ADM Settlement, Market-Rig Jail Deal, Covered Bonds: Compliance

Archer-Daniels-Midland Co. (ADM) agreed to pay $36.5 million to the U.S. Securities and Exchange Commission to resolve allegations it bribed officials in Ukraine to win tax refunds.

ADM paid about $22 million to Ukranian government officials to win more than $100 million in tax refunds in violation of U.S. anti-bribery laws, the SEC said Dec. 20 in a complaint filed with the proposed settlement in federal court in Urbana, Illinois. The agreement needs approval by a federal judge.

ADM units in Hamburg and Ukraine allegedly made the payments to third-party vendors from 2002 to 2008 and improperly recorded them on financial statements in violation of the books and records provisions of the Foreign Corrupt Practices Act, according to the complaint.

To disguise the payments, the ADM units logged the transactions as “export-related services and insurance premiums to third parties,” the SEC said.

ADM declined to comment on the SEC complaint or settlement. In a Nov. 1 filing with the SEC, ADM said it reserved $54 million to resolve foreign bribery probes which the company disclosed to investors in 2009.

Compliance Policy

EU Clinches Deal on Jail Terms for Punishing Market-Riggers

European Union lawmakers clinched a deal on jail sentences for market manipulation and insider dealing, giving judges the power to send the worst offenders to prison for at least four years.

Nations would also be obliged to ensure that their longest available prison sentences for improper disclosure of information are at least two years, according to a statement on the deal published by the European Parliament.

EU regulators fined six companies a record 1.7 billion euros ($2.3 billion) this month for rigging interest rates linked to the London Interbank Offered Rate, or Libor, taking global fines linked to the scandal to more than $6 billion.

Michel Barnier, the EU’s financial services chief, cited the rigging as one reason why the bloc should toughen its sanctions against market abuse. He proposed stiffer minimum penalties in 2011, with the goal of closing loopholes in national laws.

The Dec. 20 deal on Barnier’s proposals was reached by the parliament and by national governments. The accord complements an agreement on minimum administrative sanctions for punishing market abuse that was brokered earlier this year.

Covered Bonds Get Second-Class Status in EU Liquidity Review

The European Union’s top banking regulator said that covered bonds shouldn’t be considered a top-tier asset for banks’ emergency liquidity buffers, dealing a blow to Denmark’s $530 billion mortgage-bond market.

Covered bonds, debt securities backed by cash flows from other assets such as mortgages, aren’t as stable as European Union sovereign debt for the purpose of building up banks’ liquidity buffers, the London-based European Banking Authority said Dec. 20. Corporate bonds, equities and some local government debt were also considered less liquid than state bonds.

The decision goes against the EBA’s own preliminary study into the liquidity of different assets, published in October, which found covered bonds are more likely to hold their value than corporate bonds and equities over a 30-period. The EBA submitted recommendations on liquid assets to the European Commission, the executive arm of the EU, which must approve them next year.

Banks in Denmark have warned that excluding the securities would leave lenders virtually unable to meet liquidity requirements, and drive up the price of credit.

Denmark’s covered bond market is more than three times the size of the country’s sovereign debt. Denmark’s Financial Supervisory Authority said Dec. 20 it won’t tell banks to follow the EBA’s proposal unless the EU commission approves it, an outcome the regulator in Copenhagen doesn’t expect.

Sovereign bonds issued by EU countries, including Greece, Spain and the U.K., must be treated as equally liquid because to do otherwise would “reinforce the fragmentation of the single market and the sovereigns-banks loop,” the EBA said.

The liquidity coverage ratio, which requires banks to hold enough easy-to-sell assets to survive a 30-day credit crunch, split opinions of Basel Committee on Banking Supervision members last year.

Some central bankers and regulators warned that an early version of the standard risked causing a credit crunch, while others urged against a wholesale watering down of the measure.

The U.S. Federal Reserve earlier this year proposed tougher liquidity rules than those agreed on by the committee in January, proposing a narrower list of assets that they can use to pad the buffer.

Courts

Deutsche Bank Pays $1.9 Billion to Settle U.S. Mortgage Suit

Deutsche Bank AG (DBK) will pay 1.4 billion euros ($1.9 billion) to settle claims that it didn’t provide adequate disclosure about mortgage-backed securities sold to Fannie Mae (FNMA) and Freddie Mac.

The agreement with the Federal Housing Finance Agency covering the period 2005 to 2007 resolves Deutsche Bank’s largest mortgage-related litigation case, the Frankfurt-based company said in a statement on its website Dec. 20.

Europe’s biggest investment bank by revenue is grappling with legal issues stretching from the U.S. housing market to the alleged manipulation of benchmark interest rates. The settlement follows similar agreements UBS AG and JPMorgan Chase & Co. (JPM) struck with U.S. regulators for mortgage-backed debt sold during the housing bubble that preceded the 2008 financial crisis.

While Deutsche Bank has increased its reserves for litigation by 1.2 billion euros to 4.1 billion euros at the end of the third quarter compared with June, legal costs are piling up, hurting share performance.

The bank has still to reach a settlement with regulators outside the euro area for its role in rigging benchmark interest rates. Further U.S. mortgage-related cases are still pending.

Comings and Goings

Sharon Bowen to Be Obama Nominee to Follow Chilton at New CFTC

Sharon Y. Bowen, a securities lawyer at Latham & Watkins LLP, will be nominated by President Barack Obama as a member of the Commodity Futures Trading Commission.

Bowen would assume the seat being vacated by Bart Chilton, a Democrat, according to a statement issued Dec. 19 by the Obama administration. She must be confirmed by the Senate before joining the regulator. The agency was empowered by the 2010 Dodd-Frank Act to bring oversight of swaps traded by firms including Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co.

CFTC Chairman Gary Gensler will step down at the end of the year when his term expires. Timothy Massad, the Treasury Department official nominated to succeed Gensler, has yet to have a confirmation hearing in the Senate. Chilton, who had planned to depart by year-end, has said he may stay longer.

Bowen is a partner representing clients including corporations and buyout firms in the New York office of Latham & Watkins, according to a biography on the law firm’s website. She holds a legal degree from the Northwestern University School of Law in Chicago.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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