Kaspersky Labs report on the billion dollarbank  heist by hackers:  The story of Carbanak began when a bank from Ukraine asked us to help with a forensic investigation. Money was being mysteriously stolen from ATMs. Our initial thoughts tended towards the Tyupkin malware. However, upon investigating the hard disk of the ATM system we couldn’t find anything except a rather odd VPN configuration (the netmask was set to 172.0.0.0).

At this time we regarded it as just another malware attack. Little did we know then that a few months later one of our colleagues would receive a call  in the middle of the night. On the phone was an account manager, asking us to call a certain number as matter of urgency. The person at the end of the line was the CSO of a Russian bank. One of their systems was alerting that data was being sent from their Domain Controller to the People’s Republic of China.

Up to 100 financial instritutions have been hit.

When we arrived on site we were quickly able to find the malware on the system. We wrote a batch script that removed the malware from an infected PC, and ran this script on all the computers at the bank. This was done multiple times until we were sure that all the machines were clean. Of course, samples were saved and through them we encountered the Carbanak malware for the first time.Further forensic analysis took us to the point of initial infection: a spear phishing e-mail with a CPL attachment; although in other cases Word documents exploiting known vulnerabilities were used. After executing the shellcode, a backdoor based on Carberp, is installed on the system. This backdoor is what we know today as Carbanak. It is designed for espionage, data exfiltration and remote control.

Once the attackers are inside the victim´s network, they perform a manual reconnaissance, trying to compromise relevant computers (such as those of administrators’) and use lateral movement tools. In short, having gained access, they will jump through the network until they find their point of interest. What this point of interest is, varies according to the attack. What they all have in common, however, is that from this point it is possible to extract money from the infected entity.

The gang behind Carbanak does not necessarily have prior knowledge of the inner workings of each bank targeted, since these vary per organisation. So in order to understand how a particular bank operates, infected computers were used to record videos that were then sent to the Command and Control servers. Even though the quality of the videos was relatively poor, they were still good enough for the attackers, armed also with the keylogged data for that particular machine to understand what the victim was doing. This provided them with the knowledge they needed to cash out the money.

During our investigation we found several ways of cashing out:

ATMs were instructed remotely to dispense cash without any interaction with the ATM itself, with the cash then collected by mules; the SWIFT network was used to transfer money out of the organisation and into criminals’ accounts; and databases with account information were altered so that fake accounts could be created with a relatively high balance, with mule services being used to collect the money.

Since we started investigating this campaign we have worked very closely with the law enforcement agencies (LEAs) tracking the Carbanak group. As a result of this cooperation we know that up to 100 financial institutions have been hit. In at least half of the cases the criminals were able to extract money from the infected institution. Losses per bank range from $2.5 million to approximately $10 million. However, according to information provided by LEAs and the victims themselves, total financial losses could be as a high as $1 billion, making this by far the most successful criminal cyber campaign we have ever seen.

Our investigation began in Ukraine and then moved to Moscow, with most of the victims located in Eastern Europe. However thanks to KSN data and data obtained from the Command and Control servers, we know that Carbanak also targets entities in the USA, Germany and China. Now the group is expanding its operations to new areas. These include Malaysia, Nepal, Kuwait and several regions in Africa, among others.

The group is still active, and we urge all financial organizations to carefully scan their networks for the presence of Carbanak. If detected, report the intrusion to law enforcement immediately

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Geithner and David Axelrod, Obama’s Senior advisor, tell the following story:

“Axelrod was ‘livid’ when he found out that Geithner and [Larry] Summers ‘had quietly lobbied’ against an amendment to the stimulus that would have restricted the payment of bonuses at firms that received bailout funds. Those bonuses had become a huge political sore point for the administration, but the finance guys argued that retroactive steps to claw back the money would have violated existing contracts.

‘This would be the end of capitalism as we know it’ Geithner told Axelrod, to which Axelrod says he responded: ‘I hate to break the news, Mr. Secretary, but capitalism isn’t trading very high right now.'”

William K. Black writes:  Anyone that wants to save “capitalism” must destroy the current corrupt system “we know” that is posing as “capitalism.” To sum it up, there was no greater service that the Obama administration could have done for (real) capitalism than to produce “the end of capitalism as we know it.” Geithner was absolutely right in his diagnosis and absolutely wrong in his response. Wall Street hates “capitalism” – Geithner and Summers acted to save, rather than exorcize, its corrupt doppelgänger.

Geithner and Summers were so wedded to serving the interests of Wall Street – and crony capitalism – that they secretly sabotaged the efforts of progressives (supported in this unusual case by President Obama) to enact a legislative reform of compensation that was (1) legal, (2) economically efficient, (3) essential to restore “capitalism,” (4) essential to justice, and (5) politically popular. Obama discovered that he, and more importantly the American people, had been betrayed by Summers and Geithner – and did nothing. His administration died that day when he failed the most elemental test of leadership and integrity.   We are still struggling with the results.

An international hacking ring that’s been active since at least the end of 2013 has stolen up to $1 billion from banks around the world, according to a cybersecurity firm report. The group has breached more than 100 banks in 30 countries through methods including programming ATMs to release money at certain times and transferring money to fake accounts, according to Russian security company Kaspersky Lab. The hackers become familiar with banks’ systems through phishing, taking screen shots as well as filming employees using work computers, the report said. The theft targets banks instead of customers, which means the hackers are focused on stealing money rather than information, according to Kaspersky principal security researcher Vicente Diaz. Financial institutions in the U.S., Russia, Germany, China and Ukraine have been targeted, but the hackers may be casting a bigger net to include banks in Africa and Europe.

February 15  Barry EIchengren and Beatrice Weder di Mauro write:  In the United States, the “Audit the Fed” movement is back. Motivated by growth in the Federal Reserve’s assets and liabilities, Republicans are introducing bills in both chambers of Congress to require the Fed to reveal more information about its monetary and financial operations.

But should central banks really worry so much about balance-sheet profits and losses? The answer, to put it bluntly, is no.  To be sure, central bankers, like other bankers, do not like losses. But central banks are not like other banks. They are not profit-oriented businesses. Rather, they are agencies for pursuing the public good. Their first responsibility is hitting their inflation target. Their second responsibility is to help close the output gap. Their third responsibility is to ensure financial stability. Balance-sheet considerations rank, at best, a distant fourth on the list of worthy monetary-policy goals.

(Our question: Do most Americans know that the Central Bank bought billions of dollars of sub-prime assets.  Sub=prime assets, based on inappropriate lending, brought the US economy down.  Auto loans are now being bundled the same way.  Will the Fed “have” to buy these?)

Robert Litan writes on February 14:  The Fed’s financial statements have long been audited by professionals.  Sen. Paul’ and those supporting his “audit” bill want the Government Accountability Office to give Congress annual reports on monetary policy functions of the Fed, or its core responsibilities.

Note:  In 2010, the largest asset on the Federal reserve’s balance sheet at over one trillion dollars in face value.  These were the securities that brought the economy down. Who knew the Fed bought them?

February 10, 2015  Pete Schroeder reports: “One of President Obama’s top economic advisers said Tuesday he opposed ‘dangerous’ legislation that would give lawmakers closer scrutiny over Federal Reserve deliberations. Jason Furman, chairman of Obama’s Council of Economic Advisers, called pending legislation subjecting monetary policy deliberations to outside review ‘somewhere between superfluous and highly counterproductive.’

“He added that he would encourage President Obama to oppose the bill if it reached his desk. That opposition could be noteworthy, as previous efforts have stalled in a Democrat-led Senate, which is now in GOP control. Furman argued that the bill, presented by its proponents as a needed check on the central bank, would effectively allow lawmakers critical of the Fed to second-guess its moves.

“‘What that bill is about is about Congress supplanting its judgment as to what monetary policy should be,’ he said in an interview with Bloomberg TV. ‘Congress shouldn’t be telling the Fed what to do with monetary policy.'”

February 2, 2015  The Wall Street Journal says: “The Fed sees GAO reviews of its monetary policy decisions as a congressional intrusion into its independent decision-making. Former Fed Chairman Ben Bernanke strongly and successfully resisted ‘Audit the Fed’ proposals and Chairwoman Janet Yellen is sure to do the same. In a December news conference, Ms. Yellen said she would be ‘very concerned’ about such a bill and would ‘forcefully make the case’ against it.

“The Fed demonstrated its savvy in dealing with Congress during Dodd-Frank debates in 2010. Efforts to impose congressional inspections of monetary policy and to reduce the Fed’s bank regulatory powers failed. It emerged from those debates in most respects with more power than it had before.

“Ms. Yellen will have President Obama on her side again if the bill gets new life. She will also have the central bank’s 12 regional bank presidents, an influential but little seen force in Congress with strong connections in the deep-pocketed business and banking communities around the country. It remains hard to see the Fed losing this battle.

January 29, 2015:  While some criticize Rand Paul effort to get the US Fed audited, we do not think an audit will effect its independence, the big objection.

In fact, the Fed’s stated purpose is: 1.  Conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.  2.  Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers.  3. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.
4.  Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation’s payments systems.

In fact, the US Fed has become the big banker to banking institutions.  One of the reasons that the general US population did not benefit from policiies instituted as the Great recession began was that this was not the Fed’s purpose.  The purpose was to save certain select financial institutions, to keep insolvent institutions in business.

What happened in 2007 was not a traditional panic, where flooding the economy with cash would help stabliize matters.  In fact, the panic began when financial institutions created runs on other financial institutions.  This is a complex issue and it has been poorly reported. Instead of increasing the monetary base, the Fed spent its time bailing out Bear Sterns, who had formed EMC, a company that issued mortgages to people with no income and no assets (NINA) so that Bear could bundle and securitzie the mortgages to sell through two hedge funds they had formed and also to other finanicial institutions.  Aurthorized by the Fed, Bear Sterns was directly bailed out by the New York Fed which created Maiden Lane.  And so on.

The US Fed is running wild.  It was become obvious that bankers are smarter than politicians.  Bankers wind Obama around their pinkies. But they also captivated Bill Clinton who is pretty smart about economics and bankers are heavily financing his wife’s Preisdential campagin.

Let’s see the audit.  American taxpayer’s money was loaned by the US Treasury to the Fed to swap currencies with foreign countries.  This is the people’s business.

 Herve Falciani has revealed that far from this week being the end of the story, there is still plenty of information that is likely to come out about HSBC.  One million new bits of data, to be precise. He says work will start soon on analysing the information.

And that a major oil company could be next to feel the effects of a major data leak about how it operates.

Mr Falciani is the man behind the largest data leak in banking history – and after days of revelations about HSBC and tax evasion by its wealthy customers between 2005 and 2007, he now says he feels vindicated.

HSBC has said it has reformed how its private bank operates and that there are now far fewer clients and much stricter controls.

Anyone involved in the allegations of tax evasion have left the bank, sources tell me.

But Mr Falciani says that HSBC should still be prosecuted for past failings.  He called on European, Asian and American law enforcement agencies to work together to tackle bank corruption.

Whistleblowers should also be given more protection so they can reveal what they know.

Critics say he stole the HSBC data when he worked at the bank and originally hawked the information around for money.  “It is wrong,” he said. “They try to kill your reputation, like the mafia. It is already starting to be proved to be wrong.

“I never asked for payment and I will have time to prove that.”

Mr Falciani says that the last seven years have been endured at some considerable personal cost.

Whistleblowers have to be ready for a long fight. “It proves how difficult it is and how tricky you have to be,” he said. “It took many more years than I expected. It’s a huge journey.”

Matt Taibbi writes:  Three years ago, then-U.S. Attorney of the Eastern District of New York Loretta Lynch crafted a soft-touch deferred proscution deal for Europe’s largest bank, HSBC, which had only been caught in the largest drug-money-laundering case in history.

Today, as Lynch awaits approval for the Attorney General job, HSBC is in the news again. This time, the global mega-bank is being exposed in a massive scheme to help wealthy clients avoid taxes.

This story traces back to a leak of files apparently stolen by a former HSBC IT employee named Herve Falciani in Switzerland in 2007.

Taken out of Switzerland, the files were then shared with authorities in France, Spain, the United States and Britain. The monster cache of info about wealthy tax avoiders came to be referred to as the “Lagarde List,” after Christine Lagarde, who was the French Finance minister at the time the information first began to be circulated.

What HSBC’s Swiss unit was doing went far beyond passive bank secrecy. The bank was actively helping its wealthiest clients avoid paying taxes in their home countries, sometimes using highly creative methods – a sort of criminal advice service, if you will.

Countless similar examples are appearing the in the press. The numbers being thrown out are incredible. The Swiss arm of the bank at its height apparently hid as much as $120 billion.

This HSBC story is an incredibly explosive one when one takes into account the recent regulatory history of this company.

Both cases involved historically enormous schemes to profit from illegal banking activities.

In the money-laundering case, HSBC paid a $1.9 billion fine – about five weeks of profit – for its role in an amazing scandal in which the bank admitted laundering up to $850 million for a pair of Central and South America drug cartels, including the infamous Sinaloa gang.

In neither case did the penalties do much to dent the bank’s bottom line.

Everything being reported in the last few days (including a 60 Minutes report and a “Panorama” documentary) indicates the United States knew about an apparent systematic tax evasion scheme as far back as 2010.

This raises a huge question about the deal Lynch’s office gave to HSBC back in 2012.

What does a bank have to do to get shut down by regulators in this day and age? Be small?

Regulators are beefing up investigations pertaining to foreign exchange (forex) misconduct committed by several global banks. Recently, two global banking giants – UBS Group AG (UBS) and Barclays PLC (BCS – Analyst Report) have come under further scrutiny of the US Department of Justice (DOJ).

The DOJ is investigating whether the Swiss banking giant UBS and UK-based Barclays sold forex structured products concealing the profit the banks were deriving from currency trades which were used to generate the products’ returns.

In the banks’ products in question, while trading, an investor sells in a low-yielding currency and purchases in a higher yielding currency. Notably, UBS’ product – UBS V10 Enhanced FX Carry Strategy – allows investors to shift their positions in a volatile currency market. The DOJ is scrutinizing whether UBS derived profits from switching positions, and whether the company revealed profits to its clients.

‘Optimised currency carry strategy’ is a similar product offered by Barclays that has been targeted by the DOJ.

DOJ’s enquiry includes several other banks that are suspected to have misrepresented pricing for the currency transactions and this substantially expands its investigation into the forex market manipulation.

Global authorities are investigating in the $5.3 trillion-a-day forex market as traders at several banks are believed to have conspired jointly and misused information about client orders, which led to the price manipulation. Also, the metal business of a number of banks has come under the regulatory scrutiny in recent times.

Notably in Nov 2014, UBS along with four other major global banks – Citigroup Inc.,  HSBC Holdings plc, Bank of America Corp.and JPMorgan Chase & Co. were slammed with a $3.4 billion fine by U.S., British and Swiss regulators related to forex market manipulation.

As per the findings of The Swiss Financial Market Supervisory Authority FINMA, UBS had inadequate risk management, controls and compliance in its forex trading.

While FINMA concluded its ‘enforcement proceedings’ against UBS with respect to the  forex trading, the regulator is investigating against the bank’s 11 ex and current employees in the related matter.

Apart from FINMA, the Swiss Banking giant had also reached settlements with the US Commodity Futures Trading Commission (CFTC) and UK Financial Conduct Authority (FCA) over the regulators’ industry-wide probe into inconsistencies foreign exchange market.

UBS has been striving to expedite its internal forex and precious metals business investigations. The company is believed to be in separate discussions over a forex settlement with the DOJ’s criminal division, which may not be reached before Apr 2015.

Barclays was not part of the huge settlement of November. However, an investigation by the FCA is continuing over the company. Notably, in May 2014, Barclays was fined £26 million by the FCA for fixing gold prices.

Regulatory authorities are investigating scandals further related to the heightening foreign exchange rate fixing and are determined to put forward a landmark judgment to terminate such practices in the future, bring justice to the sufferers and punish the wrongdoers.

Samuel Huntington, Harvard economist, wrote about a little corruption being good for greasing wheels.  Can the same measure be applied to regulation?  Can we suggest that regulation that does not count for much financially be ignored or put aside?  What do you do with Credit Suisse’s application for a waiver to continue handling pension funds in the US after they have pled guilty to aiding and abetting tax evasion in the US?  To Credit Suisse, this means billions of dollars.  To the US government, it means Zip.  But to a US firm wanting this business, it’s billions of dollars.  So…here are the ediors of Bloomberg:

U.S. lawmakers say they want regulators — notably, financial regulators — to weigh the economic impact of their actions more carefully. That’s actually not a bad idea, as long as it doesn’t end up neutering rules that the economy badly needs.

With the stated goal of reducing red tape and a modicum of Democratic support, Republicans in Congress have introduced several bills that would force regulators to justify themselves. If enacted, the legislation could make detailed cost-benefit analysis mandatory for the Federal Reserve and other agencies that have been struggling to implement the 2010 Dodd-Frank financial reforms.

Critics suspect a veiled attempt to defang measures aimed at making the financial system more resilient, rather than a respect for analytical rigor. Under existing law, Dodd-Frank has already been challenged on cost-benefit grounds.

Yet cost-benefit analysis is an excellent discipline, one that financial regulators have made too little use of. The SEC lost its case partly because its analysis was weak — a shortcoming that the commission has tried to remedy by involving economists in its rule making. Other financial regulators, such as the Fed and the Federal Deposit Insurance Corporation, typically don’t even try to assess the economic effects of their rules.

Their counterparts outside finance have done a better job of testing their own actions. The Environmental Protection Agency has done rigorous economic-impact assessments for more than 30 years.   Done right, by the way, such assessments might toughen, rather than weaken, financial regulation. Eric Posner of the University of Chicago argues that properly weighing the cost of rules on bank capital against the benefit of a more resilient financial system would call for a tightening of the current requirements.

The White House has an Office of Information and Regulatory Affairs which has long overseen the cost-benefit analyses conducted by the EPA and other federal agencies. Its authority doesn’t extend to financial regulators. This could be changed by executive order — or, preferably, by an act of Congress that provided funding and sheltered approved rules from judicial review. This would widen the appropriate application of cost-benefit methods to finance, help spur further research and, over time, improve the quality of assessments.

In any event, financial regulators shouldn’t be afraid of cost-benefit analysis. If it’s done well, it serves the cause of good policy. They should be leading the way.

Corruption is a focus of w-t-w.org Women and Finance.   Recently Patrick Radden Keefe, a fellow at the Century Foundation, wrote an extended piece on the subject in the New Yorker, (January 19, 2015).

Keefe, in discussing historic opinions on the subject, describes how the term ‘corruption’ may be used so often today that it has become meaningless.  We agree.

There are many different kinds of corruption.  Our site focuses on financial corruption in the banking industry.  Evasion of taxes thorughout the world disproportionately impacts women and children.  Diverted tax money means less public money for schools and good health, two areas most countries are commited to.

Singapore, a very small country whose leader in the early seventies was committed to ending corruption, actually succeeded in doing so.  It was clear that the Prime Minister was behind the effort.  One minister who was invstigated for taking kickbacks killed himself. In his suicide note, which was written to the Prime Minister, he stated, “It is only right that I shold pay the highest price for my mistake.”

It is hard to imagine Jamie Dimon writing such a note to his board at JP Morgan Chase.

Again this week, the International Consortium of Investigative Journalists has released tens of thousnads of documents from HSBC showing how this bank defies the law.

While Harvard economist  Samuel Huntington wrote that a little corruption helps grease the wheels of government and buisness, it is hard to know where to draw the line if you are “a little guilty.”  Women and FInance looks at this problem all the time.  It is a particularly important subject for women to understand.

HSBC papers

Credit Suisse, criminally charged, applies for waiver from US Labor Department