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Tag: white collar crime
Prosecution Of White-Collar Crime Hits 20-Year Low

Prosecution Of White-Collar Crime Hits 20-Year Low

Just a few years after the financial crisis, a new report tells an important story: Federal prosecution of white-collar crime has hit a 20-year low.

The analysis by Syracuse University shows a more than 36 percent decline in such prosecutions since the middle of the Clinton administration, when the decline began. Landing amid calls from Democratic presidential candidates for more Wall Street prosecutions, the report notes that the projected number of prosecutions this year is 12 percent less than last year and 29 percent less than five years ago.

“The decline in federal white-collar crime prosecutions does not necessarily indicate there has been a decline in white-collar crime,” Syracuse researchers note. “Rather, it may reflect shifting enforcement policies by each of the administrations and the various agencies.”

Underscoring that assertion is a recent study by researchers at George Mason University tracking the increased use of special Justice Department agreements that allow corporations — and often their executives — to avoid being prosecuted. Before 2003, researchers found, the Justice Department offered almost no such deals. The researchers report that from 2007 to 2011, 44 percent of cases were resolved through the deals — known as deferred prosecution agreements and non-prosecution agreements.

In 2012, President Obama pledged to “hold Wall Street accountable” for financial misdeeds related to the financial crisis. But as financial industry donations flooded into Obama’s re-election campaign, his Justice Department officials promoted policies that critics say embodied a “too big to jail” doctrine for financial crime.

In a 2012 speech, for example, the head of the Justice Department’s criminal division, Lanny Breuer, said “collateral consequences of an indictment,” such as layoffs, losses for corporate shareholders and the health of an industry, factor into the Obama administration’s prosecutorial decisions.

“In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders,” said Breuer.

Similarly, in 2013, Obama’s attorney general, Eric Holder, told congressional lawmakers that when it comes to banks, “I am concerned that the size of some of these institutions becomes so large that it does become difficult to prosecute them.” He said there is an “inhibiting impact” on the Obama Justice Department’s willingness to prosecute a bank when bringing a criminal charge “[would] have a negative impact on the national economy.”

Holder’s 2013 comments were foreshadowed by a 1999 memo he wrote as deputy attorney general during the Clinton administration. In it, Holder recommended that prosecutors consider “[c]ollateral consequences, including disproportionate harm to shareholders and employees not proven personally culpable” before attempting to convict corporations for wrongdoing.

In May, the House Financial Services Committee subpoenaed the Justice Department about the policy. A press release from committee chairman Jeb Hensarling (R-TX) asserted that the Obama administration was “stonewalling” in providing more details about “whether decisions are being made to prosecute or not prosecute financial institutions based upon their size.”

Prior to serving in the Obama Justice Department, both Breuer and Holder worked at white-collar defense firm Covington & Burling. Both of them went back to work for the firm again immediately after leaving their government posts.

For his part, Holder has recently defended the administration’s record of not prosecuting any individual financial executive involved in the financial crisis. He says the fines the administration has assessed against financial institutions were effective.

“People tend to undervalue what we did with the banks,” Holder told the Financial Times. “Given the nature of the penalties that were extracted, given the interactions that we had with people at the banks, with those attorneys who represented the banks, I think the cultures have changed.”

Left unexplained is how those cultures have supposedly changed when many of the same individuals who were involved in the financial crisis have managed to avoid any punishment.

David Sirota is a senior writer at the International Business Times and the best-selling author of the books Hostile Takeover, The Uprising, and Back to Our Future. Email him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.

Photo Credit: AFP/Stan Honda

SwissLeaks Files Show HSBC ‘Helped Clients Dodge Tax’

SwissLeaks Files Show HSBC ‘Helped Clients Dodge Tax’

Geneva (AFP) – Banking giant HSBC faced damaging claims Monday that its Swiss division helped wealthy customers dodge millions of dollars in taxes after a “SwissLeaks” cache of secret files emerged online.

The documents published at the weekend claim the bank helped clients in more than 200 countries evade taxes on accounts containing $119 billion.

The huge cache of files, which were stolen by an IT worker in 2007 and passed to French authorities, has sparked criminal probes in several countries and attempts to claw back the cash.

The International Consortium of Investigative Journalists (ICIJ) obtained the files via French newspaper Le Monde, and shared them with more than 45 other media organisations worldwide.

The documents showed that HSBC opened Swiss accounts for international criminals, businessmen, politicians and celebrities, according to the ICIJ.

The revelations are likely to stoke calls for a crackdown on sophisticated tax avoidance by the wealthy and by multinational companies, a key political issue across Europe.

Tax avoidance is legal, but tax evasion is not.

“HSBC profited from doing business with arms dealers who channeled mortar bombs to child soldiers in Africa, bag men for Third World dictators, traffickers in blood diamonds and other international outlaws,” ICIJ reported.

A range of current and former politicians from Russia, India and a range of African countries, as well as Saudi, Bahraini, Jordanian and Moroccan royalty, and the late Australian press magnate Kerry Packer were named in the files.

Following the bombshell disclosure, there were calls for a Swiss probe against the bank, which is already facing prosecution in France and Belgium.

“I am angry,” former Swiss foreign minister Micheline Calmy-Rey told public broadcaster RTS, claiming the scandal had seriously damaged Switzerland’s reputation.

HSBC shares sank 1.97 percent to 608.60 pence in early afternoon trading in London.

So far Switzerland has only launched an investigation against HSBC employee-turned-whistleblower Herve Falciani, who stole the files at the heart of the scandal.

The files were used by the French government to track down tax evaders and shared with other states in 2010, leading to a series of prosecutions.

British tax authorities said Monday they had brought in more than £135 million (181 million euros, $206 million) on the basis of the files.

HSBC’s Swiss banking arm insisted it has since undergone a “radical transformation”.

“HSBC’s Swiss Private Bank began a radical transformation in 2008 to prevent its services from being used to evade taxes or launder money,” Franco Morra, the head of HSBC’s Swiss unit, told AFP in an email.

He said the bank had closed the accounts of clients “who did not meet our high standards” and had “strong compliance controls in place,” adding that the disclosures were “a reminder that the old business model of Swiss private banking is no longer acceptable.”

The Swiss Banking Association said the country’s banks had worked hard in recent years to clean up shop and ensure conformity with tax laws.

If they don’t follow the law “they have to take the consequences,” the association said in a statement to AFP.

French Finance Minister Michel Sapin demanded Monday that no mercy be shown to the bank or its tax-cheating clients.

“We must be uncompromising with these fraudsters of the past, we must be uncompromising with those who helped them with their fraud and even sometimes organised it for them,” Sapin told AFP on the sidelines of a G20 finance minister meeting in Istanbul.

Notes in the leaked files indicate HSBC workers were aware of clients’ intentions to keep money hidden from national authorities.

Of one Danish account holder collecting cash bundles of kroner, an employee wrote: “All contacts through one of her three daughters living in London. Account holder living in Denmark, is critical as it is a criminal act having an account abroad non declared.”

The files provide details on over 100,000 HSBC clients, including people targeted by U.S. sanctions, such as Turkish businessman Selim Alguadis and Gennady Timchenko, an associate of Russian President Vladimir Putin.

Inclusion on the list does not automatically imply wrongdoing.

Alguadis told the ICIJ it was prudent to keep savings offshore, while a spokesman for Timchenko said he was fully compliant with tax matters.

Other individuals named on the list include Rami Makhlouf, cousin of Syrian President Bashar al-Assad, designer Diane von Furstenberg, who told the ICIJ the accounts were inherited from her parents, and model Elle Macpherson, whose lawyers told the ICIJ she was fully in compliance with UK tax law.

Motorcycle racer Valentino Rossi, listed as having $23.9 million in two accounts, said he had regularised his tax situation with Italian authorities.

Photo: A cache of leaked secret bank files from 2005 to 2007 showed that HSBC provided accounts to international criminals, corrupt businessmen, politicians and celebrities (AFP/Fabrice Coffrini)

A Whining Wall Street Banker Pleads For Pity

A Whining Wall Street Banker Pleads For Pity

J.P. Morgan was recently socked in the wallet by financial regulators who levied yet another multi-billion-dollar fine against the Wall Street baron for massive illegalities.

Well, not a fine against John Pierpont Morgan, the man. This 19th-century robber baron was born to a great banking fortune and, by hook and crook, leveraged it to become the “King of American Finance.” During the Gilded Age, Morgan cornered the U.S. financial markets, gained monopoly ownership of railroads, amassed a vast supply of the nation’s gold and used his investment power to create U.S. Steel and take control of that market.

From his earliest days in high finance, Morgan was a hustler who often traded on the shady side. In the Civil War, for example, his family bought his way out of military duty, but he saw another way to serve. Himself, that is. Morgan bought defective rifles for $3.50 each and sold them to a Union general for $22 each. The rifles blew off soldiers’ thumbs, but Morgan pleaded ignorance, and government investigators graciously absolved the young, wealthy, well-connected financier of any fault.

That seems to have set a pattern for his lifetime of antitrust violations, union busting and other over-the-edge profiteering practices. He drew numerous official charges — but of course, he never did any jail time.

Moving the clock forward, we come to JPMorgan Chase, today’s financial powerhouse bearing J.P.’s name. The bank also inherited his pattern of committing multiple illegalities — and walking away scot-free.

Oh, sure, the bank was hit with big fines, but not a single one of the top bankers who committed gross wrongdoings were charged or even fired — much less sent to jail.

With this long history of crime-does-pay for America’s largest Wall Street empire, you have to wonder why Jamie Dimon, JPMorgan’s CEO, is so P.O.’d. He’s fed up to the tippy-top of his $100 haircut with all of this populist attitude that’s sweeping the country, and he’s not going to take it anymore!

Dimon recently bleated to reporters that “banks are under assault.” Well, he really doesn’t mean or care about most banks — just his bank. Government regulators, snarls Jamie, are pandering to grassroots populist anger at Wall Street excesses by squeezing the life out of the JP Morgan casino.

But wait — didn’t JPMorgan score a $22 billion profit last year, a 20 percent increase over 2013 and the highest in its history? And didn’t those Big Bad Oppressive Government Regulators provide a $25 billion taxpayer bailout in 2008 to save Jamie’s conglomerate from its own reckless excess? And isn’t his Wall Street Highness raking in some $20 million in personal pay to suffer the indignity of this “assault” on his bank. Yes, yes and yes.

Still, Jamie says that regulators and bank industry analysts are piling on JPMorgan Chase: “In the old days,” he whined, “you dealt with one regulator when you had an issue. Now it’s five or six. You should all ask the question about how American that is,” the $20-million-a-year man lectured reporters, “how fair that is.”

Well, golly, one reason Chase has half a dozen regulators on its case is because it doesn’t have “an issue” of illegality, but beaucoup illegalities, including deceiving its own investors, cheating more than two million of its credit card customers, gaming the rules to overcharge electricity users in California and the Midwest, overcharging active-duty military families on their mortgages, illegally foreclosing on troubled homeowners and… well, so much more.

So Jamie, you should ask yourself the question about “how fair” is all of the above. Then you should shut up, count your millions and be grateful you’re not in jail.

From John Pierpont Morgan to Jamie Dimon, the legacy continues. Banks don’t commit crimes. Bankers do. And they won’t ever stop if they don’t have to pay for their crimes.

To find out more about Jim Hightower, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Web page atwww.creators.com.

Photo: Steve Jurvetson via Wikimedia Commons

At InnoVida, The CEO Hired Jeb Bush And Went To Prison

At InnoVida, The CEO Hired Jeb Bush And Went To Prison

By Douglas Hanks and Jay Weaver, Miami Herald (TNS)

MIAMI — Jeb Bush was out of the Florida governor’s mansion for less than a year when he signed a $15,000-a-month consulting deal with InnoVida, a Miami startup promising to revolutionize affordable housing with remarkably sturdy and lightweight building panels.

But InnoVida never delivered. Instead, the company crashed amid bankruptcy and fraud investigations that ultimately landed its charming CEO, Claudio Osorio, in federal prison for nearly 13 years.

A bankruptcy trustee went after Bush’s fees, and in 2013 the former two-term governor agreed to pay back more than half of the $470,000 he collected as a consultant between late 2007 and the fall of 2010.

Bush, who also served on InnoVida’s board, was never accused of wrongdoing in Osorio’s Ponzi-like swindle that prosecutors said netted him and other co-conspirators about $50 million. But InnoVida occupies noteworthy real estate in the broad landscape of Bush’s business dealings, since it’s the only one to have ended in the kind of full-blown scandal that occurs when a CEO is led away in handcuffs.

InnoVida’s salacious finale is drawing renewed attention as Bush readies for a presidential run. The Republican touting the power of free enterprise in his “Right to Rise” campaign served on a corporate board that presided over a venture fraught with bogus accounting statements and fictional business deals.

Miami attorney Linda Worton Jackson, who has represented InnoVida creditors in the bankruptcy case, faulted the board of directors for lacking leadership, failing to properly oversee Osorio, and missing warning signs as he dodged questions and provided evasive answers about the company’s finances.

“When someone as prominent as Jeb Bush lends his name to a company, it gives the creditors a level of false security,” Jackson told the Miami Herald. “Creditors assume that he is scrutinizing the company rather than receiving stock and money for simply ratifying each decision by Osorio. This is precisely the reason con artists encourage prominent people to be a part of the fraudulent company.”

A Bush spokeswoman said the former governor had concerns “toward the end of the relationship” about InnoVida’s governance and financial disclosures and took action in 2010 once he realized there was a severe problem at the company. She noted his settlement with the bankruptcy trustee includes language praising his assistance.

“It is now obvious that Mr. Osorio deliberately misled a board of directors of prominent business leaders about his company’s dealings and this is why he is now in jail,” Bush spokeswoman Kristy Campbell said in an email response to questions.

Campbell said that before joining the company as a consultant, the former governor had vetted InnoVida by visiting its Middle East operation and interviewing employees — and “all appeared legitimate.” Bush had also hired an investigator to research Osorio and found “no red flags indicating any criminal or financial wrongdoing.”

But Miami attorney David Nunez, who represented NBA player Carlos Boozer and others after they lost $2.5 million invested in InnoVida, said a thorough probe likely would have revealed Osorio’s “questionable history” at his prior high-flying company, CHS Electronics.

As head of CHS, Osorio built the Miami-based computer distributor into a Fortune 500 company, but it went belly up in 2000 as shareholders accused him in a class-action lawsuit of failing to disclose critical financial information. In a settlement, the company agreed to pay $11.75 million in cash.

Out of public life since January 2007, Bush’s private-sector dealings with InnoVida and other companies are now often cited as a potential political vulnerability. He served five years as a director of Swisher Hygiene, overlapping with a time when the Charlotte-based seller of sanitary supplies issued faulty earnings reports that later had to be restated. Lehman Brothers hired Bush as a consultant in 2007 as the investment bank was heading toward a stunning 2008 bankruptcy that contributed to the global financial crisis.

His former board seat at Tenet Healthcare left Bush with stock holdings valued at $2.4 million last year, equity boosted by the company’s profits under the Affordable Care Act — the signature Obama administration program that Bush continues to slam.

The rise and fall of Osorio’s InnoVida is a classic Miami tale of a connected con man with famous friends, a ritzy waterfront house and a smooth sales pitch. There was also a complex web of corporations and subsidiaries that spanned the globe. Bush signed a finders-fee deal with an InnoVida entity in the Cayman Islands, and said he flew to Dubai to inspect the company’s outpost there.

At the heart of InnoVida’s rise were two key elements. First was a new way to make composite building panels, marketed as “lighter than wood, yet stronger than concrete.” Second, Osorio’s high-profile friends and associates, who seemed to validate not only InnoVida’s prosperity but also a lavish lifestyle that included a Star Island mansion, a Maserati and political fundraisers for Barack Obama and the Clintons.

As the brother of the president when he signed his first InnoVida contract on Nov. 16, 2007, Bush carried the most cachet of Osorio’s celebrity recruits. Alonzo Mourning appeared at InnoVida events for Osorio, retired general Wesley Clark flew to Haiti to pitch the president on InnoVida products after the 2010 earthquake, and Miami condo king Jorge Perez invested with the company and was listed as a director, though he insists he never formally joined the board.

Lawyers pressing their case against InnoVida said Osorio leveraged the fame of associates like Bush to lure in deep-pocketed investors and others with the cash and connections needed to sustain the business.

“Jeb was on the board when I agreed to come on the board,” said Chris Korge, a well-known former lobbyist and Miami International Airport concessionaire who became an InnoVida director in 2009, a year after Bush. Korge went on to become a top investor in the company, and said the presence of Bush, Perez and others gave him comfort. “It wasn’t a bunch of dummies on the board.”

Bush hasn’t offered details on what he did for InnoVida, though his role is broadly outlined in court files linked to InnoVida’s well-publicized demise. His contract was to provide “sales and marketing strategies,” according to a filing by a bankruptcy trustee, and an InnoVida document listed him as a “key manager” entitled to 250,000 stock options. As first reported by The Washington Post, Bush also signed up to pursue investor and sales opportunities in Nigeria, South Africa, Mexico and close to home in Florida.

One 2009 contract between Bush and the Cayman Island-based InnoVida Factories envisioned a company plant in Mexico. If Bush could negotiate a joint venture to build it, he would receive 8 percent of the cash pumped into the investment. Alejandro Aguirre, former publisher of Diario Las Americas in Miami, is listed on the contract as Bush’s contact in Mexico and said the former governor brought “instant credibility” to the would-be venture given his name, fluency in Spanish and familiarity with Mexico.

“Jeb opened up the door for me there” at InnoVida, said Aguirre, adding the deal never worked out “because of the economics in Mexico.”

InnoVida established actual operations: a factory in North Miami Beach and another in Dubai, which Bush said he visited before signing on with the company. Commercial developer O. Ford Gibson, a former Bush colleague, said he was excited enough about InnoVida’s technology that he flew around Florida trying to land construction deals for portable classrooms until the company’s panels failed a high-heat test.

The company did land some high-profile business, including a $10 million loan pledge from a U.S. government agency to build low-cost housing in Haiti and partnering with Royal Caribbean to build a school on land the cruise company controlled on the earthquake-battered island. But bankruptcy court records show that Osorio used federal money to pay back some of his early investors, not for the Haiti housing project.

Court records show that the Venezuelan-born Osorio pumped up the business’s financial health and prospects to investors and board members, then used company revenue to fund his living expenses. When InnoVida’s balance sheet showed $35 million in cash, the company really had less than $200,000 on hand, according to a Securities and Exchange Commission complaint. Over the course of four years, prosecutors said in charging documents, Osorio raised about $50 million from investors and lenders, and spent a large chunk of it on himself and his family, including his wife, Amarilis, an “unindicted co-conspirator.”

No documents show Bush investing any money with InnoVida. Campbell, Bush’s spokeswoman, said the former governor never collected any commissions or finder fees from the company — only consulting earnings.

Campbell said Bush told InnoVida management “several times” that it needed to provide directors with the company’s audited financial statements. One 2009 email, first reported by the Post, showed Bush following up on a request he apparently made at one of the company’s infrequent board meetings.

“Craig, fine board meeting last Thursday,” Bush wrote in the Sept. 21, 2009, email to InnoVida CFO Craig Toll, who would later be sentenced to four years in prison on federal fraud charges. “(Y)our offer to send me the cash flow information on the company would be appreciated.”

Toll sent back unaudited cash-flow statements, according to the email chain filed as evidence in Toll’s criminal trial. Bush remained on the board for another year, severing his ties in September 2010 after Korge exposed Osorio as lying about major overseas deals in the Middle East and China that were supposedly on the verge of sending InnoVida’s value soaring tenfold.

InnoVida began to unravel when Korge, the largest local investor, became suspicious. The owner of NewsLink, which runs restaurants and shops at MIA, invested $4 million with InnoVida — about $3 million of it borrowed from friend Rodney Barreto, a partner in one of Miami-Dade’s top lobbying firms. Korge, also a lawyer, said Osorio would cancel meetings to make last-minute trips overseas to land new investor dollars.

When the money never materialized, Korge grew suspicious and hired a private investigator to tail Osorio. When the CEO said he was in China, the detective spotted him at lunch with his wife in Miami Beach.

Korge, a major Democratic fundraiser backing Hillary Clinton in 2016, said he sought out Bush as his first ally on the board, and the two held conference calls with their individual lawyers to plot “what we could do as board members of a private, closely held company to get to the truth and protect all the investors.”

“I think Jeb behaved in an honorable, stand-up way,” Korge said.

After Korge raised the alarm about InnoVida, Bush decided it was time to cut his ties to Osorio and his company. Korge said he and the former governor planned a showdown at a board meeting called for Sept. 16, 2010.

The two men met in the parking lot and strode together toward the front door of the North Miami Beach facility. But Korge expected trouble. Earlier that day, in a meeting with shareholders (which included Korge, an investor, but not Bush) Osorio had used his controlling interest to vote off all the board members beside himself and two executives close to him.

At the entrance, Osorio allowed Bush to pass but told Korge to wait outside, Korge said.

“He was polite,” Korge said. “I told him: ‘You’re wrong. I have a right to come in.'”

Inside the conference room, Bush took his seat at the table. Fellow director Oscar Seikaly, an insurance executive, said the board members were expecting the long-awaited audited financial reports. “Claudio had promised to present them to the board,” Seikaly said. “But he danced around the subject. That was a red flag.”

Campbell said Bush ended his relationship with InnoVida on Sept. 19, 2010. And four days later, Korge filed a lawsuit that ultimately pushed InnoVida into bankruptcy. The federal criminal investigation followed, with Osorio pleading guilty in 2013 to three conspiracy offenses involving wire fraud and money laundering.

Bush’s Coral Gables firm, Jeb Bush and Associates, agreed to pay back $270,000 to the bankruptcy court as part of a trustee’s efforts to “claw back” money owed to creditors and others in the Chapter 7 liquidation proceedings. Unlike other settlements in the case, Bush’s agreement included a “non-disparagement” clause that limits what the bankruptcy trustee can say about the former governor.

The InnoVida bankruptcy trustee’s lawyers, Mark Meland, Michael Budwick and Daniel Gonzalez, declined to comment for this story, citing the clause. Court records show they have assisted the trustee in recovering a total of $4.3 million from InnoVida payouts to 46 parties, including other board members, investors, credit card companies and Osorio’s lawyer.

Bush’s settlement fell roughly in the middle of the roster of recoveries. American Express cut a check for $740,000 after collecting more than $3 million in credit card payments from Osorio’s family account. Perez, CEO of the Related Group, paid back $70,000. That was a large chunk of the $100,000 that InnoVida paid him, which a spokeswoman said was a refund of Perez’s investment in the company.

Miami defense attorney Humberto Dominguez, who represented Osorio in his criminal prosecution, said the disgraced CEO presided over a legitimate business that was represented as being much more successful than it actually was because Osorio was “overzealous” with the books.

In negotiating a plea deal with Osorio, Dominguez said implicating a famous politician like Bush would have been tempting for any defendant looking for leverage with prosecutors. He said they pressed Osorio on Bush’s role.

Osorio “had every incentive in the world to serve him on a platter,” Dominguez said. “He didn’t. He said this guy didn’t know.”

Photo: Gage Skidmore via Flickr