Tuesday, August 7, 2012

Iran: Getting away with genocide, thanks to banks (maybe)

If the allegations about the British based bank Standard Chartered Bank PLC are true then a financial institution that has been at the forefront of a "corporate responsibility" campaign is guilty of an instance of money laundering that makes the Bank of Credit and Commerce International look like Romper Room ™.    When I first heard about this late last night, I thought it was "only" $250 million.   Actually, as we know now, there may be been $250 billion laundered.

If on the other hand the nearly 160 year old bank is telling the truth, that it did not knowingly aid and abet Iran, then it really has been played for a fool and for a bank with just under $600 billion in deposits it really calls into question how trustworthy banks can be.

(SCB's statement is here, New York State's allegations are here.)

Think it couldn't happen in Canada?     I'm not so sure anymore.    I'll explain after a bit of a diversion but I hope it explains my thinking as to why.


By the time regulators around the world slammed the door shut on BCCI in 1991 (the bank had been open for only 20 years, "only" $10 to $17 billion had been moved around illegally with very little foresight; and while 75% has been recovered by governments for the portions not covered by deposit insurance, the trustees are still after twenty years trying to find the rest).    Depositors in most countries where BCCI operated were made whole (more or less) to the tune of just about $20 billion, its deposits; but this did create an embarrassing situation for states like Canada, which was forced to break its own rules that deposit insurance only covered citizens or full time residents of Canada -- not the diplomatic corps in Ottawa, much of which had BCCI as their preferred bank.    Really -- we had to bail out corrupt states like Saudi Arabia and Zimbabwe, and in the middle of a recession.

While it is true that BCCI helped launder USDA food aid money (about $100 million) intended for the poor in Iraq towards Saddam Hussein himself to fund the infamous Project Babylon "Supergun" invented by Canadian traitor Gerald Bull; and Iraq did have chemical weapons which it merciless plowed on Kurds in 1988, there's really no indication that Mr Hussein was at that time seeking nuclear weapons on a mass scale -- after Israel bombed Iraq's nuclear facilities in 1983, Hussein must have decided to keep it simple, hence Babylon.

The stakes are way higher here.    And not just because of the amounts involved here.

Iran, despite its denials, definitely has nuclear weapons ambitions.    We all know that.   And of course it would; with Israel to the left and Pakistan, India and Mainland China to the east (I highly doubt North Korea would want to take out Iran).    Pursuing a nuclear weapon isn't cheap.   You need massive amounts of power, certainly much more than most hydro (water) or coal plants are capable of producing.

And building a successful and viable nuclear generating station by itself is huge.   The Manhattan Project (a joint project of the US, Canada and the UK -- the "Atlantic Triangle") which led to the Trinity, Hiroshima and Nagasaki bombs (as well as a fourth, undetonated one) cost about what it took to fund 9 days of conventional warfare, about $1.9 billion; about $24.4 billion today.   That's with three very developed and allegedly "advanced" nation-states.

Among the positive side effects of such a weapon of terror were nuclear power generation and medical isotopes that have successfully treated and even cured millions.    It has even helped combat art fraud (any painting or photograph after about 1948 has radioactive materials in it, in trace amounts but they're there).   But many of us are old enough to remember Three Mile Island and Chernobyl, and of course Fukushima.   The fact is, you never build a machine gun only with the intent to hunt wild game for the purposes of conservation and food consumption.   Ask the real Anton Kalashnikov.

Iran can't simply go to a bank (one that operates within the rules) and say, "Can you extend us a line of credit, for say, $50 billion?    We'll pledge our oil assets as collateral."   The loan officer, knowing Iran's history and its rhetoric, can't just very well say, "Okay, sign here."    They would insist on some kind of assurance about what the money is for, and that it is indeed going for that purpose.   Especially for a third world country, and past instances of corruption throughout the developing world, due dilligence is vital.

SCB admits it had received 150 million text messages and other online contacts.   (The regulators are focused on about 60,000).    If there was a suspicion something weird was going on, a reasonable person might think they would have raised the alarm even before they were first contacted by prosecutors in 2007.

What has happened here, according to regulators, is an illegal "U-turn" in that Iran has multiple times wired X amount of one default currency (say, Euros, but of course using a dummy company as a front) to a European bank (especially one in the Eurozone) with a US branch office; in turn that US branch wires the equivalent in dollars to a US bank and one of its European branches into an account of the same front company.   

Not only has Iran managed to sucker two banks it would seem, but central banks have been suckered too.   The Euros are now "Euro-euros" (that is, a Euro outside the Eurozone and not controlled by the ECB in Frankfurt) and in turn an equal amount of bucks have become Eurodollars (a dollar outside of the US, and it doesn't have to be Europe either) and therefore outside the control of the Federal Reserve.

If there is a seizure of the bank in question here, the depositors may very well get most or all of their $600 billion back; it'll be covered by insurance (government and private).    But those insurance premiums paid by all of us for home, auto, life etc will skyrocket making it very unaffordable; and of course, a bank failure could start a chain reaction.

I think people have had enough of "too big to fail".


So to my point.   And this is only what I think, based on what we know:

SCB has a very small presence in Canada -- while it mostly exited retail banking here, it still is here via its majority ownership of the Canadian arm of American Express ™ Bank.    So there is some exposure there although also some protection with deposit insurance.

 But who's to say that given Canada's very tough position on Iran and our poisonous history with them (we didn't even have relations with them during the 1980s, a policy carried through by four Prime Ministers) that that country hasn't figured out a way to take advantage of what's left of our fairly reasonable stance on foreign policy issues and used front companies running money through any of the chartered banks or trust companies?     If we have been played for fools, then there's going to be a lot of egg on the face of PMS.

Some banks have proactively been trying to clamp down, although overreaching in some cases by closing personal accounts altogether without probable cause (think TD ™).    And while police activity needs to keep a low profile until charges are filed, stopping Iran from getting Da Bomb and / or funding terrorist groups should be our Number One foreign policy initiative.    We need to make that clear.    And if Iran has laundered money through Canada, then we should again suspend diplomatic relations with that country.

As for the banks, nothing less than full disclosure is called for.   If banks have found irregularities, we need to know, openly and now.   Otherwise, there should be a substantial forfeiture of cash and equivalents in hand, a major hike in that bank's deposit insurance premiums, and a very public shaming.

Otherwise the credibility of our banks are in question.    And with it, our confidence in their "stability" compared to other countries, especially the US.    We need to take the lead in saying we're splitting apart the retail (bank, trust and insurance) operations of financial institutions from the investment banking divisions.   That is to say, investor's escrow deposit accounts should of course be protected for their book value; but any risk management by the investors and the traders they rely on should be on a caveat emptor as well as caveat venditor.    We should not be held liable under any circumstances for derivatives that go haywire or transactions made with ill intent.

Furthermore if a Cabinet minister had a probable belief something was rotten but did not speak up, then that minister should be fired -- and that includes the Prime Minister.    If they knew, we need to know too.    If there is a time for "accountability" it's now.

Whether it's just $10,000 or $1 billion or more, we need to know the truth, now -- and the banks telling the government of Iran to get the hell out of Dawson Creek.

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