EU Transaction Tax, EU Bank Band-Aids, Libor: Compliance

German Chancellor Angela Merkel’s potential coalition partners, the Social Democrats, want to make implementation of a proposed financial-transaction tax a requirement for participation in a European banking union.

Germany is one of 11 euro-area countries that support the tax plan, which the European Commission estimates could generate as much as 35 billion euros ($48 billion) annually in its current form. Only participating states will have a vote on the proposal. In January, the U.K. filed a legal challenge to the EU’s decision that allowed the 11 states to proceed.

The 28 EU states have set a year-end deadline to reach a common position on a proposal by Michel Barnier, the bloc’s financial-services chief, for a Single Resolution Mechanism that would centralize the handling of euro-area banks in financial trouble and have a common fund financed by a levy on the banking industry.

Germany has led the attack on Barnier’s plan, challenging its legal basis and warning it could weaken governments’ control over their budgets.

The Social Democrats, or SPD, will push for using financial-transaction tax revenue to fill the Single Resolution Fund when the party begins coalition talks with Merkel’s Christian Democrats tomorrow, according to Carsten Schneider, budget spokesman for the SPD.

For more, click here.

Compliance Policy

Draghi Challenges EU Bank-Aid Rules Requiring Forced Losses

European Central Bank President Mario Draghi challenged rules that would bar banks from accessing public aid unless they forced losses on junior bondholders, a central building block of European Union protocols for handling struggling banks.

In a letter to EU Competition Commissioner Joaquin Almunia, Draghi said EU rules need to be clarified so regulators can order technically solvent banks to strengthen their balance sheets without scaring off investors. Draghi said public capital needs to be available -- without wiping out subordinated debt holders or forcing them to convert to equity -- if a bank’s holdings are above regulatory minimums and also below what supervisors deem necessary in a particular case.

The ECB president called for the possibility of “precautionary recapitalizations” that would dilute shareholders without hurting junior bondholders and that also would give banks temporary access to public money.

Draghi’s comments come as EU officials squabble over what backstops should be put in place should the ECB decide that individual banks need more capital after a series of assessments next year. The danger under the state-aid rules addressed by Draghi’s letter is that subordinated bond holders could dash to dump their investments if a bank is deemed to require cash, risking another round of market turmoil.

The ECB will announce tomorrow how it will handle comprehensive assessments of euro-area banks, which are needed as it prepares to take over the currency bloc’s financial supervision next year.

For more, click here.

EU Panel Backs Fines Up to $137 Million in Privacy Law Overhaul

The owners of Internet search-engines risk fines as high as 100 million euros ($136.8 million) for data-protection violations under a European Union privacy law approved by a European Parliament committee.

The privacy overhaul would target companies that handle information about EU citizens, even when data processing takes place outside the 28-nation bloc, according to the draft law that won the backing of the European Parliament’s civil liberties and justice committee in Strasbourg, France, yesterday.

The bill’s sponsor has won permission to negotiate a fast-track agreement with national governments. To become law, the draft rules need the backing of the full European Parliament and EU governments.

Singapore Amending Income Tax Law to Comply With U.S.’s FATCA

The Singapore government will share bank account information with the U.S. under the Foreign Account Tax Compliance Act and assist with other exchange of information requests, according to amendments read in Parliament yesterday.

Singapore has not concluded negotiations with U.S. counterparts and details of FATCA implementation have yet to be worked out, said Senior Minister of State for Finance Josephine Teo.

Separately, the National Risk Assessment is a money laundering/terrorist financing risk audit of not only the financial sector but also designated non-financial businesses and professions in Singapore, according to a statement on the Monetary Authority of Singapore’s website.

Compliance Action

Deutsche Bank Said to Interview Some 50 Employees in Rates Probe

Deutsche Bank AG, Europe’s biggest investment bank by revenue, is interviewing about 50 employees as it investigates whether traders tried to rig benchmark interest rates, said a person with knowledge of the matter.

The interviews are part of an investigation that has included conversations with staff and a review of their electronic communication that started after the Frankfurt-based bank’s management was informed in 2011 of potential attempts to manipulate rates, said the person, who asked not to be identified as they aren’t authorized to speak publicly.

Regulators around the globe are examining whether more than a dozen lenders including Deutsche Bank colluded to rig benchmark interest rates. The bank declined to comment on its investigation. It has said its probe indicates no wrongdoing by current or former management board members and that it would fire or suspend employees who acted inappropriately without identifying individuals.

Ernst & Young LLP is helping German banking regulator Bafin with its investigation of alleged attempts by Deutsche Bank traders to rig rates, according to two people with knowledge of the matter. Spokesmen for the auditor and Bonn-based Bafin declined to comment when contacted by Bloomberg News yesterday.

German newspaper Handelsblatt reported the interviews yesterday.

U.K. Energy Regulator Yet to Decide on Gas Whistle-Blower Probe

The U.K.’s Office for Gas and Electricity Markets, Ofgem, has yet to decide whether to proceed with an investigation into claims of manipulation in wholesale natural gas markets made a year ago.

No “formal” investigation has begun into the issue, Lisa O’Brien, a spokeswoman at the London-based regulator, said by telephone Oct. 18.

Price-reporting agency ICIS, a unit of Reed Elsevier Plc, reported irregular trades to Ofgem in October 2012 after former reporter Seth Freedman flagged what he suspected was an attempt to manipulate assessments in the $480 billion U.K. gas market on Sept. 28 of that year. Ofgem opened a consultation into pricing benchmarks in the energy industry in June to ascertain “if stakeholders feel that current arrangements are fit for purpose,” it said at the time.

Freedman also notified the Financial Services Authority, now the Financial Conduct Authority, which confirmed Nov. 12 that it had received the information. The FCA doesn’t comment on investigations or if a probe is taking place, Toby Parker, a spokesman for the FCA, said yesterday by telephone.

Caesars Says Treasury Dept. Investigating Desert Palace

Desert Palace Inc., a unit of online-gaming and resort company Caesars Entertainment Corp., is being investigated by the U.S. Treasury Department, according to a statement by Caesars in a federal filing yesterday.

In the filing with the U.S. Securities and Exchange Commission, Caesars said the investigation concerns the Bank Secrecy Act.

Caesars was also informed that a federal grand jury is investigating.

In the course of its investigation, the Treasury Department will determine whether assessment of “a civil penalty and/or additional enforcement action,” are appropriate, the company said in the filing.

Caesars “intends to cooperate fully” with the investigations, and said it is “unable to determine” probable outcomes or possible fines resulting from the matter.

SEC Raises Concerns on Options Clearing Corp.’s Risk Management

The U.S. Securities and Exchange Commission said it has “serious concern” about regulatory compliance and risk management at Options Clearing Corp., the world’s largest equity-derivatives clearinghouse.

The regulator listed failings of governance, risk management and financial surveillance in a 22-page letter dated Sept. 18 obtained by Bloomberg News. Jim Binder, a spokesman for OCC in Chicago, confirmed the company received the document. A voice mail left with the SEC out of regular office hours wasn’t immediately returned.

“The excessive number of repeat findings raises a serious concern about OCC’s overall commitment to establishing a culture of regulatory compliance,” the SEC wrote in the letter. “The pattern of findings across the areas of quantitative risk management, governance, liquidity, policies and procedures, and documentation raises a serious concern about systemic weaknesses in OCC’s risk management and operations.”

“This is an examination letter that we are obviously taking very seriously,” Binder, an OCC spokesman, wrote in an e-mailed statement. “We are diligently working on a response that will confirm our commitment to resolving the issues identified in the letter, and that will describe the processes that we’ve put in place over the last year or so to prevent a recurrence of similar shortcomings in the future.”

OCC guarantees all options trading on U.S. exchanges.

“We are committed to continuing the excellent service that we have provided over the years to our clearing members and exchanges, but are cognizant of the increased expectations associated with our being designated as a systemically important financial market utility,” OCC’s Binder said.

The Wall Street Journal reported the SEC’s concerns earlier today.

Mizuho Asked For No-Crime Ties Pledge in 2009, Mainichi Says

Mizuho Financial Group, Inc. started asking clients from April 2009 to affirm they do not belong to crime groups as a condition to obtain new loans, Mainichi newspaper reported, without attribution.

From Dec. 2011, the company also began requesting clients to pledge they are not supplying funds or facilities to criminal groups, the newspaper reported.

Japan’s Financial Services Agency said last month that Mizuho failed to take steps to end loans to “anti-social” groups for more than two years after becoming aware of them. Satoru Nishibori, president of Mizuho’s banking unit at the time, knew of the loans in 2010, Mizuho Financial Group President Yasuhiro Sato said Oct. 8.

Senators Urge SEC to Issue Crowdfunding Regulations

U.S. senators including Jeff Merkley, a Democrat from Oregon, and Jerry Moran, a Republican from Kansas, are urging Securities and Exchange Commission Chairman Chairman Mary Jo White to release crowdfunding rules.

“It has now been over 530 days since the JOBS Act became law, and we have not seen a proposal from the SEC on crowdfunding. We are concerned that so much time has passed without action,” the senators wrote in a letter to White.

Other senators are pressing the SEC include Republican Senators Kelly Ayotte of New Hampshire and Pat Toomey of Pennsylvania, and Democratic Senators Michael Bennett of Colorado and Mark Warner of Virginia.

The agency is set to vote as early as tomorrow on a crowdfunding plan aimed at easing investor verification, Bloomberg reported last week, citing two unidentified people with direct knowledge of matter. The crowdfunding rule, part of the 2012 JOBS Act, is intended to benefit businesses, and startups too small to attract funding from banks or venture capitalists.


‘Generous’ Madoff Had No Rules for Credit Card Use, Jury Told

Bernard Madoff was generous to his employees and didn’t have policies in place for corporate credit cards used by executives to pay for family vacations and thousands of dollars worth of wine, a jury was told.

There wasn’t an obvious business purpose for many charges, including trips to Disney World and Las Vegas, that Madoff’s securities firm paid each month, Charlene White, whose job included running dozens of monthly reports and helping process company checks, told jurors yesterday in the trial of five former employees accused aiding Madoff’s $17 billion fraud.

“There weren’t any rules,” White testified. It’s “correct” that no expenses were ever turned down and there wasn’t a reason to be suspicious, she said under cross-examination by defense lawyers.

White, who started as a temporary employee at Madoff’s securities firm in 1993, was the second witness to testify in the first criminal trial stemming from the fraud uncovered at the peak of the financial crisis five years ago. U.S. District Judge Laura Taylor Swain in Manhattan said the trial could last as long as five months.

Four workers in two units of Madoff’s business enterprise are on trial.

The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

U.K. Prosecutor Probing 22 Over Libor as U.S. Charges Possible

U.K. prosecutors are investigating 22 more people in relation to Libor rigging, one of whom may face charges in the U.S. as soon as this week.

The U.K. Serious Fraud Office sent a letter to the individuals on Sept. 30 informing them they were being investigated in connection with the manipulation of the London interbank offered rate, or Libor, lawyers for the SFO told a London court yesterday. A lawyer for one of the people, who wasn’t identified, said his client could be charged by the U.S. this week.

Eight of the 22 individuals were identified by the Wall Street Journal last week. An injunction forcing the newspaper to take the story down from its website was lifted by the judge at the hearing.

Three people have been charged in the U.K. over Libor and were expected to enter pleas yesterday. Most of yesterday’s hearing focused on the injunction and another hearing was scheduled for later this year.

The SFO investigations are continuing and Judge Jeremy Cooke said all of the 22 may be cleared of any wrongdoing.


Mayo Says Dimon’s Error Was Trusting Government on Bear

Mike Mayo, an analyst at CLSA Ltd., talked about JPMorgan Chase & Co.’s tentative agreement to pay a record $13 billion to end civil claims that the bank, Bear Stearns Cos. and Washington Mutual Inc. misleadingly packaged and sold mortgage-backed securities.

David Herro, chief investment officer of Harris Associates LP, also joined the discussion. They spoke with Tom Keene, Sara Eisen and Scarlet Fu on Bloomberg Television’s “Surveillance.”

For the video, click here.