News

Same old, Same Old

March 30 2021

Perhaps there was a clue in the name: Archegos. Arch. Egos. As a description of many in finance it can scarcely be bettered. A novelist might even think it a tad too unbelievable, unless you were seeking to write satire.

But why bother when reality serves it up on a plate.

The founder of Archegos Capital Management, Bill Hwang described himself in 2008 as “like a little child looking for where can I invest to please our God.” Not long after – in November 2009 – Goldman Sachs’s Lloyd Blankfein described  bankers as “doing God’s work“. Oh dear. The full extent of what bankers had been doing had yet to reveal itself, whether to God or anyone else. Still, PR advisors would do well to note that such statements do not impress. Rather they tend to bring to mind the Ralph Waldo Emerson quote:

The louder he talked of his honour, the faster we counted our spoons.”

Back to Mr Hwang. At the time of his humblebrag he was running Tiger Asia Management, which ended up being one of the largest investors in the expanding and profitable Asian market.

What God thought of Mr Hwang’s activities is unknown. What the SEC thought is, however. For in 2012 following a lengthy investigation, also involving the HK regulator, he pleaded guilty to insider trading and manipulation relating to trading in various Chinese stocks in late 2008 / early 2009. Surely not when he was trying to please God? Yes, apparently so.

A humongous fine inevitably followed. And almost as inevitably, the following year in 2013 Tiger Asia Management was wound up and Archegos rose, Phoenix-like in its place.

Now it is in trouble as a result of risky and very large investments having soured. Also in trouble are a number of banks which funded it, provided it with services and helped it trade. Questions no doubt are being asked – and, if not, they should be – about banks’ exposure to the firm, was this within risk limits, why so much leverage and so on. Other questions might also be asked: what due diligence was done? Was a fund run by a convicted insider dealer really a suitable client? How was it monitored? And so on.

Still, since bragging seems to be the fashion, might I modestly refer you to this article and my comments on what is often found when something goes wrong: “…so often, in virtually every case, there were bloody great red flags, or there was a clue that was missed.

The name might have permitted a wry smile. Mr Hwang’s track record should not have done. Does no-one ever read this stuff?

 

Photo by Orkun Azap on Unsplash

Lives Well Lived

September 30 2020

Earlier this year, Richard “Tigger” Hoare died, sadly one of this year’s many Covid fatalities. His Times obituary can be found here. A highly capable banker of the old school, coming from a long-standing banking family who still own the family bank established in 1672, he was proud to state: “I have never minded challenging things, if there is something that needs to be challenged.”  And he meant it too, as the last paragraph of his obituary makes clear –

“When the regulators interviewed the partners 20 years ago, they asked me what I thought was the greatest threat to the bank, and rather foolishly I said, ‘I think you are.’ They were very cross!

Well, even regulators, maybe especially them, need to be challenged now and again.

Sir Harry Evans, journalist and editor of the Sunday Times at a time when investigative journalism rather than clickbait articles was valued, who died last week, was another who understood very well the need to challenge those in authority. During his time as editor he won famous victories over those who tried to stop the publication of diaries by Cabinet Ministers (Richard Crossman) explaining what really goes on in government and those seeking to cover up what was known about the thalidomide drug which caused such misery to so many families.

There is a lovely line in his obituary – “Evans combined technical proficiency with moral passion to an unusual degree.

A combination of technical proficiency, challenge and moral passion: if only we had more people in positions of power and authority of whom this could be said.

 

 

Photo by author.

Spiders’ webs

July 30 2020

Last week Parliament’s Intelligence and Security Committee wrote about how Russian oligarchs and their money had been welcomed by the UK from the mid-1990’s onwards, with Britain’s “light touch … regulation” (where have we heard that before?). The UK’s rule of law and judicial system were seen as a particular draw. But, as the report says: “few questions – if any – were asked about the provenance of this considerable wealth.” Oh dear.

The report says that, rather than the encouragement of ethical practices and transparency amongst the Russian investors as hoped, Britain’s institutions provided “ideal mechanisms by which illicit finance could be recycled through what has been referred to as the London ‘laundromat’”. The patronage and influence this money brought to “willing beneficiaries” helped the reputation laundering process. And then there are the enablers, described with some asperity, as those who “on occasion help launder money through offshore shell companies and fabricate ‘due diligence’ reports”. Dear oh dear.

The authorities do have some ways of countering this: Unexplained Wealth Orders, for instance and seizure of assets. How well these work is another matter, of course. The Court of Appeal recently overturned three UWO’s obtained against the family of the former president of  Kazakhstan, now subject to appeal by the National Crime Agency. The NCA may win its appeal but, as stated in the report, there is an imbalance of resources between the NCA and those with the wealth to fight back. And the longer the money is around and channelled through companies, property, trusts, charities and the rest, the easier it is to disguise its original smell and explain it away – enough to fight off the UWO, anyway.

There have been some successes: in relation to the spending (£11 million on a townhouse, £16 million spent in Harrods over a decade) by the wife of a former chairman (and convicted fraudster) of a state-owned bank in Azerbaijan, for instance. Or the seizure by the City of London police of £2 million in cash held in British banks by a professional money launderer acting for the Calabrian mafia, the ‘Ndrangheta, after a two-year investigation.

Three points are worth noting:

  • One of the weakest points of any system is the point of entry. Much easier to keep “dirty” money out than to try and get rid of it once it is in and, over time, made to appear respectable or, at least, explained. Ditto re dodgy individuals.
  • Once in, getting rid of the dodgy individuals and money risks becoming a game of Whack-a-Mole, one which tests the patience and resources of the authorities and requires their relentless and sustained focus.
  • Be wary of those seeking to use the credit and reputation you have built up over years. That applies to professionals as much as it does to countries. It is flattering to think you will teach and improve them. The grubby reality may be that it is your reputation which is tarnished. It’s an old problem: some well-established banks and professionals learnt this the hard way – with one Robert Maxwell back in the early 1990’s. It’s a lesson worth remembering rather than relearning.

One thing is puzzling though. For years – since at least 1994 – there have been money laundering regulations, with the latest iteration brought in last year. The level of information needed is onerous and extensive. The principle underlying all these rules and regulations and the concept of due diligence is that banks and lawyers and estate agents and the myriad of intermediaries should really know and understand their customers and where their money comes from. So how is it that, even now, a couple of Calabrian Mafiosi are able to set up a company that does nothing, give an address where they do not live and deposit £2 million in an English bank account?

Surely it is not because, as reportedly attributed to Anarchasis, a Scythian visitor to 6th century Athens: “Written laws are like spiders’ webs; they catch the weak and poor but are torn in pieces by the rich and powerful.

 

Photo by Bence Balla-Schottner on Unsplash