RBS Fined, JPMorgan Probe, U.K. Tax Ruling: Compliance

Royal Bank of Scotland Group Plc will pay $100 million to settle U.S. and New York regulators’ accusations that it violated sanctions programs targeting Iran, Sudan, Myanmar and Cuba.

RBS from 2002 to 2011 hid or failed to disclose information about the identities of sanctioned parties in 3,500 transactions valued at approximately $523 million, the New York Department of Financial Services said Dec. 11 in a statement. The U.S. Treasury Department’s Office of Foreign Assets Control and the Federal Reserve also were part of the settlement.

RBS said in a statement that it “deeply regrets” its oversight failures and pledged to strengthen compliance controls.

The bank cooperated with the investigation and has fired several employees who were involved in the wrongdoing, said Benjamin Lawsky, New York’s top banking regulator.

Britain’s largest state-owned lender said it would claw back three-quarters of the money from bonuses and awards already paid to employees after it was fined $612 million for manipulating rates in a separate case over Libor in February.

RBS, based in Edinburgh, said the U.S. Justice Department and Manhattan’s district attorney have concluded parallel investigations and aren’t taking any action against the bank.

Compliance Policy

Fed’s Evans Says CFTC Right to Reevaluate Computerized Trading

U.S. regulators should reevaluate whether markets have sufficient risk controls in place to oversee high-frequency trading, Federal Reserve Bank of Chicago President Charles Evans said.

The Commodity Futures Trading Commission and other agencies are right to consider new ways of monitoring derivatives markets that increasingly rely on electronic trading and not “human judgment and human speeds,” Evans said in a comment letter to the CFTC dated Dec. 11. The letter was posted on the CFTC’s website yesterday.

The Chicago Fed staff, in a response to a CFTC request for comments on possible new regulations for automated trading, said consistent risk controls are necessary to remove the danger that algorithms can malfunction.

The CFTC, along with the Securities and Exchange Commission, boosted scrutiny of high-frequency and algorithmic trading after May 6, 2010, when $862 billion in equity value was erased in 20 minutes before share prices recovered.

CFTC members voted unanimously on Sept. 9 to issue a concept release requesting input on more than 100 questions, including whether to expand testing and supervision of high-speed trading strategies.

Traders Losing $1 Million Build EU Case for Bitcoin Rules

Trading Bitcoins could bleed you dry, the European Union’s top banking regulator said as it weighs whether to regulate virtual currencies.

Thefts from digital wallets have exceeded $1 million in some cases and traders aren’t protected against losses if their virtual exchange collapses, the European Banking Authority said today in a report warning consumers about the risks of cybermoney.

Virtual currencies such as Bitcoin have come under increased scrutiny from regulators and prosecutors around the globe. China’s central bank barred financial institutions from handling Bitcoin transactions last week and German police arrested two suspects in a fraud probe into illegally generated Bitcoins worth 700,000 euros ($963,000).

Since Bitcoins exist as software, the virtual currency isn’t controlled by any government or central bank. The digital money emerged in 2008 and is being used to pay for everything from Gummi bears to digital cameras on the Web, with more than 12 million in circulation, according to Bitcoincharts, a website that tracks the online money’s activity.

The virtual currency gained credibility last month after law enforcement and securities agencies said in U.S. Senate hearings that it could be a legitimate means of exchange.

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Compliance Action

JPMorgan Said in Talks to Pay $2 Billion to End Madoff Probes

JPMorgan Chase & Co., the target of multiple U.S. Justice Department investigations, tentatively agreed to pay about $2 billion to resolve probes into whether it ignored warning signs about Bernard Madoff’s crimes, according to a person briefed on the matter.

The bank also assented to a deferred prosecution agreement, said the person, who asked not to be identified because the negotiations are private. In such deals, the government agrees not to prosecute for a specified period and charges are dismissed if the entity improves its programs and complies with the law. The talks are in their final stages and the accord could be announced before year-end, the person said.

Chief Executive Officer Jamie Dimon, 57, is seeking to resolve government probes that have beset JPMorgan, while overhauling internal controls to improve relations with regulators. Wall Street firms including JPMorgan have spent years fighting off claims brought on behalf of Madoff’s victims.

Manhattan U.S. Attorney Preet Bharara has been investigating how New York-based JPMorgan, the biggest U.S. bank, handled funds controlled by Madoff, whose multibillion-dollar fraud was the biggest Ponzi scheme in the nation’s history. James Margolin, chief public information officer for Bharara’s office, and Peter Donald, a spokesman for the Federal Bureau of Investigation, declined to comment.

Joseph Evangelisti, a JPMorgan spokesman, declined to comment.

Ex-Banker Ordered to Pay Insider Trading Gains to Investors

Former Morgan Stanley managing director Du Jun was ordered to pay HK$23.9 million ($3.1 million) to investors who sold him shares in 2007, for which he was jailed for trading with inside information.

The order by Hong Kong’s High Court yesterday benefits about 300 investors in Citic Resources Holdings Ltd., the Securities and Futures Commission said in a statement. The payments represent the profit they could have made had the inside information been known.

The restoration orders are the first by a Hong Kong court in an insider dealing case. Du, part of a team of Morgan Stanley bankers advising the Chinese commodities trader on acquiring oil-field assets, was convicted in 2009.

Du’s lawyer from Chong & Partners wasn’t immediately available for comment on yesterday’s ruling.

Insider trading was criminalized in the former British colony in 2003 and carries a maximum sentence of 10 years.

The case is Securities and Futures Commission v. Du Jun, HCMP1407/2007 in the Hong Kong Court of First Instance.

GLG to Pay $9 Million Over SEC Claims of Overvaluing Assets

GLG Partners Inc., the hedge-fund firm owned by Man Group Plc, agreed to pay $9 million to settle allegations by U.S. regulators that it overvalued assets in an emerging-markets fund.

GLG overvalued its stake in a coal-mining company from 2008 through 2010 due to internal-control failures, the Securities and Exchange Commission said in a statement yesterday. That resulted in inflated fees and the overstatement of assets under management in filings with the SEC, the regulator said.


U.K. Loses Fight at Top EU Court on Company-Tax Refund Curbs

The U.K. unlawfully curtailed the deadline for companies to claim refunds for wrongly paid tax, the European Union’s top court in Luxembourg ruled yesterday.

The EU Court of Justice said the U.K. violated EU law by depriving companies “without notice and retroactively” of the right to recover taxes that they shouldn’t have had to pay under a system ruled illegal more than a decade ago.

It’s the third time the U.K. courts sought the EU tribunal’s guidance in a challenge by a group of 20 companies, including British American Tobacco Plc, against the country’s advance corporation tax system, which ran from 1973 to 1999. While London-based Aegis Group Plc, which has since been taken over by Dentsu Inc., is the only company in that group to be affected by yesterday’s case, many other pending claims depend on yesterday’s decision, said Chris Morgan, head of tax policy at KPMG U.K.


Warren Says ‘Glass-Steagall 2.0’ Still Needed for Banks

U.S. Senator Elizabeth Warren, a Massachusetts Democrat, talked about banking industry regulation and entitlement programs.

Warren spoke with Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “Market Makers.”

For the video, click here.

Levitt Says Volcker Rule Still Puzzles Wall Street

Arthur Levitt, former Securities and Exchange Commission chairman, said the Volcker Rule is leading to “puzzlement and bewilderment” on Wall Street. Levitt talked with Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Swiss Bank Chairmen Object to Tougher Rules, Bilanz Says

Swiss banks are more stable than banks abroad, UBS AG Chairman Axel Weber and Credit Suisse Group AG Chairman Urs Rohner said in a preview of a joint interview to be published in Bilanz magazine today.

“I am confident that in 2015 no tightening of the rules will be necessary,” said Rohner. It doesn’t make sense to speculate before the agreed appraisal of Swiss banking rules in 2015, according to the interview of Weber and Rohner.

The so-called Swiss finish on liquidity and capital requirements will be “considerably higher” than elsewhere, Weber said.

Swiss Finance Minister Eveline Widmer-Schlumpf said Nov. 3 that lenders including UBS and Credit Suisse may have to pull out of investment banking as she called for their leverage ratios to be raised.

“Banks would have to consider whether to carry on with investment banking or focus even more on asset management,” Widmer-Schlumpf was quoted as saying in an interview with Schweiz am Sonntag at the time. Banks “must be organized in such a way that the state isn’t ultimately held liable.”

Comings and Goings

Obama IRS Choice Poised to Win Approval for Top Job

John Koskinen, 74, a multimillionaire with a resume full of accomplishments, will get the top job at the Internal Revenue Service.

He has completed a two-day Senate confirmation hearing with no objections to his nomination.

Koskinen, a former chairman of U.S.-owned mortgage financier Freddie Mac, is poised to take over leadership of the U.S. tax agency as soon as later this month.

While Koskinen has no experience in tax administration, he has built his reputation on turning around troubled enterprises. Koskinen comes to the IRS as it tries to restore public trust damaged by its treatment of small-government nonprofit groups.

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