Bloomberg News

Banker Trade Deals, Price-Fixing Suits, U.K. Banks: Compliance

May 24, 2013

U.S. bankers and insurers are trying to use trade deals, which can trump existing legislation, to weaken parts of the Dodd-Frank Act designed to prevent a repeat of the 2008 financial crisis.

While the companies say they are seeking agreements that preserve strong regulations and encourage economic growth, their effort is drawing fire from groups who argue that Wall Street wants to make the trade negotiations a new front in its three-year campaign to stop or alter the law.

Senator Elizabeth Warren, a Massachusetts Democrat who sits on the Banking Committee, said in a May 7 statement that there are “growing murmurs” about Wall Street’s efforts to “do quietly through trade agreements what they can’t get done in public view with the lights on and people watching.”

The U.S. has embarked on three major negotiations aimed at reducing barriers to international commerce, including one with the European Union covering most types of trade and investment, and a similar one with Asia-Pacific nations including Japan. A third set of talks, covering only services, is under way at the World Trade Organization.

The Coalition of Service Industries, a trade association whose website lists Citigroup Inc. (C:US), JPMorgan Chase & Co. (JPM:US), American International Group Inc. (AIG:US) and Chubb Corp. (CB:US) as members, told the Office of the U.S. Trade Representative in a May 10 letter that “more compatible regulations for services” should be part of the EU deal.

In separate letters on the EU and Asia-Pacific pacts, the industry coalition said negotiators should draft rules limiting what regulators can do in the name of protecting financial stability. None of the letters specifically mention a desire to change the Dodd-Frank law.

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Compliance Policy

Price-Fixing Victims to Gain Power to Sue for Damages in EU Plan

The European Union is weighing plans for an EU-wide system to allow damages claims from price-fixing victims, in a move that would stop short of forcing nations to allow group lawsuits.

Proposals on private enforcement actions will seek to remedy “marked differences” between countries on lawsuits for compensation in cases of national or EU competition-law violations, according to draft plans obtained by Bloomberg News.

Such differences “lead to uncertainty concerning the conditions under which injured parties can exercise the right to compensation,” according to the draft. “As injured parties often choose” their own country’s courts “to claim damages, the discrepancies between the rules of the different member states lead to an un-level playing field as regards actions for damages.”

Private damages lawsuits are rare in national courts across Europe. The Brussels-based European Commission has championed such lawsuits as a way to compensate victims of illegal monopolies and cartels ranging from plots to fix air-cargo fuel and security surcharges to the price of television tubes.

While EU nations won’t be obliged to introduce provisions for group lawsuits for EU antitrust breaches, such a possibility could also be “of value” for data-privacy violations as well as consumer and environment protection, according to separate guidelines on group lawsuits, also known as collective redress.

Antoine Colombani, a spokesman for competition commissioner Joaquin Almunia, declined to comment.

EU Seeks Country-by-Country Tax Disclosure for Large Companies

The European Union will seek to make large companies disclose the taxes they pay and profits they make on a country-by-country basis as it seeks to crack down on firms evading their obligations.

Michel Barnier, the EU’s financial services chief, will seek to put the transparency rules in place “as quickly as possible,” Chantal Hughes, his spokeswoman, said in Brussels yesterday. The measures would also cover subsidies that companies receive, she said.

Hughes explained that it’s “the equivalent of what we already do for banks.”

Barnier’s push comes amid international controversy over whether companies like Apple Inc. (AAPL:US) and Google Inc. (GOOG:US) are taking excessive advantage of cross-border tax loopholes. EU leaders vowed this week to investigate “aggressive” tax planning, and pledged support for tougher corporate transparency rules.

The EU has already taken some steps toward introducing such country-by-country reporting requirements.

Compliance Action

German Tax Office Finds Possible Fraud in Power, Gas Markets

The German Federal Central Tax Office has found signs of possible tax fraud in Europe’s biggest power and natural gas market that may be similar to the “value-added tax carousels” that roiled carbon permit markets.

Tax authorities warned market participants of the cases and the risks of engaging, wittingly or unwittingly, in illegal trading activities, in a document dated May 2013 posted on the website of NetConnect Germany GmbH, the German gas market area manager. Annika Deitmer, a spokeswoman for the Bonn-based tax office, wasn’t immediately able to confirm the authenticity of the document. Germany’s grid regulator, which also posted the warning on its website, confirmed that the tax office had circulated the document to market participants.

“All honest market participants must have an interest in putting an end to wrongdoing by fraudsters as swiftly as possible,” the tax office said in the document. “The predecessor of the value-added tax fraud in the energy market was the VAT fraud in carbon permit trading.”

VAT fraud in the European carbon permit market involved chains of bogus import companies set up to reclaim taxes that had never been paid. A Frankfurt court in 2011 convicted six men for evading a total of 260 million euros ($335 million) in taxes on carbon emission trades using the same tactics.

U.K. Banks Poised to Plug Capital Gap Without Share Sales

Britain’s five biggest banks are poised to plug their part of a 25 billion-pound ($38 billion) capital shortfall identified by regulators without turning to shareholders for money.

Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc (LLOY) plan to achieve capital levels required by the U.K. regulator by shrinking their balance sheets and selling assets, the firms said in separate statements May 22. Barclays Plc (BARC) and HSBC Holdings Plc (HSBA) have also ruled out share sales, according to two people familiar with their plans who asked not to be identified because they weren’t permitted to talk publicly. Standard Chartered Plc (STAN) said it already meets requirements.

U.K. banks have been seeking ways to strengthen their balance sheets since the Bank of England said in November it was concerned that they weren’t holding enough capital. The Prudential Regulation Authority, a unit of the central bank, ordered banks in March to plug the shortfall by the end of the year to cover bigger potential losses, possible fines for mis-selling and stricter risk models.

Spokesmen at Barclays and HSBC declined to comment. Sarah Bailey, a spokeswoman for the PRA, declined to give details. Standard Chartered said in an e-mail that the PRA “confirmed our understanding” that it already meets capital requirements.

Lloyds reiterated on May 22 that it expects its fully loaded core Tier 1 capital ratio to exceed 9 percent by the end of the year and 10 percent by the end of 2014. RBS will have met the Basel requirements by the end of this year and the Vickers requirement by the end of 2014, Chief Executive Officer Stephen Hester said this month, referring to the government-commissioned report led by John Vickers that recommended a core Tier 1 ratio of at least 10 percent.

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Options Market Makers Sue Exchanges Alleging Overcharges

Citadel Securities LLC and three other market makers sued the biggest options exchanges, claiming they were wrongly charged fees on trades during a seven-year period.

The companies sued Chicago Board Options Exchange LLC and four more exchanges saying they systematically overcharged or wrongly assessed fees on trades from January 2004 to June 2011.

The case centers on pricing incentives adopted by securities exchanges during the past decade and a half, as technical advances and regulatory reform squeezed profits in stock and options trading and the number of markets multiplied.

Joining Citadel in the case are Chicago-based Ronin Capital LLC, San Francisco-based Group One Trading LP, Susquehanna Investment Group and Susquehanna Securities.

The defendants in the lawsuit include International Securities Exchange LLC, the NYSE Euronext-owned NYSE Arca electronic options exchange and NYSE Amex exchange and Philadelphia Stock Exchange operated by the NASDAQ OMX Group. (NDAQ:US)

Gail Osten and Molly McGregor, spokeswomen for the Chicago Board Options Exchange and ISE, respectively, yesterday declined to comment on the allegations.

Rich Adamonis, and Rob Madden, spokesmen for NYSE Euronext (NYX:US) and Nasdaq, respectively, also declined to comment on the suit.

David Pollard, a spokesman for Susquehanna, didn’t respond to a phone call seeking comment. A voice-mail message left at Group One Trading’s main office number wasn’t returned.

The case is Citadel Securities LLC v. Chicago Board Options Exchange Inc., 13CH13246, Cook County Circuit Court, Chancery Division (Chicago).

To contact the reporter on this story: Carla Main in New York at

To contact the editor responsible for this story: Michael Hytha at

The Good Business Issue

Companies Mentioned

  • C
    (Citigroup Inc)
    • $54.43 USD
    • -0.11
    • -0.2%
  • JPM
    (JPMorgan Chase & Co)
    • $62.55 USD
    • 0.07
    • 0.11%
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