Thursday, 8 May 2014

JP Morgan - you did that ?

JP Morgan ought to feel at least a modicum of shame.

Look at their sweeping action last weekend - they have reportedly closed every foreign diplomat's account. In fact they have closed every current and former  government official's account and frozen their credit cards if he was not American. The reason is that they are facing increasing compliance costs because of US government requirements that non US "politically exposed persons" have to be subject to added scrutiny. The logic behind the American government action is that every foreign diplomat is, of course, laundering money - since all non American diplomats are crooks while American diplomats are saints. JP Morgan has been facing penalties on this account and they have got so fed up that they chose to simply close every diplomat's account.

If this is not rank discrimination, then I am not sure what is. US government and officials are fine. Only non US government officials are in trouble. The good José Antonio Ocampo, former finance minister of Colombia and a past nominee for the President of the World Bank was one of those affected and he has complained to the regulatory authorities of discrimination. I hope a class action suit emanates from somewhere.

Actually the problem is not JP Morgan although they must be made to pay for this action. The real problem is the US attempting to impose unilateral laws on the world. This is part of a growing trend of holier than thou practices of the US government. Every foreign diplomat is surely a crook and must be dealt with on that assumption. The rule of law is paramount in the US and all lesser mortals please bend and obey. When reciprocity is meted out, then of course, the host country laws are not "fair". Bullshit.

The justification for all this is that this happens on US soil and therefore the US can pretty much do what it wants.  Fine, then we should simply extend that principle in every country. Ramamrithams of the world unite and go after American diplomats everywhere. Subject every diplomat to the same "added scrutiny" including the principle of guilty until proven innocent and very soon we can have a wonderful balkanisation of the world.

World diplomacy acts on give and take - not on pedantic and narrow minded imposition of unilateral laws. The US presumably acts in this manner because it has the power and therefore it can do so. That's against every principle that the US, a noble country, itself stands for. It is a measure of a strong and powerful man/community/nation as to how humbly it can exercise that power. The onus is on the strong to prove that it is fairer than fair. Soft power is often achieved by not exercising any hard power at all. There are a million ways of going after money laundering, much of which the US and many other countries do today. Blanket discrimination against foreign diplomats is not one of them. The thought that a non North American, non Western European, country invariably has lesser standards than them is exactly the stuff racism is made of. Find and punish the guilty by all means, but to assume that Asians, Africans and Eastern Europeans are likely to be guilty is, well, disgusting. The United States might wish to ponder why it is, despite all its extremely great qualities,  viewed with such disdain in most of the world.

There's a fine line between being powerful and being a bully. If it does not revoke this action, a just action by the rest of the world would be unchain Ramamritham and let him loose on American diplomats everywhere.


Anonymous said...

Exkalibur 666:
Ramamritham unchained like Django Unchanged.. has a nice ring to it :-)... Couldn't agree more with you and this definitely is not going to be the last of such unilateral actions from the US..

Ramesh said...

@Exkalibur - Django unchained ???? Hahahaha

Sriram Khé said...

Hey, the way I read it, your commentary seems to want the reader to think that the US government directed JP Morgan to close the foreign diplomats' accounts. But that is not the case. This is merely the case of the bank taking the easy way out instead of making sure it will comply with the laws against money laundering. The FT news item you linked to notes:
"JPMorgan said it was closing the Chase accounts and stopping the credit cards of all current and former non-US senior government officials because of increased compliance costs. Banks are obliged to subject the accounts of such “politically exposed persons” to added scrutiny. "

The bank's, I repeat, the bank's action is bizarre, especially with the case of the Colombian economist you write--"Mr Ocampo, a customer of JPMorgan for 10 years and a permanent resident of the US" ... The bank was so lazy to do the work that it could not be bothered to even notice that Ocampo is not truly a foreigner in the US!

I say blame JP Morgan here. This is merely yet another example of big banks not wanting to work with the laws, and wanting to skirt them!

Ravi Rajagopalan said...

@Ramesh: Last year a senior official in the Bank told me they had signed a consent decree with the Office of the Comptroller of Currency to screen any new product that they were launching with the OCC first. They were also going to hire thousands of compliance officers.

I agree with Sriram's contention that it is not the United States, it is the Bank. If the Bank does not invest in compliance they face disproportionate insurance costs. They just took the easy way out.

Barclays did the same thing last year when they closed all the accounts of Money Transfer bureaus in the UK. When the UNHCR protested, Barclays simply asked them to insure the Bank against compliance risk. Most of the MTS services are gone now.

I learnt along the way that at a micro level, there are lessons to be learnt from Indonesian banks. They have the most profitable banks in the world (NIM exceeds 6%). They lend heavily to SMEs and Micro Enterprises. Most of them assign a maximum of 200 cases to each loan officer. As a result employee costs are high but NPAs are very low.

If AML is an issue, increased scrutiny is the answer. Not unilateral action like this that does not win you friends.

Ramesh said...

@Sriram - You missed the central point in my argument. Yes, JP Morgan is to blame. But there is a law that the US seeks to enforce that is one for US government officials and one for non US government officials (past or present). The cost of complying with the provisions for non US officials is so much that banks are choosing to withdraw altogether from servicing them. Blanket grouping of every non US government official for scruitny of money laundering, I submit, is nothing but racism.

Ramesh said...

@Ravi - I would blame JP Morgan entirely if the AML laws were the same for everybody. In the Barclays case, they chose to close every Money Transfer Bureau. That's a commercial decision - if its too expensive they are entirely withing their rights to withdraw from the business

The problem in this case is there is one law for Americans and one for everybody else. That is racism in my book. Notice that my exhortation to Ramamritham is to reciprocate the same stuff - that is make the compliance cost of opening a bank account for an American diplomat in Singapore or Shanghai or Beijing or Mumbai so high that we simply level the playing field.

Prats said...

But if JP Morgan does this how will US spy on other countries' diplomatic financial transaction?

Ramesh said...

@Prats - Good question :)

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