Geneticist Jennifer Doudna co-invented a groundbreaking new technology for editing genes, called CRISPR-Cas9. The tool allows scientists to make precise edits to DNA strands, which could lead to treatments for genetic diseases … but could also be used to create so-called “designer babies.” Doudna reviews how CRISPR-Cas9 works — and asks the scientific community to pause and discuss the ethics of this new tool.
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Geneticist Jennifer Doudna co-invented a groundbreaking new technology for editing genes, called CRISPR-Cas9. The tool allows scientists to make precise edits to DNA …
Q: What is “CRISPR”?
A: “CRISPR” (pronounced “crisper”) stands for Clustered Regularly Interspaced Short Palindromic Repeats, which are the hallmark of a bacterial defense system which forms the basis for the popular CRISPR-Cas9 genome editing technology. In the field of genome engineering, the term “CRISPR” is often used loosely to refer to the entire CRISPR-Cas9 system, which can be programmed to target specific stretches of genetic code and to edit DNA at precise locations. These tools allow researchers to permanently modify genes in living cells and organisms and, in the future, may make it possible to correct mutations at precise locations in the human genome to treat genetic causes of disease. In September 2015, the Zhang lab demonstrated successful harnessing of a different CRISPR system for genome editing, called CRISPR-Cpf1, which has the potential for even simpler and more precise genome engineering. Q: Where do CRISPRs come from?
A: CRISPRs were first discovered in archaea (and later in bacteria), by Francisco Mojica, a scientists at the University of Alicante in Spain. He proposed that CRISPRs serve as part of the bacterial immune system, defending against invading viruses. They consist of repeating sequences of genetic code, interrupted by “spacer” sequences – remnants of genetic code from past invaders. The system serves as a genetic memory that helps the cell detect and destroy invaders (called “bacteriophage”) when they return. Mojica’s theory was experimentally demonstrated in 2007 by a team of scientists led by Philippe Horvath.
In January 2013, Feng Zhang at the Broad Institute and MIT published the first method to engineer CRISPR to edit the genome in mouse and human cells. Q: How does the system work?
A: CRISPR “spacer” sequences are transcribed into short RNA sequences (“CRISPR RNAs” or “crRNA”) capable of guiding the system to matching sequences of DNA. When the target DNA is found, Cas9 – one of the enzymes produced by the CRISPR system – binds to the DNA and cuts it, shutting the targeted gene off. Using modified versions of Cas9, researchers can activate gene expression instead of cutting the DNA. These techniques allow researchers to study the gene’s function.
Research also suggests that CRISPR-Cas9 can be used to target and modify “typos” in the three-billion-letter sequence of the human genome in an effort to treat genetic disease.
An artist’s depiction of the CRISPR system in action. Illustration by Stephen Dixon
Q: How does CRISPR-Cas9 compare to other genome editing tools?
A: CRISPR-Cas9 is proving to be an efficient and customizable alternative to other existing genome editing tools. Since the CRISPR-Cas9 system itself is capable of cutting DNA strands, CRISPRs do not need to be paired with separate cleaving enzymes as other tools do. They can also easily be matched with tailor-made “guide” RNA (gRNA) sequences designed to lead them to their DNA targets. Tens of thousands of such gRNA sequences have already been created and are available to the research community. CRISPR-Cas9 can also be used to target multiple genes simultaneously, which is another advantage that sets it apart from other gene-editing tools.
CRISPR-Cpf1 differs in several important ways from the previously described Cas9, with significant implications for research and therapeutics.
First: In its natural form, the DNA-cutting enzyme Cas9 forms a complex with two small RNAs, both of which are required for the cutting activity. The Cpf1 system is simpler in that it requires only a single RNA. The Cpf1 enzyme is also smaller than the standard SpCas9, making it easier to deliver into cells and tissues.
Second, and perhaps most significantly: Cpf1 cuts DNA in a different manner than Cas9. When the Cas9 complex cuts DNA, it cuts both strands at the same place, leaving ‘blunt ends’ that often undergo mutations as they are rejoined. With the Cpf1 complex the cuts in the two strands are offset, leaving short overhangs on the exposed ends. This is expected to help with precise insertion, allowing researchers to integrate a piece of DNA more efficiently and accurately.
Third: Cpf1 cuts far away from the recognition site, meaning that even if the targeted gene becomes mutated at the cut site, it can likely still be re-cut, allowing multiple opportunities for correct editing to occur.
Fourth: the Cpf1 system provides new flexibility in choosing target sites. Like Cas9, the Cpf1 complex must first attach to a short sequence known as a PAM, and targets must be chosen that are adjacent to naturally occurring PAM sequences. The Cpf1 complex recognizes very different PAM sequences from those of Cas9. This could be an advantage in targeting some genomes, such as in the malaria parasite as well as in humans.
CRISPR, a new genome editing tool, could transform the field of biology—and a recent study on genetically-engineered human embryos has converted this promise into media hype. But scientists have been tinkering with genomes for decades. Why is CRISPR suddenly such a big deal?
The short answer is that CRISPR allows scientists to edit genomes with unprecedented precision, efficiency, and flexibility. The past few years have seen a flurry of “firsts” with CRISPR, from creating monkeys with targeted mutations to preventing HIV infection in human cells. Earlier this month, Chinese scientists announced they applied the technique to nonviable human embryos, hinting at CRISPR’s potential to cure any genetic disease. And yes, it might even lead to designer babies. (Though, as the results of that study show, it’s still far from ready for the doctor’s office.)
In short, CRISPR is far better than older techniques for gene splicing and editing. And you know what? Scientists didn’t invent it.
CRISPR/Cas9 comes from strep bacteria…
CRISPR is actually a naturally-occurring, ancient defense mechanism found in a wide range of bacteria. As far as back the 1980s, scientists observed a strange pattern in some bacterial genomes. One DNA sequence would be repeated over and over again, with unique sequences in between the repeats. They called this odd configuration “clustered regularly interspaced short palindromic repeats,” or CRISPR.
This was all puzzling until scientists realized the unique sequences in between the repeats matched the DNA of viruses—specifically viruses that prey on bacteria. It turns out CRISPR is one part of the bacteria’s immune system, which keeps bits of dangerous viruses around so it can recognize and defend against those viruses next time they attack. The second part of the defense mechanism is a set of enzymes called Cas (CRISPR-associated proteins), which can precisely snip DNA and slice the hell out of invading viruses. Conveniently, the genes that encode for Cas are always sitting somewhere near the CRISPR sequences.
Here is how they work together to disable viruses, as Carl Zimmerelegantly explains in Quanta:
As the CRISPR region fills with virus DNA, it becomes a molecular most-wanted gallery, representing the enemies the microbe has encountered. The microbe can then use this viral DNA to turn Casenzymes into precision-guided weapons. The microbe copies the genetic material in each spacer into an RNA molecule. Cas enzymes then take up one of the RNA molecules and cradle it. Together, the viral RNA and the Cas enzymes drift through the cell. If they encounter genetic material from a virus that matches the CRISPR RNA, the RNA latches on tightly. The Cas enzymes then chop the DNA in two, preventing the virus from replicating.
There are a number Cas enzymes, but the best known is called Cas9. It comes from Streptococcus pyogenes, better known as the bacteria that causes strep throat. Together, they form the CRISPR/Cas9 system, though it’s often shortened to just CRISPR.
It is a more precise way of editing the genome…
As this point, you can start connecting the dots: Cas9 is an enzyme that snips DNA, and CRISPR is a collection of DNA sequences that tells Cas9 exactly where to snip. All biologists have to do is feed Cas9 the right sequence, called a guide RNA, and boom, you can cut and paste bits of DNA sequence into the genome wherever you want.
DNA is a very long string of four different bases: A, T, C, and G. Other enzymes used in molecular biology might make a cut every time they see, say, a TCGA sequence, going wild and dicing up the entire genome. The CRISPR/Cas9 system doesn’t do that.
Cas9 can recognize a sequence about 20 bases long, so it can be better tailored to a specific gene. All you have to do is design a target sequence using an online tool and order the guide RNA to match. It takes no longer than few days for the guide sequence to arrive by mail. You can even repair a faulty gene by cutting out it with CRISPR/Cas9 and injecting a normal copy of it into a cell. Occasionally, though, the enzyme still cuts in the wrong place, which is one of the stumbling blocks for wider use, especially in the clinic.
…and way more efficient…
Mice whose genes have been altered or “knocked out” (disabled) are the workhorses for biomedical research. It can take over a year to establish new lines of genetically-altered mice with traditional techniques. But it takes just few months with CRISPR/Cas9, sparing the lives of many mice and saving time.
Traditionally, a knockout mouse is made using embryonic stem (ES) cells. Researchers inject the altered DNA sequence into mouse embryos, and hope they are incorporated through a rare process called homologous recombination. Some of first generation mice will be chimeras, their bodies a mixture of cells with and without the mutated sequence. Only some of the chimeras will have reproductive organs that make sperm with mutated sequence. Researchers breed those chimeras with normal mice to get a second generation, and hope that some of them are heterozygous, aka carrying one normal copy of the gene and one mutated copy of the gene in every cell. If you breed two of those heterozygous mice together, you’ll be lucky to get a third generation mouse with two copies of the mutant gene. So it takes at least three generations of mice to get your experimental mutant for research. Here it is summarized in a timeline:
But here’s how a knockout mouse is made with CRISPR. Researchers inject the CRISPR/Cas9 sequences into mouse embryos. The system edits bothcopies of a gene at the same time, and you get the mouse in one generation. With CRISPR/Cas9, you can also alter, say, fives genes at once, whereas you would have to had to go that same laborious, multi-generational process five times before.
CRISPR is also more efficient than two other genome engineering techniques called zinc finger nuclease (ZFN) and transcription activator-like effector nucleases (TALENs). ZFN and TALENs can recognize longer DNA sequences and they theoretically have better specificity than CRISPR/Cas9, but they also have a major downside. Scientists have to create a custom-designed ZFN or TALEN protein each time, and they often have to create several variations before finding one that works. It’s far easier to create a RNA guide sequence for CRISPR/Cas9, and it’s far more likely to work.
…and can be used in any organism
Most science experiments are done on a limited set of model organisms: mice, rats, zebrafish, fruit flies, and a nematode called C. elegans. That’s mostly because these are the organisms scientists have studied most closely and know how to manipulate genetically.
But with CRISPR/Cas9, it’s theoretically possible to modify the genomes of any animal under the sun. That includes humans. CRISPR could one day hold the cure to any number of genetic diseases, but of course human genetic manipulation is ethically fraught and still far from becoming routine.
Closer to reality are other genetically modified creatures—and not just the ones in labs. CRISPR could become a major force in ecology and conservation, especially when paired with other molecular biology tools. It could, for example, be used to introduce genes that slowly kill off the mosquitos spreading malaria. Or genes that put the brakes on invasive species like weeds. It could be the next great leap in conserving or enhancing our environment—opening up a whole new box of risks and rewards.
With the recent human embryo editing news, CRISPR has been getting a lot of coverage as a future medical treatment. But focusing on medicine alone is narrow-minded. Precise genome engineering has the potential to alter not just us, but the entire world and all its ecosystems.
On July 22nd, 1865, Wild Bill Hickok faced a stacked deck in Springfield, Missouri. He was playing poker, but it wasn’t the deck of cards that was stacked; it was the room full of Davis Tutt’s armed associates that surrounded the poker table. Tutt and Hickok had a running feud fueled by mutual interests in the same woman and a purported gambling debt. Tutt was intentionally egging on Hickok by providing the other gamblers at the table with money and advice on how to beat him. At some point Tutt decided to intentionally humiliate Hickok. He grabbed Hickok’s prized possession, a gold pocket watch, saying he would hold onto the watch until Hickok paid the disputed gambling debt. Surrounded by Tutt’s armed associates, and no stranger to the logic of live today to fight tomorrow, Hickok held both his tongue and gun in check and prudently withdrew.
The next day Hickok took to the town square and found Davis Tutt. To his credit Hickok tried to negotiate for the watch, but Tutt’s overconfidence wouldn’t allow it. Bereft of his armed associates, Tutt mistakenly took on Wild Bill Hickok at about 75 yards and was killed outright.
Over a hundred and fifty years later, this president is bent on bullying John Q. Public and taking away his prized possession – the right to keep and bear arms to protect himself and his family from an oppressive, tyrannical government. Just like Tutt, Obama has the deck stacked with a room full of associates. Obama’s favorite and most effective associate is misinformation.
Just about everything that’s been said by the White House about the terrorist attack in Orlando last week has been false, either through outright lying or by omission of fact. The White House called the 49 killed and over 50 wounded the worst mass shooting in the history of the United States. It was a horrible event to be sure but not even close in terms of sheer magnitude. The Los Angeles Times called it “The deadliest in American history,” as did newspapers around the country.
Not so: the Sand Creek Massacre in 1864 saw about 675 soldiers ride into a tribal campsite in eastern Colorado and kill more than 165 Cheyenne and Arapaho tribe members. More than half the dead were women and children, and they were waving a white flag. In 1890 near Wounded Knee Creek in South Dakota, Army soldiers opened fire on Lakota Chief Big Foot and a band of his tribe, killing more than 150 men, women and children. Over the course of American history, there would be several such slaughters and almost all done by the U.S. Government.
To say the press is in the bag for Obama would be a gross understatement. A recent Boston Globe front page headline read, in all capital letters, “Make It Stop” with a life-size AR-15 photo running lengthwise from the top to the bottom of the page which included a black spot and written beneath it, “Bullet entry actual size.”
Another associate of our president showed his total disregard for the United States Constitution by saying, “I think it is an imperfect document, and I think it is a document that reflects some deep flaws in America culture, the Colonial culture nascent at that time.” He believes the Second Amendment is a mistake and should be eliminated. This philosophy permeates all who surround him. Most recently Senator Joe Manchin, a Wisconsin Democrat, said on a radio show, “Due process is what’s killing us right now,” and proposed a five-year suspension of civil rights and surveillance when the FBI fails to find anything wrong after “suspicion” arises.
A third associate is the various branches of the federal government over which Obama reigns supreme. His latest anti-gun move is to turn the gun control movement over to the Department of Homeland Security, which has already begun to put wheels in motion to reduce John Q’s Second Amendment rights.
“We have to face the fact that meaningful gun control has to be a part of homeland security,” Jeh Johnson, Secretary for Homeland Security said in an interview on CBS This Morning. “We need to do something to minimize the opportunity for terrorists to get a gun in this country.” Johnson plans to deny those on the no-fly list and terrorist watch list the right to keep and bear arms, yet getting on the list is arbitrary and getting off the list is all but impossible.
Meanwhile Obama’s legislative associates are beating the drum for more gun control legislation, including a recent filibuster, with an eye toward outlawing the AR-15. Oddly, as it turns out, it wasn’t the weapon used in Orlando after all, but Democrats have never let a little thing like the truth get in the way of a good story.
And, finally, the Great Deceiver-in-Chief himself is preparing more executive action on gun control, but like Davis Tutt’s overconfidence when facing off with Wild Bill Hickok, Obama may discover John Q is faster on the draw than he thinks. Ask Bill Clinton or any of a score of Democrats rousted over gun control issues in the 1994 election about how dangerous John Q can be with the power of a ballot in hand. For the moment Obama is surrounded by his armed associates, but come November each shall stand alone in the sun, facing the wrath of John Q’s ballot.
Library District in Las Vegas sued after banning gun-carrying woman
Gallery
Michelle Flores asserts in an ongoing lawsuit that she has the right to carry a gun at the public library according to state law. While visiting there with her children, she was handcuffed by police at the Rainbow branch of the Las Vegas-Clark County Library District in mid-March. Photo taken on June 18, 2016. (Adelaide Chen/Las Vegas Review-Journal)
By NATALIE BRUZDA
LAS VEGAS REVIEW-JOURNAL
Michelle Flores and her three children visited the Rainbow Library one day in mid-March, browsing the stacks for books to take home.
After an hourlong search, Flores checked out some reading materials, and with her three children in tow, proceeded to the library’s exit.
But she was stopped, and now she’s suing the Las Vegas-Clark County Library District over the events that followed.
According to court filings, library personnel summoned police, who handcuffed Flores and took her firearm, holster and five rounds of ammunition.
Flores was then given a notice of trespass and banned from the Rainbow Library and all other district libraries for one year. “In 2015, the Legislature passed a law, Senate Bill 175, that reserved the authority to regulate the possession of firearms solely to the Legislature,” her attorney Jeffrey Barr said. “This case is about whether the library district must follow Senate Bill 175. Michelle Flores was banned from the library for exercising her constitutional rights.”
According to Barr, Flores wants the ban overturned and the library district to follow Nevada law, just as the city of Henderson libraries began complying a year ago.
After a meeting with Henderson Police officer Zane Simpson, questions were answered, and the Henderson library staff received notification on May 6, 2015. That notification read: “Generally, a person has the right to carry a gun openly, and he/she is not required to verify legal status with paperwork of any kind.”
Since then, Henderson Libraries has complied with the law, Executive Director Angela Thornton said.
“We had some questions initially,” Thornton said. “Some of the points weren’t clarified. We had staff and customers who were asking questions. I think initially, they were a little apprehensive. I think they weren’t sure where libraries fell into the mix.”
Thornton referred to NRS.265, which says a person shall not carry or possess a dangerous weapon while on the property of the Nevada System of Higher Education, a private or public school or child care facility, or while in a vehicle of a private or public school or child care facility.
“I think people felt we should have fallen under that category,” Thornton said. “Once we realized where we fell into the law, it was then all about compliance and making people feel as comfortable about it as we could.”
The announcement further detailed the actions of library staff should they observe a person who is openly carrying. Library staff are asked to notify a supervisor, observe the person discreetly, and if the patron is behaving normally, they should not be concerned, the announcement said. Only if a person is behaving erratically should staff contact police.
“We haven’t had any problems with it,” Thornton said. “I think staff have seen some open carriers, but they’re very occasional. Nothing that has been any kind of a problem or challenge.”
Open carry gun advocates would like to see the library district address the issue, and expressed their frustration during public comment at the district trustee meeting last fall.
One trustee spoke to the Las Vegas Review-Journal as a political candidate, not as a library district representative.
“I think it’s going to be something we’re going to have to take up in the Legislature to make that distinction (regarding where libraries fall when it comes to open carry),” Shannon Bilbray-Axelrod said. “I think it was a complete oversight.”
As a Democrat running for state Assembly District 34, she will face off against Republican Matt Williams in the November election.
“I worry about open carry in areas where I bring my children,” Bilbray-Axelrod said. “I’ve been going to the library with my daughter since she was 3 months old. It’s a place people would assume would be weapon-free.”
Karen Bramwell-Thomas, public relations manager for the library district, said because of the current litigation and advice of counsel, she could not comment on the litigation or the library’s firearms policy.
However, on the district website, the rules of conduct state “firearms are prohibited,” and cites NRS.3673. That statute, however, refers to concealed firearms.
Flores’ civil complaint against the library district says, “The district does not have the authority to ban Michelle (Flores) because the district does not have the authority to make rules relating to the open possession of firearms.”
The filings also say “the district’s conscious and willful disregard of the legal rights of Michelle (Flores) resulted in her public humiliation and emotional distress.”
Barr said her damages could well exceed $10,000.
“What price would a jury put on being humiliated in front of your children for exercising your constitutional rights?” Barr said.
Flores, who homeschools her children, filed an April 29 preliminary injunction seeking to restore her library privileges. The hearing is set for 9:30 a.m. Tuesday in the Eighth Judicial District Court.
The district’s counsel, Kelly Stout of Bailey Kennedy LLP, said the firm does not comment on pending litigation.
As of June 16, the library district has paid its counsel $1,000 in attorneys’ fees and costs to defend the case, Bramwell-Thomas said. Because of the litigation is ongoing, the library district anticipates that additional fees will be billed and paid in the future, she said.
The actions that the Las Vegas-Clark County Library District takes could influence other library districts in the state.
Boulder City Library Acting Director Kimberly Diehm said she wasn’t even aware of the law. She said the library has a “firearms prohibited” sign on the front door. Diehm has been at the library for seven˜ years, and it’s been there the entire time.
On one hand, the government says it wants Americans to eat healthy.
On the other, there’s this story about a couple in Florida being forced to uproot their 17-year old organic vegetable garden because it ran afoul of zoning laws in Miami Shores.
The Associated Press reports that Tom Carroll and Hermine Ricketts are suing Miami Shores after the town threatened to fine the couple $50 per day for their front-yard vegetable garden. Under zoning rules passed in 2013, such gardens are allowed only in the back yards of Miami Shores homes.
Photo credit: Institute for Justice
UPROOTED: Tom Carroll and Hermine Ricketts are suing Miami Shores after the town threatened to fine the couple $50 per day for their front-yard vegetable garden.
At a hearing earlier this month, an attorney for the couple said the ban on vegetable gardens violates the Florida Constitution by imposing an improper limit on how private property can be used.
“It’s important that we have the right to do something on our own property,” Carroll told the AP. “We’re just trying to grow vegetables.”
An attorney for the couple added that they are not trying to argue “you can do anything you want on your property,” but merely that growing vegetables is protected by the state constitution.
That’s an important point, because it’s certainly possible to imagine situations where a local government might want to use zoning laws to regulate public property in the interest of the common good.
Civil libertarians might argue that all of these regulations – everything from noise ordinances to mandatory building set-backs – are, strictly speaking, a violation of the right to private property.
But that’s not really the issue here. Carroll and Ricketts aren’t hosting rock concerts on their front lawn, and they’re not drilling for oil.
Miami Shores’ zoning ordinance requires front lawns be covered with grass, sod or “living ground cover.” In other words, the front yard of a house may not be covered with dirt, sand or stones (as is common in beachfront communities) – it has to be green and living.
Two attributes, by the way, that perfectly describe vegetable gardens.
But officials from Miami Shores disagree. Growing a vegetable garden is just fine, as long as they remain out of sight in the backyard, said Richard Sarafan, an attorney for the town, according to the Christian Science Monitor.
As Watchdog reported when the lawsuit was launched in 2013, the zoning ordinance is designed to “protect the distinctive character of the Miami Shores Village.” It specifically prohibits vegetables – not fruit, trees or even plastic flamingos – from appearing in front yards. READ MORE: Pure manure: City uproots vegetable garden
It has been nearly three years since the couple launched their lawsuit, with the help of the Institute for Justice, a libertarian law firm based in Virginia. They are still waiting for a final ruling in the case.
Miami Shores isn’t the only town to declare war on front-yard vegetable gardens. Ron Finely of South Los Angeles and Adam Guerrero of Memphis were also found in violation of city gardening ordinances, though they eventually prevailed.
But Denise Morrison of Tulsa, Okla., wasn’t so lucky. Her edible garden was largely destroyed by local authorities while she waited for her day in court. Julie Bass of Oak Park, Mich,. faced 90 days in jail for her home-grown veggies. The charges were eventually dropped.
A couple in Orlando was threatened with fines of $500 per day because their vegetable garden ran afoul of the city’s zoning ordinances.
All these attacks on what people do with their own lawns begs one huge question: how long before officials in Washington, D.C., show up at the front door of the White House to tell Michelle Obama that her vegetable garden on the South Lawn has to go?
Obama shipping thousands of illegals to rural America like a dictator
Alabama Republican Sen. Jeff Sessions, a longtime critic of the Obama administration’s open-borders immigration policy, says the president’s practice of shipping thousands of illegal aliens to rural towns throughout the country is going to create big problems.
In an interview with the Washington Examiner’s Paul Bedard, Sessions called President Obama’s immigration amnesty policies “maddening” to average Americans.
“They feel like this is a dictator from Washington who will not listen to the people’s concerns and they are very concerned about it,” he said.
After denouncing Obama’s immigration policies for the past several years, the Alabama politician recently learned that the White House is planning to send more than 2000 illegal aliens to his home state.
“What’s happening in Alabama is happening this around the country and it is the result of idiotic policy cannot never work, that’s encouraging more people to come illegally, and then we treat them, we house them, we feed them for months, and we release them basically on bail and then they just go where they wanted to go to begin with,” he said.
Sessions, who’s serving as an advisor to the Donald Trump presidential campaign, says he hopes the next president will be strong enough to reverse Obama’s immigration damage and create a plan that wastes fewer taxpayer dollars.
“As long as you prolong this, the costs are incredible. Are we now going to build barracks and prison cells in Alabama? Hopefully with a strong president we won’t need it because people will stop coming,” said the senator.
The deal was announced quietly, just before the holidays, almost like the government was hoping people were too busy hanging stockings by the fireplace to notice. Flooring politicians, lawyers and investigators all over the world, the U.S. Justice Department granted a total walk to executives of the British-based bank HSBC for the largest drug-and-terrorism money-laundering case ever. Yes, they issued a fine – $1.9 billion, or about five weeks’ profit – but they didn’t extract so much as one dollar or one day in jail from any individual, despite a decade of stupefying abuses.
People may have outrage fatigue about Wall Street, and more stories about billionaire greedheads getting away with more stealing often cease to amaze. But the HSBC case went miles beyond the usual paper-pushing, keypad-punching sort-of crime, committed by geeks in ties, normally associated with Wall Street. In this case, the bank literally got away with murder – well, aiding and abetting it, anyway.
Daily Beast: HSBC Report Should Result in Prosecutions, Not Just Fines, Say Critics
For at least half a decade, the storied British colonial banking power helped to wash hundreds of millions of dollars for drug mobs, including Mexico’s Sinaloa drug cartel, suspected in tens of thousands of murders just in the past 10 years – people so totally evil, jokes former New York Attorney General Eliot Spitzer, that “they make the guys on Wall Street look good.” The bank also moved money for organizations linked to Al Qaeda and Hezbollah, and for Russian gangsters; helped countries like Iran, the Sudan and North Korea evade sanctions; and, in between helping murderers and terrorists and rogue states, aided countless common tax cheats in hiding their cash.
“They violated every goddamn law in the book,” says Jack Blum, an attorney and former Senate investigator who headed a major bribery investigation against Lockheed in the 1970s that led to the passage of the Foreign Corrupt Practices Act. “They took every imaginable form of illegal and illicit business.”
That nobody from the bank went to jail or paid a dollar in individual fines is nothing new in this era of financial crisis. What is different about this settlement is that the Justice Department, for the first time, admitted why it decided to go soft on this particular kind of criminal. It was worried that anything more than a wrist slap for HSBC might undermine the world economy. “Had the U.S. authorities decided to press criminal charges,” said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, “HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized.”
It was the dawn of a new era. In the years just after 9/11, even being breathed on by a suspected terrorist could land you in extralegal detention for the rest of your life. But now, when you’re Too Big to Jail, you can cop to laundering terrorist cash and violating the Trading With the Enemy Act, and not only will you not be prosecuted for it, but the government will go out of its way to make sure you won’t lose your license. Some on the Hill put it to me this way: OK, fine, no jail time, but they can’t even pull their charter? Are you kidding?
But the Justice Department wasn’t finished handing out Christmas goodies. A little over a week later, Breuer was back in front of the press, giving a cushy deal to another huge international firm, the Swiss bank UBS, which had just admitted to a key role in perhaps the biggest antitrust/price-fixing case in history, the so-called LIBOR scandal, a massive interest-raterigging conspiracy involving hundreds of trillions (“trillions,” with a “t”) of dollars in financial products. While two minor players did face charges, Breuer and the Justice Department worried aloud about global stability as they explained why no criminal charges were being filed against the parent company.
“Our goal here,” Breuer said, “is not to destroy a major financial institution.”
A reporter at the UBS presser pointed out to Breuer that UBS had already been busted in 2009 in a major tax-evasion case, and asked a sensible question. “This is a bank that has broken the law before,” the reporter said. “So why not be tougher?”
“I don’t know what tougher means,” answered the assistant attorney general.
Also known as the Hong Kong and Shanghai Banking Corporation, HSBC has always been associated with drugs. Founded in 1865, HSBC became the major commercial bank in colonial China after the conclusion of the Second Opium War. If you’re rusty in your history of Britain’s various wars of Imperial Rape, the Second Opium War was the one where Britain and other European powers basically slaughtered lots of Chinese people until they agreed to legalize the dope trade (much like they had done in the First Opium War, which ended in 1842).
A century and a half later, it appears not much has changed. With its strong on-the-ground presence in many of the various ex-colonial territories in Asia and Africa, and its rich history of cross-cultural moral flexibility, HSBC has a very different international footprint than other Too Big to Fail banks like Wells Fargo or Bank of America. While the American banking behemoths mainly gorged themselves on the toxic residential-mortgage trade that caused the 2008 financial bubble, HSBC took a slightly different path, turning itself into the destination bank for domestic and international scoundrels of every possible persuasion.
Three-time losers doing life in California prisons for street felonies might be surprised to learn that the no-jail settlement Lanny Breuer worked out for HSBC was already the bank’s third strike. In fact, as a mortifying 334-page report issued by the Senate Permanent Subcommittee on Investigations last summer made plain, HSBC ignored a truly awesome quantity of official warnings.
In April 2003, with 9/11 still fresh in the minds of American regulators, the Federal Reserve sent HSBC’s American subsidiary a cease-and-desist letter, ordering it to clean up its act and make a better effort to keep criminals and terrorists from opening accounts at its bank. One of the bank’s bigger customers, for instance, was Saudi Arabia’s Al Rajhi bank, which had been linked by the CIA and other government agencies to terrorism. According to a document cited in a Senate report, one of the bank’s founders, Sulaiman bin Abdul Aziz Al Rajhi, was among 20 early financiers of Al Qaeda, a member of what Osama bin Laden himself apparently called the “Golden Chain.” In 2003, the CIA wrote a confidential report about the bank, describing Al Rajhi as a “conduit for extremist finance.” In the report, details of which leaked to the public by 2007, the agency noted that Sulaiman Al Rajhi consciously worked to help Islamic “charities” hide their true nature, ordering the bank’s board to “explore financial instruments that would allow the bank’s charitable contributions to avoid official Saudi scrutiny.” (The bank has denied any role in financing extremists.)
In January 2005, while under the cloud of its first double-secret-probation agreement with the U.S., HSBC decided to partially sever ties with Al Rajhi. Note the word “partially”: The decision would only apply to Al Rajhi banking and not to its related trading company, a distinction that tickled executives inside the bank. In March 2005, Alan Ketley, a compliance officer for HSBC’s American subsidiary, HBUS, gleefully told Paul Plesser, head of his bank’s Global Foreign Exchange Department, that it was cool to do business with Al Rajhi Trading. “Looks like you’re fine to continue dealing with Al Rajhi,” he wrote. “You’d better be making lots of money!”
But this backdoor arrangement with bin Laden’s suspected “Golden Chain” banker wasn’t direct enough – many HSBC executives wanted the whole shebang restored. In a remarkable e-mail sent in May 2005, Christopher Lok, HSBC’s head of global bank notes, asked a colleague if they could maybe go back to fully doing business with Al Rajhi as soon as one of America’s primary banking regulators, the Office of the Comptroller of the Currency, lifted the 2003 cease-and-desist order: “After the OCC closeout and that chapter is hopefully finished, could we revisit Al Rajhi again? London compliance has taken a more lenient view.”
After being slapped with the order in 2003, HSBC began blowing off its requirements both in letter and in spirit – and on a mass scale, too. Instead of punishing the bank, though, the government’s response was to send it more angry letters. Typically, those came in the form of so-called “MRA” (Matters Requiring Attention) letters sent by the OCC. Most of these touched upon the same theme, i.e., HSBC failing to do due diligence on the shady characters who might be depositing money in its accounts or using its branches to wire money. HSBC racked up these “You’re Still Screwing Up and We Know It” orders by the dozen, and in just one brief stretch between 2005 and 2006, it received 30 different formal warnings.
Nonetheless, in February 2006 the OCC under George Bush suddenly decided to release HSBC from the 2003 cease-and-desist order. In other words, HSBC basically violated its parole 30 times in just more than a year and got off anyway. The bank was, to use the street term, “off paper” – and free to let the Al Rajhis of the world come rushing back.
After HSBC fully restored its relationship with the apparently terrorist-friendly Al Rajhi Bank in Saudi Arabia, it supplied the bank with nearly 1 billion U.S. dollars. When asked by HSBC what it needed all its American cash for, Al Rajhi explained that people in Saudi Arabia need dollars for all sorts of reasons. “During summer time,” the bank wrote, “we have a high demand from tourists traveling for their vacations.”
The Treasury Department keeps a list compiled by the Office of Foreign Assets Control, or OFAC, and American banks are not supposed to do business with anyone on the OFAC list. But the bank knowingly helped banned individuals elude the sanctions process. One such individual was the powerful Syrian businessman Rami Makhlouf, a close confidant of the Assad family. When Makhlouf appeared on the OFAC list in 2008, HSBC responded not by severing ties with him but by trying to figure out what to do about the accounts the Syrian power broker had in its Geneva and Cayman Islands branches. “We have determined that accounts held in the Caymans are not in the jurisdiction of, and are not housed on any systems in, the United States,” wrote one compliance officer. “Therefore, we will not be reporting this match to OFAC.”
Translation: We know the guy’s on a terrorist list, but his accounts are in a place the Americans can’t search, so screw them.
Remember, this was in 2008 – five years after HSBC had first been caught doing this sort of thing. And even four years after that, when being grilled by Michigan Sen. Carl Levin in July 2012, an HSBC executive refused to absolutely say that the bank would inform the government if Makhlouf or another OFAC-listed name popped up in its system – saying only that it would “do everything we can.”
The Senate exchange highlighted an extremely frustrating dynamic government investigators have had to face with Too Big to Jail megabanks: The same thing that makes them so attractive to shady customers – their ability to instantaneously move money around the world to places like the Cayman Islands and Switzerland – makes it easy for them to play dumb with regulators by hiding behind secrecy laws.
When it wasn’t banking for shady Third World characters, HSBC was training its mental firepower on the problem of finding creative ways to allow it to do business with countries under U.S. sanction, particularly Iran. In one memo from HSBC’s Middle East subsidiary, HBME, the bank notes that it could make a lot of money with Iran, provided it dealt with what it termed “difficulties” – you know, those pesky laws.
“It is anticipated that Iran will become a source of increasing income for the group going forward,” the memo says, “and if we are to achieve this goal we must adopt a positive stance when encountering difficulties.”
The “positive stance” included a technique called “stripping,” in which foreign subsidiaries like HSBC Middle East or HSBC Europe would remove references to Iran in wire transactions to and from the United States, often putting themselves in place of the actual client name to avoid triggering OFAC alerts. (In other words, the transaction would have HBME listed on one end, instead of an Iranian client.)
For more than half a decade, a whopping $19 billion in transactions involving Iran went through the American financial system, with the Iranian connection kept hidden in 75 to 90 percent of those transactions. HSBC has been headquartered in England for more than two decades – it’s Europe’s largest bank, in fact – but it has major subsidiary operations in every corner of the world. What’s come out in this investigation is that the chiefs in the parent company often knew about shady transactions when the regional subsidiary did not. In the case of banned Iranian transactions, for instance, there are multiple e-mails from HSBC’s compliance head, David Bagley, in which he admits that HSBC’s American subsidiary probably has no clue that HSBC Europe has been sending it buttloads of banned Iranian money.
“I am not sure that HBUS are aware of the fact that HBEU are already providing clearing facilities for four Iranian banks,” he wrote in 2003. The following year, he made the same observation. “I suspect that HBUS are not aware that [Iranian] payments may be passing through them,” he wrote.
What’s the upside for a bank like HSBC to do business with banned individuals, crooks and so on? The answer is simple: “If you have clients who are interested in ‘specialty services’ – that’s the euphemism for the bad stuff – you can charge ’em whatever you want,” says former Senate investigator Blum. “The margin on laundered money for years has been roughly 20 percent.”
Those charges might come in many forms, from upfront fees to promises to keep deposits at the bank for certain lengths of time. However you structure it, the possibilities for profit are enormous, provided you’re willing to accept money from almost anywhere. HSBC, its roots in the raw battlefield capitalism of the old British colonies and its strong presence in Asia, Africa and the Middle East, had more access to customers needing “specialty services” than perhaps any other bank.
And it worked hard to satisfy those customers. In perhaps the pinnacle innovation in the history of sleazy banking practices, HSBC ran a preposterous offshore operation in Mexico that allowed anyone to walk into any HSBC Mexico branch and open a U.S.-dollar account (HSBC Mexico accounts had to be in pesos) via a so-called “Cayman Islands branch” of HSBC Mexico. The evidence suggests customers barely had to submit a real name and address, much less explain the legitimate origins of their deposits.
If you can imagine a drive-thru heart-transplant clinic or an airline that keeps a fully-stocked minibar in the cockpit of every airplane, you’re in the ballpark of grasping the regulatory absurdity of HSBC Mexico’s “Cayman Islands branch.” The whole thing was a pure shell company, run by Mexicans in Mexican bank branches.
At one point, this figment of the bank’s corporate imagination had 50,000 clients, holding a total of $2.1 billion in assets. In 2002, an internal audit found that 41 percent of reviewed accounts had incomplete client information. Six years later, an e-mail from a high-ranking HSBC employee noted that 15 percent of customers didn’t even have a file. “How do you locate clients when you have no file?” complained the executive.
It wasn’t until it was discovered that these accounts were being used to pay a U.S. company allegedly supplying aircraft to Mexican drug dealers that HSBC took action, and even then it closed only some of the “Cayman Islands branch” accounts. As late as 2012, when HSBC executives were being dragged before the U.S. Senate, the bank still had 20,000 such accounts worth some $670 million – and under oath would only say that the bank was “in the process” of closing them.
Meanwhile, throughout all of this time, U.S. regulators kept examining HSBC. In an absurdist pattern that would continue through the 2000s, OCC examiners would conduct annual reviews, find the same disturbing shit they’d found for years, and then write about the bank’s problems as though they were being discovered for the first time. From the 2006 annual OCC review: “During the year, we identified a number of areas lacking consistent, vigilant adherence to BSA/AML policies. . . . Management responded positively and initiated steps to correct weaknesses and improve conformance with bank policy. We will validate corrective action in the next examination cycle.”
Translation: These guys are assholes, but they admit it, so it’s cool and we won’t do anything.
A year later, on July 24th, 2007, OCC had this to say: “During the past year, examiners identified a number of common themes, in that businesses lacked consistent, vigilant adherence to BSA/AML policies. Bank policies are acceptable. . . . Management continues to respond positively and initiated steps to improve conformance with bank policy.”
Translation: They’re still assholes, but we’ve alerted them to the problem and everything’ll be cool.
By then, HSBC’s lax money-laundering controls had infected virtually the entire company. Russians identifying themselves as used-car salesmen were at one point depositing $500,000 a day into HSBC, mainly through a bent traveler’s-checks operation in Japan. The company’s special banking program for foreign embassies was so completely fucked that it had suspicious-activity alerts backed up by the thousands. There is also strong evidence that the bank was allowing clients in Sudan, Cuba, Burma and North Korea to evade sanctions.
When one of the company’s compliance chiefs, Carolyn Wind, raised concerns that she didn’t have enough staff to monitor suspicious activities at a board meeting in 2007, she was fired. The sheer balls it took for the bank to ignore its compliance executives and continue taking money from so many different shady sources while ostensibly it had regulators swarming all over its every move is incredible. “You can’t make up more egregious money-laundering that permeated an entire institution,” says Spitzer.
By the late 2000s, other law enforcement agencies were beginning to catch HSBC’s scent. The Department of Homeland Security started investigating HSBC for laundering drug money, while the attorney general’s office in West Virginia snooped around HSBC’s involvement in a Medicare-fraud case. A federal intra-agency meeting was convened in Washington in September 2009, at which it was determined that HSBC was out of control and needed to be investigated more closely.
The bank itself was then notified that its usual OCC review was being “expanded.” More OCC staff was assigned to pore through HSBC’s books, and, among other things, they found a backlog of 17,000 alerts of suspicious activity that had not been processed. They also noted that the bank had a similar pileup of subpoenas in money-laundering cases.
Finally it seemed the government was on the verge of becoming genuinely pissed off. In March 2010, after seeing countless ultimatums ignored, they issued one more, giving HSBC three months to clear that goddamned 17,000-alert backlog or else there would be serious consequences. HSBC met that deadline, but months later the OCC again found the bank’s money-laundering controls seriously wanting, forcing the government to take, well . . . drastic action, right?
Sort of! In October 2010, the OCC took a deep breath, strapped on its big-boy pants and . . . issued a second cease-and-desist order!
In other words, it was “Don’t Do It Again” – again. The punishment for all of that dastardly defiance was to bring the regulatory process right back to the same kind of double-secret-probation order they’d tried in 2003.
Not to say that HSBC didn’t make changes after the second Don’t Do It Again order. It did – it hired some people.
In the summer of 2010, 25-year-old Everett Stern was just out of business school, fighting a mild case of wanderlust and looking for a job but also for adventure. His dream was to be a CIA agent, battling bad guys and snatching up Middle Eastern terrorists. He applied to the agency’s clandestine service, had an interview even, but just before graduation, the bespectacled, youthfully exuberant Stern was turned down.
He was crushed, but then he found an online job posting that piqued his interest. HSBC, a major international bank, was looking for people to help with its anti-money-laundering program. “I thought this was exactly what I wanted to do,” he says. “It sounded so exciting.”
Stern went up to HSBC’s offices in New Castle, Delaware, for an interview, and that October, just days after the OCC issued the second Don’t Do It Again letter, he started work as part of HSBC’s “expanded” antimoney-laundering program.
From the outset, Stern knew there was something weird about his job. “I had to go to the library to take out books on money-laundering,” Stern says now, laughing. “That’s how bad it was.” There were no training courses or seminars on money-laundering – what it was, how to detect it. His work mainly consisted of looking up the names of unsavory characters on the Internet and then running them through the bank’s internal systems to see if they popped up on any account names anywhere.
Even weirder, nobody seemed to care if anybody was doing any actual work. The Delaware office was mostly empty for a long while, just a giant unpainted room with a few hastily arranged cubicles and only a dozen or so people in it, and nobody really watching any of the workers. Stern and a fellow co-worker would routinely finish all their work by 10:30 in the morning, then spend a few hours throwing rocks into a quarry located behind the bank offices. Then they would go back to their cubicles and hang out until 3 p.m. or so, or until it was at least plausible that they’d put in a real workday. “If we asked for any more work,” Stern says, “they got angry.”
Stern earned a starting salary of $54,900.
Soon enough, though, out of boredom and also maybe a little bit of patriotism, Stern started to sift through some of the backlogged alerts and tried to make sense of them. Almost immediately, he found a series of deeply concerning transactions. There was an exchange company wiring large sums of money to untraceable destinations in the Middle East. A Saudi fruit company was sending millions, Stern found with a simple Internet search, to a high-ranking figure in the Yemeni wing of the Muslim Brotherhood. Stern even learned that HSBC was allowing millions of dollars to be moved from the Karaiba chain of supermarkets in Africa to a firm called Tajco, run by the Tajideen brothers, who had been singled out by the Treasury Department as major financiers of Hezbollah.
Every time Stern brought one of these discoveries to his bosses, they rolled their eyes at him, if not worse. When he alerted his boss that a shipping company with ties to Iran was doing a lot of business with the bank, he blew up. “You called me over for this?” the boss snapped.
Soon after, the empty office started to fill up. What HSBC did in the way of hiring new staff was actually pretty clever. It liquidated its credit-card-collections unit and moved the bulk of the employees over to the anti-money-laundering department. Again, without really training anyone at all, it put hundreds of loud, gum-chewing, mostly uneducated, occasionally rowdy call-center workers on a new gig, turning them into money-laundering investigators.
Stern says his co-workers not only sucked at their jobs, they didn’t even know what their jobs were. “You could walk into that building today,” he says, “and ask anyone there what moneylaundering is – and I guarantee you, no one will know.”
When something fishy pops up in connection with a bank account, the bank generates an alert. An alert can be birthed by almost anything, from someone wiring $9,999 (to keep under the $10K reporting level) to someone wiring large sums in round numbers to someone else opening an account with a phony-sounding name or address.
When an alert gets generated, the bank is supposed to promptly investigate the matter. If the bank doesn’t clear the alert, it creates a “Suspicious Activity Report,” which is handed over to the Treasury Department to be investigated.
Stern then found himself in the middle of a perverse sort-of anticompliance mechanism. HSBC had “complied” with the government’s Don’t Do It Again, Again order by hiring hundreds of bodies whom it turned into an army for whitewashing suspicious transactions. Remember, the complaint against HSBC was not so much that it had specifically allowed terrorist or drug money through, but that it had allowed suspicious accounts to pile up without being checked.
The boss at Stern’s Delaware office gave his new team goals: Everyone was to try to clear 72 alerts a week. For those of you keeping score at home, that’s nearly two alerts investigated and cleared every hour. According to Stern, almost any kind of information was good enough to clear an alert. “Basically, if a company had a website, you could clear them,” he says.
Soon enough, HSBC’s compliance executives were circulating cheery e-mails. “Great job by some Delaware professionals in the early part of the week,” wrote Stern’s boss on June 30th, 2011. The e-mail was subject-lined, “The 60-plus crowd,” signifying accolades to employees who had cleared more than 60 suspicious transactions that week.
After trying in vain to convince his bosses to at least let him do his job and look for money-laundering, Stern decided to turn whistle-blower, telling the FBI and other agencies what was going on at the bank. He left work at HSBC in 2011, fully expecting that the government would drop the hammer on his former employers.
By that time, numerous agencies, including the Department of Homeland Security, had crawled all the way up HSBC’s backside, among other things examining it as part of a major international narcotics investigation. In one four-year period between 2006 and 2009, an astonishing $200 trillion in wire transfers (including from high-risk countries like Mexico) went through without any monitoring at all. The bank also failed to do due diligence on the purchase of an incredible $9 billion in physical U.S. dollars from Mexico and played a key role in the so-called Black Market Peso Exchange, which allowed drug cartels in both Mexico and Colombia to convert U.S. dollars from drug sales into pesos to be used back home. Drug agents discovered that dealers in Mexico were building special cash boxes to fit the precise dimensions of HSBC teller windows.
Former bailout inspector and federal prosecutor Neil Barofsky, who has helped secure numerous foreign money-laundering indictments, points out that the people HSBC was doing business with, like Colombia’s Norte del Valle and Mexico’s Sinaloa cartels, were “the worst trafficking organizations imaginable” – groups that don’t just commit murder on a mass scale but are known for beheadings, torture videos (“the new thing now,” he says) and other atrocities, none of which happens without money launderers. It’s for this reason, Barofsky says, that drug prosecutors are not shy about dropping heavy prison sentences on launderers. “Frankly, our view of money-laundering was that it was on par with, and as significant as, the traffickers themselves,” he says.
Barofsky was involved in the first extradition of a Colombian national (Pablo Trujillo, a member of the same cartel that HSBC moved money for) on moneylaundering charges. “That guy got 10 years,” says Barofsky. “HSBC was doing the same thing, only on a much larger scale than my schmuck was doing.”
Clearly, HSBC had violated the 2010 Don’t Do It Again, Again order. Everett Stern saw it with his own eyes; so did the OCC and the U.S. Senate, whose Permanent Subcommittee on Investigations decided to target the company for a yearlong investigation into global money-laundering. The bank itself, in response to the Senate investigation, acknowledged that it had “sometimes failed to meet the standards that regulators and customers expect.” It would later go on to say that it was even “profoundly sorry.”
A few days after Thanksgiving 2012, Stern heard that the Justice Department was about to announce a settlement. Since he’d left HSBC the year before, he’d had a rough time. Going public with his allegations had left him emotionally and financially devastated. He’d been unable to find a job, and at one point even applied for welfare. But now that the feds were finally about to drop the hammer on HSBC, he figured he’d have the satisfaction of knowing that his sacrifice had been worthwhile.
So he went to New York and sat in a hotel room, waiting for reporters to call for his comments. When he heard the news that the “punishment” Breuer had announced was a deferred prosecution agreement – a Don’t Do It Again, Again, Again agreement, if you will – he was flabbergasted.
“I thought, ‘All that, for nothing?’ ” he says. “I couldn’t believe it.”
The writer Ambrose Bierce once said there’s only one thing in the world worse than a clarinet: two clarinets. In the same vein, there’s only one thing worse than a totally corrupt bank: many corrupt banks.
If the HSBC deal showed how much dastardly crap the state could tolerate from one bank, Breuer was back a week later to show that the government would go just as easy on banks that team up with other banks to perpetrate even bigger scandals. On December 19th, 2012, he announced that the Justice Department was essentially letting Swiss banking giant UBS off the hook for its part in what is likely the biggest financial scam of all time.
The so-called LIBOR scandal, which is at the heart of the UBS settlement, makes Enron look like a parking violation. Many of the world’s biggest banks, including Switzerland’s UBS, Britain’s Barclays and the Royal Bank of Scotland, got together and secretly conspired to manipulate the London Interbank Offered Rate, or LIBOR, which measures the rate at which banks lend to each other. Many, if not most, interest rates are pegged to LIBOR. The prices of hundreds of trillions of dollars of financial products are tied to LIBOR, everything from commercial loans to credit cards to mortgages to municipal bonds to swaps and currencies.
If you can imagine executives at Ford, GM, Mitsubishi, BMW and Mercedes getting together every morning to fix the prices of aluminum and stainless steel, you have a rough idea of what the LIBOR scandal is like, except that in the car-company analogy, you’d be dealing with absurdly smaller numbers. These are the world’s biggest banks getting together every morning to essentially fix the price of money. Low LIBOR rates are an indicator that banks are strong and healthy. These banks were faking the results of their daily physicals. In banking terms, they were juicing.
Two different types of manipulation took place. In 2008, during the heat of the global crash, banks artificially submitted low rates in order to present an image of financial soundness to the markets. But at other times over the course of years, individual traders schemed to move rates up or down in order to profit on individual trades.
There is nobody anywhere growing weed strong enough to help the human mind grasp the enormity of this crime. It’s a conspiracy so massive that the lawyers who are suing the banks are having an extremely difficult time figuring out how to calculate the damage.
Here’s how it works: Every morning, 16 of the world’s largest banks submit numbers to a Londonbased panel indicating what interest rates they’re charging other banks to borrow money and what they themselves are charged. The LIBOR panel then takes those 16 different interest rates, tosses out the four highest and the four lowest, and averages out the remaining eight to create that day’s LIBOR rates – the basis for interest rates almost everywhere in the world.
The fact that the LIBOR panel tosses out the four highest and lowest numbers every day is an important detail, because it means that it is difficult to artificially influence the final rate unless multiple banks are conspiring with each other. One bank lying its ass off and reporting that banks are lending money to each other basically for free doesn’t move the needle much. To really be sure you’re creating an artificially low or high interest rate, you need a bunch of banks on board – and it turns out that they were.
For perhaps as far back as 20 years, banks have been submitting phony numbers, often in concert with other banks. They did it for a variety of reasons, but the big one, typically, is that a bank trader is holding some investment tied to LIBOR – bundles of currencies, municipal bonds, mortgages, whatever – that would earn more money if the interest rate was lower. So what would happen is, some schmuck trader at Bank X would call the LIBOR submitter and offer him cash, booze, a blow job or just a pat on the back to get him to submit a fake number that day.
The scandal first blew up last year when the British megabank Barclays admitted to its part in the fixing of LIBOR rates. British regulators released a cache of disgusting e-mails showing traders from many different banks cheerfully monkeying around with your credit-card bills, your mortgage rates, your tax bill, your IRA account, etc., so that they could make out better on some sordid trade they had on that day. In one case, a trader from an unnamed bank sent an e-mail to a Barclays trader thanking him for helping to fix interest rates and promising a kickass bottle of bubbly for his efforts:
“Dude. I owe you big time! Come over one day after work, and I’m opening a bottle of Bollinger.”
UBS was the next bank to confess, and its settlement – $1.5 billion in fines – was much the same, only the e-mails released were, if anything, more disgusting and damning. The British Financial Services Authority – equivalent to our SEC – discovered thousands of requests to fudge rates over a period of years involving dozens of different individuals and multiple banks. In many cases, the misdeeds were committed more or less openly, in writing, with traders and brokers baldly offering bribes in texts and e-mails with an obvious unconcern for punishment that later, sadly, proved justified.
“I will fucking do one humongous deal with you,” begged one UBS trader who wanted a broker to fix the rate. “I’ll pay, you know, $50,000, $100,000.”
British regulators aren’t hiding the size of the scandal. The UBS settlement demonstrated, without a doubt, that the LIBOR scandal involved more than just one or two banks, and probably involved hundreds of people at many of the world’s largest and most prestigious financial institutions – in other words, a truly epic case of anti-competitive collusion that called into question whether the world’s biggest banks are innovating a new, not-entirely capitalist form of high finance. “We have said there are five further institutions under investigation,” says Christopher Hamilton of the FSA. “And there is a large number of individuals as well.” (At press time, another bank, the Royal Bank of Scotland, also settled for LIBOR-related offenses.)
This dovetailed with what Bob Diamond, the former head of Barclays, told the British Parliament the day after he stepped down last year. “There is an industrywide problem coming out now,” he said. Michael Hausfeld, a famed class-action lawyer who is suing the banks over LIBOR on behalf of cities like Baltimore whose investments lost money when interest rates were lowered, says the public still hasn’t grasped the importance of comments like Diamond’s. “Diamond essentially said, ‘This is an industrywide problem,'” Hausfeld says. “But nobody has defined what this is yet.”
Hausfeld’s point – that Diamond’s “industrywide problem” might be more than just a few guys messing with rates; it could be a systemic effort to pervert capitalism itself – underscores the extreme miscalculation of both recent no-prosecution deals.
At HSBC, the bank did more than avert its eyes to a few shady transactions. It repeatedly defied government orders as it made a conscious, years-long effort to completely stop discriminating between illegitimate and legitimate money. And when it somehow talked the U.S. government into crafting a settlement over these offenses with the lunatic aim of preserving the bank’s license, it succeeded, finally, in making crime mainstream.
UBS, meanwhile, was a similarly elemental case, in which the offenses didn’t just violate the letter of the law – they threatened the integrity of the competitive system. If you’re going to let hundreds of boozed-up bankers spend every morning sending goofball e-mails to each other, giving each other superhero nicknames while they rigged the cost of money (spelling-challenged UBS traders dubbed themselves, among other things, “captain caos,” the “three muscateers” and “Superman”), you might as well give up on capitalism entirely and just declare the 16 biggest banks in the world the International Bureau of Prices.
Thus, in the space of just a few weeks, regulators in Britain and America teamed up to declare near-total surrender to both crime and monopoly. This was more than a couple of cases of letting rich guys walk. These were major policy decisions that will reverberate for the next generation.
Even worse than the actual settlements was the explanation Breuer offered for them. “In the world today of large institutions, where much of the financial world is based on confidence,” he said, “a right resolution is to ensure that counter-parties don’t flee an institution, that jobs are not lost, that there’s not some world economic event that’s disproportionate to the resolution we want.”
In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything.
This is bullshit, and exactly the opposite of the truth, but it’s what our current government believes. From JonBenet to O.J. to Robert Blake, Americans have long understood that the rich get good lawyers and get off, while the poor suck eggs and do time. But this is something different. This is the government admitting to being afraid to prosecute the very powerful – something it never did even in the heydays of Al Capone or Pablo Escobar, something it didn’t do even with Richard Nixon. And when you admit that some people are too important to prosecute, it’s just a few short steps to the obvious corollary – that everybody else is unimportant enough to jail.
An arrestable class and an unarrestable class. We always suspected it, now it’s admitted. So what do we do? This story is from the February 28th, 2013 issue of Rolling Stone.
I have been to a lot of conferences in my life. I have been to corporate gatherings, different political events, business seminars, and some new product launches for Fortune 500 companies.
What I just saw these past couple of days at the Turning Point USA Young Women’s Leadership Summit was nothing short of STUNNING.
I witnessed over 400 young ladies from across the country receive world-class training and support from the best team in the conservative movement. Our message to the young ladies was simple: the Conservative Movement NEEDS you.
To finish off the conference we had Carly Fiorina speak to the group about the value and importance of young women serving as leaders in our movement.
This is by far the largest and most expansive young women’s training event in the country. Right now the left is playing gender identity card, and we are training the next generation of conservative young women leaders!
Nine-year-old Grace Deschaaf and 6-year-old Isabella Deschaaf couldn’t wait to show their mother, Nicole Deschaaf, the picture frames they made in Homer 33C’s Arts in Action Summer Workshops on June 20.
For Immediate Release:
June 20, 2016
Arts In Action Summer Workshops underway at Young School
Students proudly show the picture frames they made June 20 with local artist Hanna Radostits.
Youngsters are having a great time working with local artists this week as they create paper action figures, personalized picture frames and glazed mosaics in the style of author/artist Eric Carle.
It’s all part of Homer School District 33C’s Arts in Action Summer Workshops at Young School.
“Arts in Action has enriched our children’s lives for over 15 years,” said program coordinator Cyn O’Brien, “giving thousands of students an appreciation and hands-on experience working with local artists from our surrounding communities.”
Students had an opportunity to sign up for 13 workshops, including jewelry making with Lynn Rozycki, painting with Mona Parry and photography with Bill and Nancy Uznanski.
Local artist Dan Dougherty led the workshop on paper action figures while artist Hanna Radostits worked with children on picture frames and three-dimensional mini skyscrapers.
Students share the paper action figures they made June 20 with local artist Dan Dougherty.
Remaining workshops include:
Paper Marbling and Sea Creatures, 9-10 a.m. June 21 (Ages 5-7) Local artist Mona Parry will show children how to create water effects with paper marbling techniques. $15
String Me Along Introduction to Jewelry Making, 10:30-11:30 a.m. June 21 (Ages 5-8) Local artist Lynn Rozycki will help students develop their fine motor skills and learn about patterns and color as they string colorful beads and charms onto a bracelet. $15
Seal Life Painting, 11 a.m. to 1 p.m. June 21 (Ages 8-14) Local artist Mona Parry will share basic painting techniques as students create an acrylic painting on canvas. $15
Keepsake Crystal Jewelry, 12:30-2:30 p.m. June 21 (Ages 9-14) Local artist Lynn Rozycki will create bracelets and matching earrings. $20
Paste Papers Mosaics Part II, 1-3 p.m. June 21 (Ages 7-14) Local Artist Dee Everson will lead Part II of Paste Papers Mosaics from June 20. $15
Country Landscape in Optical Perspective, 9-10:30 a.m. June 22 (Ages 7-14) Local artist Maggie Capettini Poplawski will show students easy tricks to give the illusion of depth in their art. $15
Puttin on the Ritz Photo Studio, 10:30 a.m. to 12:30 p.m. June 22 (Ages 6-14) Local artists Bill and Nancy Uznanski will guide students as they paint a huge cityscape backdrop and then pose like actors as they take smart, sassy and fun pictures of each other with their own cameras. $15
Chicago Skyline at Sunset, 11:30 a.m. to 1 p.m. June 22 (Ages 9-14) Local artist Maggie Capettini Poplawski shows students how to paint like professionals using canvas and easels. $15
A Picture is Worth a 1000 Words, 1:30-2:30 p.m. June 22 (Ages 6-14) Local artists Bill and Nancy Uznanski will share how photographers can create mood and mystery through pictures. $15
A week before the Orlando massacre, Will County Board member Steve Balich, R-Homer Township, crafted a proposed resolution that would allow him and his fellow licensed board members to carry concealed weapons into county buildings, where they are currently prohibited from doing so.
From an economic standpoint, it would save the county money, he said, and from a safety perspective, it might deter incidents like what happened in Orlando from happening in Will County, he said.
Balich brought up his proposed resolution at the end of Tuesday’s legislative committee meeting, and he hopes it will be discussed at next month’s committee meeting. His resolution said that it would be “unfair to the taxpayer to pay for sufficient armed security officers at meetings” when a number of board members are licensed to carry guns.
Those elected officials who are properly licensed should be allowed to carry concealed firearms into county and forest preserve properties, the proposed resolution said.
“People trusted me enough to vote for me,” Balich said.
While a potential shooter could easily spot a uniformed officer, he would not know which board members were packing a gun, he said.
Offenders usually seek out places like the Orlando nightclub, where “no one has a weapon to fire back,” Balich said.
His idea goes back several months, when county officials first discussed how to enhance security measures, he said.
Balich also cited state laws that allow a mayor, aldermen, trustees and police to act as “conservators of the peace,” with powers to arrest people who violate municipal ordinances after completing a law enforcement training course. However, they do not specifically mention allowing those officials to carry weapons.
Assistant State’s Attorney Mary Tatroe said that, as of now, the state prohibits firearms in county buildings, but said she would research the proposal.
Balich’s suggestion did not sit well with all committee members.
Democratic leader Herbert Brooks Jr., D-Joliet, said, “This was not the time nor the place” to discuss such a proposal.
“We need a time of mourning,” he said. “We need a time of healing.
“These 49 victims have not even been buried yet,” he said, referring to the shooting at a nightclub in Orlando, Fla. Sunday morning. “After what just happened (in Orlando), I did not want to hear about guns. I was not prepared for that. We can talk about politics later on.”
Brooks added that he did not believe county board members should be allowed to carry guns into county buildings. slafferty@tribpub.com
A Chicago City Council committee on June 17 approved regulations for ridesharing that would likely end the service as residents know it – and quite possibly drive Uber and Lyft out of town.
The proposed ordinance requires rideshare drivers, who already undergo company-required background checks, to submit to city-overseen fingerprinting and vehicle inspections and acquire a chauffeur’s license. Uber and Lyft warned aldermen that passing the ordinance would force them to cease operations in Chicago. The full City Council is expected to vote on the ordinance as early as June 22, mere weeks after the ridesharing platforms shut down in Austin, Texas, due to similar restrictions.
Beyond providing millions of safe rides for residents, the services have provided job opportunities for many Chicagoans struggling in a stagnant Chicago economy. A father’s fight
Lamar Stovall is just one Chicagoan whose life has changed for the better because of ridesharing.
Last fall, Stovall worked his last day at the Chicago Park District. The father of five was frustrated with the politics of his job. And he wanted more flexibility to be with his kids.
He found that flexibility in Uber.
Stovall was already familiar with ridesharing, even taking Uber to work most days. In fact, it was his only way of getting safe, reliable transportation in the West Side neighborhood of North Lawndale, where Stovall was born and raised.
“Cabs won’t come out here,” he said. “There’s always an excuse.”
More than half of UberX rides begin or end in underserved areas of the city.
Uber helped Stovall finance a new car – now he works half of the week as an Uber driver, and the other half as a driver through Grubhub, a restaurant-locating and -delivery service. He’s making double what he did at the park district.
“I can catch up on bills and stuff and make life better for my kids,” Stovall said. “I’m in a position where we can stop using food stamps, which I couldn’t imagine before this job … I’m trying to move to the suburbs so my kids can go out and play.”
Stovall is troubled by what new licensing rules could do to ridesharing in Chicago. His concerns are echoed by 72-year-old Chicago Uber driver Jim Evans.
“It’s time and money,” said Evans of the proposed licensing process. While he already holds a chauffeur’s license, Evans thinks it would be “very tough” for many drivers to obtain one.
“To go through all the hassle for that, it’s ridiculous,” Evans said.
But it’s not just drivers concerned about new rules. Former U.S. Attorney General Eric Holder sent a letter to the sponsor of the ordinance, Alderman Anthony Beale, 9th Ward, on June 2.
“Requiring fingerprint-based background checks for non-law enforcement purposes can have a discriminatory impact on communities of color,” Holder wrote.
According to Holder, the FBI’s fingerprint database “was not designed to be used to determine whether or not someone is eligible for a work opportunity. Relying on it for that purpose is both unwise and unfair.” Taxi lobby
So why are aldermen throwing their support behind new rideshare restrictions?
Perhaps it’s because they need to deliver a return on an investment.
More than a dozen aldermen took a total of $51,500 from the Illinois Transportation Trade Association Political Action Committee in 2015, according to the Illinois State Board of Elections. The PAC’s purpose is to “garner support for the Illinois taxicab industry.” It donated an additional $10,000 to the City Council’s Progressive Caucus.
The major supporters of the Illinois Transportation Trade Association PAC include companies that make money off of the traditional taxi system, such as medallion brokers and Yellow Cab, which have combined to give the PAC more than $300,000 since 2014, according to the PAC’s quarterly financial reports.
Alderman Ed Burke, 14th Ward, who supported a similar licensing proposal in October 2015, took $10,000 from the PAC in 2015. The previous year, Burke took $10,000 from the owners of Dispatch Taxi. Allegations that Burke has given preferential treatment to the taxi industry for his own benefit stretch back decades. Fairness
“It’s supposed to be a government of the people, by the people and for the people,” Evans said. “And you can’t get more ‘of the people’ than Uber.”
Stovall, who in addition to providing for his family is working to pay off student loans, thinks there’s a disconnect between the city’s political leaders and those they represent.
“These companies are helping out people in my neighborhood, helping people better themselves.” Stovall said. “[Aldermen] don’t understand that.”