A Reminder of the Golden Rule

In a Linkedin group on FATCA (Foreign Account Tax Compliance Act), someone highlighted an article on the Global Research (Center for Research on Globalization) website called The Dollar Racket.  In this piece, Valentin Katasonov, points out the increasing trend towards US authorities penalizing non US entities while remaining silent on the operations of American ones.  The author outlines the various theories that seek to explain this interesting phenomenon.

Some experts believe that the enormous fines some non-US (primarily European) banks are being forced to pay in penalties today is part of America’s financial restructuring campaign announced by the US President. Others believe that the fines are a new competitive weapon being used by American banks against European ones. Still others believe that the new mechanism of levying fines is the new global initiative of America’s ruling elite to strengthen the country’s geopolitical superiority over the Old World and the world as a whole. There are also other theories behind what today is becoming known as the dollar «racket»…
Global Research

This piece mirrors a similar article in last week’s Economist called GloboCop – the long arm of American justice.  In it, the paper also points out the widespread belief that when it comes to foreign banks, American justice is more one-eyed than blind.  Although American institutions are among the world’s biggest, the list of banks that have agreed to pay huge fines to regulators in the United States is largely foreign.  The three banks that have already agreed settlements for LIBOR manipulation are European; so are the three thought likely to strike deals later this year.  

There is also the curious case of Tom Hayes, a former trader at Citigroup and UBS.  LIBOR-related charges against the gentleman were filed in the US and Britain.  In Britain Mr Hayes was charged with misconduct for the period when he worked at Citigroup and at UBS.  In the US, the charges cover only the period when he worked for UBS.  Curious indeed!

There are also the cases of money laundering.  Foreign banks also seem to have been dealt with more harshly than their American counterparts.  British HSBC, last year agreed to pay a $1.9 billion fine for failing to prevent money-laundering by drug cartels.  At about the same time Standard Chartered, another British bank, agreed to pay $667m for facilitating transactions with Iran (after briefly threatening to fight the charges).  Yet in 2010 Wachovia, a subsidiary of Wells Fargo, agreed to pay a fine of $160m for laundering money for Mexican drug cartels.  Interesting!

Last year, British Chancellor George Osborne personally intervened in the Standard Chartered case by making 3 calls to US Treasury Secretary Tim Geithner to demand “fair treatment of British businesses” by US Regulators.

In my mind, the US is not just worried about British banks but any non-American entity that does not operate in a manner that is supportive of US policy.  In June 2012, the Dutch bank ING admitted breaching the sanctions imposed on Iran and agreed to pay US authorities a fine of $600m (and according to some reports, this was also for breaching sanctions imposed on Cuba).

To some extent, this is all understandable.  If someone wants to use US dollars or profit from US markets, should they not submit themselves to US rules and support US foreign policy?  We cannot be na├»ve to this idea.  Remember SWIFT (Society for Worldwide Interbank Financial Telecommunication)?  For those unfamiliar with it, it is a member-owned cooperative through which the financial world conducts its business operations.  So more than 10,000 financial institutions and corporations in 212 countries trust it every day to exchange millions of standardized financial messages.  Most transactions are of course conducted in US dollars.  In the summer of 2006 the Guardian reported that SWIFT yearly shared the information related to millions of British banks transactions with the CIA.   The Bank of England, one of the 10 central banks with a place on SWIFT's managing committee, revealed it had told the British government about the programme in 2002.  In a written parliamentary answer, Gordon Brown confirmed the government was aware of the arrangement. US Taxation Singapore

So as the battle for control of the global financial system continues, it is logical that the US would use every advantage available to ensure the continued dominance of the US dollar as the world’s reserve currency and thus, the primacy of US interests.  Information is power and the information flow generated from FATCA compliance should be put in this wider context.  As for non-American institutions including British and European banks?  They will continue to comply with American rules because they benefit immensely from an American dominated world financial structure and the fines are just a not so subtle reminder of this fact.

Read more on DerrenJoseph.blogspot.com 

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