Author Archives: Lily Fleur

Embezzled Egyptian Funds

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The amendment to Egypt’s Law on Illicit Earnings allows for amicable settlement between the government and the public figures who embezzled public funds. Some see this law as an attempt to recover embezzled funds and introduce a hard currency, which the country’s declining economy needs. Others consider the law a legalization of corruption and a loss to state authority.

Egypt’s judiciary will consider a new reform to allow for amicable settlement between the government and those accused of embezzlement, bringing in recovered funds but also possibly legalizing corruption.
One article states that the accused, who is under the [jurisdiction of the] Illicit Gains Authority, can at any moment reach a settlement with this authority by returning the illicitly gained funds. As a result of the settlement, investigations are stopped and the penal proceedings for the accused are halted, but he is obliged to pay the expenses of the lawsuit and the judges’ fees.”

Saad noted that the new law includes added categories, such as members of the judiciary and its six committees and members of the police force.   Saad said the new law stipulated the complete independence of the Illicit Gains Authority by transferring its subordination from the executive authority, represented by the Minister of Justice, to the Supreme Judicial Council, in addition to allocating a budget for the authority to spend on cases. The law also stated the right of this authority to manage suspicious funds or companies by assigning a financial comptroller to maintain and monitor them. The comptroller would also open a special account for the profits of these funds.

Meanwhile, Ahmad Refaat, former dean of the faculty of law at the University of Cairo, said that he supported the amicable settlement system and that it was applicable in Egypt to cases related to customs smuggling, tax evasion and currency exchange in unofficial rates.

Money has been smuggled abroad, but its destination, route and amount remain unknown. Some states such as Switzerland announced that they froze the acoounts of  Mubarak and some of his men. This move benefits the banks and states where the money is frozen because they do not pay interest on frozen funds, and at the same time, they do not disclose the amount of funds nor do they return them — except if a final judicial decision is issued that pinpoints the smuggled funds and proves they are corrupt with irrefutable evidence. Yet, all of this data is unclear given Egypt’s status quo.

When the committees visited the states, like Switzerland, that had declared freezing the accounts of Mubarak and some of his men, their banks refused to disclose any information about these accounts, because they are bound by the principle of secrecy. An amicable settlement should be applied to funds that were smuggled during Mubarak’s rule, provided that the state’s monitoring institutions play their role in the new phase and close the loopholes that allow leeway for the corrupt.

Mubarak's Embezzlement
 

More Deposits, More Loans? Not Necessarily

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Matthew Plosner, an economist with the New York Federal Reserve, asks why banks keep unexpected deposit money instead of paying down debt or lending it.

For banks in energy-producing areas, there are three major uses of the deposit windfall: they can make more loans, invest in liquid assets, and pay down debt. If loan demand falls, all else being equal, other uses of funds should increase. Therefore, I should see both increased allocations to liquid assets and increased paydown of debt. In the pre-recessionary period, 2003-07, 9 percent of the deposit inflow is allocated to debt paydown. However, when loan allocations fell during the recession, banksreduced debt paydown and increased liquid asset allocations. The pattern of activity is not consistent with the falling loan demand narrative.

Finally, if the cause is a shortage of demand for loans, larger banks with a wider footprint should be better able to find uses for funds. A test to see if banks operating in more counties exhibit a stronger lending propensity during this period does not detect a meaningful difference; banks with more than one branch lend slightly more, but the difference is small and not statistically significant.

The development of unconventional energy provides a unique laboratory to observe how banks allocate unsolicited deposits. The ability of affected banks to allocate deposits toward loans varied significantly over the business cycle. While loan demand may have declined in the crisis, it does not easily explain why banks reduced both debt paydown and lending in order to hold cash and securities. When I compare different types of banks, I observe banks that lack access to non-deposit financing and banks with less tolerance for risk are more sensitive to the business cycle, consistent with a heightened demand for precautionary liquidity. The results highlight heterogeneity in banks’ response to the business cycle that can impede capital reallocation during downturns.

Bank Deposits

 

Post Brisbane Black and Blues

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Ellen Brown writes:  Did the G20 know what they were doing when they whisked into Brisbane, posed for their photo ops, approved some proposals, made a show of roundly disapproving of Russian President Vladimir Putin, and whisked out again. It was all so fast, they may not have known what they were endorsing when they rubber-stamped the Financial Stability Board’s “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” which completely changes the rules of banking.

Deposits are now “just part of commercial banks’ capital structure.” That means they can be “bailed in” or confiscated to save the megabanks from derivative bets gone wrong.

Rather than reining in the massive and risky derivatives casino, the new rules prioritize the payment of banks’ derivatives obligations to each other, ahead of everyone else. That includes not only depositors, public and private, but the pension funds that are the target market for the latest bail-in play, called “bail-inable” bonds.

“Bail in” has been sold as avoiding future government bailouts and eliminating too big to fail (TBTF). But it actually institutionalizes TBTF, since the big banks are kept in business by expropriating the funds of their creditors.

It is a neat solution for bankers and politicians, who don’t want to have to deal with another messy banking crisis and are happy to see it disposed of by statute. But a bail-in could have worse consequences than a bailout for the public. If your taxes go up, you will probably still be able to pay the bills. If your bank account or pension gets wiped out, you could wind up in the street or sharing food with your pets.

In theory, US deposits under $250,000 are protected by federal deposit insurance; but deposit insurance funds in both the US and Europe are woefully underfunded, particularly when derivative claims are factored in.

Kept inviolate and untouched in all this are the banks’ liabilities on their derivative bets, which represent by far the largest exposure of TBTF banks.  tt is estimated that American banks have some $280 trillion in derivatives on their books.

All this fancy footwork is to prevent a run on the TBTF banks, in order to keep their derivatives casino going with our money. Warren Buffett called derivatives “weapons of financial mass destruction,” and many commentators warn that they are a time bomb waiting to explode.  When that happens, our deposits, our pensions, and our public investment funds will all be subject to confiscation in a “bail in.”

Post Brisbane Black and Blues

Ruble in Free Fall

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Prostitutes in the Russian port of Murmansk hiked their prices 40% as the value fo the ruble fell.  The ruble fell to 54.82 against the dollar and 67.82 to the euro before somewhat recovering.
The rouble has lost more than a third of its value against the dollar and euro since the start of the year.Western sanctions against Russia over Ukraine and the fall in oil prices are hurting the economy.

A decision by the oil producers’ group Opec not to rein in production – which would have bolstered crude prices – sparked a big fall in the rouble. The currency dropped by 9% on Monday – its biggest one-day decline since 1998.

Oil and gas revenues are the biggest single source of revenue for Moscow.

On Monday, Russia’s central bank spent about $700m to support the currency, according to official data.

There were unconfirmed reports on Wednesday that the bank was again intervening to prop up the ruble.

The bank indicated in early November that interventions would be less frequent as part of a plan to let it float freely on the currency markets.

Russian Call Girls Raising Prices

Turkey and Russia Dance

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Moscow and Ankara do not really see eye to eye on politics, but despite that have big economic potential, with Turkey considering itself an in-between partner who would take gas from Russia to Europe writes Martin McCauley of the University of London,

From the political point of view Russia and Turkey are poles apart, but from the economic point of view the gas deal and the atomic power plant that is going to be built – that has been on the cards for quite a long time.  Turkey would like the gas pipeline to go through their country because then they collect the rent from it. And also Turkey would like to pipe natural gas from Iran through Turkey to the West. That is blocked by sanctions at present. So Turkey sees itself as the in-between partner who will take gas from Iran and Russia to Europe.

Europeans are softening on sanctions toward Russia. Sanctions are hitting German companies particularly hard. Russia needs thier gas to bring a hundred dollars a barrell.  For whatever reason, Saudi Arabia is not cutting production to get the price up.  TURKEY AND RUSSIA

Turkey and Russia Dance

Turkey To and Fro on EU

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Recent developments  show that Turkey is poised to continue regressing in terms of EU standards. New security legislation, for example, that the government is preparing to introduce is considered to be draconian and highly restrictive in terms of individual rights.

Prime Minister Ahmet Davutoglu claims that the proposed legislation complies with EU standards, but critics in Turkey and Europe reject this and say it will not only set Turkey’s reform process back, but will also harm Ankara’s ties with the EU.

Another potential problem is Erdogan’s desire to turn Turkey into a presidential system. General elections planned for June are critical in this respect. The Justice and Development Party (AKP) wants results that will enable the party to alter the constitution on its own and enable Erdogan to become an executive president who is unencumbered by checks and balances.

Erdogan’s commitment to the political criteria necessary for EU membership is already under question.  Many recall his asking Russian Presiden Pitin in November 2013 to admit Turkey to the Shanghai Cooperation Organization to save it from the slow and painful EU accession process.

On the European side of the equation, key EU members, most notably France and Germany, have been less than welcoming as far as Ankara’s membership bid is concerned, arguing that Turkey is not a European country and should therefore not be given full membership.

France has even blocked chapters of Ankara’s membership negotiations that pertain to full membership. Meanwhile, Cyprus, as a veto-wielding EU member, continues to block key chapters in Turkey’s membership talks in an effort to try and solve the Cyprus problem according to its national interests.

Turkish opponents of EU membership use these developments to argue that Ankara should ditch the EU and look elsewhere for strategic partners. Erdogan’s remarks about the Shanghai Cooperation Organization also emboldened them in this regard. Looked at superficially, such views appear justified.

Some influential Turkish voices, however, starting with former President Abdullah Gul, sense a red herring here. Gul has always supported the view that the EU perspective is important, as it is a positive force for reforms in Turkey.

Influential voices in Europe underline Turkey’s vital importance for Europe and continue to canvas for Ankara’s membership bid.

The EU Commission’s 2014 Progress Report also stressed Turkey’s vital strategic location in terms of developments in the Black Sea region and the Middle East, and recommended deepening the cooperation between Ankara and the EU in a host of areas of concern to both sides.

Historically speaking, Turkey’s bid for EU membership has been looked on with suspicion and derision in the Middle East, the prevalent belief being that this is the clearest indication that Ankara has turned its back on its Islamic heritage.

But, with the Arab Spring having gone seriously wrong, the example of a secular and democratic Turkey with an EU perspective is expected by many analysts to gain importance in the region again. This will, however, require a Turkey that returns to the path of reforms, rather than giving the appearance of drifting away from the EU.

Put another way, Ankara will have to overcome the impression in Europe that it is part of the mess in the Middle East, as Italy’s Deputy Foreign Minister said during the conference organized by TUSIAD and the Brookings Institution.

Turkey and the EU

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Expensive Ghost Soldiers in Iraq

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The Iraqi army has been paying salaries to at least 50,000 soldiers who don’t exist, Iraqi Prime Minister Haider al-Abadi said Sunday, an indication of the level of corruption that permeates an institution that the United States has spent billions equipping and arming.

A preliminary investigation into “ghost soldiers” — whose salaries are being drawn but who are not in military service — revealed the tens of thousands of false names on Defense Ministry rolls, Abadi told parliament Sunday. Follow-up investigations are expected to uncover “more and more,” he added.

Abadi, who took power in September, is under pressure to stamp out the graft that flourished in the armed forces under his predecessor, Nouri al-Maliki. Widespread corruption has been blamed for contributing to the collapse of four of the army’s 14 divisions in June in the face of an offensive by Islamic State extremists.

With entry-level soldiers in Iraq drawing salaries of about $600 a month, the practice of “ghost soldiers” is likely to be costing Iraq at least $380 million a year — though officials say that’s probably only a fraction of the true expense.

The corrupt practice is often perpetrated by officers who pretend to have more soldiers on their books in order to pocket their salaries, experts say.

Abadi’s announcement was met with applause in parliament. He said that the perpetrators would be tracked down eventually but that his priority is to end the practice as soon as possible.

“The problems are wide, and it’s an extremely difficult task which is going to involve some strong will,” said Iraqi security analyst Saeed al-Jayashi. “Training is weak and unprofessional.”

The United States is focusing its efforts on three divisions in order to begin effective counteroffensive operations against the Islamic State, which controls around a third of the country’s territory.

Ghost Soldiers

Tanzanian Prime Minister Implicated in Fraud

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Tanzanian politicians are calling for the resignation of the prime minister, Mizengo Pinda, after a government report implicated him in an energy scandal that resulted in the plunder of more than $120m (£76.5m) from the country’s central bank.

In a dramatic parliamentary session on Wednesday that was disrupted by power outages, Tanzania’s public accounts committee (PAC) revealed that senior officials authorised fraudulent payments to offshore bank accounts under the guise of energy contracts. The state-owned energy provider Tanesco, along with five senior politicians – including the minister for energy and the attorney general – are implicated in the scandal, the PAC said.

Investigators said that Tanesco formed a joint escrow (holding) account in 2006, known as the Tegeta account, with Independent Power Tanzania Limited (IPTL), which is owned by Pan Africa Power (PAP). Funds from this account were transferred to offshore bank accounts held by private businessmen and government officials, the committee said.

Tanzania’s Revenue Authority (TRA) has called for Interpol to investigate the role of Harbinder Singh Sethi, a businessman suspected of organising fraudulent payments, as well as James Rugemalira, who is suspected of siphoning off funds through his stake in IPTL.

Tanzania Energy Scandal

Muslim Interest in Banking

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The Federal Reserve Bank of Richmond comments:  Most Americans don’t have to think about whether basic banking services are available. If anything, it feels like the choices in savings accounts, auto loans, mortgages, and investment vehicles are overwhelming. Not so for a certain segment of the U.S. population. There were roughly 2.8 million Muslims in the United States as of 2010, according to the Pew Research Center’s Religion and Public Life Project, though estimates vary (see map). The most recent study published by the Association of Statisticians of American Religious Bodies estimates that Islam was the fastest-growing religion in the United States between 2000 and 2010.  Muslim Banking in the US

Islamic finance is rooted in the principle that investments should create social value and not merely wealth. The Quran, the 1,400-year-old text that governs followers of Islam, prohibits riba, the charging or receiving of monetary benefit from lending money, interpreted in modern terms as a prohibition against interest. Islamic finance also prohibits excess risk or uncertainty (gharar), gambling (maysir), and sinful activities (haram). Transactions generally must be tied to real, tangible assets.

Muslim Banking