JPMorgan-Latvia, Ex-SAC Manager Trial, Cathay United: Compliance

JPMorgan Chase & Co. (JPM), which has been told by U.S. regulators to bolster money-laundering safeguards, has stopped clearing dollar transfers for Latvian lenders, according to the Baltic nation’s banking association.

Latvia, a hub for ex-Soviet cash, adopted the euro Jan. 1, focusing the spotlight on $8 billion of non-resident deposits and claims by Global Witness, a London-based anti-corruption campaign group, that regulation and client vetting aren’t adequate. U.S. regulators have reprimanded lenders including JPMorgan for lax controls over transfers that could allow terrorists and drug rings to move money around the world.

The exit of the U.S.’s largest bank leaves Deutsche Bank AG and Commerzbank AG as the only two Western lenders Latvian banks can use for international dollar transfers. Some local banks rely on lenders in Russia or Ukraine who have correspondent accounts with a U.S. partner to clear dollars. Deutsche Bank and Commerzbank declined to comment on the potential impact of JPMorgan’s absence on their business. “Latvian banks have a pretty wide network of currency clearing partners,” the bank association said in a statement yesterday.

The U.S. Office of the Comptroller of the Currency issued a consent order in January 2013 after finding JPMorgan “has an inadequate system of internal controls and independent testing” for anti-money-laundering compliance. The bank “failed to identify significant volumes of suspicious activity” and to file reports alerting regulators, according to the order.

JPMorgan didn’t admit or deny wrongdoing in consenting to the regulatory orders at the time, saying in a statement that the bank has been “working hard to fully remediate the issues identified in the consent order.”

Officials including Latvian central bank Governor Ilmars Rimsevics say lenders are being closely monitored. While regulators fined a local bank in June the maximum 100,000 lati ($195,000) for transferring money in Russia’s biggest known tax fraud, they didn’t name the bank in question.

As well as imposing more restrictions on demand deposits and reconsidering tax incentives that bolster non-resident deposits, the government may also strengthen law-enforcement efforts to combat money laundering, according to a June letter published on the Latvian Finance Ministry’s website.

Latvia’s 27 banks had assets of about 20 billion lati in the third quarter, banking association data show.

Compliance Policy

Germany to Tighten Tax Evasion Declaration Rules, Paper Says

Germany wants to tighten conditions for individuals who self-report tax evasion to avoid prosecution, Sueddeutsche Zeitung reported, citing Carsten Kuehl, a government official in the state of Rhineland-Palatinate.

Individuals will have to declare all tax evaded over past the 10 years rather than the current five years, the newspaper reported, citing Kuehl’s statement in an interview.

The number of individuals who informed authorities of their tax evasion tripled to almost 25,000 last year, Sueddeutsche reported, citing its own survey of German states.

Compliance Action

Cathay United Bank Gets FSC Approval for Shanghai FTZ Sub-branch

Cathay United Bank obtained approval from Taiwan’s Financial Supervisory Commission for a sub-branch in the Shanghai free trade zone, the regulator said in a statement on its website.

The lender is the first local bank to receive approval from the FSC to establish a presence in the China free-trade zone, the regulator said in the statement.

The FSC cleared the bank to apply for a sub-branch with Chinese regulators, according to the statement.

Saudi Electricity to Offer Investment Sukuk Jan. 9 to Feb. 27

Saudi Electricity (SECO) Co., which generates and distributes electricity throughout Saudi Arabia, will offer investment sukuk from Jan. 9 to Feb. 27, according to a statement made to the Saudi bourse.

The value of each unit of the investment sukuk, a form of Shariah-compliant investing, is to be 1 million riyals, the company said in the statement.

The tenor, size of sale, and profit distributions are to be based on demand. The investment sukuk will be unsecured, the company said in the statement.

Saudi Electricity has hired HSBC Saudi Arabia and Saudi Fransi Capital to manage the sale.

Courts

SAC’s Cohen Focus of Insider Trial as Martoma Rebuffs U.S.

Mathew Martoma may have the one thing prosecutors have been unable to find in their probe of SAC Capital Advisors LP: a direct link between founder Steven Cohen and insider trading. Having refused to cooperate, Martoma now faces trial for what the government claims was the biggest illegal trade in U.S. history.

Jury selection in the prosecution of the ex-SAC portfolio manager is set for Jan. 6, barring a last-minute plea deal. The trial is expected to take three weeks. He is accused of benefiting the hedge fund by $276 million in trades of Wyeth and Elan Corp., using secret tips from a doctor supervising trials of an Alzheimer’s drug. The U.S. said SAC reversed a bullish stance on the drugmakers, liquidating a $700 million position and selling the stocks short a few days after a 20-minute phone call between Martoma and Cohen in July 2008.

Pressure on Martoma, 39, to cooperate with the probe included questioning by FBI agents at his home and an indictment unsealed in 2012 on the Friday before Christmas. A steady drumbeat of convictions of insider traders in the probe, including SAC portfolio manager Michael Steinberg last month, may have further ratcheted up the pressure ahead of the trial next week in Manhattan federal court.

Cohen, who hasn’t been charged, has said he did nothing wrong. Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., declined to comment on the Martoma trial.

“Mathew continues to fight the charges and is preparing for trial,” his lawyer, Richard Strassberg, said in an e-mail.

In November, SAC agreed to plead guilty to securities fraud and end its investment advisory business as part of a record $1.8 billion settlement of the government’s investigation of insider trading at the firm. The agreement must be approved by a judge before it can take effect.

If convicted, Martoma, who has pleaded not guilty, faces as long as 20 years in prison on each of two securities-fraud counts and five years for a single conspiracy charge.

The case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).

Interviews/Commentary

Israel’s Sheshinski Sees No Taboo in Changing Resources Taxation

Israel has the right to revise its tax policies, said the economist leading a review of the country’s natural resources royalties and tax structure, parrying allegations that a changing regulatory environment would drive away investment.

The government-appointed panel led by economics professor emeritus Eytan Sheshinski of The Hebrew University of Jerusalem is due to hold a public hearing on the matter next week. Its recommendations will reverberate at Israel Chemicals Ltd. (ICL), which harvests Dead Sea minerals to make fertilizers, and whose chief executive, Stefan Borgas, has warned that “frequent and unplanned regulation” is “poison” for the company.

Governments have the right to modify their tax policies, because while stability and credibility are a “worthy cause”, they must be weighed against other objectives, such as ensuring the public a fair share of the profits, Sheshinski said. “Changing the status quo should not be taboo.”

At the same time, “firms will have to receive a fair return on their investment to provide incentives for them to continue operation in the country,” he said. The panel will consider market conditions and sector risks when making its recommendations, Sheshinski said. Proposals are due in June.

Finance Minister Yair Lapid appointed the review committee last June with a mandate to ensure the public receives its due from natural resources. Recommendations by another Sheshinski-led committee three years ago were the foundation for the government’s decision to more than double its share of gas and oil profits.

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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