Bank Tax Hearing, JPMorgan, Cardinal Health: Compliance

Bankers from around the world told the Internal Revenue Service that proposed U.S. rules requiring reporting of Americans’ overseas bank accounts are too burdensome and must be changed.

Andrew Barkin, managing director and head of U.S. tax at Bank of Tokyo-Mitsubishi UFJ Ltd. told a Washington panel the rules need to be “streamlined and simplified significantly” so they can be understood by bank employees who do not speak English. Barkin spoke on behalf of the Institute of International Bankers at an IRS hearing yesterday in Washington.

The rules implement the Foreign Account Tax Compliance Act, a 2010 law designed to make it more difficult for U.S. citizens to hide money outside the country. Many provisions of the law take effect in 2013, and overseas banks will be required to tell the IRS annually about the balances and activity in their U.S. customers’ accounts.

Because of the law, some Asian banks have started turning away U.S. customers, and financial institutions from Japan, Switzerland, Australia and Brazil have lodged concerns with the U.S. Many argue that the U.S. is outsourcing its tax compliance to banks around the world and imposing rules that conflict with local laws and regulations.

Under the law, the U.S. will impose a 30 percent tax on some U.S.-related payments being sent to financial institutions outside the country that don’t comply with the rules.

Representatives of the Swiss Bankers Association, the Japanese Securities Dealers Association and the Financial Services Council of Australia spoke at yesterday’s hearing.

Compliance Policy

NYC Council to Require Banks to Disclose, Report to Community

Banks holding New York City treasury funds will be required to disclose their investments and business practices in neighborhoods under a law passed yesterday by the City Council.

The measure also creates a community-investment advisory board in the Finance Department that would use census data to review banks’ branch locations, loans, delinquencies and foreclosures. Officials can use the information to determine whether the city should deposit its funds there, according to the text of the bill. It passed 44 to 4, with three members absent.

Mayor Michael Bloomberg has said he intends to veto the bill, even though the council has enough votes to override such a move. The New York Bankers Association also opposed the bill.

The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

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Elia System Operator Sees Positive Changes in German Rules

Elia System Operator NV, the operator of electricity grids in Belgium and eastern Germany, said changes that took effect within the German regulatory framework will have “positive consequences.”

Elia cited the switch to paying fair remuneration in the year of investment, allowing offshore investments to be depreciated over a shorter period of 20 years and enabling the regulator and federal government to enforce permits for grid expansions that are of national and European importance, according to a statement posted on its website.

Bonus Curbs May Be Required to Win Basel Law Deal, Borg Says

Bank bonus curbs may need to be accepted by European Union governments as part of a compromise deal with lawmakers on how to implement Basel capital rules in the region, Swedish Finance Minister Anders Borg said yesterday.

The European Parliament is pushing for limits on bonuses to be included in the legislation, amid warnings from lenders that the move would make it harder for them to attract top talent. Borg said governments may have to yield to the parliament’s demand in exchange for tougher capital rules.

The first round of talks between members of the assembly and Denmark, which holds the EU’s six-month rotating presidency, is scheduled for May 23. The parliament will make bonuses a priority in the talks, Danish Economy Minister Margrethe Vestager told reporters yesterday.

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Osborne Says Way Clear for U.K. to Begin Vickers Bank Overhaul

U.K. Chancellor of the Exchequer George Osborne said there is “political agreement” on bank capital rules among European Union members after securing concessions that will allow Britain to toughen requirements on its banks.

Osborne said the agreement means Britain can begin legislation to implement the recommendations of the Independent Commission on Banking led by former Bank of England Chief Economist John Vickers.

Osborne argued at a 16-hour meeting earlier this month for member states to gain additional flexibility to toughen rules for their banks. His concern then was that proposals could prevent the U.K. from fully implementing a rule overhaul for its lenders recommended by Vickers.

Vickers wants banks to erect firewalls around their retail operations and increase the amount of capital they hold to protect them from future financial crises. His proposals would see some banks forced to hold core reserves of 10 percent of their risk-weighted assets.

Special Section: JPMorgan

JPMorgan Seen as Main Topic at Hearings on Dodd-Frank Rules

JPMorgan Chase & Co. and regulators may face increasing pressure to explain the lender’s $2 billion trading loss as the misstep becomes fodder for lawmakers still haggling over a regulatory overhaul enacted two years ago.

A day after JPMorgan Chairman and Chief Executive Officer Jamie Dimon told shareholders there was no justification for the “egregious mistakes” by the biggest and most profitable U.S. bank, officials from the Federal Reserve and Treasury Department could be questioned on what regulators knew and when they knew it at a House hearing on systemically important financial institutions.

The hearing, scheduled before Dimon disclosed the loss on May 10, deals with a Dodd-Frank Act designation that will impose higher capital standards and more regulatory scrutiny on firms whose collapse could imperil the economy. Senator Richard Shelby of Alabama, the Senate Banking Committee’s top Republican, said Dimon “absolutely” should be called to testify before his panel.

Though lawmakers haven’t set hearings specifically dedicated to JPMorgan’s losses, the bank probably won’t escape the Washington spotlight. Lawmakers from both parties and both chambers are calling for dedicated investigations and hearings.

As lawmakers prepare to question regulators, JPMorgan is responding by reaching out to Capitol Hill. The bank’s Washington operation has deployed representatives to brief House and Senate staff members on the strategy that led to the losses, according to three congressional aides familiar with the briefings.

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U.S. Said to Start Probe of $2 Billion JPMorgan Trading Loss

The U.S. Department of Justice and the Federal Bureau of Investigation in New York have begun a criminal probe of JPMorgan Chase & Co.’s $2 billion trading loss, a person familiar with the matter said.

The U.S. is looking into what if any criminal wrongdoing occurred in relation to the losses the bank reported last week, said the person, who declined to be identified because the matter isn’t public. The inquiry is in its most preliminary stage, the person said.

The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulates derivatives trading, are also examining New York-based JPMorgan’s trading activities, according to people familiar with those probes.

JPMorgan Chief Executive Officer Jamie Dimon said on May 10 that the bank made “egregious” mistakes and that the losses of about $2 billion tied to synthetic credit securities were “self-inflicted.”

Joseph Evangelisti, a spokesman for the bank, declined to comment on the criminal probe.

Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment. Robert Nardoza, a spokesman for U.S. Attorney Loretta Lynch in Brooklyn, where JPMorgan has some of its operations, also declined to comment.

The probe was reported earlier yesterday by the Wall Street Journal.

Separately, U.S. House lawmakers, acting after JPMorgan Chase & Co. announced $2 billion in derivatives trading losses, delayed a committee vote on legislation easing Dodd-Frank Act swaps rules.

The U.S. House Agriculture Committee postponed a May 17 committee meeting to vote on the measures, which would limit the international reach of the 2010 regulatory-overhaul law’s swaps regulations and allow more derivatives trading to occur in federally insured banks.

The bill restricting the international scope of Dodd-Frank rules gained bipartisan support in a separate U.S. House committee. JPMorgan, Goldman Sachs Group Inc. and Morgan Stanley have argued that applying the rules to overseas branches would hurt their ability to compete with rivals based outside the U.S.

The legislation would need passage by the full House and Senate before being sent to the White House for final approval. Neither chamber has scheduled a vote.

Dimon as New York Fed Director Renews Conflicts Concern

The $2 billion trading loss at JPMorgan Chase & Co. has revived concern that its regulator, the Federal Reserve Bank of New York, is too cozy with Wall Street.

JPMorgan Chief Executive Officer Jamie Dimon is one of three bankers sitting on the board of the New York Fed, as required by law. While directors play no part in bank supervision, Elizabeth Warren, a Democrat running for U.S. Senate from Massachusetts, called for Dimon’s removal from the district bank board. Senator Bernard Sanders, a Vermont Independent, said he sees a conflict in Dimon’s two roles.

Fed governance came under scrutiny after taxpayer-funded bailouts during the 2008 financial crisis sparked a political backlash.

Jack Gutt, a spokesman for the New York Fed, declined to comment on Dimon’s role on the board.

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Geithner Says Regulators to Scrutinize JPMorgan Loss

U.S. Treasury Secretary Timothy F. Geithner talked about JPMorgan Chase & Co.’s $2 billion trading loss, financial regulation and fiscal debt.

He spoke at the Peter G. Peterson Foundation’s 2012 Fiscal Summit in Washington.

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Isaac Says Scrutiny of Bank Capital Requirements Needed

William Isaac, chairman of Fifth Third Bancorp and a former chairman of the Federal Deposit Insurance Corp., talked about the outlook for increased banking regulation following JPMorgan Chase & Co.’s $2 billion trading loss.

Isaac spoke with Scarlet Fu, Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “InBusiness.”

For the video, click here.

Compliance Action

Cardinal Settles With DEA for Two-Year Shipping Suspension

Cardinal Health Inc., the second-largest U.S. drug distributor by revenue, agreed to suspend shipments of controlled drugs from a Florida facility for two years in a settlement with the Drug Enforcement Administration.

Federal officials had challenged Dublin, Ohio-based Cardinal’s procedures, contending the Lakeland, Florida, center posed a public safety threat by shipping large quantities of the prescription painkiller oxycodone to pharmacies. The agency alleged the company failed to make sure the drugs went to legitimate patients.

The settlement averts the need for months of administrative proceedings and appeals to restore the license.

Cardinal said in a statement yesterday announcing the settlement that it agreed to improve “anti-diversion procedures” to keep better control of narcotics companywide. It also said the DEA is planning “no further administrative actions at other Cardinal Health facilities.”

Barbara Carreno, a DEA spokeswoman, couldn’t immediately comment on the settlement.

Talvivaara Faces Tighter Emission Rules for Finnish Nickel Mine

Talvivaara Mining Co. faces tougher rules on discharges suspected of turning nearby lakes saline, potentially adding to the costs of running its Finnish nickel mine.

The company’s nickel mine emissions of sulfate, sodium and manganese into nearby lakes have caused protests from environmental groups and local residents, adding to pressure on authorities to cut permitted emission levels. Environment Minister Ville Niinistoe has signaled the Espoo, Finland-based company ultimately faces losing its license to operate.

“I expect the new emission rules will be sensible, taking into account the environment and the prerequisites of our operation,” Pekka Perae, chairman of the board and founder of Talvivaara, said by phone yesterday. He declined to comment on how much the tighter regulations could cost the company and said he “isn’t worried” about the threat of shutdown.

Talvivaara’s discharges into lakes in the vicinity of its mine, including Salminen, Laakajaervi and Kivijaervi, have caused the formation of saline layers on lake bottoms, potentially posing a threat to local wildlife. The police are investigating the emissions.

The review of Talvivaara’s environment permit for the Sotkamo nickel mine in Northern Finland starts at the end of the month and new guidelines should be in force by year end, said Sami Koivula, an environmental councilor.

South African Banks Ready for Basel Changes, Moody’s Says

South Africa’s banks are well-capitalized and prepared for Basel III regulations, according to Moody’s Investors Service.

The quality of the lenders’ assets remains an “issue” for Moody’s, analyst Nondas Nicolaides said in a presentation in Johannesburg today. Bad debts may rise when interest rates increase, and the bulk of non-performing loans are mortgages, he said.

Basel III international rules will come into effect over the next six years, requiring banks to hold enough capital to survive market turmoil without causing risk to the financial system. Moody’s downgraded credit ratings on South Africa’s five largest banks in February.

The growth of unsecured lending in South Africa doesn’t pose a “systemic” risk, Nicolaides said.


Whistle-Blower Sues for Records, Alleging Outsourced SEC Review

The U.S. Securities and Exchange Commission and the Federal Bureau of Investigation were sued in California to obtain records related to the agencies’ scrutiny of an energy company in that state, BNA reported.

In the complaint, Rodolfo Michelon asserted that in January, he filed a whistle-blower complaint with the SEC alleging that his employer, Sempra Energy, committed “numerous” books and record violations in connection with gas distribution customers in Mexico. Michelon sued the agencies to obtain documents, alleging that the SEC violated federal securities laws, including the whistle-blower provisions, by “outsourcing” the investigation to two law firms, according to BNA.

Michelon claims he has the right to see the documents under the Freedom of Information Act.

The case is Rodolfo Michelon v. U.S. Securities and Exchange Commission, 3:12-cv-01014, U.S. District Court, Southern District of California (San Diego).

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Barnier Says Some Bank Bonuses, Dividends Inexplicable

European Union Financial Services Commissioner Michel Barnier, Danish Economy Minister Margrethe Vestager and EU Taxation Commissioner Algirdas Semeta spoke in Brussels about bank capital requirements and top executive pay.

They also discussed Luxembourg and Austria’s decision to veto negotiations over the extension of a European savings tax.

For the video, click here.

Fed’s Duke Says Regulatory Uncertainty Hurting Housing

Federal Reserve Governor Elizabeth Duke spoke about the housing market and regulation. Her remarks touched on tight loan standards and what she described as housing “uncertainty.”

Duke, who spoke in Washington, also discussed the outlook for the U.S. economy and took questions.

For the audio, click here.

Comings and Goings

BGC Executive Verrier Banned by U.K. FSA Over Broker Poaching

Anthony Verrier, the executive managing director of the inter-dealer brokerage BGC Partners Inc., was banned by the U.K. finance regulator because of his involvement in poaching brokers from a competitor.

Verrier isn’t fit to work in the finance industry in Britain because of a court’s finding that he induced brokers at Tullett Prebon Plc to breach their employment contracts, the Financial Services Authority said in a statement today. Verrier is appealing the regulator’s decision and will have the case heard at a tribunal in London, the regulator said.

Tullett, based in London, sued BGC in 2009 claiming Verrier spent millions of pounds to persuade the heads of various Tullett trading desks to breach their contracts by getting colleagues to defect to BGC. A U.K. court in 2010 ruled against New York-based BGC and ordered a second trial on damages, which was later settled.

Verrier didn’t immediately respond to a request for comment left at his office. BGC’s press office didn’t immediately respond to a request for comment.

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