Restitution of Illicit Assets Act passed by Swiss Parliament

I hadn’t realised that this law had already passed if it weren’t for a tweet from Pakistan (Hat Tip: Syed Ali Raza Abidi)

On October 1, 2010, the both houses of the Swiss Parliament passed a new law that will somewhat facilitate the restitution of “potentate funds”, or assets of politically exposed persons (PEPs) who are most likely illicit. The law closes a gap in Swiss law that lead to difficulties when the government in question fails to cooperate in the restitution of the funds. As the Federal Council wrote in its Dispatch (Message accompanying a law submitted to Parliament):

Nevertheless, the growing phenomenon of so-called “failing states” has shown up the limits of the system, in particular in the Mobutu and Duvalier cases. The draft law therefore comes into existence as a result of difficulties encountered by the Swiss authorities in returning assets frozen in Switzerland to such states following the failure of the process of international mutual assistance to produce a satisfactory result.

The vote was Ständerat (State Council) voted 41 yes to 0 no, while the Nationalrat (National Council) voted 161 yes to 32 no.

It remains to be seen whether future cases will be handled with less issues than previous ones since much depends on the corporation of the countries in question. As the Federal Department of Foreign Affairs writes on its website:

Restitution of potentate funds

Potentate funds that manage to enter Switzerland despite comprehensive precautionary measures have to be identified and repatriated to their country of origin. This so-called restitution is an important instrument in the Switzerland’s policy of combating illegal monies. Therefore Switzerland has returned about CHF 1.7 billion to their countries of origin, which is more than any other financial center of a comparable size. Individual cases attract considerable publicity on account of the high profile of the people and the amounts of money involved. Examples include:

the Montesinos case, Peru, 2002
the Marcos case, the Philippines, 2003
the Abacha case, Nigeria, 2005
the Angolese assets case, Angola, 2005
the Kazakh assets case, Kazakhstan, 2007
the Salinas case, Mexico, 2008

Some cases are particularly complex to solve. Among them, one can mention the Mobutu case (Democratic Republic of Congo/DRC) and the Duvalier case (Haiti). In the Mobutu case, Switzerland strove during 12 years to return the frozen assets to the DRC. This challenge finally failed among others because of the lack of cooperation of this State. In these circumstances, the Federal Criminal Court of Switzerland (FCC) ruled on 14.07.2009 against pursuing a complaint regarding these assets. The freezing of Mobutu’s assets in conformity with the decision taken on 30.04.2009 by the Federal Council (Swiss Government) has therefore been lifted.

Below is the English text. Beware though that English is not an official language of Switzerland and the English translation is for informational purposes only. Only the French, Italian and German versions are relevant in law.


UN Security Council Set to Agree on New Iran Sanctions

Iran Nuclear Program

Image Source:

From Pravda:

The UN Security Council will consider a draft resolution today imposing new sanctions against Iran. The permanent members of the Security Council seem to have managed to agree on the text.

Several such measures previously adopted in resolutions of the UN Security Council, the international community have already been realised. In particular, with this country nuclear materials cannot be traded.  Foreign banks have frozen accounts of companies and individuals involved in Iran’s nuclear program. In addition, the Islamic republic is forbidden to export weapons.

And over the past week the UN Security Council permanent members (U.S., UK, France, Russia and China) have agreed on a draft resolution calling for tougher sanctions. This includes, in particular, the prohibition of the sale to Iran of several types of weapons (e.g. missiles and attack helicopters). In addition, inspection or marine cargo destined to Iran will be made by UN member countries.

And that’s not all. The UN Security Council intends to request non-issuance of licenses to those Iranian banks suspected of involvement in the financing of nuclear development. There will also be a request  to expand the list of citizens of this republic [Iran], which will forbidden entrance to the Western countries.

The major initiative in the preparation of this resolution belonged to the United States. Speaking on June 8 at a press conference in Ecuador, Secretary of State Hillary Clinton has emphasized that today the UN Security Council should take “some of the most severe sanctions, which Iran has ever faced”.  The unity demonstrated by the international community is extremely high, “- said the head of the U.S. diplomacy.

At the same time the unity of this is not so unequivocal. As evidenced, for example, the statement made on June 4, by Russian Foreign Minister Sergei Lavrov. Mole, of the proposed American resolution at the insistence of Russia and China removed the requirement of imposing paralysing sanctions. The minister stressed that Russia would in any case not be a sponsor of today’s paper. And clarified: the sanctions would be lifted as soon as Iran were to show a willingness to negotiate on its nuclear program.

The Pravda piece is much longer than that, you can translate it with Google, if you want.

When Fragile Becomes Friable by William Black

This is a very readable 12-page explanation of the concept of ‘control fraud’ and its effect on the economy. It was written by William Black in 2005 and its full title is: When Fragile becomes Friable:  Endemic Control Fraud as a Cause of Economic
Stagnation and Collapse.

The original is here, I have also posted it to Scribd for readability and easier dissemination:

A quote from the document:

Neo-classical economics’ understanding of fraud is so weak that its policy prescriptions,
if adopted wholly, produce strongly criminogenic environments that cause waves of
control fraud.  Neo-classical policies simultaneously make control fraud easier and more
lucrative, dramatically reduce the risk of detection and prosecution by maximizing
“systems capacity” problems, and encourage crime by making it easier for fraudsters to
“neutralize” the social and psychological constraints against deceit and fraud.  Thus the
paradox:  neo-classical economic triumphs produce tragedy.

William Black does not say so, but might the failure of neo-classical economics to recognise fraud as a problem be due to the fact that neo-classical economics is a fraud itself, having as its purpose the enriching of a few while everyone and everything else be damned?

Comcast v. FCC No. 08-1291

Quite interesting ruling from the United States Court of Appeals
For The District of Columbia Circuit. The FCC argued that it had authority to regulate a specific service provided by Comcast on its network based not on an express delegation of power, but on its ability to claim ‘ancillary jurisdiction’. The FCCs claim for ancillary jurisdiction is based on 47 U.S.C. § 154(i), which states that the Commission may “perform any and all acts, make
such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the
execution of its functions.”

However, the appeals court dissects that claim, by first noting that:

Indeed, in its still-binding 2002 Cable
Modem Order, the Commission ruled that cable Internet
service is neither a “telecommunications service” covered by
Title II of the Communications Act nor a “cable service”
covered by Title VI. (p. 5)

The court also has a test that can be use to determine whether ancillary authority may be invoked:

“The Commission . . . may exercise ancillary
jurisdiction only when two conditions are satisfied: (1) the
Commission’s general jurisdictional grant under Title I [of the
Communications Act] covers the regulated subject and (2) the
regulations are reasonably ancillary to the Commission’s
effective performance of its statutorily mandated
responsibilities.” (p. 8)

The court makes it clear that ancillary authority does not mean unrestricted authority:

“Though afforded wide latitude in its supervision over
communication by wire,” the Court added, “the Commission
was not delegated unrestrained authority.” (p. 21)

It is important to note that statement of Congressional policy alone does equate to a proper delegation of authority:

Instead, the Commission maintains that congressional
policy by itself creates “statutorily mandated responsibilities”
sufficient to support the exercise of section 4(i) ancillary
authority. Not only is this argument flatly inconsistent with
Southwestern Cable, Midwest Video I, Midwest Video II, and
NARUC II, but if accepted it would virtually free the
Commission from its congressional tether. (p. 23)

Finally, the court makes clear that the Commission has broad authority to regulate, but that this authority is not unrestricted:

It is true that “Congress gave the [Commission] broad
and adaptable jurisdiction so that it can keep pace with rapidly
evolving communications technologies.” Resp’t’s Br. 19. It
is also true that “[t]he Internet is such a technology,” id.,
indeed, “arguably the most important innovation in
communications in a generation,” id. at 30. Yet
notwithstanding the “difficult regulatory problem of rapid
technological change” posed by the communications industry,
“the allowance of wide latitude in the exercise of delegated
powers is not the equivalent of untrammeled freedom to
regulate activities over which the statute fails to confer . . .
Commission authority.” NARUC II, 533 F.2d at 618 (internal
quotation marks and footnote omitted). Because the
Commission has failed to tie its assertion of ancillary
authority over Comcast’s Internet service to any “statutorily
mandated responsibility,” Am. Library, 406 F.3d at 692, we
grant the petition for review and vacate the Order. (p. 36)

I think the court is right, however the consequences are a bit unnerving, as it makes the Internet a ‘private’ space in which corporations can set the rules as they seem fit. So they could regulate away free speech, right to privacy or protection against unreasonable searches and the like, it is their network, after all.

I’d say Congress needs to act urgently on that and close that regulatory gap.

The good news is that the Federal Reserve Board may also take note that wide latitude given to an agency – which the Board is, while the Federal Reserve Banks are not – does not mean ‘independence’ from the lawmakers, i.e. Congress.

The New York Times runs this story as well.

FINMA Annual Media Conference 2010

A FINMA press with the title “FINMA Annual Media Conference 2010: Stability affords protection and is an advantage for Switzerland as a location” release let’s us know that:

The Swiss Financial Market Supervisory Authority FINMA underwent a turbulent year in 2009. In its first year as the new combined financial authority, it had to contend with a challenging economic environment for those under its supervision, tough decisions and time-consuming investigations. At today’s media conference, FINMA focused on the importance of the stability of financial institutions for creditors, investors and insured persons. It spoke about the introduction of the Swiss Solvency Test in the insurance industry as a measure to promote stability, and two areas in which it sees an urgent need for action in the Swiss financial centre: the problem of institutions being too big to fail and legal risks in cross-border private client business.

The funny thing is that I don’t remeber them doing much in this turbulent year, except white-washing pretty much everyone from UBS (Subprime) to Credit Suisse (Lehmann & Madoff investments). But that’s my view only, I am sure FINMA has a different take on the importance of their actions or omissions.

What’s even mor interesting, is that the word “integrity, credibility and truthfulness” does not figure in FINMAs vocabulary. Obviously, stability overrides everything else justifying a cover-up of the banker’s bad deeds just to maintain the stability?

Warning from the FINMA: The truth can be dangerous to your stability.

The full press release can be found here.

FSA Raids and Arrests said to involve Moore Capital

As i wrote earlier, the FSA has performed some raids and arrested six people today. We now know that Moore Capital was targeted. According to Zero Hedge:

This is a huge development as Moore Capital has long been one of the world’s largest and best performing hedge funds. The fallout of this case will be severe for hedge funds both in the UK and across the Atlantic.

According to Moore Capital’s Linked In profile, the career path of Moore Capital’s employees looks typically like this:

Linked In Profile Moore Capital

Linked In Profile Moore Capital

The founder of Moore Capital is Louis Bacon, who according to Wikipedia:

Louis Moore Bacon (born 1956) is an American hedge fund manager and trader who uses a global macro strategy to invest in the markets. Bacon has been at the top 20 ranking of Top 100 money earners since the 1990s.[1] He is considered one of the top 100 traders of the 20th century. With an estimated current[update] net worth of around $1.7 billion, he is ranked by Forbes as the 707th richest person in the world.[2] He is the manager of a leading New York City-based hedge fund, Moore Capital Management.

However, it is not clear how or if he is involved in this raid.

Further, according to Zero Hedge:

Here is a summary of Moore’s top holdings, which will likely now follow the same firesale fate as Galleon’s. The biggest holding: Bank Of America, at just over $534 million worth.

  • Bank of America: $534 million
  • Max Capital Group: $223 million
  • Mastercard: $106 million
  • SPY: $103 million
  • EEM: $93 million
  • CME Group: $83 million
  • Assured Guaranty: $74 million
  • Trading Emissions: $58 million
  • Banco Santander: $55 million
  • Citigroup: $45 million

And a whole lot of unknown bond and CDS holdings

Amazing. There really seems to be a huge scandal brewing here. More arrests to follow?

Hat tip: Zero Hedge

FSA: Six arrested in FSA and SOCA insider dealing investigation

The FSA announced today:

23 March 2010

In the first operation carried out jointly between the Financial Services Authority (FSA) and the Serious Organised Crime Agency (SOCA), 16 addresses have been searched this morning in London, the South East and Oxfordshire in the FSA’s largest ever operation against insider dealing.

Documents and computers have been seized from residential and business premises.

Six men including two senior city professionals at leading city institutions and one city professional at a hedge fund have been arrested on suspicion of being involved in a sophisticated and long-running insider dealing ring.

It is believed that the city professionals passed inside information to traders (either directly or via middlemen) who traded based on this information and have made significant profits as a result.

The operation was carried out by 143 FSA personnel together with officers from SOCA as part of a joint investigation that commenced in late 2007.

No further details can be confirmed at this time.

Notes for editors

  1. This is the fifth set of arrests carried out by the FSA into insider dealing since 2008. It is the first operation carried out jointly with the Serious Organised Crime Agency.
  2. The FSA has so far secured five sentences of imprisonment (one suspended) in relation to insider dealing: McQuoid and Melbourne in March 2009; Matthew and Neel Uberoi in November 2009 and Malcolm Calvert on 11 March 2010. Details of each case are available on the FSA website.
  3. The FSA is currently prosecuting three other insider dealing criminal cases: Andrew King, Andrew Rimmington and Michael McFall, with a trial date of 19 April 2010; Christian and Angie Littlewood, with a trial date yet to be fixed; and Neil Rollins, with a trial date yet to be fixed.
  4. The Financial Services and Markets Act 2000, gives the FSA powers to investigate and prosecute insider dealing, defined by The Criminal Justice Act 1993.
  5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
  6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime
  7. Individuals with information about market abuse can call the FSA’s market abuse hotline on 020 7066 4900.

Seems to be serious stuff. The SOCA says about itself on its website:

We work to put serious criminals behind bars, and use many other tactics to fight crime and keep you safe. In particular, we want to ensure crime doesn’t pay and that it’s harder to commit.

Sounds good. Let’s see what comes of this one.

Hat tip: Tages Anzeiger