ethics

Financial conflict of interest on the federal bench and stock trading by presidents of regional Federal Reserve Banks. Alternate headline – Is there any group of powerful people who bother to follow the rules?

Image courtesy of Adobe Stock.

Major investigative effort by the Wall Street Journal revealed 131 federal judges who own stock in one of the firms appearing before them in 685 lawsuits.

The Journal found that about two thirds of all federal judges disclosed ownership in individual stock. Of those who made such disclosure about one fifth had a conflict of interest but did not recuse themselves.

For CPAs, this illustrates the importance of our independence rules, both independence in fact an independence in appearance.

What shall we call judges who were trading stock of litigants who were appearing in front of them? Perhaps a reasonable label would be integrity impaired fools. Even those judges who had a trivial investment and had a mere procedural motion in front of them have a serious appearance of conflict of interest and thus impaired integrity.

It would be wise for CPAs to read this story as a caution to keep a scrupulous eye on their own independence. The same lessons can be drawn by leaders of nonprofit organization.

The story doesn’t end with the federal judges, but we start there. More discussion in a moment about stock trading by presidents of two regional Federal Reserve Banks, who are the ultimate insiders.

Failures to recuse when federal judges have financial conflicts of interest

The investigative report may be found at the Wall Street Journal, published online 9/28/21:131 Federal Judges Broke the Law by Hearing Cases Where They Had a Financial Interest.

A 1974 federal law requires federal judges to monitor their investments, maintain personal awareness of those investments, and then recuse himself of any case in which they have a financial interest, no matter how small their interest may be.

In spite of a 40-year-old law and in spite of software that checks disclosed ownership against parties to the lawsuit, 12% of federal judges completely blew off the ethical obligation. That means one out of eight judges failed to recuse themselves when they had a financial interest in a case before them.

I’m wondering if there’s any group or category of people in this country who have significant power or influence who actually bother to follow the rules

More specific tallies from the article:

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Jim Ulvog

The problems with celebrity activism? Let’s start with unintended consequences.

Amongst the long list of challenges getting in the way of actually helping the people you want to help, two repeatedly jump out at me.

The first challenge is to avoid unintended consequences. Because humans are so complicated and react to changes around them, you will frequently find that taking one action has some unexpected consequence that undercuts the help you’re trying to provide.

Another challenge is finding out what the people you are helping might actually know about the issue. The people living with the struggle every single day might have some insight that could have helped you while you were in your office figuring out how to fix their problem.

Check out the following article on 7/12 by Georgia Cole, Ben Radley, & Jean-Benoit Falisse writing at Quartz – What’s missing from celebrity activism in Africa? The people.

My summary:  the article explores the long list of problems with celebrities picking a cause, choosing the one single perfect solution that will fix everything, and advocating for their personal preference of policy action.
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Jim Ulvog

What is your price?

(Cross-post from my other blog, Attestation Update.)

We know the price Mr. Scott London, former partner of KPMG,  is accused of setting for his integrity, honor, and reputation. The entrance price tag was several thousand dollars and added up to under $100,000.

Cumulative amount is allegedly $50,000 cash plus a watch with claimed value of $12,000 plus some concert tickets for his family, with asserted total around $70,000 or $90,000.

That total allegation isn’t the real measure of his price. The starting point was a few thousand dollars in the first deal. If the story outlined in the criminal indictment is correct, that is the point his integrity was sold.

An old joke about your price

There is an old joke with many variations that goes something like this:

Man to woman in a social setting: “would you sleep with me for a million dollars?”

She indicated she would be willing to do so.

Him: “How about for $20?”

With great indignation, she said “Of course not! What kind of woman do you think I am?”

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Jim Ulvog

HSBC is too big to indict for flagrant money laundering, so they get a heavy speeding ticket

HSBC has agreed to pay a fine of $1.9B (yes, billion) for their systemic violations of U.S. money laundering laws.

Tim Fernholz at Quartz calculates that “HSBC’s record $1.9 billion money-laundering fine is the bank equivalent of a stiff speeding ticket”.

The $1.9B is about 2% of their net income last year. He calculates that for an average New Yorker, that would be about $1,105. In N.Y., that’s the fine if you were going more than 31 mph above the speed limit on a third-time offense with previous points on your record.

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Jim Ulvog

“A bad quarter” versus “I could go to jail” – Is it time to indict a few bankers for money laundering?

Reuters reports “Exclusive: HSBC might pay $1.8 billion money laundering fine – sources”.  That’s up from the $1.5B they previously announced as a reserve.

The article reports of leaks that a settlement could include a deferred prosecution agreement with the huge fine.  It then discusses the difficulty prosecutors are having in deciding whether to pursue the fine, which may or may not change behavior, or to actually prosecute a few individual bankers.

Update:  WSJ reports 12-10-12 an imminent settlement could be for $1.95B, including a deferred prosecution agreement and admission of violating the bank secrecy act.

The pattern in recent years has been to negotiate a fine and impose a deferred prosecution agreement. Yet there seems to be repeat behavior. 

As an aside, DealBook has sources that say Standard Chartered to Pay $330 Million to Settle Iran Money Transfer Claims.  That would be to the feds and is in addition to the $340M they already agreed to pay New York State. If correct, that would be $670M for laundering $250B of Iranian money.

Is there an option other than indicting the bank, which would likely be a death sentence?

Is it time for individual prosecutions?

After the explosions of big financial scandals at the turn-of-the-century, I very clearly noticed the change in how such cases are prosecuted.

Previously, the low-level people in a criminal scheme or financial scandal could trade testimony against their bosses in return for walking away without prosecution. Those have been the rules for decades.

Not anymore.

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Jim Ulvog

Standard Chartered Bank admits laundering $250B, will pay $340M fine. By the way, looks like a repeat violation.

Standard Chartered signed a consent decree with the New York Department of Financial Services on September 21.  The signed agreement, which you can read here, acknowledges about $250 billion of wires in approximately 59,000 transactions were “repaired” with the intent of hiding whose money was involved. By way, there is a previous enforcement action that didn’t detect any problem, which tells me this is a repeat violation.

Current settlement

The Wall Street Journal report StanChart Formalizes Settlement in Iran Case describes the settlement. The line that caught my interest is:

Standard Chartered, which contested the allegations when they were filed last month, acknowledged misconduct tied to 59,000 transactions totaling about $250 billion.

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Jim Ulvog

How many stern warnings does a bank get before it winds up in real trouble?

Barclays settled with US regulators over its role in the fiasco about manipulating Libor. I’ve mentioned that mess in my other blog. As a part of that settlement, they signed a deferred prosecution agreement.

They were already on probation for an earlier deferred prosecution agreement for money laundering.

A Wall Street Journal article, Corporate Probation: Punishing or Punting? by Michael Rothfeld, gives the details (article behind paywall).

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Jim Ulvog

Money laundering settlements. Are fines from the U.S. just a cost of doing business?

My previous post described the settlement by Standard Chartered bank with the New York state Department of Financial Services for $340 million over allegations of money-laundering.

I also listed six other settlements I found in two Wall Street Journal articles here and here.

  • $567M – 12-09 – Lloyds TSB Bank
  • $536M – 12-09 – Credit Suise
  • $500M – 5-10 – Royal Bank of Scotland
  • $298M – 8-10 – Barclays
  • $619M – 6-12 – ING Bank
  • $340M – 8-12 – Standard Chartered – settlement with New York regulators
  • $700M announced reserve for settlement – HSBC Holdings PLC
  • $???M – Standard Chartered will have a separate settlement with US authorities

What is going on?

The cases leave me scratching my head wondering what’s going on in the big banks.

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Jim Ulvog

Standard Chartered settles money laundering case. The latest in a string of settlements.

The British bank has agreed to a $340 million penalty to settle allegations from New York state regulators that the bank was laundering money for their Iranian customers. The Wall Street Journal describes a settlement in their article Bank Settles Iran Money Case. This is one in a long string of settlements for money-laundering.

The accusation by the New York Department of Financial Services is that over the course of a decade the bank hid Iranian involvement for 60,000 wires totaling $250 billion.  The basic concept is the wires were withdrawn after initial submission and the identifying information removed from the transaction, then the instructions were resubmitted.

I touched on this in an earlier post.

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Jim Ulvog

Is cheating rampant in our culture?

Rich Karlgaard from Forbes thinks so. In his article, Recovery Drag: The Age of Cheats, he surveys the moral rot in sports, quickly touches on the rot in business and our political system and concludes we are in an Age of Cheats.

Is there something wrong in the sports world? Consider this:

Sosa was a former 165-pound rookie who weighed 220 pounds the year he banged out 66 homers, chasing McGwire’s 70.

A 55 pound bulk up?

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Jim Ulvog

Is there anything more to ethics than just avoiding criminal behavior?

Consider this ethics case study: 

You work at a company that processes low-level radioactive waste from hospitals. Everyone knows your company is in serious financial trouble. Your manager tells you to start dumping truckloads of unprocessed waste material on the school playgrounds in your community. Just one truckload per school per month– your boss says that’s not enough to make anyone sick. What is the ethical thing to do? Develop and explain a range of options, choose one, and defend your choice.

While melodramatic, that case study is only a slight exaggeration from the case studies I recall from my long-ago ethics class in grad school. If memory serves, we had one class that was half marketing and half business ethics. The case studies, as I recall, were primarily dramatic overstatements with a painfully obvious correct answer. Those that weren’t extremely obvious had several choices, all of which were it-feels-good options with minimal ethical distinctions.

Melodrama does not really teach ethics. Neither does mush.

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Jim Ulvog