law-Abiding and in the Panama Papers Database? How to Handle a Public Relations Crisis – Article is written on how a company who is legally and ethically using offshore accounts can prepare for the negative media attention when their name is revealed.

As a general concept these ideas apply to every business and charity. Getting ready in advance of a media firestorm will improve your chances of surviving the onslaught.

Short version: …

Update on Panama Papers – 6/1Read More »

That pesky problem of actually having to prove in court that banks committed fraud and actually having the case survive on appeal

Leave a Comment / Other stuff / By Jim Ulvog

A hurdle that keeps popping up when the U.S. or other governments take a banker to trial is being able to prove the case in court. Now the pesky issue is surfacing of having a case survive on appeal.

5/23 – Wall Street Journal – Bank of America Penalty Thrown Out in Crisis-Era “Hustle” Case / Appeals court says government didn’t prove case, bank doesn’t have to pay $1.27 billion – The ongoing challenge of all the allegations of bad behavior in the banking world before the Great Recession continues to face the little bitty problem of actually proving cases in court.

Take a look at the latest collapse of a government case.

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Updates on banking fiascos

Leave a Comment / Other stuff / By Jim Ulvog

A few articles that have caught my eye on varied aspects of the overall range of banking fiascos in play:

4/14 – New York Times – How Regulators Mess With Bankers’ Minds, and Why That’s Good – News the previous week was that many of the huge banks failed their ‘living will’ test. Each bank that is labeled as having ‘systemic risk’ must submit for approval a plan on how they would wind down in the event of failure. The purpose is to show they would not take down the entire financial system.

This article points out the banks were not told what their living will should contain or what it should look like.

As an expected result, likely intentional, the banks’ plans failed the test. When you don’t know how the test will be scored, or even what will be on the test, you are unlikely to pass. Sort of like having to turn in a term paper without know what topic the professor will select.

Again, this article thinks it is wonderful that the banks are evaluated on criteria that are not disclosed to them.

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Update on Panama Papers – 5/9

Leave a Comment / Fraud, Other stuff / By Jim Ulvog

The story is getting more confusing:

new revelation of an old technique to launder money,
US government actions to reduce laundering that look to me like they are just eyewash, and
small investors in a local real estate project appear to be investors working through the Panamanian system.

5/5 – Star-Telegram – Panama law firm used charities’ names as cloaks for clients – One of the schemes used in hiding money through offshore companies is setting up a foundation under Panamanian law. A private foundation can be set up which requires three directors, two of which must be publicly disclosed. Intended beneficiaries must be identified but could be changed before any funds disbursed.

The way this works is the two named individuals work for the law firm while the third undisclosed person is the person hiding money. The undisclosed person calls the shots with the two staff people from the law firm following instructions. The beneficiaries can be changed at any time.

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Update on Panama Papers: searchable data base, no more bearer stocks, reasons to park money offshore

Leave a Comment / Audits, Fraud, Other stuff, Pondering / By Jim Ulvog

Panama will be shutting down the bearer share concept for documenting ownership of a company. ICIJ plans to release a huge database on shell companies. Also some reasons I would have an offshore company or maybe five if I was a billionaire or high official in a corrupt country.

If I was super rich, I’d park some money offshore

4/19 – Daily Beast – Obama in Saudi Arabia: What Do These Oil Sheiks Have to Hide? – Short answer: their contingency escape plans.

Article wonders why the rulers in an absolute monarchy would want to park money in anonymous offshore accounts. Article suggests there isn’t any need to do so since absolute rulers not only own the country but decide by themselves what is legal and illegal.

The reason can be found by looking around after the Arab Spring. It seems like in just a flash the governments of Tunisia, Libya, and Egypt collapsed. Even the current prime minister of Pakistan was ousted (he has since regained power) and had to flee for his life.

The longer answer for hiding money in offshore accounts is it that when things can change overnight, you need to have someplace to run and some money to work with. An escape plan.

And then there are the super rich people who made their money legitimately.

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Reporters will not be sharing Panama Paper files with criminal investigators. Reporters are thinking they are journalists, not law enforcement staff.

Leave a Comment / Audits, Fraud, Other stuff, Pondering / By Jim Ulvog

A variety of governments want to get a complete set of the original files from the Panama Papers leak. The reporters are saying “no.”

4/19 – The Guardian – Panama Papers: US launches criminal inquiry into tax avoidance claims – First, a tip to the scare-mongering headline writer, editor, and reporter:

tax avoidance is not illegal.

Where there is tax evasion, I say throw ‘em in the clink.

On the other hand, as much as the reporter and editor may believe every penny of profit belongs to the government, it is not illegal to comply with the provisions of the tax law.

Other than announcing an investigation has begun, the article gives no more detail.

In particular, there is no indication of how DoJ plans to avoid tainting the investigation by viewing documents it knows are covered by attorney-client privilege. Based on my businessman’s limited knowledge of the law, I think the implications of knowingly viewing documents protected by attorney-client privilege would permanently taint any prosecution brought after reading those documents. That means any case that can be linked to tainted documents would get dismissed.

4/20 – Bloomberg – Panama Leak Spur New York Regulator to Seek Records From Banks – The Department of Financial Services jumps into the fray.

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Reporters will not be sharing Panama Paper files with criminal investigators. Reporters are thinking they are journalists, not law enforcement staff.Read More »

The most interesting information from the Panama Papers is what isn’t in the files.

Leave a Comment / Audits, Fraud, Other stuff, Pondering / By Jim Ulvog

The best stories to be told as a result of the massive data leak cannot yet be written.

Why?

The really smart people use multiple layers of shell companies to hide assets. When laundering money, one should move assets through a series of companies, with each subsequent jump being anonymous.

A long time ago I attended a continuing education class helping CPAs understand fraud. Why are such classes required? So that, hopefully, maybe, CPAs will be able to recognize fraud when it stares them in the face during the course of an audit.

During the class, the instructor went off script and explained to us how to launder money.

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The most interesting information from the Panama Papers is what *isn’t* in the files.Read More »