Anti-Bribery Guide, Danish Banks, EU Firewall: Compliance

Officials who work for companies that are more than half-owned or controlled by a foreign government are probably covered by U.S. foreign bribery laws, the Justice Department and the Securities and Exchange Commission said yesterday.

The status of employees of state-owned companies is part of a 120-page document providing the most detailed guidelines to date for a law that has cost companies billions of dollars in fines and penalties.

The Foreign Corrupt Practices Act bars companies or individuals regulated or based in the U.S. from paying bribes to foreign officials to win business. Foreign companies and nationals also can be prosecuted if their corrupt acts were committed in the U.S.

The SEC and Justice Department have stepped up their enforcement of the 1977 law in recent years. The guidance, which also addresses what level of gifts, travel and entertainment constitute a violation, has been long sought after by law firms, which are called in to investigate and negotiate alleged wrongdoing.

Foreign bribery investigations have touched companies with foreign subsidiaries.

Compliance Policy

Regulators Grilled at Hearing on Smaller Banks’ Basel Burden

U.S. banking regulators will write capital rules shaped by community-banker concerns that the proposals are too harsh, agency officials told critical lawmakers at a hearing yesterday.

The Senate Banking Committee questioned officials from agencies seeking to adopt tighter international capital rules adopted by the Basel Committee on Banking Supervision. The regulators want to make the transition as easy as possible for community banks, according to the Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp.

Regulators received more than 1,500 comment letters including from community banks that said they shouldn’t be subject to the same capital requirements as larger banks under the Basel III rules. Regulators and lawmakers at the hearing said they understand the community bankers’ point of view.

The regulators announced last week that they won’t hold banks to a Jan. 1 deadline in the proposals for boosting reserves against potential losses. The agencies are working “as expeditiously as possible” on rules proposed in June, meant to boost capital requirements to guard against a repeat of the 2008 credit crisis.

At the hearing, regulators refused to give a new timeline on the rule and instead said they need to spend the time to study the comment letters.

The U.S. proposals call for all banks to maintain “loss-absorbing capital” of at least 7 percent of risk-weighted assets. They also establish new risk weightings for residential mortgages, commercial real estate, sovereign debt and securitizations that require more capital for riskier assets.

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Danish FSA Burned Once Closes Backdoor to Capital Dilution

Denmark’s financial regulator is warning the country’s banks that an understatement of lending risks won’t be tolerated as it embarks on a hunt to catch what it’s dubbed “backdoor” capital dilution.

The Financial Supervisory Authority will review internal rating models that determine how much capital a lender sets aside to ensure banks don’t find a way around stricter standards. While banks may fulfill capital requirements on paper, recent failures suggest risk weights don’t always reflect reality, leaving buffers too small to absorb losses.

When Denmark’s housing bubble burst more than four years ago, it revealed widespread capital shortfalls that have since led to the demise of more than a dozen regional lenders. Toender Bank A/S, the most recent insolvency, followed a reported three-fold increase in profit in the first half and a solvency ratio - - a measure of financial strength -- of 17.3 percent at the end of June. Yet an inspection last month by the FSA revealed bad loans almost 10 times as big as those reported by the bank, wiping out its equity.

The government has urged the industry to consolidate rather than risk more failures, extending state guarantees and granting access to depositor guarantee funds to help finance takeovers.

Banks operating in Denmark have lashed out at the FSA, arguing its insistence on more rigorous standards in the middle of a crisis is exacerbating the nation’s economic decline as lenders compensate by raising fees and withholding credit.

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EU Bank Firewall Plan May Push Up Lenders’ Costs, AFME Says

Banks may face increased funding costs and have to cut back lending if the European Union presses ahead with plans to impose structural changes, according to an industry lobbying group.

Proposals from an EU advisory group to force banks to put much of their trading activities into separately capitalized units may have a “significant detrimental impact on European growth,” the Association for Financial Markets in Europe said in an e-mailed statement. The plans “could also weaken the structure of the European banking sector” and reduce competition, the group said.

Michel Barnier, the EU’s financial services chief, has said that he’s weighing proposals made by the advisory group. The measures, which would force lenders to set up legally separate trading entities, are a “good basis” for future EU policy making, Barnier has said.

Afme represents international lenders including Deutsche Bank AG, BNP Paribas SA and Goldman Sachs Group Inc. The statement was co-signed by the International Swaps and Derivatives Association.

Systemic Banks May Be First for Basel Debt-Disclosure in EU Plan

Systemically important banks may have to disclose how well they measure up to an internationally agreed-upon debt limit before other lenders, under draft European Union plans.

European Parliament lawmakers and officials from Cyprus, which holds the EU’s rotating presidency, agreed on the step during negotiations in Brussels this week. The so-called leverage ratio is part of a draft law to apply Basel rules in the 27-nation bloc.

Philippe Lamberts, who leads work on the draft rules for the Green group, said in a telephone interview that while the principle for earlier disclosure was adopted, negotiators are split over other issues, including on lawmakers’ demands for banks to disclose country-by-country information on their activities, such as taxes paid and state-aid received.

Nations are struggling to meet a Jan 1 deadline for starting to apply the revised Basel rules. The EU’s draft law to implement the measures must be agreed on by the parliament and by governments before it can take effect.

EU Will Wait for International Rules on Liquidity, Faull Says

The European Union will wait for global regulators to agree on the final shape of bank liquidity rules before it sets its own detailed requirements, said Jonathan Faull, director general of internal market and services at the European Commission.

Faull made the remarks in an interview with Bloomberg Television today.

European Central Bank President Mario Draghi has warned the liquidity measure, known as a liquidity coverage ratio, or LCR, risks choking off bank lending, while some other regulators, including in the U.S., say that diluting the plans risks rendering it meaningless.

The liquidity rules are part of an overhaul of bank rules by the Basel Committee on Banking Supervision. The EU is racing to meet an end-2013 deadline for implementing the package of measures, known as Basel III, into its laws.

Banks Told by U.K.’s FSA to Scale Back Bonuses, FT Says

Bonuses this year must reflect scandals involving mis-selling of products and market manipulation that hurt the industry in past year, Andrew Bailey, head of the U.K. Financial Services Authority’s prudential business unit, told bank CEOs in letter last month, The Financial Times reported.

The newspaper cited unidentified people familiar with situation.

The FSA will want to see bonus clawbacks from people involved in scandals, and banks should consider companywide bonus reductions to account for scandals’ impact, Bailey wrote, according to the newspaper.

Bailey also held a meeting with heads of banks’ remuneration committees, FT reported.

Compliance Action

SEC Exempts Companies From Some Requirements Because of Sandy

The Securities Exchange and Commission issued an order yesterday that provides exemptions from certain provisions of the securities laws because of the disruptions caused by Hurricane Sandy.

Among the provisions subject to exemptions is the Exchange Act filing requirements from Oct. 29 to Nov. 20, proxy and information statement delivery requirements, and Investment Company Act requirements.

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Indonesia Takes On Energy Oversight After Regulator Wound Up

The Indonesian government will assume responsibility for overseeing the nation’s oil and gas activities, President Susilo Bambang Yudhoyono said, a day after the industry regulator was dissolved by a court.

A new unit within the Energy and Mineral Resources Ministry will handle BPMigas’s role for a transition period, Yudhoyono said yesterday at a press conference, confirming earlier remarks by Deputy Energy Minister Rudi Rubiandini.

Yudhoyono said in Jakarta that the presidential decree aims at preventing a regulatory vacuum and providing certainty for in the industry. All oil and gas contracts remain valid and all operational activities will go on, he said.

BPMigas was dissolved Nov. 13 by the nation’s Constitutional Court, raising concern that shipments of liquefied natural gas would be reduced. Indonesia is the world’s third-largest exporter of the fuel, according to BP Plc’s Statistical Review of World Energy. BPMigas had been created under a 2001 law that violated the nation’s constitution, according to the court.

The new unit will assume responsibility for approving the development of new fields, work programs and budgets, and approving exports of oil and gas, Rubiandini said in a text message. The office will continue to operate until the 2001 legislation is amended, he said.

The government will start drafting a new law to ensure certainty and improve the country’s oil and gas business, Yudhoyono said.

Philippine State Agencies Monitoring Property Sector for Bubble

Bangko Sentral ng Pilipinas is working with the Philippine Securities and Exchange Commission and the Philippine Deposit Insurance and Insurance Commission in monitoring the property sector to ensure banks are managing risks well.

The monitoring is an effort by the government to prevent an asset bubble, Managing Director Johnny Noe Ravalo told reporters in Manila. There is no asset bubble now, he said.

BSP will impose prudential measures to prevent bubbles, Ravalo said. It ordered banks in August to provide more details on their real-estate exposure by year end.

CPP to Pay 33.4 Million Pounds in Penalties After FSA Probe

CPP Group Plc, a U.K. company that provides protection against credit-card and identity theft, may have to pay as much as 33.4 million pounds ($53 million) following a probe into sales of its two main products.

CPP agreed to repay customers about 14.5 million pounds and pay a fine of 10.5 million pounds, the U.K. Financial Services Authority said in a statement. The company has estimated the total cost of the settlement will be about 33.4 million pounds, including the fine, redress and investigation costs.

CPP slumped 46 percent to a record low in March after the company suspended sales of insured identity protection in the U.K., as the FSA probe covered “alleged failings in sales calls with customers.”

The company said in a statement today that the penalty will be paid in installments, starting with a 2 million-pound payment within the next 14 days. The FSA said the York, England-based company settled at an early stage and qualified for a 30 percent discount in the fine amount.


Barclays Must Disclose Libor Traders, Submitters in Swap Lawsuit

Barclays Plc must disclose the identities of Libor traders and employees that made submissions to set interest rates, after a ruling yesterday in the first U.K. lawsuit related to manipulation of the London interbank offered rate.

Judge Julian Flaux in London said the bank must give the information on the workers to Guardian Care Homes Ltd., which sued the bank over a loss-making interest-rate swap tied to Libor. London-based Barclays must also provide Guardian the e-mail communications of 42 employees, transcripts of phone conversations that refer to Libor, board minutes and documents from the bank’s treasury committee, Flaux ruled.

Flaux hasn’t yet ruled whether the bank must disclose the information only to Guardian or if it should be made public.

Guardian sued over the swap that cost it about 12 million pounds ($19 million), saying Libor -- the baseline for about $300 trillion of contracts worldwide -- can’t be trusted. In June, the lender was fined a record 290 million pounds after regulators found its investment bankers tried to manipulate the interest rate.

Barclays failed to have the Libor-fixing part of the suit thrown out on Oct. 29 when a judge ruled it would have to answer accusations it profited from rigging Libor submissions.

Barclays spokesman Jon Laycock wasn’t immediately available to comment.


Ceccatelli Says Euro-Area Bank Union Is ‘Gigantic Task’

Jacopo Ceccatelli, a partner at JC & Associati SIM, discussed Italian banks, loan provisions and a euro-area banking union.

He spoke from Milan with Francine Lacqua on Bloomberg Television’s “On the Move.”

For the video, click here.

Norway Central Banker Reviles Bernanke Cash in John Law Quip

Ben Bernanke risks being remembered for the same monetary folly that was perpetrated by John Law, the banker who fled 18th century France after creating an asset bubble, the deputy governor of Norway’s central bank said.

“If printing money is not followed up by action -- in euro area countries, in the U.K. and in the U.S. -- Mario Draghi, Mervyn King and Ben Bernanke run the risk of being recorded in history in the same chapter as the Scotsman John Law,” Norges Bank Deputy Governor Jan F. Qvigstad said in the text of a speech set to be delivered Nov. 13 in Oslo.

European Central Bank President Draghi, Federal Reserve Chairman Bernanke and Bank of England Governor King are pursuing unprecedented stimulus programs in an effort to pull their economies out of the worst crisis since the Great Depression.

The ECB’s main interest rate is 0.75 percent, the Fed’s rate hovers near zero and the Bank of England’s is 0.5 percent. Draghi in September pledged unlimited debt purchases to support euro markets. Bernanke a week later vowed to buy bonds until the U.S. labor market recovers.

John Law, born in 1671, was a Scottish economist who moved to France and helped revive the French economy in a scheme that later backfired, forcing him to flee.

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