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A Whistle-Blower Who Can Name Names of Swiss Bank Account Holders

August 8, 2013 by

“I am weak and alone,” Mr. Falciani said, as three round-the-clock bodyguards provided by the French government looked on with hard stares. The protection was needed, he insisted, because he faces constant risk as the sole key to decipher the encrypted data — five CD-ROMs containing a list of nearly 130,000 account holders that may be the biggest leak ever in the secretive world of Swiss banking.

But as he settled into a deserted bistro for a two-hour lunch, Mr. Falciani, a former computer technician who has been on the run since 2008, seemed oddly relaxed for a fugitive. And why not?

He is in high demand these days, having cast himself as a crusader against the murky world of Swiss banking and money laundering. Once dismissed by many European authorities, he and other whistle-blowers are now being courted as the region’s governments struggle to fill their coffers and to stem a populist uprising against tax evasion and corruption.

“It’s an economic war,” said Mr. Falciani, an angular man of 41 with a dark goatee who sometimes dons disguises, though on a muggy summer afternoon favored an innocuous beige tie and short-sleeved dress shirt. “In Switzerland, the banks are so organized that they are able to circumvent new rules and laws to continue to enable tax evasion.”

Critics, not least at his former employer HSBC, dismiss Mr. Falciani as a manipulator more dazzled by money than high ideals. The data he has leaked — some say sold — since 2008 has wreaked havoc within the banking world, as well as the moneyed and political classes of Europe.

Mr. Falciani’s information formed the basis for the now famous “Lagarde list” that has roiled Greek politics with its revelations of oligarchs and politicians who avoided taxes by stashing millions in Switzerland. His data is also credited with helping Spain collect 260 million euros ($345 million) in taxes and identify more than 650 tax evaders, including the president of Banco Santander.

In 2012, Mr. Falciani passed his information to American authorities. They, in turn, used the data to pursue an investigation into whether HSBC flouted controls on money laundering, eventually forcing a $1.92 billion settlement with the bank in December.

More than a few rich and powerful people await his next move. Mr. Falciani asserts that only a small portion of the data has been decrypted and used.

Since being released from jail this year after a Spanish judge denied a Swiss extradition request, Mr. Falciani, who is married and has a young daughter, has resurfaced in France. Authorities here have offered protection in exchange for Mr. Falciani giving testimony to local prosecutors who are investigating whether HSBC helped French clients dodge taxes.

“My main objective is to help authorities develop a defense,” Mr. Falciani said.

“We are under attack and losing a lot of tax money,” he said of the Swiss banking system. “If you have enemies who want to invade, laws are not enough and you need armies to build an economic defense.”

A native of Monaco who was educated in the south of France, Mr. Falciani once worked in obscurity at HSBC. In 2005, he was promoted and transferred to Geneva. The following year, he said he raised concerns to his bosses about security flaws in the Swiss computer system that could violate the privacy of depositors.

Ignored by his superiors, Mr. Falciani said he started collecting the information methodically, in an effort to prove the system was vulnerable. The bank denies that he ever alerted them and believes that he amassed the information over a two-year period.

Early on, Mr. Falciani said he got the brushoff from German bureaucrats who weren’t interested in his trove of data. His information was also shunned in France by the previous administration when “authorities tried to make evidence disappear and they didn’t want to know,” he said.

Then the European economy slumped and governments started to take notice.

In a report from the French National Assembly issued in July, the lawmaker Christian Eckert chided authorities for being slow to use Mr. Falciani’s list. According to Mr. Eckert, the information included 127,311 clients, including 6,313 from France who were suspected of tax evasion.

Article source: http://www.nytimes.com/2013/08/09/business/global/a-whistle-blower-who-can-name-names-of-swiss-bank-account-holders.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

German Lawmakers Reject Swiss Tax Deal

November 23, 2012 by Leave a Comment

PARIS — Switzerland was stymied Friday in its drive to reach a tax deal with Germany after opposition lawmakers in Berlin rejected an agreement that would have allowed Germans with Swiss accounts to pay taxes without divulging their identities.

The Swiss government has been trying to repair relations with its European neighbors and the United States, which have been pressuring it to lift the veil on its vaunted bank secrecy. The German opposition lawmakers argued that the proposed law was too lenient on tax cheats and would not fully restore the revenue Germany was losing. They were perhaps also unwilling to hand Chancellor Angela Merkel a victory on the issue before elections next year.

Social Democrats and Green Party members of the German upper house of Parliament, the Bundesrat, voted largely along party lines to block adoption of the proposed tax agreement. The measure had already passed by a wide margin the Bundestag, the lower house, where Chancellor Angela Merkel’s Christian Democrats and its partners hold the majority.

“If the deal had passed, tax dodgers and their accomplices would have let out a sigh of relief,” Norbert Walter-Borjans, a Socialist member of the Bundesrat and finance minister for the state of North Rhine-Westphalia, said in a statement. “Now it’s the honest taxpayers that can exhale.”

Mr. Walter-Borjans’s state has on several occasions resorted to buying Swiss account data from whistle-blowers (or thieves, as the Swiss see them) to go after German tax dodgers.

The deal, to which the Swiss had already agreed, would have gone into effect Jan. 1. It called for Swiss banks to make an upfront payment to the German Treasury of 2 billion Swiss francs, or $2.1 billion. Those funds ultimately would have been reimbursed to the banks from Germans’ undeclared accounts in a one-time payment of up to 41 percent of the account’s value. The clients would thereafter have paid their taxes anonymously, at German income tax rates.

German officials would have had access to additional data, but the fact that client names would remain hidden behind the curtain of Swiss secrecy would have left Germany’s federal and state governments depending on the good faith of Swiss banks to collect taxes on their behalf.

The future of the deal, nearly two years in the making, is uncertain. Swiss officials fear that the issue could be lost in German politics until after the election, sometime in the second half of 2013.

Wolfgang Schäuble, the German finance minister, will propose that a reconciliation committee of the upper and lower houses discuss ways to salvage the agreement, Silke Bruns, a ministry spokeswoman, said. She cautioned, though, that there was no guarantee that Parliament would agree to Mr. Schäuble’s plan.

“We’re convinced the Swiss deal is a good solution,” Ms. Bruns said, “and that’s why we’re pushing for it.”

While the parliamentary defeat might have been an embarrassment to Ms. Merkel, it was a major setback for Switzerland’s banks, which have been laboring under a deep cloud of uncertainty since 2008. A tax deal with France that had seemed locked up is being reopened at the request of the French.

Relations with Washington remain the biggest source of Swiss concern, after the U.S. Justice Department indicted 11 Swiss financial institutions on suspicion of aiding Americans in evading taxes. U.S. officials have so far shown little interest in negotiating anything short of the surrender of all information on the banks’ American clients. Some German opponents of the proposed Swiss agreement have called on Berlin to take a similar hard-line approach.

The Swiss Bankers Association expressed its “regret” at the Bundesrat’s decision, but said: “We consider it positive, however, that the upper house has rejected the tax agreement for reasons of purely domestic policy and not for objective reasons.”

Mario Tuor, a Swiss government spokesman, noted that without a deal, the status quo would remain: German officials can seek specific information from the Swiss government on suspected tax cheats — or go back to buying data stolen from Swiss banks.

“With an agreement, every German taxpayer in Switzerland would be taxed,” Mr. Tuor said.

The Swiss government “remains prepared to bring the ratification process with Germany to a successful conclusion,” Eveline Widmer-Schlumpf, the Swiss president and finance minister, said in a statement, noting that “there are no obstacles to ratification on the Swiss side.”

Chris Cottrell contributed from Berlin.

Article source: http://www.nytimes.com/2012/11/24/business/global/24iht-swisstax24.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

David Kotz, Inspector General, to Leave S.E.C.

January 18, 2012 by Leave a Comment

WASHINGTON — The inspector general of the Securities and Exchange Commission, who has been a thorn in the side of the agency over its fumbling of early inquiries into the Madoff and Stanford cases, will leave the commission at the end of January to join a private investigations firm.

H. David Kotz, who has been inspector general for the S.E.C. since December 2007, will join Gryphon Strategies, an investigative company, as a managing director in its Washington office, he said Tuesday. He will focus on corporate fraud investigations and “assisting whistle-blowers in exposing fraud and improving government accountability,” an S.E.C. announcement said.

Mary L. Schapiro, chairwoman of the S.E.C., called Mr. Kotz “a committed public servant who has served the agency with great distinction for the past four years.”

“His work helped us to identify areas where we needed to improve the way we operate, bolster our resources and upgrade our technology,” she said.

In addition to lengthy reports documenting the S.E.C.’s failure to act on tips that the investment firms of Bernard L. Madoff and R. Allen Stanford may have been running huge frauds, Mr. Kotz also exposed more than 30 S.E.C. employees, including more than a dozen senior officers, who had been using their workdays and government computers to regularly visit Internet pornography sites.

Other investigations focused on the lack of significant oversight of Bear Stearns before its collapse and on insider trading and conflicts of interest among S.E.C. employees.

Most recently, Mr. Kotz criticized the commission for hiring a general counsel who had an interest in settlements related to the Madoff fraud, and for leasing $556 million of office space for the S.E.C. without competitive bids and before Congress had appropriated money to pay for it.

Senator Charles E. Grassley, an Iowa Republican who frequently tangled with the S.E.C. over its shortcomings, praised Mr. Kotz for staying on top of the agency’s failures, and urged the agency to hire another inspector general who would be a strong policeman of the agency.

“David Kotz produced strong, conclusive reports, even as critics claimed he was too aggressive,” Mr. Grassley said. “An aggressive, independent inspector general is best for the agency in the long run, even if that’s uncomfortable for management.”

Mr. Kotz, who at various times recommended substantial changes in the S.E.C.’s organizational structure, said he was “gratified to know that nearly every aspect of the S.E.C. has significantly improved in the four years since I was named inspector general.”

“The reports we have issued have not only been significant to the agency, Congress and the investing public,” he added, “but they have also directly resulted in a transformation of many of the divisions and offices of the commission.”

Article source: http://feeds.nytimes.com/click.phdo?i=c1e48f8af1ee4645a078be87c4fd64b7

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New Chief at Consumer Bureau Promises Vigorous Agenda

January 5, 2012 by Leave a Comment

The director, Richard Cordray, who was appointed to the post Wednesday by President Obama, encouraged consumers to contact the agency with their stories and complaints about banks, payday lenders and other financial institutions that they feel have sold deceptive products or engaged in abusive behavior.

“The consumer bureau will make clear that there are real consequences to breaking the law,” Mr. Cordray, who had been in charge of enforcement at the agency, said in remarks prepared for a speech at the Brookings Institution.

“We have given informants and whistle-blowers direct access to us,” he said. “We took over a number of investigations from other agencies in July, and we are pursuing some investigations jointly with them.  We have also started our own investigations. Some may be resolved through cooperative efforts to correct problems. Others may require enforcement actions to stop illegal behavior.”

Mr. Cordray was nominated by President Obama last year, but Senate Republicans blocked his nomination from coming to the floor for a vote. Opponents in Congress and in the banking and business sectors have said that the agency has too much power and autonomy and lacks adequate financial oversight and review of its regulatory actions.

The agency will focus in particular on the so-called nonbank financial companies — money transfer agencies, credit bureaus and private mortgage lenders, for example — that previously have fallen outside the authority of most bank regulators and consumer protection agencies.

Although the consumer agency was given authority over those types of companies in the Dodd-Frank Act, the regulatory overhaul passed in the wake of the financial crisis, those powers could not take effect until the bureau had a director.

“Today, we are launching the bureau’s program for supervising nonbanks,” Mr. Cordray said. “Many provide valuable services to customers who lack access to other forms of credit.  And they are big markets.  Nearly 20 million American households use payday lenders and pay roughly $7.4 billion in fees every year. 

“Many subprime loans during the housing bubble were made by nonbank mortgage brokers,” he added. “Since most of these businesses are not used to any federal oversight, our new supervision program may be a challenge for them.  But we must establish clear standards of conduct so that all financial providers play by the rules.”

Mr. Cordray asked consumers to contact the agency directly through its Web site, consumerfinance.gov. “Our team is taking complaints about credit cards and mortgages, with other products to be added as we move forward,” he said. “Our work will support the honest businesses in financial markets against those who deceive consumers or otherwise break the law.”

The public appearance by Mr. Cordray, who has kept a low profile since being nominated to the post, was arranged quickly after the announcement Wednesday of Mr. Cordray’s appointment, which was made without Senate approval under the constitutional provision for making appointments when lawmakers are in recess.

The event was meant to allow him to show that the agency intends to move promptly and aggressively, in the hope that getting public support could quell some of the criticism from members of Congress, according to people involved in the arrangements.

Several members of Congress vowed on Wednesday to try to overturn the appointment, and one House subcommittee summoned Mr. Cordray to a hearing on Capitol Hill to discuss his agency and how he intends to manage it.

Article source: http://feeds.nytimes.com/click.phdo?i=6e53a87ba42b2626cab15181f6374cdf

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DealBook: Former S.E.C. Chief Says Dodd-Frank Misses Goals

July 13, 2011 by Leave a Comment

Harvey Pitt, the former chairman of the Securities and Exchange Commission.Jay Mallin/Bloomberg NewsHarvey Pitt, the former chairman of the Securities and Exchange Commission.

7:26 p.m. | Updated

Harvey Pitt, a former chairman of the Securities and Exchange Commission, criticized the Dodd-Frank Act on Tuesday, saying the financial regulatory overhaul would fall short of its goal of protecting investors from future financial crises .

The law “unfortunately did not provide the regulatory reform that our financial and capital markets, and those who invest, so urgently needed and still require,” Mr. Pitt, who was chairman of the S.E.C. from 2001 to 2003, said in testimony before the Senate Banking Committee.

“The act is unduly complex, adds more layers of regulatory bureaucracy to an already overbloated bureaucracy, makes financial regulation more cumbersome and less nimble than it already was,” said Mr. Pitt, now the chief of Kalorama Partners, a Washington consulting firm.

Nearly a year after President Obama signed the Dodd-Frank Act into law, the banking committee on Tuesday examined the law’s efforts to protect investors. The act dedicated an entire section to “investor protections,” creating an Office of Investor Advocate, enhancing regulation of credit rating agencies and reining in executive pay.

But some of the corporate governance rules “favor certain special interests at the expense of rank-and-file shareholders,” Mr. Pitt said.

He also objected to a new corporate whistle-blower program, created under the act. In April, the Securities and Exchange Commission adopted a program that rewards employees who report crucial information about fraud and other wrongdoing. Under the rules, whistle-blowers are not required to report fraud internally before going to the government.

“This provision threatens to undermine corporate governance, internal compliance and the confidence of public investors in our heavily regulated capital markets,” said Mr. Pitt, a Republican who was appointed to run the S.E.C. by President George W. Bush.

Mr. Pitt issued some support for expanding the S.E.C.’s authority to examine thousands of investment advisers. But he said the agency lacked the budget to fully take on its new responsibilities.

His comments on the agency’s budget echo concerns raised by consumer advocates, who have long called for the S.E.C. to receive a budget increase.

“While we are sympathetic to those who argue that money alone cannot solve all of the agency’s problems, we also believe that, without additional funding, the agency cannot reasonably be expected to effectively fulfill its investor protection mission,” Barbara Roper, director of investor protection for the Consumer Federation of America, told the committee.

Article source: http://feeds.nytimes.com/click.phdo?i=a0591f7a6f155a0c767614fc863a187f

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