Sunday, March 22, 2015

Justice Department Rolls Out an Early Form of Capital Controls in America

By Simon Black

Imagine going to the bank to withdraw some cash.

Having some cash on hand is always a prudent strategy, and especially today when more and more bank deposits are creeping into negative territory, meaning that you have to pay the banks for the privilege that they gamble with your money.

You tell the teller that you’d like to withdraw $5,000 from your account. She hesitates nervously and wants to know why.

You try to politely let her know that that’s none of the bank’s business as it’s your money.

The teller disappears for a few minutes, leaving you waiting.

When she returns she tells you that you can collect your money in a few days as they don’t have it on hand at the moment.

Slightly irritated because of the inconvenience, you head home.

But as you pull into your driveway later there’s an unexpected surprise waiting for you: two police officers would like to have a word with you about your intended withdrawal earlier…

If this sounds far-fetched, think again. Because it could very well become a reality in the Land of the Free if the Justice Department gets its way.

Earlier this week, a senior official from the Justice Department spoke to a group of bankers about the need for them to rat out their customers to the police.

What a lot of people don’t realize is that banks are already unpaid government spies.

Federal regulations in the Land of the Free REQUIRE banks to file ‘suspicious activity reports’ or SARs on their customers. And it’s not optional.

Banks have minimum quotas of SARs they need to fill out and submit to the federal government.

If they don’t file enough SARs, they can be fined. They can lose their banking charter. And yes, bank executives and directors can even be imprisoned for noncompliance.

This is the nature of the financial system in the Land of the Free.

And chances are, your banker has filled one out on you—they submitted 1.6 MILLION SARs in 2013 alone.

But now the Justice Department is saying that SARs aren’t enough.

Now, whenever banks suspect something ‘suspicious’ is going on, they want them to pick up the phone and call the cops:

“[W]e encourage those institutions to consider whether to take more action: specifically, to alert law enforcement authorities about the problem, who may be able to seize the funds, initiate an investigation, or take other proactive steps.”

So what exactly constitutes ‘suspicious activity’? Basically anything.

According to the handbook for the Federal Financial Institution Examination Council, banks are required to file a SAR with respect to:

“Transactions conducted or attempted by, at, or through the bank (or an affiliate) and aggregating $5,000 or more…”

It’s utterly obscene. According to the Justice Department, going to the bank and withdrawing $5,000 should potentially prompt a banker to rat you out to the police.

There’s something else about this that I want to point out, though: this may be a very early form of capital controls in the Land of the Free.

Simon Black is founder of The Sovereign Man.

1 comment:

  1. Why doesn't Justice look into this?

    SEC’s Andrew Bowden Regulatory Capture Scandal Hits the Major Leagues with Los Angeles Times Column

    It’s also great to see Hiltzik give Bill Black’s follow-up at New Economic Perspectives a link and a quote as well; both NC and NEP in essence put the “political” back into “political economy,” but by taking a systemic, rather than a partisan, perspective, and yet still (as with the Andrew Bowden) using story hooks. It may be too much to call these blogs — as well as many of the blogs on NC’s and NEP’s blogrolls — a school of thought, but certainly their general approach is different from “pure” economics blogs, but with no loss in rigor. So one can only hope that Hiltzik continues to keep this — dare I say — ecosystem of blogs on his reading list.

    Third, Hiltzik frames the Bowden affair in terms of Janet Yellen’s remarks on regulatory capture, as we saw above. Yellen’s picture is in the header of the article, after all, and:

    Yellen said the Fed is constantly on its guard against regulatory capture. She also attributed the financial crisis to breakdowns in regulation, some of which plainly fell into the category of “capture,” including “the expansion of a largely unregulated ‘shadow banking system’ rivaling the traditional banking sector in size and the failure of “checks and balances that were widely expected to prevent excessive risk-taking by large financial firms — regulatory oversight and market discipline.”

    So it will be interesting to find out if the SEC’s Mary Jo White agrees, or disagrees, with Janet Yellen on regulatory capture in the financial industry. One obvious way for White to signal her agreement would be for her to ask for Bowden’s resignation, as Black suggests.
    Fourth and finally, there’s an aspect to the Bowden scandal that Hiltzik does not address, and that I would like to reinforce.

    The form of capture we’re looking at here goes far beyond — and dangerously beyond — the Third World-ish story hook of a guy trying to get his son on the payroll (“That’s a deal”). What Yves colorfully calls “Kool-Aid,” Willem Buiter, in the classic paper (PDF) he delivered to the [lemon sucking-faced] Fed conference at Jackson Hole in 2008, called “cognitive regulatory capture”

    This socialisation into a partial and often highly distorted perception of reality is unhealthy and dangerous. It can be called cognitive regulatory capture (or cognitive state capture), because it is not achieved by special interests buying, blackmailing or bribing their way towards control of the legislature, the executive, the legislature or some important regulator or agency, like the Fed, but instead through those in charge of the relevant state entity internalising, as if by osmosis, the objectives, interests and perception of reality of the vested interest they are meant to regulate and supervise in the public interest.

    Things You Can Do

    Readers, here are a few things you can do, right now, to keep this story in the public eye.

    Second, you can write to the Dean of Stanford Law School, expressing your concern over events related to the conference that Stanford hosted on March 5, “Emerging Regulatory Issues in Private Equity, Venture Capital, & Capital Formation in Silicon Valley,” which you read about in the Los Angeles Times.

    You might mention that the video recording of the “Regulatory Issues” conference shows that the moderator, Joseph Grundfest, did not disclose his industry ties, and ask — and I’m genuinely asking here — whether his failure to disclose conforms to Stanford’s “Staff Policy on Conflict of Commitment and Interest.” (See especially 2(f) on “business relationships”; Grundfest is on private equity giant KKR’s board, and KKR has “a business relationship with the University,” having invested in Highwire Press, an “auxiliary unit of Stanford University libraries.”)