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Secret Settlements, Wells Fargo, Confirmations: Compliance

April 2 (Bloomberg) -- Britain’s Serious Fraud Office, which prosecutes corporate bribery, uses too many secret settlements in foreign corruption cases, the Organization for Economic Cooperation and Development said.

The SFO is using more so-called civil-recovery orders that require less oversight from courts and aren’t as transparent as criminal plea agreements, the Paris-based think tank said in a report March 30.

“The low level of information on settlements made publicly available by U.K. authorities often does not permit a proper assessment of whether the sanctions imposed are effective, proportionate and dissuasive,” the OECD said in a summary of the 79-page report.

The study praised Britain’s anti-corruption law, which took effect in July and is one of the strictest in the world. Under the Bribery Act, companies must prove they have adequate controls to prevent corruption in order to defend themselves if a bribe is paid on their behalf anywhere in the world, even if company officials didn’t know.

Britain has been too slow to extend anti-bribery rules to its overseas territories, some of which are considered offshore financial havens that “may be used facilitate corrupt transactions,” the OECD said.

The U.K. also needs to clarify what is considered “reasonable and proportionate” hospitality and promotional expenses in relation to the new bribery law, the OECD said.

Compliance Policy

CFTC Should Narrow Swap-Dealer Rule, Bipartisan Lawmakers Say

The U.S. Commodity Futures Trading Commission should narrow its regulation determining which companies will face the highest capital and margin costs under Dodd-Frank Act derivatives rules, Republican and Democratic lawmakers said.

The agency, which is writing rules for the global swaps market, should exclude from a dealer definition rule companies that use the transactions to hedge volatile prices in their products’ raw materials, said Senator Debbie Stabenow of Michigan, the Democratic chairwoman of the Senate Agriculture Committee, and Representative Frank D. Lucas of Oklahoma, the Republican chairman of the House Agriculture Committee.

The CFTC and Securities and Exchange Commission are preparing to complete the swap-dealer regulation, which will lead banks, hedge funds and possibly energy companies to face higher capital and margin requirements. The dealer regulation is among the most contentious rules the agencies have yet to finish. The CFTC has delayed a series of scheduled votes on the regulation since January.

Shell Energy North America LP and Vitol Inc. are among energy companies that have told the CFTC they use swaps and other derivatives to hedge risks tied to oil, natural gas and other underlying assets.

EU Unveils Plan for Investor Losses in Big Bank Failures

The European Union will seek views on what order unsecured senior bondholders and other creditors at failing banks should be forced to take losses as part of plans to end taxpayer bailouts of financial firms.

The measures would “in principle” cover all of a bank’s liabilities except those “whose inclusion could have a detrimental effect on financial stability or those that are essentially client related,” the European Commission, the 27-nation EU’s executive arm, said in a consultation paper published on its website. “No creditor should be worse off than if the bank went into insolvency.”

Writing down a bank’s creditors “must be an option” for regulators, Michel Barnier, the EU commissioner for internal market and services, told reporters March 30 in Copenhagen, Denmark. He said there is “international consensus” on the principle.

SEC Weighs Sanctions for Lawyers Who Advise on Fraudulent Deals

U.S. Securities and Exchange Commission investigators are considering extending the reach of enforcement actions in cases involving complex financial transactions to lawyers who provided the legal advice on fraudulent deals, an agency official said.

The SEC typically sanctions individuals who play an active role in making false statements or material omissions to investors, not the lawyers who advise them. Often, in matters involving a company and its employees, the individuals claim the lawyers signed off on the conduct in question, Kenneth Lench, head of the structured products unit in the SEC’s enforcement division, said March 30 at a law event in New York.

Lench said he’s seen some situations where advice “didn’t look like it was done in good faith,”

That claim presents a challenge for the SEC because communications between attorneys and their clients are generally considered confidential and not available to regulators who are investigating a matter. If the company refuses to waive confidentiality in the course of the probe, it can be difficult for the SEC to prove that someone willfully violated the law, he said.

Lench, whose unit is responsible for uncovering fraud in structured products such as mortgage-backed securities and derivatives, also said that the agency is prepared to pursue negligence claims against individuals who didn’t take reasonable steps to keep a fraud from occurring. Negligence is a lower legal standard than intentional or reckless fraud.

Regulators Set July 2013 Deadline for Dodd-Frank Swaps Pushout

Banks must push out by July 2013 part of their swaps-trading business from subsidiaries that get U.S. assistance through deposit insurance or the Federal Reserve’s discount lending window, three regulators said.

Banks including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. must comply with the Dodd-Frank Act’s so-called push-out provision by July 16, 2013, the Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said in a statement March 30.

Compliance Action

EU Antitrust Agency Probing Derivatives Linked to Tokyo Rate

European Union regulators are probing companies involved in trading derivatives tied to the Tokyo interbank offered rate, the region’s antitrust chief said, adding to existing inquiries into two other interbank loan rates.

The European Commission started investigations last year into companies that may have violated antitrust rules by colluding on products linked to Euribor, Libor and specific currencies, EU Competition Commissioner Joaquin Almunia said.

Almunia has made financial markets one of his priorities and said March 30 that he would monitor them with “special care.” In April, he began a probe into Goldman Sachs Group Inc., JPMorgan Chase & Co. and 14 other investment banks over agreements in the market for credit-default swaps that may harm competition. He also vetoed Deutsche Boerse AG and NYSE Euronext’s plan to create the world’s biggest exchange after concluding the merger would hurt competition.

Switzerland Wants German Investigators Arrested on Espionage

Switzerland is seeking to arrest three German tax investigators who negotiated the purchase of data on Credit Suisse Group AG clients for economic espionage, a German government spokeswoman said.

The tax investigators from the state of North Rhine-Westphalia negotiated the 2.5 million-euro ($3.3 million) purchase of personal information of clients of Credit Suisse who may have evaded taxes in Germany in 2010. Ingrid Herden, the spokeswoman for the state’s finance ministry, said she couldn’t confirm more details.

The two countries have been trying to agree on a proposal for a withholding tax that would legalize undeclared assets by Germans held in Switzerland by imposing a retroactive income tax. German political parties have been fighting over the proposed tax rate.

German Finance Minister Wolfgang Schaeuble said the warrant won’t affect efforts by the two countries to reach such an accord.

There is “concrete suspicion” that people inside Germany gave instructions to “spy on Credit Suisse” to gather the data, Jeannette Balmer, a Swiss prosecution spokeswoman, said in an e-mail March 31, without giving further detail.

EU Finance Ministers to Overhaul Credit-Rating Rotation Plan

European Union finance ministers agreed to overhaul plans to force companies to rotate the credit-ratings companies they use on concerns that the measure may lead to lower quality assessments.

Governments have “great concerns” about the rotation proposal, Danish Economy Minister Margrethe Vestager told reporters March 31 in Copenhagen after a meeting of EU finance chiefs. Denmark holds the rotating presidency of the 27-nation bloc.

Michel Barnier, the EU’s financial services commissioner, proposed the rotation rule last year as part of a draft law to toughen regulation of the industry amid concerns that some rating decisions were unjustified and exacerbated the region’s debt crisis. Under his proposal, companies would be expected to change the company that they pay to rate their credit every three years. The time limit could be extended to six years if a business hired more than one rating company.

The bill must be agreed on by national governments and lawmakers in the European Parliament.

For more, click here.


Wells Fargo, SEC Ordered to Confer About Subpoena Requests

Wells Fargo & Co. and U.S. Securities and Exchange Commission lawyers were told by a federal judge to meet to discuss the agency’s subpoenas for documents about an investigation of mortgage-backed securities.

U.S. Magistrate Judge Laurel Beeler in San Francisco rejected the SEC’s request for an order compelling the bank, the largest U.S. home lender, to deliver documents it agreed to produce under subpoenas dating from September, according to a court filing March 29. Beeler said the parties’ lawyers should meet in person, and if that doesn’t work, file a letter to her.

The SEC has said it’s looking into the possibility of fraud by the San Francisco-based company and hasn’t concluded anyone broke the law. Wells Fargo failed to produce subpoenaed documents and should be forced to cooperate with the probe into its sale of almost $60 billion in residential mortgage-backed securities, the agency said in a March 23 filing.

When the regulator asked a U.S. judge to compel delivery of the documents, the matter was referred to Beeler.

Marc Fagel, the head of the SEC’s office in San Francisco, didn’t immediately return an e-mail and phone messages March 29 and March 30 seeking comment on the ruling.

The case is Securities and Exchange Commission v. Wells Fargo & Co., 12-80087, U.S. District Court, Northern District of California (San Francisco).


Frankel Sees ‘Full Coordination’ Between Rescue Funds

European Financial Stability Facility Chief Financial Officer Christophe Frankel discussed the euro area’s rescue funds.

He spoke from Cernobbio, Italy, with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

For more, click here.

Gensler Says CFTC May Seek Automated-Trade Comments by July

The U.S. Commodity Futures Trading Commission may seek comment before July on ways to test and supervise automated and high-frequency trading systems, said Gary Gensler, the agency’s chairman.

He made the remarks to reporters after a speech at the Agribusiness Club of Washington.

The agency, which has scrutinized such trading in the wake of the May 2010 crash that temporarily roiled markets, is considering a so-called concept release, which is a regulatory step prior to publishing proposed new rules for direct market access.

The concept release would cover testing, supervision and protections of participants with direct market access, “to ensure orderly trading in markets,” Gensler said.

The CFTC’s technology advisory committee held a meeting March 29 on high-frequency trading.

Comings and Goings

Juncker May Convene Euro Finance Chiefs in Mid-April on ECB Job

Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, may convene the group in mid-April to discuss a vacancy on the European Central Bank’s Executive Board, his spokesman said.

The meeting may be held by conference call or in person, Guy Schuller said by telephone in Copenhagen March 30.

Citigroup Hires Sumitomo Mitsui’s Jono to Head Japan Bank

Citigroup Inc. hired Kazuya Jono, a former executive at Sumitomo Mitsui Financial Group Inc., to head its banking operations in Japan, according to an internal memo obtained by Bloomberg News.

Citibank Japan Ltd.’s board March 30 approved his appointment as chief executive officer, succeeding Peter Eliot, who will become president of the Japanese holding company, according to the document. Mika Nemoto, a Tokyo-based spokeswoman at Citigroup, confirmed the contents of the memo.

Citigroup is seeking to bolster the Japanese unit’s local governance and management after the Financial Services Agency punished the New York-based lender for at least the third time in seven years in December following regulatory breaches.

Jono, 57, will join Citibank on June 1. He has 35 years of experience in the Japanese banking industry, and held positions in corporate banking, retail banking and risk management at Sumitomo Mitsui.

U.S. Senate Confirms Nominees in Deal with White House

A U.S. Senate agreement has inserted new voices into the debate on the future of the Dodd-Frank Act.

Lawmakers last week confirmed four regulatory nominees, including Thomas Hoenig and Jeremiah O. Norton as directors on the Federal Deposit Insurance Corp. board and Thomas J. Curry as the new comptroller of the currency.

The FDIC nominees, along with dozens of other federal appointees, were confirmed unanimously without a vote on the Senate floor under the agreement between the White House and Senate Republicans.

Although the lawmakers didn’t reach an agreement to confirm Martin J. Gruenberg as chairman and Hoenig as vice chairman, the board confirmations add new voices to the debate over the implementation of a financial overhaul that includes the so-called Volcker rule, as well as oversight of a banking system that still faces threats from the European sovereign debt crisis.

Hoenig, the former president of the Federal Reserve Bank of Kansas City, and Norton, a former Treasury Department official under President George W. Bush -- two Republicans suggestions as nominees, and Curry, who has been serving as an FDIC board director, will play roles as regulators push to finalize a large swath of rules required by the 2010 financial regulatory overhaul. They will also complete the five-member FDIC board.

“This is an important step as the FDIC continues to respond to a number of challenging issues and continues with the rulemaking process,” said Gruenberg, who was confirmed March 29 to another term on the FDIC board, where he will remain acting chairman, said March 29 in a statement.

A top item on the agenda is a rule banning banks trading with their own funds, also known as proprietary trading, required by the law.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, said that the nominees were confirmed in exchange for assurances from President Barack Obama that there would be no appointments while the Senate is out of session during the congressional recess.

For more, click here.

Separately, the U.S. Senate confirmed New York attorney Kathryn Keneally as assistant attorney general of the Justice Department’s tax division, where she will help run the crackdowns on identity theft and offshore tax evasion.

Keneally, a partner at Fulbright & Jaworski LLP, was among scores of nominees confirmed March 29 by the Senate for top government jobs. She will lead more than 300 civil and criminal lawyers who handle a wide range of investigations and litigation. Bloomberg News reported March 27 that the division lost almost 30 percent of its 95 prosecutors in last month, slowing a U.S. crackdown on offshore banks that enabled tax evasion, according to four people familiar with the matter.

Keneally didn’t immediately return a call or e-mail seeking comment on the confirmation.

Separately, the U.S. Senate confirmed two Treasury Department appointments March 29, Mary Miller as the undersecretary for domestic finance, and Alastair Fitzpayne as assistant secretary for legislative affairs.

For more, click here.

BBA Says Angela Knight to Resign as Chief Executive Officer

Angela Knight will step down after five years as chief executive officer of the British Bankers’ Association, the century-old old lobby group that oversees the London interbank offered rate.

Knight, 61, will leave in the summer once a replacement has been found, the London-based BBA said in an e-mailed statement today. The group didn’t say why Knight is resigning, or what she plans to do next.

She is going as the BBA comes under pressure to find an alternative way to calculate Libor, or cede control of it, as regulators probe whether banks lied to hide their true cost of borrowing and traders colluded to rig the rate. Libor is the benchmark for $360 trillion of securities worldwide.

Knight, a former Conservative party lawmaker and Treasury minister, and BBA Chairman Marcus Agius didn’t immediately return calls seeking comment. BBA spokesman Brian Mairs declined to elaborate on the statement.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: Michael Hytha at

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