Making Orders of Magnitude of Fraud Disappear

Yesterday, I wrote a post based on this Reuters story about how banks negotiated settlements that hid the greater part of their crimes (in this case, Standard Chartered Bank’s tampering with SWIFT to hide transactions for Iran). The key point I linked was how SCB used consultant Promontory to produce a report saying the amount of fraud affected only $14 million of transactions, rather than the $250 billion of transactions that NY’s Superintendent of Financial Services saw.

As part of a review the bank sought to give to regulators, Standard Chartered hired Promontory Financial Group, a Washington D.C. consulting firm run by Eugene Ludwig, who served as U.S. Comptroller of the Currency from 1993-98. Promontory was hired to review Standard Chartered’s transactions tied to Iran. The bank’s review ultimately settled on the figure of less than $14 million for improper transactions.

The numbers were so disparate, I even kept misstating how many orders of magnitude of difference the report hid. Ultimately, however, the Reuters article suggested that by paying Promontory to draw up this report, SCB hoped to avoid liability for over 99% of its tainted transactions–and since fines for settlements are based on those tainted transactions, it would have paid a tiny fraction in fines of what it could or should pay, too.

The Reuters article was a pretty damning picture of how the Get Out of Jail Free industry works.

And then, the most damning parts of the article disappeared (Update from Briinhild: the full story is back up). As Yves discovered later in the day yesterday, Reuters pulled those paragraphs of the story that described this whole process.

Now I decided to go have a look myself. Being on the vampire shift, I didn’t go looking until mid afternoon. And guess what, the story that was now at that URL was not the same story. Yes, there was a story on Standard Chartered. But the version that Marcy worked from was apparently the original, released at 00:28 AM, titled “U.S. regulators irate at NY action against StanChart.” I’ve loaded that version in a Word and put it up at ScribD, and am embedding it below. It’s 1766 words. Be sure to download it if you are interested in this topic

[snip]

But the juiciest bit is how it flags the astonishing difference between the $250+ billion in transactions that Lawsky and SCB’s sanctimonious claim of a mere $14 million in dodgy transfers came about. Recall the quote that Marcy extracted above, that the advisory firm Promontory, headed by former Comptroller of the Currency Gene Ludwig, conducted a review and “settled” on the $14 million total. Promontory has made a bit of a specialty of getting hired to do independent reviews for boards in rogue trader cases. It seems it has been using the name it developed there, plus the fact that it has many former staffers from the OCC and other regulators, to enable it to act as a big ticket fixer (note that while the article also mentions that Rodgin Cohen of Sullivan & Cromwell, long recognized as the top bank regulatory lawyer, has been engaged to represent SCB. That’s almost to be expected).

So why did the original story get disappeared?

While most of the reporting on SCB’s pushback has noted that it believes the money laundering only involves $14 million, not $250 billion, those stories didn’t disclose how SCB came up with that dramatically smaller number.

They paid for it. That’s how. But we’re not supposed to know that.

Marcy has been blogging full time since 2007. She’s known for her live-blogging of the Scooter Libby trial, her discovery of the number of times Khalid Sheikh Mohammed was waterboarded, and generally for her weedy analysis of document dumps.

Marcy Wheeler is an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including the Guardian, Salon, and the Progressive, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial.

Marcy has a PhD from the University of Michigan, where she researched the “feuilleton,” a short conversational newspaper form that has proven important in times of heightened censorship. Before and after her time in academics, Marcy provided documentation consulting for corporations in the auto, tech, and energy industries. She lives with her spouse and dog in Grand Rapids, MI.

19 replies
  1. allan says:

    The NYT is lending a helping hand:

    “The federal agencies are still investigating Standard Chartered and are debating just how expansive the suspected wrongdoing was. Mr. Lawsky claims the bank processed $250 billion in tainted money while cloaking the identities of its Iranian clients by stripping their names from paperwork. Some federal authorities, though, believe that the amount is closer to the $14 million that Standard Chartered acknowledges did not comply with regulations. … The divergent views on the bank’s culpability stem, in part, from the murkiness of the law governing how foreign institutions processed transactions with Iran. “

  2. greengiant says:

    Promontory been busy whitewashing mortgage and mortgage service companies also. Thanks to Yves and Abigail etc.
    http://www.nakedcapitalism.com/2012/02/abigail-field.html

    The odd thing when I just googled promontory mortgage service, was that they did a study which said that “insured” mortgages had a lower default rate than uninsured 80 percent loan to value mortages with a piggyback second. Wonder what that was all about.
    http://www.prnewswire.com/news-releases/promontory-study-shows-lower-default-rate-for-insured-mortgages-126166083.html

  3. OrionATL says:

    this article represents real journalistic courage,

    together with an entirely justified sense of outrage.

    though not the focus of this story, we learn that the firm of a former controller of the currency’s was hired to generate the cover-up. this fact emphasizes the weak/fraud-enabling role the controller of the currency plays in the american government’s “regulation” of american banks, those institutions whose absolutely critical job in our society is to provide our businesses with loans/liquidity and to serve as a safe-haven for saving “cash”.

  4. OrionATL says:

    @allan:

    the following should be a relatively good place to start an investigation which would avoid the standard banking dodge – “it’s-too-complex-for-any-nonexpert-to-understand”:

    “… the bank processed $250 billion in tainted money while cloaking the identities of its Iranian clients by stripping their names from paperwork…”

  5. Phil Perspective says:

    @allan: Would the Feds even start an investigation over $14 million? That’s what makes Reuters look like chumps. The Feds wouldn’t even bother if it was really $14 million. It’s not worth their time. Especially since no grannies were robbed of their retirement savings.

  6. chetnolian says:

    As this story grows in the UK it becomes increasingly clear it is much more about politics than fraud. The Governor of the Bank of England, who is both a cautious man and no friend of bankers(ask Bob Diamond)has pointed out that the actual legality of the matter is not settled.

    The transactions, may I repeat, were entirely legal between the parties to them, as only the US had sanctions in place. The UK and other European Governments consciously did not. And please don’t say well of course they were looking after their national interests. Of course they were. That’s what democratic governments are for.

    If this sounds personal, you bet. I have direct knowledge of the partial and very bullying way that the USA has in the past pursued its sanctions policies and of assumption of guilt before process,something I thought Emptywheel was on principle opposed to. Even bankers can on occasion be innocent.

    Please be cautious on this till we find out how it plays out.

  7. Starbuck says:

    Manipulating numbers by the shorthand adopted by the scientific and mathematics community is quite convenient, but also hides the true nature of the differences. Everyone knows that a billionaire is richer than a millionaire, but how much? Well, one way to put it is that if being a billionaire means having $1000 in your wallet, a millionaire would only have $1, making the millionaire a pauper by comparison.

    Then we have 10’s of billions up to a trillion (12 zeros) and a millionaire has no power at all.

    How many of us have a million dollars? To spare?

  8. OrionATL says:

    @chetnolian:

    thanks for this very useful perspective from the other side. i have long been unhappy, largely thru reading the emptywheel site, with “the partial and very bullying way that the USA has in the past pursued its sanctions policies and of assumption of guilt before process…”, perhaps most notably with the SWIFT negotiations.

    i would be curious, however, to know why legitimate banking transactions needed to scrub names from documents.

    the question arises in the larger view, whether this action and resulting publicity is another in the warmongering litany of reasons to attack Iran? perhaps Jim white will have a view when he returns to the fray.

  9. chetnolian says:

    @OrionATL: The answer to your question is clear and I pointed it out when Marcy first raised the subject. The USA claims the right to police other countries’legitimate and entirely non-US foreign transctions solely and for no other reason than that they are denominated in dollars. And only because the USA is so big and powerful that all international banks have to operate in the USA, can they exercise this right through the ability to withold banking licenses. Americans may find that entirely proper. I beg, from my island fastness, to disagree.

  10. emptywheel says:

    @chetnolian: I absolutely AGREE that this is politics–all of the US actions on this front are (and I’m working on a post to show that). That said, the actions of the SCB in the US are what’s at issue.

    I think there is an absolutely legitimate reason to question whether the US should be able to dictate how the rest of the world does business (though I would note that the reporting that says SCB is clean compared to a bunch of other UK banks ignore it was already working with teh Fed on related issues). But that doesn’t mean this is worse than, say, the disparate treatment of JPMC and ING for similar actions. In fact, that’s what I think is a far more revelatory comparison, bc JPMC got far more protection, even from OFAC, than ING did. And if there’s reason to believe even those settlements understand exposure by a great deal, then what does it mean that it wouldn’t show us the settlement w/JPMC?

  11. chetnolian says:

    @emptywheel: Oh trust me unequal treatment is typical as well. There we agree completely.

    But actually no there is something we disagree upon. At issue is merely the compulsory reporting of transactions which for all practical purposes, save use of the currency, are NOT in the USA.

    You will not however be surprised to learn that targeted foreign institutions put a lot of effort in doing just enough, and no more, than is necessary to comply with the intrusion of US law into activities which otherwise are none of their damned business.

    It looks as if SCB is on exactly the boundary between enough and not enough and, whetever the outcome, I am on SCB’s side. I note in the reporting one of the points being made is that a senior SCB executive referred in colourful terms to the Americans. I have been in countless conversations of exactly that type though not so colourful. Oh wait..

  12. emptywheel says:

    @chetnolian: Well, what London should do is insist on clearing these transactions in London.

    What SCB is so worried about is losing its US license. If that is a credible threat, then it says that SCB recognizes that enough of its actions were IN the US that this matters.

    Don’t get me wrong–I think we bigfoot our law in many areas: terrorist convictions, FCPA, etc. Sanctions are an important are of it. But if the Brits are serious about responding to it, then the US has to become a non-necessary clearing site.

    Once that happened, and the JPMCs of the world had a harder time hiding their own laundering activities behind others, things would get intersting.

  13. chetnolian says:

    @emptywheel: I don’t think London has the choice; that is my beef.There are too many people in the US system who don’t trust us to be beastly enough to the people the US hates. The only choice would be to use other currencies, but the hold of the almighty Dollar on many commodities is so great that is not an option.

    And the fact that SCB like every other bank operating in the “free market” has to have operations in NY does not mean the subject transactions themselves had anything to do with NY. My understanding is that they did not, save that in order to rule the world the US says every Dollar transaction has to seem to go through the USA.

  14. greengiant says:

    @chetnolian: Personally, it is not SCB Iranian transactions that is news, it is SCB using the same US expert fixers and lawyers that JP Morgan and Bank of America have used.
    What is the range of London views on the JP Morgan trading fiasco, the MF Global 1.8 billion dollar theft, and the AIG financial product group doings? Just regulatory shopping by ex-pats?

Comments are closed.