Nick Rost van Tonningen ~ Gleanings II ~ 517 Posted by John on June 29, 2013

Last week I made disparaging remarks about the nomenclature of the US-Taliban peace talks slated for Doha. My scepticism in that respect has since been validated by NATO Chief Anders Fogh Rasmussen when he noted, in an apparent move to justify President Karzai’s pique at its proposed format, that at its Summit last year in Chicago NATO’s leaders had agreed that the peace process in Afghanistan had to be “Afghan-led and Afghan-owned”.

The Basle-based BIS (Bank of international Settlement, aka the “central banks’ central bank) this week opined that cheap & plentiful central bank money has just bought time, that delivering more “extraordinary” stimulus was becoming “increasingly perilous”, & that the “authorities must hasten … reforms, the private sector … deleverage, and the public sector … ensure fiscal sustainability … and the expectation that monetary policy can solve these problems is a recipe for failure.” Furthermore, that central banks must manage a return to their stabilization role, allowing others to do the hard but essential work of adjustment – that’s fine in theory; but the problem all along has been that “the others”, i.e. politicians individually in the US, & in the EU collectively (although the latter with notable country exceptions) have been, & remain, averse to doing anything remotely associated with “the hard but essential work of adjustment.”

According to the Economist “some 1.4MM people have ‘top secret’ clearance of the kind held by Mr. Snowden – at last report there were 2.8MM people in the US federal civil service’s Executive Branch, 1.6MM in the military & 400,000 employed by the Department of Homeland Security (half employees & the other half contractors, like Mr, Snowden) – these numbers, that involve some double-counting, suggest that one out of three in these groups have a Top Secret security rating – given the old saying that “three people can keep a secret only if two of them are dead”, this makes the Top Secret classification little more than a bad joke.

The Snowden affair has had two serious consequences for the US. It has seriously undermined its ability to take the high road in criticizing other, ‘less democratic’ governments for their approach to citizens’ rights. And the failure by first China & then Russia to respond to US requests to extradite someone whom Secretary of State John Kerry called a “fugitive of justice” suggests a serious erosion in the US’ real world superpower clout. This is particularly so in light of some of Putin comments (that included one that, while the US labeled Mr. Snowden, like Wikileaks founder Julian Assange before him, a criminal, he, like Mr. Assange, considered himself a champion of freedom of information, and another that asked “Should people like that be extradited so they can put them in prison?” – one must also wonder how badly the US really wants him back given that, if his case ever went to court, the US security apparatus might be further compromised.

On June 21st a Financial Times article noted that the previous day, Thursday June 20th, State Street had stopped cash redemption orders for municipal bond ETFs from dealers (accepting only redemption orders in kind, i.e. those that accepted bonds in payment). It also noted that a Citigroup trader too had emailed other market participants “We are unable to take any more redemptions today ….” – this story didn’t have had much traction in the mainline media; for such events are suggestive of strains in the capital markets the authorities would prefer not to have the hoi polloi be aware of.

On Friday June 21st Colorado-based Golden Minerals (AUM-NYSE) announced it was suspending operations at its Velardena gold/silver mine in Mexico. Last February it forecast “cash neutrality” in the Third Quarter at the mine at the then prevailing gold & silver prices & in May, with gold at US$1,500 & silver at US$25, a US$5MM “negative margin” (a euphemism for “loss”), while at last report the former was US$1,200 & the latter < US$20. Its share price went from North of US$6.50 last September to < US$1.50 today, & TD Securities just cut its price target from US$1.15 to US$0.35 - this may well be the first of (many?) similar announcements by other gold & silver producers (among whom this company had the advantage of better-than-average ore grades - 2.31 grammes of gold & 127 of silver per tonne) that will tighten the newly-mined supply of gold & silver. Elsewhere Newcrest, Australia’s biggest gold miner, on June 7th announced a US$6BN write-off in the value of its assets, the biggest write-off ever in gold mining history (not surprisingly its share price has tanked 40% since), and more recently Barrick Gold, the world’s largest gold miner (that earlier this year wrote the value of its 2011 acquisition of copper producer Equinox Minerals off by $4.2BN), announced it was laying off nearly one-third of its corporate head office staff, as well as additional staff at its regional offices. And both Goldman & Morgan Stanley cut their gold price forecasts (which if last April’s is anything to go by, merely signals that they have already seriously shorted gold). While the “hot money” is getting out of gold in a ‘head over heels’ panicky fashion, commercial gold traders, those making their living buying & selling gold, are the most bullish they’ve been since 2009 & have been increasing their ‘long gold’ gold positions. And while the paper gold market has been deleveraging with a vengeance & the newly-mined supply is likely to shrink significantly, central banks & culture-driven consumers in India & China, and other long-term holders, seem to be looking at the current low (paper) gold price as opportunities to buy, & lock away, more physical gold. And successful investors as far back as Lord Rothschild during the Napoleonic wars in Europe and, more recently the eminently successful John Templeton, ‘made their bones” by ‘selling when optimism was at its highest & buying when fear was greatest. Weil, Gotshal & Manges is a New York-based corporate law firm with 21 offices around the world, 1,200 lawyers (incl. 300 partners making, on average, US$2.2MM) & 2012 revenues of US$1.2BN. On June 24th it let 60 lawyers go (& 110 non-lawyers) go, and announced it was cutting the compensation of some of its partners (who under it partnership agreement cannot be let go). Never before in its 82-year history has it laid off staff; not even during the Great Recession, when it was able to avoid lay-offs because of the work created by clients going into Chapter 11. But its ‘gold-plated’ corporate clients are said to have become “stingy” in what they are prepared to pay for outside legal advice. These lay-offs were also said to be prompted by the fact that the drop-off in crisis-related legal work has not been offset by the pick-up expected in ‘transactional’ business (such as generated by M&A). This summer has seen serious floods in many parts of the globe (caused by the fact that warming oceans emit more water evaporation & warmer air can hold more water with the result that when the resultant supersaturated airmass collides with a cold front, it has more water to dump). Last week it was Calgary’s turn when upstream from the city as much as ten inches (25 cms) of rain (3x the norm for the entire month of June) fell in a 36 hour period, as a result of which as many as 100,000 Calgarians had to vacate their homes. As far back as 1973, & again ten years later, the city considered declaring flood plains ‘hazard zones’. And in 2006 a former Conservative Member of the Provincial Legislature, after much of his riding was flooded in the big 2005 flood in Calgary (that was, however, child’s play compared to this year’s) wrote a report recommending the Province put limits on development in flood plains & consider refusing to provide disaster relief money to those living in areas of “inappropriate development”. But such ideas always foundered on the home construction’s bleating that “one of the most popular choices of Canadians is to live near water” & that by the homeowners in the areas that doing so would cause the value of their homes to drop. So now Alberta taxpayers will get stuck with a billion plus dollar bill, & the provincial government’s already sizeable budget deficit get even bigger, to indulge the wish of the relatively few, mostly upscale, who want to live “near water”. High River is a town of 13,000 upstream from Calgary where the flooding was so bad its entire population had to be evacuated. On June 27th, the eighth day of their evacuation, news spread among the seriously stressed & distressed High River evacuees that the RCMP had stepped into a hornets’ nest of its own making by collecting guns from their (often in great haste) abandoned homes (because the water had risen so quickly). And the explanation of an RCMP spokesman that “We just want to make sure all of those things are in a spot that we control, simply because of what they are ... People have a significant amount of money invested in firearms ... so we put them in a place that we control and where they are safe” didn’t cut much ice with people whose entire life has been upended & who were already more than a little irritated by the delays in being allowed to go back to try & pick up their lives from where it was before the flood - whoever in the RCMP took this decision was an utter dunce, if only because Alberta towns like High River have more than their fair share of gun afficionadoes & because even those who aren’t saw this as a wholly unwarranted seizure of their personal property, Those familiar with Canadian politics will be aware of the problems Prime Minister Harper faced due to a number of Senators, most of them his appointees, ripping off the Canadian taxpayer. On top of all that his favourite political ‘pitbull’, Foreign Affairs Minister John Baird, was recently found to have stayed, along with a handful of his friends, at the residence of Canada’s Consul-General in New York for five days for New Year’s 2012 & then to have repeated the same caper for eight days for New Year’s 2013 at the official residence of Canada’s High Commissioner in London. When this was outed, his office comment was that he was only taking favours from friends which “did not cost taxpayers a dime” - but the perception just stank, they might be friends, but they are first & foremost subordinates who would be unwise to say “No”. Alberta Premier Allison Redford was recently heard observing that part of her government revenue problems are due to the fact that too much of Alberta’s oil output goes to the US market - and yet she is actively promoting the Keystone XL pipeline to the US Gulf Coast refineries? A small, 20-employee Calgary-based company, Livestock Water Recycling Inc., claims to have developed a process for breaking down cattle & hog manure into useful components, incl. potable water, with its CEO grossing people out by drinking it in front of them. It has so far installed $500,000 to $1MM systems on ten farms in North America - this is not a new idea. Sixty years ago already one house in the PMQ (Permanent Married Quarters) complex at Rockcliffe AFB in Ottawa had an experimental “total water system” of Swedish design that had a large holding tank cum filtration system in the basement that recycled all water used in the house (incl. that used to flush the toilets). But it was proven necessary to let each new tenant send samples of the water coming out of its taps to laboratories of their choice to convince them it was of a quality similar to that in the city’s system. People in many cities don’t appreciate that their drinking water often comes from rivers that are the repository of upstream cities’ treated (or sometimes raw) sewage). Slower GDP-, & credit-, growth in China implies a lower demand for commodities of all kinds (except food stuffs?). But Beijing seems bound & determined to once & for all clean up its ‘shadow banking system’ (that has fueled much of the recent years’ speculative activity & that by some accounts is a big as 50% of its GDP) regardless of the short-term economic pain that may entail, so as to indicate to one & all that there has been a real regime change & that “Full speed ahead & damn the torpedoes” attitudes are a thing of the past (the now septuagenarian Mark Mobius, who first joined Sir John Templeton in 1987 as his emerging market fund manager & since has become a China guru, and who now oversees the day-to-day management of over 50 emerging market funds at Franklin Templeton Investments, believes that China’s shadow banking problems are greater than the sub-prime ones of the US several years ago (& greater than the new leaders are aware?) - if so, one can only hope that Beijing will prove more adept at dealing with them than Washington was four years ago (although it will have two advantages over Washington : less need to cater to public sentiments & a greater ability to sweep things ‘under the rug’. The Democratic Left Party has pulled out of the Greek government coalition in a dispute over the state broadcaster ERT, leaving it with a paper-thin 153 seat majority in the 300-seat Parliament (although a few independent members will support it on a case-by-case basis) - ERT operated 4 TV channels that by general consensus weren’t worth watching and, generally speaking, was deemed hugely overstaffed & hugely overpaying its prominenti. So on June 11th Prime Minister Samaras announced it had been closed down with all its employees getting a ‘pink slip’, undertaking to replace it in two months’ time with a new, improved version with only 1,200 staff. Samaras was in a box, for he faced an EU/IMF-imposed target of 2,000 civil service lay-offs by June 30th & up to that point had little to show for in that respect. The EU & IMF are getting concerned that, while budget-wise Samaras had done well (his government is now in a primary surplus position, i.e. its budget is balanced but for its debt service obligations), he has achieved little in the politically difficult areas, i.e. in restructuring the bloated public sector, curbing tax evasion & privatizing the SOE sector. According to Britain’s Meteorological Office for much of the 20th century sooty particles generated by industrialization made conditions unfavourable for hurricanes. And it says there is evidence of “a direct link between a decline in industrial pollution across the Atlantic and an increase in the number of deadly storms battering the coasts of America and the Caribbean.” GLEANINGS II - 517 Thursday June 27th, 2013 BOND MARKET EXIT IS TURNING INTO A STAMPEDE (NYT, Nathanile Popper) $ Wall Street never thought it could be this bad. Over the past two months, & especially in the past two weeks, investors have been getting out of bonds with unforeseen ferocity. While a bond sell-off had long been expected, few, if any, strategists had anticipated such a fast exit rate, one in which the value of the 10-year UST benchmark bond declined by 10% in six weeks, & its yield rose from a 1.43% on May 1st to 2.66% on June 24th. Retail investors alone liquidated US$48BN in bond funds between June 1st & June 24th as hedge funds & other institutional investors too cut back their bond exposure Strategists forecast rationally & incrementally, while fear-driven markets do neither. Among the hardest-hit has been the municipal market; thus a 4%, 15-year AA-rated Bend, Ore. issue in three weeks went from a $110 new issue price (to yield 2.83% to maturity) to $97 (4.28%). A SHOCK TO THE LOOSE MONETARY POLICY WILL PUSH GOLD HIGHER (Kitco News, Neils Christensen) $ On June 19th Tony Boeckh was the keynote speaker at a luncheon hosted by the Montreal Economic Institute, a public policy economic think tank in that city. Longer term he expects gold to rally as investors seek to protect their capital in a high inflation environment. But, given weak commodity prices, a strong US dollar & high equity prices, it is difficult to make a strong bullish case for it in the short term. He thinks that, while the US economy may be improving, it’s doing so in an “artificial environment”; for “while private and household balance sheets have improved ... (this) has been overshadowed by an increase in sovereign debt ... (so) the key question here is how solid is that improvement?” He expects more asset bubbles; for “When you create a lot of money, it has to go somewhere, and it will go into asset markets.” And he worries that, while the Fed is now talking about an exit strategy, there is so much money in the system that, when inflation picks up, it may be too late for it to control it, and he noted that - while central bankers now say a bit of inflation is a good thing, they said the same in the 60's (when he was at the Bank of Canada) & the end result was 15% inflation. The problem with central bankers is, according to John Grant, long-time editor of The Interest Rate Observer, a contrarian market letter well worth reading, that they rely on “physically dysfunctional” econometric models & that, while “they mean well, they don’t always do well”. Many taxi drivers & bar owners have a better handle sooner on the real state of the economy (for their income depends on consumers’ discretionary incomes & propensity to spend), & housewives on inflation, than many policy advisers with Ph.Ds in economics who rely on info coming in with a lag, and decision makers who must rely on not always unbiased interpretations of that info. Thus during the period in the 60's Tony referred to when inflation was a big issue in Canada, an opposition MP during Question Period in the House of Commons asked the then Canadian Prime Minister Pierre Trudeau if he knew the price of a dozen eggs on supermarkets’ shelves - and he didn’t have a clue! (Boeckh went from the Bank of Canada to found the Montreal-based financial market letter called the Bank Credit Analyst which has since morphed into the highly-regarded BCA Research entity in that city &, although he has retired from that firm, he remains active as editor of the Boeckh Investment Letter). US ECONOMY’S GROWTH RATE GETS A TRIM (AP) $ In its second revision the US Commerce Department downsized its estimate of the US economy’s First Quarter GDP growth rate from its preliminary 2.6%, & its initial revision 2.4%, to 1.8%. This was largely due to a lower-than-earlier-perceived rate of growth in consumer spending (from 3.4% to 2.6%); for it now appears that the January 1st hike in Social Security taxes began to “bite” sooner than thought earlier. The best things that can be said about this is that it was still a great deal better than the Fourth Quarter’s 0.4%, and that, all other things being equal, it may result in the Fed becoming less ‘rammy’ about ‘tapering’ its QE3 bond purchase program as this will send all forecasters, incl. the Fed’s own, back to the drawing board to cut their earlier GDP growth forecasts for the rest of the year (which had typically called for 2½% in the Third Quarter & 3% in the Fourth). BIGGEST HOME PRICE INCREASE IN SEVEN YEARS BUOYS RECOVERY HOPES (G&M, Christopher S. Rugaber) $ In April US home prices were up 12.1% YoY, the most since March 2006, & 2.5% MoM, the most since 2000. In all of the nation’s 20 biggest cities except Detroit house prices were up MoM, & in all 20 YoY. Prices are rising because demand is up & the supply limited. And while builders are optimistic about the outlook, Stan Humphries, Chief Economist at real estate data provider Zillow, warned rising mortgage rates & more sellers will temper the potential for price gains in the coming months. To keep it all in perspective the number of new houses sold is still down almost two-thirds from, & average prices still 20% off, their peak, and newly built houses are smaller than ten years ago ANNUITIES CONTRACTS MAY COST LIFE INSURERS BILLIONS (WSJ, Leslie Scim) $ In recent years US life insurance companies have been pushing the sale of “variable annuities”, a tax-advantaged way of investing in stocks & bonds that promises buyers continued payouts even if their accounts are depleted. But a June 24th Moody’s report warned that miscalculations about the number of people who would buy these life income-guaranteed products could cost them billions (even though they have already been making major efforts to make them less generous to holders). Miscalculations on the number of buyers only affect the size of the potential losses. What really matters is that, once again, vendors of financial “products” hired wizards in mathematics of finance to create a new derivative product only to find out after the fact that they hadn’t been as not been as great wizards in non-mathematical matters &, worse still, that sometimes their math was flawed. When will they ever learn? I GAVE THE “LEAST UNTRUTHFUL” ANSWER ON SPYING (Yahoo!News, Oliver Knox) $ Last March James Clapper, the US Director of National Intelligence, in appearing before the Senate Intelligence Committee was asked the following direct question by Sen. Ron Wyden (D.-Ore) : “Last summer the NSA (National Security Agency) ... at a conference ... was asked a question about NSA surveillance of Americans. He replied, and I quote here, ‘...the story that we have millions or hundreds of millions of dossiers on people is completely false’ ... Does the NSA collect any type of data at all on millions or hundreds of millions of Americans?”, to which Mr. Clapper’s answer was “No Sir ... Not wittingly. There are cases where they could inadvertently perhaps collect, but not wittingly.” $ On June 9th, he told NBCNews that when he told the Committee this in March “I responded (to what he called ‘an unfair question’) in what I thought was the most truthful, or least untruthful, manner by saying ‘No’” (while it is now known the NSA has for years been vacuuming up the telephone records of millions of Verizon customers). When he appeared before the Senate Intelligence Committee, whether he under oath or not, it would have been taken for granted that he would tell “the truth, the whole truth & nothing but the truth” rather than some version thereof intended to be misinterpreted. CANTOR URGES OBAMA TO ENTER TALKS ON DEBT (CNBC, Drew Sandholm) $ On CNBC on June 24th House Majority Leader Eric Cntor (R.-Va) entertained an idea anathemous to many of his fiscally more conservative caucus colleagues, i.e. to address the debt ceiling issue before its September ‘drop dead’ date. But he also criticized President Obama’s leadership & said “I want to see, first of all, an indication from the White House, that they’re willing to sit down and work this out, and avoid some kind of dramatic incident” (such as delaying a decision until the very last moment). And he intimated the solution cannot simply be one of hiking taxes as, he says, Obama wants. There is now growing evidence that Speaker John Boehner (R.- Ohio) are having difficulties getting the Republican caucus in the House to follow their lead. And there is an outside possibility that in a worst case scenario Republicans adamantly opposed to tax increases in any way, shape or form could combine with Democrats equally entrenched on the issue of ‘no entitlement cuts in any way, shape or form’ to cause the fiscal express to ‘hit the wall’ at 90 mph come next September, while the best case scenario that can be hoped for is that it will, once again, be ‘rolled down the road’. OBAMA UNLIKE HARPER HEEDS CLIMATE CHANGE (Toronto Star, Simon Dalby) $ In his June 19th speech in Berlin President Obama emphasized the importance to further reduce the number of nuclear weapons, but made it very clear dealing with climate change & cutting greenhouse gas emissions needs priority attention (& he likely had an appreciative audience, with the weather this spring generally, & widespread flooding more specifically, having made Europeans more aware than ever of climate change, no matter who, or what, is responsible for it). And he warned that if we fail to deal with this issue “the grim alternative affects all nations - more severe storms, more famine and floods, new waves of refugees, coastlines that vanish, oceans that rise. This is the future we must avert. This is the global threat of our time.” So after a quarter century of discussion, here is (finally?) a US President boldly asserting that environmental security should get top billing. And his timing was apt; for in recent weeks authorities on three continents (Central Europe, Northern India & Southern Alberta) have been struggling with calamitous floodings brought on by torrential rains in very compressed time frames. And in his speech in Washington five days later he explicitly argued it was the responsibility of all citizens to “convince those in power to reduce carbon pollution.” $ On the other hand, one week prior to Obama’s Berlin speech, Canada’s Prime Minister, Stephen Harper, in addressing Britain’s Members of Parliament, harkened back to an era when conservative “values” were underpinned by a growing economy & security based on prosperity, and a willingness to use force to promote those values, seemingly failing to understand that prosperity based on fossil fuel is the very thing that is increasingly endangering people by extreme weather events. If the Prime Minister is to run true to form, Obama’s Berlin speech will in time prove a ‘Paul on the road to Damascus two thousand years ago’ (Acts 9 : 3-9) moment for him. And what ought to strike fear in the hearts of those promoting the proposed Keystone XL pipeline to carry half a million or so barrels if ‘dilbit’ (diluted bitumen) from Alberta to US Gulf Coast refineries, is that, while back in 2009 during his visit to Ottawa President Obama referred to the Alberta “oil sands”, in his recent speech he called them “tar sands”, the derogatory term used by environmentalists & the detractors of oil sands development. While I don’t disagree with the general tenor of this media “peg”, for I have been saying for many years already that “in the 18th, 19th & 20th centuries Man thought he could control-, if he wants to survive the 21st, he’d better learn to live with-, Nature, it’s worth remembering that the Toronto Star is the most anti-Harper major newspaper in Canada & that the writer teaches the Political Economy of Climate Change at the University of Waterloo’s Balsillie School of International Affairs; to both were talking their own “book”. EUROZONE FACES CRISIS OF FAITH (WSJ, Marcus Walker Berlin) $ At their June 27th EU Summit Europe’s leaders face a situation that may be even harder to fix than some of their debt problems, namely that Europeans are losing trust in the EU itself & the benefits it was supposed to generate. The prolonged economic slump has resulted in a public animosity towards the EU that is reflected in the polls & that has national politicians increasingly blaming it for the high unemployment & budget strains (which is making it more difficult to overcome the basic design flaws in the Euro). And while the Eurocrats, & many analysts, say the answer is to centralize more policy-making in Brussels, voters have become less & less supportive of this idea, resulting in political tension bursting out into the open. Even the government of the traditionally pro-EU Netherlands is souring on the idea of greater European integration, declaring that the idea of “ever-closer union” should just be deep-sixed. And, while nowhere in Europe except Britain there seems to be much public support for abandoning the Euro, all over Europe support for strengthening its institutions has waned. While the Summit seems to have made little headway addressing the critical, painfully high (youth) unemployment rate issue, it did make some headway in protecting the (German) taxpayer from paying for other countries’ bank failures. For it did agree that henceforth (sort of a la Cyprus), in the case of a bank failing, its shareholders & large depositors would have to take major haircuts before the EU bailout mechanism would spring into the breach; in other words, taxpayers would be the last-, rather than the first-, to have their pockets picked. But the optimism expressed that this will make banks more eager to start lending more pro-actively would seem misplaced & to be defying logic. SWISS REJECT BID THAT WOULD ALLOW BANKS TO REVEAL AMERICA TAX EVADERS (DJ, John Letzing) $ On June 19th the Swiss Parliament Upper House passed 26-18 a controversial Swiss Cabinet proposal to permit its banks to sidestep its banking secrecy laws & give info to the US Department of Justice about any help rendered in the past to US citizens hiding undeclared wealth in Swiss bank accounts, only to have the Lower House, later that same day, reject it 123-63. The latter vote was driven by lawmakers’ concern about the US heavy-handedness on this issue & by the lack of clarity in the measure on the potential for fining banks that would cooperate with the US Justice Department in this matter. But the Lower House move didn’t come as a surprise; in fact, the Upper House had indicated earlier , without going into details, that it had a contingency plan in case the Lower House did vote the measure down. $ Since the 2008 financial crisis the Department of Justice has increased its efforts to track down undeclared offshore wealth. The Swiss banks are a prime target since, according to the Boston Consulting Group, they may have up to US$2.2TR in undeclared offshore wealth (an unknown share of it for non-US citizens). Back in 2009 the Justice Department cut a deal with UBS, the largest Swiss bank, to admit having helped US citizens evade taxes in exchange for paying a US$780MM fine. One small Swiss bank, St. Gallen-based Wegelin & Co. was earlier also indicted & is now defunct. The Swiss banks are vulnerable to the extent this involved out-and-out tax evasion (rather than tax optimization that uses the various countries’ tax laws themselves against them to reduce tax payment obligations). Cabinet had cited the US authorities’ dwindling patience as the reason for Parliament to act with dispatch. Presumably in the end the Swiss Parliament will do something to placate the US authorities if only because otherwise the latter might start looking for “high-minded” Snowden clones among Swiss bank employees to sell them lists of US citizens with accounts in their banks (Wegelin & Co. was founded in 1741 & was Switzerland’s oldest bank (& the world’s 13th-oldest). It pleaded guilty in 2012 to assisting US citizens to evade paying tax on US$1.2BN is assets between 2002 & 2010, paid a US$57.8MM fine and officially went out of business (but in reality is continuing to operate with the same staff & assets out of the same building under the name of a former subsidiary).