Ethics Does Not Have To Be Serious

http://rostron.co/2015/10/07/changing-ethics-in-a-digital-world/
credit Digital Transcendence

Ethics has to be real. Ethics has to be appropriate. However, ethics does not have to be serious. Seriousness is a style. And there shouldn’t be a prohibition on taking pleasure in doing the right thing.

I was asked to distinguish between ethics and morality. Morality is what is considered right or wrong by a person or society. Ethics is morality in action. So, if you believe that Jesus Christ was the son of God, then it would be unethical for you to desecrate his image. For that matter, if you don’t believe that Jesus Christ was the son of God but you do believe in respecting other people’s beliefs, you would avoid desecrating images of God worshipped by others.

Notice, I framed morality based on an individual’s belief and, in my second example, I changed the belief but applied the decision to act the same way. There are subtle difference that I won’t get into in this post.

Obviously, desecration of holy objects is a very grave matter. But the non-desecration should not be. It should simply be the norm that people are respectful of each other’s beliefs.

This can be applied to corporations. There is one difficulty with corporations, though: they aren’t democracies. The president or CEO gets to prescribe the appropriate behaviors and one must keep morality to the self. This is an HR issue.

I want to talk about ethics and sales. Financial advisors may have their own personal beliefs, but they take an oath to act in accordance with a set of codified conducts. The industry set these up specifically because FAs are knowledge workers and what they provide is not just financial products but advice. For this reason, an inappropriate product for a certain type of client is forbidden. This hurts the investor and it makes the industry look like cheaters. So, if you want to join the industry, you much follow the ethical guidelines prescribed to you.

This prescription even goes as far as breaking the code of coduct of the financial institution the FA is working for. Against, this no-exemption exists so that firms cannot create an environment where financial advisors are permitted to dismiss their oath.

This is all serious stuff. Why? Because we are talking about harming investors.

But for an FA who loves providing value advice and access to products to his or her clients and the guidelines make him feel secure that his competitors cannot cheat, then why shouldn’t they have a smile on their faces?

So, smile.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

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Don’t be fooled by student debt article


This is not about financial regulatory compliance from the perspectives of regulators or financial institutions. This is about compliance from a personal finance perspective. The short and skinny of it all is, you should not borrow money for education if at all possible.  The reason is because it is one of the worst to get toward financial independence.

I will explain why by first explaining how income taxes and their associated fines work when you don’t pay your income taxes. If you earned $100,000 in 2015, your effective earn income tax rate is 28%, or $28,000, unmarried non-head of household taxpayer. If you didn’t pay any of that, you would pay a fine of up to 25%. This in on top of the unpaid taxes you must pay. Basically, the IRS is punishing you for borrowing money you owe them. That makes sense. So, 125% of $28,000 is $35,000, or an effective tax rate becomes 35%. This is only applied to the years you did not pay your income taxes, of course.

Let’s see what that looks like when it is converted to student loans. If you borrowed $100,000 for your higher education, and if your interest rate is 5%, and you are in repayment, then this year you would pay $12,727.92, of which about 95% of it in your first year of repayment will be interest, or $12,091.53. Essentially, you are paying this interest to the government, which, if you think about, is a tax because this is not the amount you borrowed; it is on top of it. And, also, you must pay all of the borrowed money back. It is kind of like having a very low interest rate for this portion of borrowed “income.”

Since you are in repayment for our example. You would get a deducation of up to $2,500 from your pre-tax income, the deduction cannot exceed the amount of interest paid. So, now you will pay 27.3% or $27,300 on your earned income, a savings of $700. Plus you will have been paying the government an additional $12,091.53, so, you will have paid the government a total of $39,391.53. And this will continue for ten years, albeit the “tax” portion of it will decrease. Another way to look at it, regardless of whether you pay all of the interest, you will still have to pay more interest for at least ten years, unlike not paying taxes, which you will only have to pay interest as long as you don’t pay.

In order to pay an effective tax rate of 39.3% on your earned income, you would have to make $14.3 Million. Another way to think about it this: in order for student loans to really make sense is if you either make enough money to live on comfortably even after you pay your student loans and you are guaranteed to have your job(s) for the duration of the repayment period, or make a break even amount the first year and then an increase in your income to the amount of the interest rate each year (which becomes easier to do each successive year because the even monthly payments effectively reduce the interest payments over time).

That magical break even income for the example’s first year is… about $66,700. How do I figure? Well, if living comfortable on average costs about $40,000 per year, and your effective tax rate will upwards of nearly 40%, then you need to make $40,000 after tax. This $66,700 only accounts for Federal Income Tax. It does not account for Social Security, Medicare, local taxes. Most of those other taxes amounts to about 10% of your income, depending on where you are. That means, you’d need about $80,ooo.

Who gets paid $80,000 on their first job after undergrad? Engineers and investment bankers. Is it no wonder that they have the bandwidth to accomplish a lot of other things in their early lives?


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

IRS Cyber-Security Severely Underfunded

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credit Wikipedia via Bing

TIGTA is the abbreviation for Treasury Inspector General for Tax Administration, the officer that tracks down fraud schemes by taxpayers and, increasingly, on taxpayers. The current TIGTA have been making progress in impeding the efforts of IRS impersonators. Inspector General, J. Russell George, said, “Perpetrators used to be able to get a victim every 40-50 calls, now they must make 300-400 attempts to claim a victim.”

Still, George’s boss, Secretary of Treasury Jack Lew, assessed that the programs that combat cybercrime on taxpayers is “severely underfunded.”

This is a serious problem because cybercriminals, like all criminals, try different methods when a previously effective method is closed off. Most of these methods almost always include a cybercriminal getting identification information to file a bogus tax return in order to get a refund. The average refund is about $3,000, so, it only takes about 34 to get over $100,000. There are about 60 working days between the end of January, when W-2’s are sent to employees and tax day, so, if a fraudster were to treat this like work, the booty could be about $180,000 when the success rate is just one per day, pretty good work for working less than a quarter of the year.

Over  nine in ten taxfilers file online, which adds other methods of identity theft that could result in more than just a stolen tax refund.

President Obama is proud of having reduced the deficit by reducing Federal spending, but a reduction in the enforcement of such a lucractive crime is a poor way to reduce the deficit. He has reduced the decifit in other bad ways, but that’s not to do with cybercrime and IRS. For now, he and his Secretary of the Treasury disagree on how much is needed to fund the cybersecurity of the IRS.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

How will you know government is targeting your GMail?

Google will tell you.

In the latest effort to fight the FBI is the court of public opinion, Google has decided to just let you know when you are being targeted by a government entity.

The way this will work is that a warning will pop up before the user visits a site from a link provided in GMail. The warning will be just like the “safe browsing” warning that shows up in Google Chrome when a link leads the user to a suspicious or known malicious site.

Google is doing this in light of FBI’s pursuit of Apple’s encryption keys.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

Wealth Management in China might not be managing wealth

Lack of auditing financial statements and going concern by professionals is a problem around the wholebut in China, the scale is just different. Everything is just bigger.

Guangdong Bangjia sold financial products that promised returns up to 47% on loans and loan funds. The Company targeted senior citizens for these investment opportunities. In a country that is so new to financial products and so large that scale of things just are immense, many investors took the bait. Some 230,000 of them have been investing in the Company during the course of about a decade. But there were no investments. It was a Ponzi scheme.

How did Chinese senior citizens end up investing in this Company’s funds? Well, the Company invested in itself first. It spent money on lavish and grand marketing exhibitions, proving that it can afford to do such things because of its success.

I didn’t intend to write three articles consecutively on financial crimes in China, but I couldn’t help it but notice how big financial crimes can easily get in China. This is a place with very little wealth for the ordinary citizen. But because of the countries fantastic rise and people being exposed to media that show them how wonderfully wealthy some people of little means have become, people are willing to take a chance.

The sad thing is that the United States is becoming this sort of place. Getting ahead by working hard is less and less secure, so, more and more people are gambling. US has the lowest labor participation in a very long time and the average income per employee hasn’t kept up to pace with inflation, even while productivity per employee has increased over the past three decades. Financial crimes involving financial professionals offering hope of a better life is going to be more prevalent if we don’t start doing something to make sure we do something about the system that makes us want outrageous investment returns.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

When 95% of borrowers are fake

The following story is an argument for having good auditing laws and securities regulations protecting investors.

e-Zubao was an Anhui-based Chinese online financing company. It was small, just 21 people. And in just 18 months, it became the largest online financing company in China. It provided loans to consumers, promarily, at 9% to 15% interest. Investors loved it. This company was going to make hand-over-fist. Almost a million investors invested in the company through the stock exchange.

None of the above is false. But they did falsify one thing: the number of borrowers. There were none. Well, not exactly none. About 5% of the stated borrowers were actually borrowers. The rest were made-up ghosts. To put it in terms of returns, to make the same kind of returns it stated it would be making, it would have to have just one employee, and all other costs must also be 20 time less.

You can imagine the horror when investors found out that their explosive company imploded.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

Paper is a problem in China

China’s banking system has a paper problem. It uses too much of it. In today’s realtime-tracking systems and continuous risk calculations and cross-market arbitrage algorthms, much of China’s $700 Billion financing market is funded through paper loans. In one incident late 2015, Citic Bank, one of China’s major banks, discovered a fraud scheme that approved $150 Million of approved loans using a financial instrument called Banker’s Acceptance. This is a short term loan that does not need to meet all of the stricter requirements of a traditional loan. This fraud was done through the production of fake documents.

As a result, China Banking Regulatory Commission publicly asked banks to review their banker’s acceptance bills financing instruments. This is in the face of an industry with little domestic competition, and, therefore, no real need to manage risks. For that matter, the domestic operations of Chinese banks is quite archaic. Only one in five loans are done electronically. This often means, loan proceeds are given to borrowers before a complete review has been completed.

The problem here is two fold. There is the direct problem, which is that the industry needs to have a regulation that requires full reviews, and, hopefully, will pressure banks to make their loan application and review process be more electronic. And then there is the systemic issue. With every bank essentially acting as an arm of the central bank, there is no competitions, so, there is no motivations to compete. Without such competition, why should any executive risk the bank’s operations with costly and unproven improvements? There is very little upside.

The irony is that Chinese bank operations in other countries, like the US are highly risk averse. They more risk averse than their Western counterparts.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.