Financial Exposure

Frontmatter

1. Entering the Oversight World

Abstract

This chapter provides an overview of Congressional investigations and the role they’ve played in U.S. history. It also summarizes the Constitutional and legal basis for Congress’ investigative powers. In addition, the chapter describes how the narrator was hired by Senator Carl Levin and learned the skills and responsibilities of a Congressional investigator while working for the Subcommittee on Oversight of Government Management. It includes a description of a year-long Subcommittee investigation into campaign finance issues that tarnished the 1996 Presidential election.

Elise J. Bean

2. Landing at PSI

Abstract

This chapter recounts how Senator Carl Levin became the senior Democrat on the Permanent Subcommittee on Investigations (PSI) and assembled an investigative team. It lists a dozen Levin Principles on effective oversight and explains how those principles informed his investigations. In addition, the chapter traces PSI’s history and evolution, including its promising origin under Senator Harry Truman, disastrous experience under Senator Joe McCarthy, and recovery under a line of leaders who turned it into the Senate’s most powerful investigative body with strong bipartisan traditions.

Elise J. Bean

3. Combating Money Laundering: Round One

Abstract

This chapter discusses the first two Levin-led investigations at PSI, both focused on money laundering. The first examines laundering money through U.S. banks catering to wealthy individuals. Using a Citibank Private Bank case study, the investigation profiles four world leaders or family members with millions in deposits: Raul Salinas, brother to the then President of Mexico; Omar Bongo, then President of Gabon; the sons of General Sani Abacha, the then recently deceased President of Nigeria; and Asif Ali Zardari, husband to former Pakistan Prime Minister Benazir Bhutto. The second, correspondent banking inquiry presents ten case studies of foreign banks using U.S. accounts to move suspect funds. The chapter culminates with enactment of Levin-led anti-money laundering legislation in the aftermath of the 9/11 terrorist attack.

Elise J. Bean

4. Taking on Enron and Its Bankers

Abstract

This chapter examines a Levin-led investigation into Enron whose bankruptcy injured employees, business partners, and the U.S. economy. It details three PSI hearings on the Enron scandal, the first showing how the Enron Board of Directors allowed the company to engage in high-risk accounting, conflicts of interest, and excessive executive pay; the second exposing the role of financial institutions like Citibank, JPMorgan Chase, and Merrill Lynch in Enron’s deceptive financial reporting; and the third tracing Enron’s use of an abusive tax shelter called Slapshot. The chapter shows how the Enron hearings helped lead to the enactment of the Sarbanes-Oxley Act as well as a jail sentence for a corporate executive who lied to PSI investigators.

Elise J. Bean

5. Stopping Abusive Tax Shelters

Abstract

This chapter examines a series of PSI investigations into abusive tax shelters, especially tax shelters used by wealthy individuals and those featuring offshore gimmicks. The first inquiry exposes how accounting firms like KPMG mass-marketed tax shelters in exchange for lucrative fees. The second features a case study of the Wyly brothers who hid hundreds of millions of dollars in a network of 58 offshore corporations and trusts. The third recounts how two billionaires used an offshore tax shelter called the POINT Strategy to dodge capital gains taxes. The chapter shows how the hearings helped spur criminal and civil enforcement actions against the tax shelter promoters, and led to the accounting industry’s largely abandoning the U.S. tax shelter business.

Elise J. Bean

6. Battling Tax Haven Banks

Abstract

This chapter summarizes Levin-led investigations into tax haven banks facilitating tax evasion by U.S. clients. In one inquiry, whistleblowers expose how UBS opened secret Swiss accounts with $20 billion in assets for U.S. clients, and how Liechtenstein’s LGT Bank concealed its U.S. client accounts. Another inquiry exposes how Credit Suisse dragged its feet closing secret Swiss accounts for U.S. clients and was fined $2.6 billion. The chapter also examines U.S. enforcement actions taken against tax haven banks as well as the role of tax treaties. It also explains how the investigations helped spur enactment of landmark legislation known as FATCA to expose foreign bank accounts held by U.S. clients and helped inspire similar transparency measures abroad.

Elise J. Bean

7. Crossing Party Lines

Abstract

This chapter takes a break from Levin-led investigations to recount how Senator Levin supported PSI investigations led by his Republican colleagues, Senators Susan Collins, Norm Coleman, Tom Coburn, and John McCain. Featured Republican-led inquiries examine sweepstakes abuses; corruption of a United Nations Oil-for-Food program; North Korea’s misuse of a United Nations Development Program; federal programs to collect taxes from tax-delinquent federal contractors; Social Security disability fraud; and malware associated with Internet advertising. The chapter describes PSI procedures, mechanisms, and standards used to foster cross-party cooperation, bipartisan fact-finding, and joint hearings and reports. It also describes informal actions taken by the Levin staff to build bipartisan ties, including social activities and investigative team photographs.

Elise J. Bean

8. Halting Unfair Credit Card Practices

Abstract

This chapter examines a Levin-led PSI investigation into unfair credit card practices that loaded down American families with expensive debt. It describes how the inquiry uncovered the abusive practices and held hearings requiring testimony from chief executives at leading credit card companies, including Chase, Bank of America, Discover, and Capital One. The chapter culminates with enactment of a credit card reform bill, authored in part by Senator Levin. Later studies found that the new law successfully ended the abuses, while preserving a healthy credit card market.

Elise J. Bean

9. Deconstructing the Financial Crisis

Abstract

This chapter recounts a two-year Levin-Coburn investigation into key causes of the financial crisis. The investigation develops four case studies involving Goldman Sachs; Washington Mutual; the Office of Thrift Supervision; and Moody’s and Standard & Poor’s. Four hearings present the case studies, followed a year later by a 750-page Levin-Coburn report, the only bipartisan analysis of the financial crisis. The chapter recounts how the investigation helped end a filibuster of the Dodd-Frank Act which enacted such reforms as curbs on high-risk bank activities and abusive mortgages, creation of the Consumer Financial Protection Bureau, and a prohibition on banks selling clients deficient financial products and then profiting from those products’ failure.

Elise J. Bean

10. Combating Money Laundering: Round Two

Abstract

This chapter presents a second set of Levin-led anti-money laundering investigations. One inquiry, in 2004, examines how Riggs Bank, specializing in serving embassies, handled suspect funds for foreign officials, including Teodoro Obiang, president of Equatorial Guinea, and Augusto Pinochet, former president of Chile. Another inquiry, in 2010, exposes how Mr. Obiang, as well as leaders from Gabon, Nigeria, and Angola, used shell companies, lawyers, a lobbyist, and university officials to infiltrate U.S. banks and move suspect funds. A 2012 inquiry discloses how a global bank, HSBC, helped Mexican drug traffickers, Russian fraudsters, and rogue regimes like Iran move dubious funds through its U.S. branch. This chapter also describes law enforcement actions and regulatory reforms to curb the abuses.

Elise J. Bean

11. Exposing Corporate Tax Dodgers

Abstract

This chapter describes landmark Levin-led investigations into how major U.S. corporations used complex tax gimmicks and offshore tax havens to dodge payment of U.S. taxes. The case studies detail deceptive conduct by Apple, Caterpillar, Hewlett-Packard, and Microsoft, leading to billions of dollars in unpaid taxes. The chapter traces how those investigative findings inspired international outrage and sparked a variety of reforms to clamp down on multinational corporate profit-shifting.

Elise J. Bean

12. Beaching the London Whale

Abstract

This chapter exposes how JPMorgan Chase engaged in high-stakes credit derivatives trading, lost billions of dollars, and then tried to blame the losses on a single trader dubbed the London Whale. It describes the Levin-led inquiry that opened a window onto the bank’s hidden world of high-risk derivatives trading and exposed a JPMorgan derivatives trading culture that piled on risk, misstated derivative values, disregarded risk limits, manipulated risk assessment models, and hid losses. The chapter also recounts the role of JPMorgan CEO Jamie Dimon in the facts and investigation, and explains how the London whale fiasco led to new regulatory safeguards and enforcement actions.

Elise J. Bean

13. Targeting Commodity Speculation

Abstract

This chapter examines a series of Levin-led investigations into how commodity speculation sparks volatile prices for vital staples such as oil, natural gas, and electricity. It focuses on instances of price manipulation and excessive speculation that forced American families and businesses to pay more than they should for basic necessities like fuel and raw materials. The case studies feature oil companies like BP discussing ways to elevate gasoline prices; a hedge fund named Amaranth that spiked natural gas prices, while losing billions; and three banks—Goldman Sachs, JPMorgan Chase, and Morgan Stanley—that gained control of billions of dollars of physical commodities without protecting U.S. taxpayers from accompanying risks. The chapter also recounts how the Levin investigations fueled new safeguards.

Elise J. Bean

14. Pursuing Oversight

Abstract

The final chapter examines oversight as a core legislative function critical to strengthening government, stopping abuses, and protecting the public. It explains how bipartisan, fact-based oversight contributes to the Constitutional system of checks and balances by identifying problems, building consensus on the facts, and generating reforms. It condemns inquiries marred by partisan tactics, disregard for the facts, or unethical or ineffective investigative techniques. The chapter identifies steps to strengthen oversight, including increased training and research. It posits that, when done well, bipartisan oversight can help rebuild public confidence in Congress, while producing more effective government. The chapter also notes that bipartisan, fact-based congressional oversight investigations are a unique American contribution to world culture, one that should be respected, nurtured, and celebrated.

Elise J. Bean

Backmatter