RIGA/FRANKFURT (Reuters) - Latvian bank ABLV said on Monday it is taking the European Central Bank to court for triggering its demise after it faced allegations of money laundering.

FILE PHOTO: A logo of the ABLV Bank is pictured in Riga, Latvia February 18, 2018. REUTERS/Ints Kalnins

The development is the latest challenge to the European banks supervisor over its handling of the affair, over which it has been widely criticised.

Earlier this year the United States accused Latvia’s third biggest bank, ABLV, of money laundering and breaking sanctions on North Korea, prompting its closure and triggering the Baltic state’s worst financial crisis in a decade.

The scandal placed the country of two million people in the middle of a power struggle between Russia and the United States, and fuelled a debate over European money-laundering controls.

It also caught the ECB, the euro zone’s top supervisor of banks, by surprise, and led to criticism by European lawmakers for what they see as its failure to monitor the bank on the outskirts of the currency bloc.

The ECB, which declined to comment on Monday, has sought to play down its role, arguing that it was not responsible for monitoring money laundering.

But ABLV, which is chiefly owned by two wealthy Latvian bankers, Ernests Bernis and Olegs Fils, said it had filed legal action with the Court of Justice of the European Union against the euro zone’s central bank for its role in its collapse.

The ECB’s move to stop payments at the bank and subsequent declaration that it was failing sealed ABLV’s fate. Okko Hendrik Behrends, the Latvian bank’s lawyer, said the ECB should not have triggered ABLV’s closure because it was financially healthy and could have survived.

REFORM SETBACK

Latvia is trying to repair its reputation by paring back those banks that attracted clients in Russia and former Soviet states such as Ukraine with the promise of Swiss-style secrecy.

Its Prime Minister Maris Kucinskis has pledged to improve the policing of banks, while Washington, an important military ally for the former Soviet-ruled state, is keeping up pressure on Latvia to tackle money laundering, much of which Latvian officials and bankers privately say involves wealthy Russians.

But reform is proving difficult as Russian-speaking opposition lawmakers, who come from a 500,000-strong minority in the country, are sceptical about the need for change.

The overhaul hit another snag on Monday when Latvia’s prosecutor general postponed the appointment of a new head of the country’s anti-money laundering agency.

Since securing its independence from Moscow in 1991, more than a dozen Latvian banks have promoted themselves as a gateway to Western markets for largely Russian customers.

After it joined the European Union in 2004, transfers were deemed less risky for Western banks to handle than if they had come directly from Russia, bankers and officials have said.

In many cases, money was lodged in a Latvian bank and then funnelled to accounts elsewhere, such as Switzerland, they said.

In a separate case before the European Court, the ECB alleges Latvian authorities broke the law by keeping the country’s central bank governor from fulfilling his role as an ECB policymaker because of bribery allegations.

The Latvian government has barred the central bank chief, Ilmars Rimsevics, from leaving the country after he was detained in a bribery probe. He has denied wrongdoing.</s>The European Central Bank and Governing Council member Ilmars Rimsevics accused Latvia of infringing central-bank independence by barring him from his post amid a probe into bribery accusations that he denies.

The Frankfurt-based ECB and the governor of Latvia’s central bank have both appealed at the EU’s highest court against restrictions that stop Rimsevics from exercising his office. The EU Court of Justice released details on the cases on Monday.

The Baltic country’s banking sector was rocked in February when the U.S. Treasury proposed banning the country’s third-biggest lender, ABLV, and days later Rimsevics was detained by the anti-corruption bureau for 48 hours. He was accused of being part of a group that solicited and received bribes of at least 100,000 euros ($119,340). The bank and Rimsevics deny all accusations of wrongdoing.

The ECB claims that Latvian authorities broke the law by imposing stringent bail terms on Rimsevics’ work before a ruling on the case by an independent court, the case summary shows. The ECB also says the authorities haven’t provided all the information on the case.

In a separate filing, the Latvian governor said he has been “unlawfully” prevented from carrying out his role. EU law states that central bank heads can only be removed if they can no longer perform their duties or if found guilty of “serious misconduct.”

Spokesmen for the ECB and Latvia’s anti-corruption bureau declined to comment. Rimsevics’s lawyer Saulvedis Varpins wasn’t immediately able to comment, and Latvian Prime Minister Maris Kucinskis’s spokesman Andrejs Vaivars didn’t immediately respond to a request for comment.

The ECB’s concerns “are very understandable, but I think just as understandable will be our answers,” the prime minister said in an interview with LTV on April 10. “I’m convinced that justice is on our side.”

Rimsevics, still officially a member of the ECB’s Governing Council, is barred from exiting the country and can’t even appoint a substitute. That means Latvia -- a euro-area member since 2014 -- has been unable to have a formal say on policy decisions since February. Deputy Governor Zoja Razmusa has attended as an observer at the meetings, where decisions are usually taken by consensus.

Ironically, the Governing Council will hold its next meeting in Riga, Latvia’s capital, on June 14. That could be a critical session as policy makers are expected to start debating how and when to end their 2.6 trillion-euro bond-buying program.

The ECJ has been asked by the ECB to issue an interim ruling that could soften the governor’s restrictions as early as this week.

Also on Monday, ABLV announced it had appealed at the Luxembourg-based EU court against the ECB’s decision to declare it was on the verge of failure. The bank was then closed under Latvian law after the EU bank-resolution authority said the lender was too small to warrant a rescue.

“ABLV and its Luxembourg subsidiary were neither illiquid nor was their illiquidity imminent in the foreseeable future,” the bank said in a statement announcing the filing of the case. They were “in an extraordinarily strong financial position not only as regards their capitalization and profitability but also and particularly as regards their liquidity.”</s>FRANKFURT, May 8 (Reuters) - The European Central Bank has fined Spain’s Banco Sabadell 1.6 million euros ($1.90 million) for buying back some of its capital without the ECB’s permission, the ECB said on Tuesday.

“The penalty has been imposed in respect of the bank repurchasing its CET1 (Core Equity Tier 1) instruments from 1 January 2014 to 7 November 2016 without the prior permission of the banking supervision authority,” the ECB said.

“This constitutes a continuous breach of own funds requirements in that period.”

Sabadell has challenged the fine before the Court of Justice of the European Union, the ECB said. ($1 = 0.8418 euros) (Reporting by Francesco Canepa; Editing by Adrian Croft)</s>The crisis in the banking sector in Ghana has been known for some time now – at least, for more than six years. But the biggest question has always been what was being done to forestall the crisis from blowing up into major banking catastrophes leading to collapse of banks with its eventual financial losses to depositors. Only last week the fourth bank in a row, Sovereign Bank, licensed barely two years ago, has gone under. It has been known that some nine banks are in distress. With four gone, how many will go soon?

As it turned out, the solutions as applied by the central bank, didn’t work. The Bank of Ghana, the regulator of the sector has long been viewed as ineffective in applying the rules governing the sector. The Bank of Ghana has not been proactive in applying the banking laws of the country, often choosing unorthodox means to manage the crisis.

While it is no secret that one of the biggest problems of Ghanaian banks is the unsustainable bad loan portfolio, other factors contributing to the situation include related party loans and often questionable loans to management.

Some banks are also known not to adhere to good corporate governance practices, one of the factors that led to the banking crisis in the United States in 2008. Some banks haven’t published their financial statements as required by law in the last three years!

Since August last year, about four banks have gone bust. In August 2017, UT Bank and Capital Bank collapsed. Then in March 2018, the Bank of Ghana appointed KPMG as official administrator of UniBank – a bank that is connected to a former Minister of Finance of the country, Dr. Kwabena Duffour.

Why is the Bank of Ghana ineffective in enforcing its rules?

It’s not hard to see why the Bank of Ghana can’t enforce its own regulations. The central bank has some autonomy, but pervasive and even vulgar political interference makes it impossible for the Bank to act when banks and other financial institutions under its supervision are violating the laws. Professionals working in the Bank freeze in their tracks when the need to take decisive actions, especially when there is the need to sanction offending banks arises.

What’s surprising is that the political interference is so abrasive and done with such impunity. For instance, anytime a new political party wins an election and takes over government, hawks within the party immediately force governors out. The ruthless and often immoral conduct of pushing out governors and their deputies still with some time to serve in office are sometimes justified with the crude excuse that such appointees are members of the appointing authorities, often the ruling party that was defeated in an election. The appointments are seen as spoils of war, ready to be passed onto the next individual considered to be sympathetic towards the new winners.

The ominous hand of political interference, which also appears to influence the granting of banking licenses makes it difficult for the regulator to enforce its own rules.

It is common to read notices in the newspapers with the Bank of Ghana announcing that a particular financial institution was operating without a license and then it is followed with an advice to the public not to do business with that entity. Any individual or group of people operating a financial institution without a license from the Bank of Ghana would be violating a law – it is therefore appropriate for the Bank to sanction such individual or group of people with the appropriate law, but all the Bank does is to issue a warning and there is hardly any prosecution.

While officials of the central bank would never openly admit that they do not prosecute offenders of the Banking Law because of political pressure, suspicion is rife among Bank watchers that, politics is the main reason why these violators are not prosecuted.

The Banking Supervision Division of the Bank of Ghana is mandated to regularly peek into what is happening in the financial institutions. It is to scrutinize the activities of institutions like banks, microfinance and other non-bank institutions to ensure they are playing by the rules. But it is severely understaffed. It doesn’t have the necessary number of officials to manage the large number of banks and non-bank institutions littered around the country.

As at April 2018 there are 35 licensed banks in Ghana and five other foreign banks have representative offices in the country.

According to the Bank’s records there are 140 licensed rural and community banks as at April 2016, there are 68 licensed specialized deposit-taking institutions as at April 2018, and they include finance houses, remittance companies, savings and loans companies, leasing companies and leasing and finance companies. There are 431 licensed forex bureax, 17 of which are inactive as at November 2017.

The Bank has given provisional approval to 25 of what it describes as Tier-2 microfinance institutions, five Tier-3 money lending institutions and one Tier-3 Financial NGO.

As at March 8, 2018, the Bank has one list of a total of 269 microfinance institutions it says are in general compliance of its guidelines as at December 31, 2017, and another list of 42 in the same category but categorized as money lending and a third list of eight microfinance institutions categorized as Financial NGOs.

It is obvious that with these large numbers, the central bank needs a good number of staff with the requisite qualification and environment to perform the supervisory role of the Bank, failing which the crisis in the sector will not abate.

The central bank appears to enjoy working in opacity. It’s difficult for journalists to get important information from the Bank. The Bank’s regular Monetary Policy Committee press conference is a charade, a public relations stunt at which questions important to journalists don’t get answered. Only what the Bank wants the public to know are shared.

A few years ago, on the advice of the International Monetary Fund (IMF) a communication department was set up to handle information matters from the Bank. But even that department didn’t always have the information that journalists were looking for – effectively defeating the purpose for which it was set up. Curiously, only recently, that department has been shut and the old system that existed before it has been reverted to.

The Ghanaian media has a responsibility to put the Bank of Ghana on its toes. Journalists must scrutinize the central bank and demand accountability. Being cozy with the central bank isn’t in anyone’s interest.

The Bank has an unwritten contract to serve the bigger interest of Ghanaians and not any parochial political interest and it is possible for the media to get it to work in an efficient and effective way.</s>Protective tariffs imposed by the US in recent months have only had a minor impact on the world economy but a significant escalation in tensions could derail the recovery in global trade, the European Central Bank (ECB) said on Monday.

Retaliation and a full fledged trade war could increase import prices, raise production costs and eat into households’ purchasing power, negatively impacting consumption, investment and employment, the ECB said in an economic bulletin article.

Demanding more fair trade, the United States has imposed some trade tariffs on China and asked Beijing to reduced its trade surplus with the United States by €200-billion. But it has so far exempted the European Union from new tariffs on steel and aluminium.

"In response to higher uncertainty, financial investors could also reduce their exposure to equities, reduce credit supply and require a higher compensation for risk," the ECB said. "Heightened uncertainty could spill over more broadly, adding to volatility in global financial markets."

Over the longer term, protectionism would weigh on productivity and negatively affect the economy's potential output growth, the ECB said.</s>LONDON (Reuters) - The European Central Bank is being forced to consider raising the fees for its flagship securities platform after trading failed to reach its projected volumes, an ECB document showed.

Industry officials say the central bank is planning an increase, a step they say would undermine capital market integration that is already being threatened by Britain’s planned departure from the European Union.

Fees should be cut and not raised to attract more volume, they said. The ECB declined to comment on the future direction of fees.

Target 2 Securities (T2S) started operating in 2015 to link the patchwork of national stock and bond settlement houses, the market’s basic plumbing to exchange legal ownership of a security for cash.

The ECB intervened after the sector failed to consolidate fast enough to make Europe’s cross-border capital market compete better with the United States, where settlement is cheaper.

A ECB presentation entitled “2018 T2S pricing review” shows that 128.5 million transactions were settled on T2S in 2017, 33.3 percent below the central bank’s projection.

Actual volume fell 3.8 percent in 2017, when the last of 22 settlement houses hooked up to T2S. Volume was 15.2 percent below ECB projections in 2015 and 26.3 percent below expectations in 2016, the presentation showed.

Settlement covers the bulk of T2S income, meaning the ECB is forced to consider raising fees to cover outlays that were paid for with public funds, an industry official said.

The ECB said in its 2017 annual report for T2S it would review the basic fee in 2019 if volumes remain below projected levels, but industry officials say the projections were too removed from market reality.

The basic fee of 15 euro cents per settlement instruction - two instructions per security transaction are charged - was fixed until December 2018.

The ECB’s governing council agreed in 2010 that fees would not rise by more than 10 percent a year between 2019 and the end of the “recovery period” in September 2022 for developing and running T2S.

Volumes are not moving to T2S because of punitive accounting rules and users sticking with national settlement houses to avoid add-on fees, industry officials said.

Market participants say they have already had to implement a costly EU reform of securities markets in January. They will also have to invest in new reporting requirements for the repo and securities lending market from mid 2019.

T2S has already faced delays and cost overruns since its inception in 2008, when total development costs were put at 203 million euros, an estimate that rose to 256.4 million euros within two years.

At its annual meeting in March, the European Repo and Collateral Council (ERCC), which includes users of T2S, cast doubt on its ability to cut trading costs anytime soon.

“Considering the substantial development costs for T2S, it is thus in the current circumstances not easy to see the business case for the project,” said Michael Manna, head of fixed income financing trading for EMEA and Asia Pacific at Barclays bank, according to minutes of the meeting.

Nicola Danese, a managing director at JPMorgan, compared migrating to T2S with an upgrade from an old Nokia to a smartphone.

“The new infrastructure has a lot of potential, but in order to utilize this potential, additional features and applications need to be developed first,” Danese said.</s>Protective tariffs imposed by the United States in recent months have only had a minor impact on the world economy but a significant escalation in tensions could derail the recovery in global trade, the European Central Bank said on Monday, Reuters reports.

Retaliation and a full fledged trade war could increase import prices, raise production costs and eat into households’ purchasing power, negatively impacting consumption, investment and employment, the ECB said in an economic bulletin article.

Demanding more fair trade, the United States has imposed some trade tariffs on China and asked Beijing to reduced its trade surplus with the United States by 200 billion euros. But it has so far exempted the European Union from new tariffs on steel and aluminum.</s>Editor's note: This article was originally published on May 7, 2018, by Menzie Chinn here.

Today, we are fortunate to present a guest contribution written by Ashoka Mody, Charles and Marie Visiting Professor in International Economic Policy, Woodrow Wilson School, Princeton University. Previously, he was Deputy Director in the International Monetary Fund's Research and European Departments.

In 1991, when European negotiators met in Maastricht to decide on Europe's single currency, two matters were uncontroversial: a future ECB would act independently of political oversight, and its only goal would be to fight inflation. These were German requirements for giving up the deutsche mark and joining the single currency. The French were unhappy but knew that if they demanded greater oversight of the ECB or required that it also boost employment, the Germans would walk away. All other countries fell in line.

In March 1997, twenty-two months before the euro's launch, Paul Volcker, former chairman of the U.S. Federal Reserve board, cautioned against the ECB's hyper-independence. "No central bank," he said, "could be comfortable … operating entirely outside a political context"; in a democracy, a central bank "must be able to justify its policies to the general public and to political leaders."

Commentators paid less attention to the ECB's exclusive focus on controlling inflation rather than balancing - as the Fed does - the dual objectives of stimulating employment while keeping inflation under check. But two Nobel laureates, Franco Modigliani and Robert Solow, warned that an obsessive focus on price stability would keep interest rates too high, which would reduce the pace of GDP growth and, hence, elevate unemployment rates. That is precisely what happened. With no public accountability, the ECB repeatedly sacrificed growth and employment, even triggering a financial crisis in July 2011, as I document in my forthcoming book, EuroTragedy: A Drama in Nine Acts.

The contrast between the ECB and the Fed emerged early. In March 2000, after the tech bubble burst, the U.S. economy slowed, which put a damper on world trade and, hence, on the eurozone economies since they depend heavily on international trade. Although the initial downturn was modest, the U.S. Fed applied the risk-management principle, and began aggressive reduction in interest rates.

The American economy, Fed Chairman Alan Greenspan said, was "in the position of the person falling off a 30-story building and still experiencing a state of tranquility at 10 floors above the street." The policy task was to build a monetary safety net to cushion the fall.

When global economic prospects suffered further after the 9/11 attacks, the economic woes were acutely felt in the eurozone. But while the Fed kept up rapid rate cuts, the ECB emphasized its inflation-fighting goal and eased interest rates at a glacial pace. Facing calls for more monetary stimulus, ECB President Wim Duisenberg infamously said, "I hear, but I don't listen." Predictably, recovery in the eurozone was considerably slower than in the United States (Figure 1).



Sources: FTSEurofirst 300 Eurozone (FTEUEBL(NASDAQ:PI)) from Datastream; S&P 500 (^GSPC), online. For GDP, OECD Statistics "B1_GE: Gross domestic product-expenditure approach; LNBQRSA: Millions of national currency, chained volume estimates, national reference year, quarterly levels, seasonally adjusted," available from stats.oecd.org.

The same pattern repeated after the onset of the global financial crisis in July 2007. Some observers believe that the Fed unconscionably delayed stimulative measures. But once it initiated interest rate cuts in September, the Fed moved rapidly. Janet Yellen, then president of the Federal Reserve Bank of San Francisco, articulated the risk-management philosophy. "I honestly don't know what the risks are," she said, but the financial disruptions could generate "negative, non-linear dynamics." Translation: things could get ugly quickly.

The ECB, under President Jean-Claude Trichet, acted in a starkly contrasting manner. Although growth and inflation trends were virtually identical in the United States and the eurozone, and although financial stress in the eurozone was at least as great as in the United States, the ECB's first policy action was to raise interest rates in July 2008. Only after a near global financial meltdown following the Lehman Brothers bankruptcy in September 2008 did the ECB grudgingly agree to reduce its interest rate as part of a globally coordinated rate reduction.

After the Lehman episode, the Fed continued rapid monetary easing, bringing its policy rate down to near zero by December 2008, at which time it also introduced its first bond-buying quantitative easing (QE) program, designed to rapidly bring down long-term interest rates. The ECB's plodding rate reductions were lampooned by financial markets as other central banks, especially the Bank of England, acted at a blazing pace.

The outcome mirrored that in 2001-2003: the Fed's stimulative policy helped the U.S. economy recover more rapidly from the global financial crisis (Figure 2).

The next phase marked an even starker divergence between the Fed and the ECB. Starting in late 2009, pulled by a massive fiscal and credit stimulus in China, the global economy began to recover. Chinese demand also caused a spurt in commodity prices, which stoked a rise in global inflation rates.

The Fed recognized that this inflation spurt was temporary. Indeed, Fed Chairman Ben Bernanke worried that the still high unemployment rates would cause price deflation, which would make debt burdens harder to shoulder and, hence, weaken the economic recovery. Now applying the risk-management principle to preventing deflation, the Fed announced a second round of QE in November 2010.

The ECB did the opposite. Observing the same inflation trends, the ECB raised its policy interest rate in April and then again in July 2011. These actions had near-catastrophic effects. Banks throughout the eurozone came under acute stress. In Italy and Spain, a sovereign-bank "doom" loop was triggered: the risk that weak banks would need government support created a fear that the governments themselves would be unable to honor their obligations, which amplified the anxiety that banks would default on their debts.

In November 2011, Mario Draghi replaced Trichet as the ECB's president. The ECB reversed the Trichet rate hikes. But eurozone monetary policy was still too tight, and the promise of more monetary easing was not matched by further action through mid-2012. The eurozone financial crisis continued to spiral out of control. Italian and Spanish interest rates soared, and the governments and banks in the two countries seemed at imminent risk of default.

Mario Draghi then declared that the ECB would do "whatever it takes" to prevent a eurozone implosion. Interest rates fell and the sense of crisis passed. But real interest rates-the nominal interest rates governments and businesses pay minus national inflation rates-remained positive and large in Italy, Portugal, and Spain. Businesses held back investment, and recessionary conditions continued not just in these financially vulnerable countries but through much of the eurozone.

This prolonged period of crisis and recession took its toll, and by mid-2013 the eurozone began to fall into a deflationary zone. The core inflation rate-the inflation rate stripped of volatile food and energy prices-remained above 1.5 percent in the United States but began to fall toward an average of 1 percent in the eurozone. Yet, held back by German and other "northern" eurozone member country representatives, the ECB continued to delay QE. Inflation rates fell even in Germany, but - in its bid to fight a phantom inflation threat, the ECB created an actual deflation risk in Italy (Figure 3).

Finally, in January 2015, with the average eurozone inflation rate stuck around 1 percent, the ECB began its QE program, six years later than the Fed. The ECB was now in a situation like that of the Bank of Japan (BOJ). The BOJ had long deployed half-hearted and short-lived monetary stimulus measures. As a result, businesses and consumers had begun to expect that prices would remain relatively flat.

Once inflation expectations fell, it became rational to postpone expenditures believing that inflation might fall further, which kept inflation low and reinforced the sense that inflation would remain low. Even the massive monetary stimulus injected by the BOJ beginning in January 2013, under the "Abenomics" program to recharge the Japanese economy, could do little to raise the inflation rate.

Not surprisingly in view of the BOJ's experience, despite continuing large bond purchases by the ECB, the eurozone's average core inflation rate remains around 1 percent. This average hides a wide divergence across member countries. While Germany, with its stronger recovery, has regained a core inflation rate of around 1.6 percent, the inflation rate in Italy is in the 0.5-0.7 percent range.

Hence, Italy's real interest rate is still above 1 percent, which, with its chronically weak economy, will act as a significant impediment to renewal of investment and growth. The Italian government's debt is above 130 percent of GDP; Italian banks are still dealing with large volumes of non-performing loans. Italy is the eurozone's fault line. By bequeathing to Italy a high real interest rate, the ECB has ensured that the tremors along the Italian fault line could easily morph into widespread financial crisis.

Moreover, financial markets have come to expect an ECB bias toward tight monetary policy, which has ensured a rising euro exchange value. Despite the ECB's huge QE, the euro's effective exchange rate is back around its level in mid-2007 (Figure 4). At that level, the euro is definitely too strong for Italy, exacerbating the country's woes.

The ECB has never been called on, and has never offered, to give a reasoned explanation of its delays and half-measures, or even its egregious error in July 2011. Its lack of accountability has placed it between a rock and hard place. If the ECB winds down its QE, real interest rates will rise, which will increase Italy's financial fragility.

If the ECB extends its QE program, it will accumulate more Italian bonds at high prices and face the risk of large losses when it eventually sells them. The burden of those losses will then be borne by German and other eurozone taxpayers. Either way, the ECB is at risk of feeding the eurozone's political fissures, which could quickly lead to widespread and far-reaching financial instability.



Sources: Bank for International Settlements, "Effective exchange rate indices, Narrow indices, Nominal"; Board of Governors of the Federal Reserve System press releases November 25, 2008, September 23, 2009, August 10, 2010, June 22, 2011, September 13, 2012, September 17, 2014; Ben Bernanke, 2013, "The Economic Outlook," testimony before the Joint Economic Committee, US Congress, Washington, D.C., May 22; Shinzo Abe, 2013, "Press Conference by Prime Minister Shinzo Abe," Prime Minister of Japan and His Cabinet, January 4; ECB press release: January 22, 2015.</s>The Bank of Ghana in April, appointed an advisor to the Sovereign Bank Limited to advise the management and to help monitor the Bank’s recapitalization efforts and implementation of governance reforms agreed with the Bank of Ghana.

A statement from the BoG said the Advisor would stay in the Bank until otherwise advised by the Bank of Ghana, and will furnish the Bank of Ghana with a status report on the Bank as frequently as the Bank of Ghana may require.

“It is important to note that an advisor, unlike an official administrator, does not take over the powers, responsibilities, and duties of the bank’s shareholders, directors, or management,” the statement said.

Under Act 930, the Advisor may attend meetings of the Board of Directors without voting at such meetings.

“The Bank of Ghana takes this opportunity to assure depositors and customers of Sovereign Bank Limited that Sovereign Bank remains open for business under the control of the Bank’s own management, and that customers’ deposits are safe.

“The Bank of Ghana remains committed to promoting a strong and resilient banking sector that retains the trust and confidence of the general public,” the statement said.

Sovereign Bank was licensed by the Bank of Ghana as a universal bank in January 2016.

As part of its supervisory functions, the Bank of Ghana completed an on-site examination of the Bank in December 2017. The outcome of the on-site examination revealed some governance and capitalization challenges which needed to be addressed.</s>The news, reported in the Washington Post, that Donald Trump used cash for many of his real estate transactions in the decade before he became president, has raised eyebrows. As David Fahrenthold, one of the reporters on the Post story, told Slate, “I don’t think that lenders have a lot of experience with people who are buying huge things in cash.” At this point, we don’t know where the cash came from—this is what Fahrenthold says he and his team are looking into next. But with people speculating (without evidence) about possible money laundering, it’s worth trying to understand what exactly money laundering is, and what role it plays in the real estate world.

To find out, I recently spoke by phone with Peter D. Hardy. He is a partner in the white collar defense group at the law firm Ballard Spahr, a former federal prosecutor, and the curator of Ballard Spahr’s blog Money Laundering Watch. An edited and condensed version of our conversation is below.

Isaac Chotiner: Let’s start here: What is money laundering, and what makes a particular transaction illegal?

Peter D. Hardy: Money laundering involves a financial transaction—which can be very, very broad—coupled with the source of the underlying funds being from what’s called a “specified unlawful activity.” That’s a term of art from the statute, but to put it more colloquially, it has to be money from a crime. Basically, it is almost any crime that generates proceeds. So, the underlying crime is committed; it generates proceeds; the proceeds are used in a financial transaction—which, again, is very, very broad—and then the key is, in terms of potential criminal liability, and I am going to do a little footnote to this, a little caveat because there are two statutes. There is 18 U.S.C 1956 and there is 18 U.S.C. 1957.

For 1956, you need knowledge that the transaction is using proceeds from a crime. You don’t even need to know necessarily what crime it is; just that it is dirty money, so to speak. And then that it is done with the requisite intent. There are a couple options in the statute: It includes an intent to promote the underlying crime. So let’s say if you are a drug dealer, it would be done to buy more drugs and further the drug conspiracy, for example. It could be done to conceal the source; I think that is what most people think of when they think of money-laundering—funneling it through shell corporations to disguise what is going on. It could be done to avoid a reporting requirement, like a currency transaction report.

For 1957, here is the wrinkle, which is why money laundering is so broad in a way that most people don’t realize how broad it is. The 1957 statute does not require any specific intent. All it requires is knowledge and a transaction involving over $10,000. It could be the most mundane, transparent transaction in the world with everyone’s name up there: “Pablo Escobar is going to buy a Mercedes.” If it is dirty money, and over $10,000, and those involved know it, that’s money laundering.

And if it is under $10,000?

Not under 1957. The tradeoff is that there is no specific intent, but the threshold is that it is over $10,000. For 1956, it can be under $10,000, but you need specific intent. Theoretically it could be a dollar, but there is no monetary requirement.

What if I get involved with people who have a shady reputation, and I get money from them, and plead ignorance? Is that a legal defense?

There are two things baked into your question. Dealing with shady people does not ipso facto mean that the transaction involves dirty money. It has to actually involve dirty money. Before we even get to knowledge, there is the predicate of: Is this the proceeds of a specified unlawful activity? And if the answer to that is no, even if you are dealing with shady people, then that is not money laundering. But let’s assume that it does in fact include dirty money. Then you get to knowledge. And this is the primary issue for professionals, like lawyers or real-estate agents. The government has the option, and they often use it in these sorts of situations, of the willful blindness doctrine. The willful blindness doctrine is kind of complicated, but to really dumb it down …

I’m dumb on this, so that is helpful.

No no no. It is actually really complicated and you could spend hours talking about its permutations. If you read jury instructions, what it is not supposed to be is woulda coulda shoulda. It is not supposed to be, “You should have known but you didn’t check.” It is supposed to be another way of proving actual knowledge. That is hard for a lot of people, including sophisticated judges and lawyers to hold in their heads because it is pretty slippery. So essentially if you have reason to know of a fact and you take affirmative action to avoid being further confronted by the existence of that fact, that can constitute willful blindness.

How does money laundering usually work in the real estate world?

I don’t know that there is any magic formula. Kind of like Tolstoy, every money laundering transaction is different. There are a variety of ways it can happen. Certainly I know that [Treasury’s] Financial Crimes Enforcement Network is concerned about the use of entities to shield what are called beneficial owners. So if perhaps one wants to do the traditional, lay-person’s version of money laundering, in terms of concealing the source, you can try to set up a series of entities the point of which is to disguise the ultimate source of the funds. That gets harder, or the government is trying to make it harder to do, through a series of regulations.

But getting back to 1957, it doesn’t have to be quite so elaborate. It could be money laundering even if it is completely transparent if it is over $10,000 and dirty money.

What are things prosecutors look for when seeking signs of money laundering?

It used to be if you didn’t want a mortgage and it was all cash—by that I mean wire or check or whatever—that used to be suspicious. I am not saying that it is completely free of suspicion, but that is more common these days. Not having a mortgage is perhaps not the red flag it used to be because there are a lot of rich people out there. But that’s still there. I do think that despite my going on about how money laundering is broad and doesn’t have to be about concealment: Any effort at concealment is definitely going to be latched onto by the government.

What do you mean by concealment?

Using nominee accounts, trying to disguise the ownership or the source, whether it is setting up a company in the name of my great nephew and it is really my money, or any efforts like that are going to be regarded by the government and I think most people like your average juror as an indicator that there is laundering going on. But you still have to show at the end of the day that it is dirty money, because if it is not it ain’t money laundering. But concealment is definitely the hallmark.

Why is real estate seen as a fertile business for money launderers?

Because it is a traditional transaction. Buying real estate is something that a lot of people do and is regarded, generally speaking, as a good investment. The United States real estate market has been very, very hot. So from a pure economic standpoint it makes sense. And it’s a vehicle where if you have a lot of money, or a lot of proceeds that you want to unload, it is a pretty good receptacle to do so. It is just kind of handy. And if you are asked, it is easy to provide a seemingly innocuous explanation, which is, “I am investing in real estate along with many other people.”
Latvian bank ABLV sues the European Central Bank in the Court of Justice of the European Union, saying the ECB triggered ABLV's collapse. The bank failed following allegations by the United States that ABLV was laundering money on behalf of North Korea.