More and more often, we find out that America has imposed a
penalty on a non-US bank or company. In addition, the names of these
banks and companies are well known and the amount of the penalties being
imposed is formidable (sometimes hundreds of millions of dollars). It
is a new phenomenon of global economic life and is unprecedented. Banks
and companies have been fined, but by the authorities of the countries
where they are based.
Conditions for the racket
Some experts believe that the enormous fines some non-US (primarily
European) banks are being forced to pay in penalties today is part of
America’s financial restructuring campaign announced by the US
President. Others believe that the fines are a new competitive weapon
being used by American banks against European ones. Still others believe
that the new mechanism of levying fines is the new global initiative of
America’s ruling elite to strengthen the country’s geopolitical
superiority over the Old World and the world as a whole. There are also
other theories behind what today is becoming known as the dollar
«racket»…
On the one hand, after the events of
11 September 2001,
the US began vigorously adopting legislation that dealt with money
laundering, corruption, financial terrorism, tax evasion, organised
crime, drug trafficking, cybercrime and other security threats. It is
interesting that the new generation of laws adopted in America are of an
extraterritorial nature. This means that if a threat to America’s
security is created by the actions (financial operations) of foreign
banks, companies and individuals outside of America itself, legal
liability may still be applicable to these entities. American courts
could then impose a penalty or other form of punishment on these foreign
banks, companies and individuals. Given that common law prevails in
America, US court decisions on the penalising of non-resident entities
are currently rubber-stamped almost automatically. Furthermore, the US
is initiating the development and ratification of a variety of
international conventions on combating the threats listed above with
other countries. Conventions like these are becoming additional grounds
for penalising non-US perpetrators in America.
On the other hand, in order to monitor all of the violations being
committed by foreign banks, companies and individuals outside of
America, Washington has spent decades creating a global
financial-information system. This system, which I described in my
article
«The world under the eagle eye of the US government and banks»,
allows all the actions of non-resident entities in the world to be
monitored and all violations of America’s rules of the game outside of
the US to be recorded.
The history of Standard Chartered
Standard Chartered was, until last year, one of the most secret
banks. It was established in Great Britain as far back as the middle of
the 19th century and is thought to be part of the Rothschild empire.
Like the Rothschilds themselves, Standard Chartered preferred to remain
in the shadows after the Second World War, but in terms of the scale of
its operations, it became one of Europe’s largest banks. In recent
years, 90-95 percent of this bank’s pre-tax profit has been obtained
from operations outside of the US, Great Britain and Continental Europe.
In August 2012, the bank was forced to blow its cover owing to a
scandal initiated by the US Department of Financial Services (DFS). It
brought charges against Standard Chartered alleging that the bank had
carried out illegal transactions aimed at supporting the Islamic
Republic of Iran. According to the DFS, these transactions amounted to a
quarter of a trillion dollars, and the New York branch was helping to
shift the money between British and Middle Eastern banks to the benefit
of Iranian citizens. According to American authorities, in fact,
Standard Chartered could be linked to terrorist and extremist
organisation in Libya, Sudan and Myanmar, which are also areas covered
by US sanctions. The New York Department of Financial Services (a
subdivision of the DFS) declared: «For almost 10 years, the bank schemed
with the government of Iran and hid from regulators roughly 60,000
secret transactions, involving at least $250bn». As noted above,
Standard Chartered passed money through its New York branch on behalf of
Iranian financial clients, including the Central Bank of Iran and
state-owned Bank Saderat and Bank Melli, which were subject to US
sanctions. At the centre of the scandal were so-called «U-Turn
transactions», which meant that the money was not issued from Iran and
did not end up in that country, but was moved on behalf of Iranians
between British and Middle Eastern banks with the help of the New York
branch of Standard Chartered. The US Ministry of Finance had banned such
operations in November 2008 because of the fear that they were being
used to bypass sanctions. According to the regulator, actions like these
were damaging America’s entire financial system, making it vulnerable
to weapons and drug trafficking and terrorists. Ultimately, the American
authorities demanded that the bank pay a fine of $667m. As reported by
the media, the fine has already been paid.
The «cropping» of other foreign banks
The system of monitoring bank transactions is an important factor in
the competitive struggle between US and Western European banks. America
is especially worried about banks in London, which is why they find
themselves in the crosshairs of the American intelligence agencies.
Every entity that has been accused of collaborating with Iran over the
past year has been of British or Dutch descent. In June 2012, the Dutch
bank ING admitted breaching the sanctions imposed on Iran and agreed to
pay US authorities the enormous fine of $600m (and according to some
reports, this was also for breaching sanctions imposed on Cuba). At the
time, this was the biggest fine ever imposed in the entire history of
sanction breaches.
The British bank Barclays PLC also agreed to pay $453m after an
investigation by American and British authorities showed that the Bank
had allowed serious violations when making decisions on lending and
deposit operations, virtually participating in money laundering.
In the summer of 2012, the US Senate tackled the British bank HSBC
Holding which, according to American intelligence agencies, had been
handling operations for the practically US-controlled Mexico, providing
services to Mexican drug dealers. The bank was also accused of breaching
sanctions imposed on Iran. Only in December 2012 did HSBC declare it
was ready to pay US authorities a fine totalling $1.92bn.
In 2012, the scandal regarding the manipulation of the Libor
interbank lending rate reached its peak. Major European (primarily
British) and American banks had been manipulating the rate for a number
of years, allowing them to get rich illegally. An investigation into the
Libor manipulations was started in 2008 and involved other major banks
as well as Barclays such as the Royal Bank of Scotland, Lloyds Banking
Group, Citigroup, HSBC, UBS and Deutsche bank, with Barclays being the
first bank to admit responsibility. Over the last year, there have been a
number of subsequent investigations by the financial supervisory
authorities of America, Great Britain, Switzerland and a few other
European countries regarding these manipulations. The banks were charged
with heavy fines. It should be said that the fines for these
manipulations were considerably more substantial than in Europe. Thus in
December last year, the Swiss bank UBS declared that for manipulating
the Libor rate, it would be paying a fine of nearly 1.4bn Swiss francs
($1.5bn).
The US FATCA law and foreign banks
Serious problems may arise for foreign banks with regard to the fact
that the US FATCA (Foreign Account Tax and Compliance Act) law on the
taxation of foreign accounts came into full operation this year.
According to this law, foreign banks will be obliged to report all
clients which may have something to do with the US (citizenship or
residence visa) to the American Internal Revenue Service, as well as
disclose information about their operations and account balances. If the
government or bank refuses to comply with the requirements of FATCA,
then the US will withhold a 30 percent tax on all the income of these
banks from sources within the US. In this way, the US tax authorities
can take control of the global financial system. Even if an American (a
citizen or resident, including the owner of a «green card») did not
provide information on their foreign accounts or companies, this is now
dealt with by the foreign bank. It is not impossible that some small
financial organisations outside of the US are completely refusing to
provide services to American clients, to avoid getting tied up in the
rather burdensome accounting procedures of the US Internal Revenue
Service regarding their accounts. They still have to enter into an
agreement with the US Internal Revenue Service, however, otherwise they
will find themselves being subjected to the penalty tax even if they do
not have any clients from America. Consequently, the information on
American taxpayers that the Internal Revenue Service of the United
States had previously had to obtain with a fight (remember at the very
least the story involving the Swiss bank UBS) is now going to be offered
by foreign banks both regularly and voluntarily.
In March 2013, the US Internal Revenue Service announced that it was
planning to search for its debtors around the world and was expecting to
receive $5m in fines from the foreign banks concealing them. First on
the list were banks in India, Israel, Hong Kong and Singapore. Sanctions
against the Swiss bank Wegelin, which did not have any business
operations in America, became the precedent. Lawyers say it has placed
the continued existence of banking secrecy in doubt and has prepared the
financial sector for the rules of FATCA.
«The government has no intention of letting up in its relentless
pursuit of wealthy Americans with secret accounts offshore, and soon it
will have even more tools to work with», says Mark Matthews, a former
chief of the Internal Revenue Service’s criminal-investigations division
who is now a lawyer at Caplin & Drysdale. Over the past four years,
the US government has already managed to obtain $5.5bn in unpaid taxes
and penalties.
A decision on the possibility of imposing sanctions against a foreign
bank not operating on US soil was passed on 4 March 2013. The oldest
private bank in Switzerland, Wegelin, was fined $74m by the American
authorities for tax law violations. Wegelin was established in 1741 and
was considered one of the country’s most prestigious banks. The bank did
not have any offices or departments on US soil, therefore it was
certain it did not face any penalties as a result of the facts of the
case. In January 2013, the bank admitted that it had closed its eyes to
the activities of its American clients who had been avoiding paying
taxes. It is more than likely that Wegelin will close soon after it pays
the fine. As a result of the trial, the bank virtually ceased its
business operations and its clients began withdrawing their money.
Wegelin was the main bank Americans used to avoid paying taxes after the
Swiss bank UBS entered into an agreement with the authorities in 2009.
UBS agreed to breach its banking secrecy law and gave the US authorities
the names of 4500 of its clients (the US had insisted on information
about 52,000 non-resident accounts). Nevertheless, the bank still had to
pay a $780m fine. The bank lost a further $20m owing to the mass exodus
of clients frightened by the bank’s willingness to relax the banking
secrecy law.
New York as the centre of the dollar racket
It is not just banks that are getting caught in the US authorities’
field of vision, but also companies in the non-financial sector of the
economy. With this, it may not just be a case of breaching American
sanctions against one country or another, but also corruption violations
and offences in other countries. For example, in 2010 the US Justice
Department accused the German group Daimler, which owns Mercedes-Benz,
of bribing officials in 22 countries, including Russia. Daimler pleaded
guilty and preferred to pay its way out of trouble. The Germans paid the
US government a fine of $185m. Furthermore, the affair had absolutely
nothing to do with the US: the company did not bribe American officials
and no American laws were violated.
New York, where the majority of US banks in which foreign banks open
up their own correspondent accounts are situated, is playing its own
special role in the dollar racket. While in turn, New York banks have
their accounts in the Federal Reserve Bank in New York. No matter what
anybody says, New York is still the global financial centre with which
neither London, Tokyo, Frankfurt or Hong Kong can compare. After all,
the lion’s share of all global dollar-denominated transactions passes
through New York. This includes those that have absolutely nothing to do
with the US. Consequently, the New York State Department of Financial
Services, which was created in 2011, also has its special role to play
in the exposure of bank and company wrongdoers. Around 4,500
organisations, with assets of $6.2 trillion, are under the direct
control of this agency.
Lawyer David Pitofsky, from the law firm Goodwin Procter, observes:
«Even if a transaction is done, say, in Japanese yen, if a blip in the
system turns these into dollars, that in theory could mean it falls
under US law» (http://www.bbc.co.uk/news/19172065). This circumstance is
a powerful incentive for non-US banks and companies to replace the US
dollar with the currencies of other countries when making international
payments, while at the same time creating their own regional systems of
international payments. There is no doubt, for example, that there is a
need for the immediate creation of an integrated group of Euro-Asian
countries involving Russia, Belarus, Kazakhstan and other post-Soviet
countries. International payments within this group could then be made
in roubles, and Moscow would be able to lay claim to the status of
regional financial centre as an alternative to New York.
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