FDIC Chief Reveals Global Capital Index

To illustrate this point, a colleague and I at the FDIC have constructed the Global Capital Index, which shows the tangible capital levels for each of the largest global banking firms and the average levels for different size groups of US banks. – Thomas M. Hoenig, Vice Chairman of FDIC, from A Conversation about Regulatory Relief and the Community Bank

Thomas Hoenig from Gannett
Thomas Hoenig from Gannett

On April 15th Hoenig revealed that the Dodd-Frank Act is a burden that might not be necessary for banks that did not and cannot cause a crash like that of 2008 Financial Crisis. He’s leading FDIC’s effort to propose regulatory relief to banks that:

  1. banks that hold, effectively, zero trading assets or liabilities;
  2. banks that hold no derivative positions other than interest rate swaps and foreign exchange derivatives; and
  3. banks whose total notional value of all their derivatives exposures – including cleared and non-cleared derivatives – is less than $3 billion.

Effectively, community banks are the only institutions that apply. (Credit Unions are not insured by the FDIC and are insured by the National Credit Union Administration (NCUS)).

For the whole text of the Hoenig’s speech outlining the regulatory relief proposal, go to this link.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is the author of the forthcoming book History of Money Laundering: How Criminals Got Paid And Got Away.


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Compliance by death

Global Suicide Rate Map from Business Insider
Global Suicide Rate Map from Business Insider

South Korea has a very high suicide rate. It is second only to Lithuania. (Temporarily Greenland unseated Lithuania with the highest per capita suicide rate, but traditionally it has been Lithuania and South Korea.) South Korea’s suicide rate is more than double the rate in the United States. South Korean culture put a high price on one’s reputation. Once tarnished, the chance of recovery is slim. The work around is death. Forget about wrongdoing, death is the ultimate sacrifice one is willing to make to save his/her family from shame and is traditionally a sign of innocence. Innocence because only the innocent would find it unbearable to subject innocent family members to a tarnished reputation.

A construction executive, Sung Wanjung, had created a “bribery list.” As it sounds, it is a list of bribes he would pay to make his business more successful. He had accidentally left a printed copy of it somewhere and it was discovered. On the list were many of the President’s advisers and aides. The executive was on trial and facing imprisonment. Prison’s in South Korea are not nearly as nice as those in the States. So, he killed himself.

As the story implies, he killed himself out of guilt, not out of innocence. This has been the theme of suicides among politicians and the people in their circles. Former president of South Korea, Roh Moohyun, also killed himself when he was charged with taking bribes and embezzling. He was mourned. But right up until the news of his suicide was reported, most Koreans believed him to be guilty. Even if he was cleared of any wrongdoing, the Korean culture would have made him an outcast.

In South Korea, compliance, it seems, would have to take an extra care to prevent crimes from growing so that the result isn’t suicide.

Jang Jayeon

To prove that innocent suicides are common, or as common as they can be among suicides, a string of entertainers have killed themselves over the past twenty years due to pressures put on them by their management companies. It often happens when expectations for their success gets too high. One rising actress, Jang Jayeon, killed herself because the price she had to continue paying to get roles. She had to sleep with directors and financial backers to keep getting roles. She was a good actress, but with such fierce competition, she found the only way to get roles was to use her body. Victims of other crimes is what often leads to crime-inducing suicide, or, in the case of Jang, directly to suicide.

Sung’s death cannot be compared to Jang’s. Jang was a victim of systemic prostitution. Sung’s was likely a victim of his own guilt.

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One bit of business: I’m actively seeking contributors. If you or someone you know is a professional with at least ten years of experience in financial services with knowledge or opinions about regulation, I would like to invite you to be a guest author.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Happy Tax Day

Snoopy
Snoopy

No one likes Tax Day, but I would like to celebrate it by taking the day off. Be back tomorrow!


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is the author of the forthcoming book History of Money Laundering: How Criminals Got Paid and Got Away.


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Tech-up Compliance Now with CompliTech!

ABA Center For Regulatory Compliance
ABA Compliance Central

Compliance has a much bigger role in the business of banking than responding to regulators. Compliance must prevent mishaps.

Banks are continually investing in technology to defend themselves against cyber crime. But because Compliance as a function of its own only has come into prominence in the last few years, there aren’t any status quo compliance technologies. Plus, Compliance is an area that covers a lot of ground. There are the core Compliance functions like AML, Compliance Training, Compliance Audit and Compliance Advisory. And then there are both support functions and regulatory groups. The knowledge required to have a fully functional Compliance department is as large as the number of products and services the financial institution has. The major investment in technology right now support monitoring, reporting and analysis. And these tools are fairly rudimentary.

The solution is to have startups who partner with law firms and compliance professionals to develop Compliance products and services using a SaaS model. SaaS is Software as a Service. If you’ve never heard of it, you have definitely been involved with it. Cloud computing is generally SaaS-model business. Dropbox is a SaaS-modeled business. It provides the customer with storage space on a need-basis. Amazon has a cloud system for web businesses. Tumblr uses Amazon’s cloud.

The SaaS model is perfect for most banks. Most banks do not have profits in the billions. Investment in tailored technology is just not feasible. Community banks sometimes eek out a profit in the hundreds of thousands. Credit Unions are theoretically profit neutral, but if there is a surplus that can be set aside for technology investment, they are just trying to keep up with all of the various online and mobile banking products and services that are available for customers.

So, someone needs to marry Compliance with Technology for these smaller financial institutions that simply cannot afford the develop their own technology and yet they face all of the same AML risks and most of the same Compliance requirements.

I would be willing to to join someone who is interested in doing this. I am not a Luddite but I am not a query master. My area of expertise is in managing Compliance departments, relationships with regulators and operations. A truly well rounded CompliTech firm should have the following people as founders or early on: lawyer, AML specialist, statistician, UI/UX developer, database developer and Compliance specialist. I fulfill two of those areas. If you think this is a viable business, let me know.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Wall Street Is Caving In

GE in the news from Bing
GE from Bing News

GE announced that it will spin off its real estate portfolio and private equity. Last year, it spun off its consumer banking business. What remains is commercial banking.

This type of segregation through divestiture and sale is exactly what Dodd-Frank wanted to Wall Street firms to do but didn’t say so directly in the law. Dodd-Frank, the landmark legislation that requires, among other things, to segregate investment banking activities with commercial banking activities. This, in effect, undoes Gramm-Leach-Bliley and reinstates Glass-Steagall. Or, in plain speak, commercial banks can no longer have investment banking operations and must focus on lending products with depository funds.

For GE, this makes sense. It was a weird mix of businesses when CEO Jeff Immelt took over. Such conglomerates were out of favor for all the right reasons. When people can choose to buy equities of companies in a mix of their own choosing, why would a company need to have a broadcasting business, medical devices, commercial lending, credit cards, mortgage banking, healthcare financing, airplane capital leasing, home appliances and grand licensing businesses? I’m sure I am missing other businesses as well.

Immelt is keeping the commercial banking business of GE Capital because it is in line with other businesses GE has kept over the years. But this means the business has shrunk immensely and quickly, from $363 Billion to $90 Billion. At its peak, it was $538 Billion in 2008.

Shareholders are generally in favor of this. The real question is how Immelt intends to deploy the funds from sale of businesses? But that’s for another blog. For Money Compliance Blog, Immelt has made the decision that Congress wanted to make. Will others cave?


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Switzerland, Private But Not Criminal

Attorney General of Switzerland, Michael Lauber, froze $400 Million of Petrobras’s assets in the Alpine private banking hub. Lauber has identified more than 60 suspicious transactions spanning over 300 accounts in more than 30 banks. Aside from an investigation in the Brazil-owned petroleum firm, Lauber has opened nine investigations on individual. Eight of the nine are Brazilian nationals.

http://www.bilanz.ch/unternehmen/bundesanwaltschaft-mutmacher
Michael Lauber, Attorney General of Switzerland

“The Brazilian bribery scandal affects Switzerland’s financial center and its anti-money-laundering strategy,” said Lauber.

The money laundering schemes stem from sides deals made on corporate deals. Funds were skimmed from contracts as fees for making deals, which were then paid through Swiss banks to conceal their true sources and beneficiaries.

 


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Inversion Mergers Raise Compliance Concerns

In 2014, many firms merged with foreign firms to execute an inversion so that they will be subjects of a different tax jurisdiction. The idea was to answer to foreign taxation first, only paying the difference, if anything at all, to the US government, creating massive savings. Inversion is a cross-border merger where the smaller foreign firm takes over a larger domestic firm. It is truly an inversion of the classic merger, but for the recent inversions, this is legal mumble-jumble. While technically the foreign firm took over the larger firm, the larger domestic firm is assuming a subsidiary role in name only. For this reason, The Department of Treasury started cracking down on foreign inversions.

http://www.bloomberg.com/image/ixYVjEtSTrRg.jpg
image from Bloomberg Business

Now that the mergers have happened, in order to maintain the inverted status, a true merger must take place. That requires merging the operations of the two firms. All of the usual headaches of merger implementations apply. One of those headaches is compliance.

Inversion generally took place outside of the financial services world because that was an industry already global in nature on a firm to firm basis. So, the regulatory compliance issues pertaining to inverted firms are unique to each merger.

What isn’t unique is the US operations having to comply with foreign regulators. Here is where the US firm will need to be guided by their foreign counterparts, who may not be all that eager to help since the executives at the smaller foreign firm might be out of a job by the end of the year if the merger implementation goes smoothly.

And then then there are labors laws. The EU has TUPE — Transfer of Undertakings Protection of Employment. (Most of the inversion took place between US and Europe.) This protects many employees when transferring to new employers. Americans have long left unions behind but Europe is much more labor friendly. Shedding the European workforce after the merger might get tricky. Even complying with simple issues like mandatory national holiday and vacation day rules might create an inequality on which the US counterparts may demand parity.

And then there is the tricky situation of US expatriates working for the newly formed non-US firm. Are they still expatriates or are they immigrants? How these employees get paid, now that they are no longer working abroad for their firms?

A successful merger is a one time expense and, hopefully, in the mad rush to find foreign dancing partners, Americans didn’t partner up with one with two left feet. Constantly replacing one shoes will get expensive.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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