Business as usual for the banks

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Crime wave in the City of London

Hardly a week goes by without some new revelation of fraud and corruption in the heart of the City of London: mis-selling payment protection insurance, laundering drug money, breaking sanctions on Iran, handing out bribes to Middle Eastern sheikhs – the list goes on. Profit increasingly takes a parasitic form: interest, currency exchange deals and the manipulation of financial assets. Fraud is an extension of these methods of securing a share of surplus value and is invaluable to the British ruling class. However, the City has rivals for its dominant position in world finance and the cry of ‘foul’ has gone up, with demands for penalties and regulation. ‘A sword of Damocles is hanging over London,’ said one senior City figure quoted in the Financial Times (30 July 2012). Whatever the revelations and accompanying shows of remorse we can be sure that the City’s and the government’s priority is to remove that sword and keep the profits flowing in. Trevor Rayne reports.

The City has used its so-called ‘light-touch’ regulatory regime to attract more international banks to London than any other city in the world. Loopholes in regulations were carefully designed to be identified by lawyers and exploited to attract money to London. The US and Europe lost out and want business back. The US was central to revealing Barclay’s Libor dealings (see ‘Something rotten in the heart of the City’, FRFI 228 August/September 2012). The European Parliament intends to cap bonuses at a ratio of one to one with salaries. If implemented, this would drive bankers and dealers out of the City.

Under capitalism the pursuit of profit makes a mockery of morality and justice. The world’s biggest international commodity markets are in oil (over $450bn a year), arms (the top 100 companies sold $315bn worth in 2007) and illegal drugs (the United Nations Office of Drugs and Crime estimates the illegal drug trade to be worth $380bn a year; the Home Office estimates the illegal drug trade in Britain at between £4-6bn a year). Antonio Maria Costa, former head of the UN Office of Drugs and Crime, said the four pillars of the international banking system are: drug-money laundering, sanctions busting, tax evasion and arms trafficking (The Observer 22 July 2012). British banks play pivotal roles in each and must do so in order to make profits.

Barclays – a return to values

Having been fined £290m for fixing its Libor rate, Barclays is trying to clean up its image. It will scale back its ‘structural capital markets’ (tax avoidance advice) and reduce sales of interest rate hedging contracts, which have ‘generated negative media and political attention’, said the appropriately named head of Barclay’s corporate and investment banking, Rich Ricci. Ethical behaviour would, from now on, be a priority; all activities henceforth would be ‘screened for reputational impact’ ... as well as profitability. In August Sir David Walker, a former Treasury official, was brought in as chair and the head of Barclay’s retail banking, Antony Jenkins, was made chief executive, replacing Bob Diamond. Sir David, we were assured, would work no fewer than four days a week for his £750,000 annual salary. A return to steady and sober banking is the intended message.

Barclays now faces Financial Services Authority and Serious Fraud Office investigations into commissions paid to Qatar, Abu Dhabi and Sumitomo Mitsui Banking Corporation in 2008 to secure £11.6bn. This money allowed Barclays to avoid turning to the British government for funds as Lloyds and the Royal Bank of Scotland (RBS) had to. Barclays paid £300m on fees and expenses to get the money. Among the recipients was Sheikh Mansour of Abu Dhabi, owner of Manchester City Football Club. Other shareholders did not get such sweeteners and are annoyed.

As for Barclays’ ethics, it has made over £500m in two years by speculating on food commodities. Barclays, Goldman Sachs and Morgan Stanley are the three biggest players in food speculation. Bob Diamond led the way for Barclays entering this market (The Independent 1 September 2009). World food prices reached a record high in July 2012 following poor harvests in the US and Russia. World wheat prices are up 30% since the start of June. One banker described the world food crisis and rising prices as a ‘good’ business opportunity. Some £126bn has been gambled on agricultural commodities since 2000. Barclays gathers funds from pension funds, insurance companies, wealthy individuals etc, to speculate on commodity prices and then collects fees and commissions in return. Bob Diamond and Barclays pocket the commissions and the poor of the world go hungry and starve.

Barclays declined to say how much money it has made from food speculation. Its profits for the first half of 2012 were up 13% to £4.23bn. US Presidential candidate Mitt Romney includes Barclays among his top seven campaign contributors in 2012.

HSBC – going back to its roots

HSBC was accused by the US Senate’s Homeland Security sub-committee of aiding Mexican drug gangs between 2004 and 2010, and doing business with Iran, Al Qaeda and Myanmar (Burma). HSBC chief executive Stuart Gulliver, salary nearly £8m in 2011, said he was very sorry for the ‘shameful’ and ‘embarrassing’ failures to prevent money laundering by Europe’s biggest bank. HSBC removed details from transactions that would have revealed Iranian businesses, in defiance of US laws. The bank has set aside $700m for potential fines in the US and another $1.3bn for mis-selling financial products in Britain.

Only about 1.5% of the $35bn a year US cocaine trade accrues to the coca leaf producer countries. 85% of the proceeds are deposited in the US; a similar proportion exists for Europe’s cocaine trade. HSBC recycled money from Mexico to accounts in the US, thereby concealing its illegal origins. HSBC – the Hong Kong and Shanghai Banking Company – was founded in the two cities in 1865, using proceeds of the opium trade secured by two opium wars waged by Britain to force China to consume opium (1839-42 and 1856-60). The bank financed trade between Europe and China, including opium. HSBC’s profits for the first half of 2012 were up 11% to $12.7bn.

Standard Chartered

In early August the US accused Standard Chartered bank of 60,000 illegal transactions with Iran between 2001 and 2010 worth $250bn. Standard Chartered said that just $14m was involved. The New York Department of Financial Services demanded a fine of $500m. Standard Chartered has agreed to pay $340m after it was threatened with having its US banking licence withdrawn. One Standard Chartered director is reported as having told a colleague, ‘You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?’ (Financial Times 7 August 2008). The bank is accused of similar breaches of US law with Libya, Sudan and Burma. Expect the language across the Atlantic to remain heated: further fines are anticipated.

RBS

The Royal Bank of Scotland is now 82% owned by the British government. The British government is negotiating with the US Department of Justice and Commodity Futures Trading Commission to pay a fine of between £200-300m for manipulating the Libor rate. RBS has sacked four traders in this connection. RBS is also being investigated by the US Federal Reserve and Department of Justice for illegal dollar trading with Iran. Any fines will be paid by British taxpayers.

Lloyds

Lloyds chief executive Antonio Horta-Osorio declined a £2.4m bonus in 2011 and made do with his £1m a year salary. He said of the aftermath of the Barclay’s Libor scandal, ‘London should take this opportunity to clean things up...the appropriate values need to be in the banks. And regulators need to be more assertive.’ Lloyds has recently been referred to the Financial Services Authority for ‘serious failings’ in the way it paid staff commissions. Banks were giving staff bonuses worth 100% of salary for the sale of loans and payment protection insurance (PPI). The result was millions of customers buying products they neither understood nor needed. For mis-selling PPI, Lloyds has put aside £4.3bn to cover customers’ claims, Barclays £1.3bn, HSBC £1bn and Santander £0.7bn. Lloyds is also government owned and taxpayers will pay the bill.

The enthusiasm and ingenuity with which the banks have sought to make profits necessarily merges with crime, as it always has done. Employment in London’s finance and insurance business has risen from 340,000 in 2009 to 380,000 today. A sword of Damocles hangs over these jobs. The fight between centres of imperialist finance will intensify and become more and more open.

Fight Racism! Fight Imperialism! 229 October/November 2012