17 November 03
Foreign Private Banker
As mentioned by phone last week, apparently
50 FSA staff just turned up unannounced at
Citibank and an unknown portion was devoted
to private banking. Certain private banking
staff were targeted for questioning and effectively
prevented from performing day-to-day duties
as a result. It would seem that "informed
consent" as regards product marketing
is an issue. Have seen product documentation
in the past that had Citibank Trust Bank
as the trustee for a structured off-shore
product, so there is certainly an unfortunate
confusion between on-shore and off-shore.
This would be another issue no doubt. There
has clearly been a trend among even the larger
Swiss players to a US-style of product-oriented
private banking globally. As it is so profitable
and competitive, it is irresistible and senior
management falls into it. The path to hell
is paved with good intentions etc.
17 November 03
Government Bureaucrat
Could make no comment about any possible
inspection of any specific institution. The
Citibank inspection and its private banking
unit fall into that category. Understand
the interest in "informed consent"
and will try to come up to speed on the various
combinations on-shore/off-shore and product/relationship
etc. Will investigate the 2001 parallel prior
case and reply as soon as possible. However,
must keep absolutely neutral between the
various styles of private banking and could
not simplistically give an OK to Swiss-style
and a non-OK to US-style. Obviously it all
depends on what they actually do within the
style as it were.
17 November 03
Financial Planner
Have not been following the Citibank/FSA
story particularly as am so very much more
actual client financial/estate planning oriented
and outside the private banking market tittle
tattle of product etc. Would not be surprised
that some such "accident" has occurred.
Everything was heading that way, "ariso
na hanashi da".
18 November 03
Foreign Fixer
Have been in contact with HNWIs running businesses
in Japan with an international dimension
for years as am in the business of fixing
"Big Buck" cross-border deals.
That then soon leads into being asked for
private financial advice and into a certain
notoriety as such an advisor on the private
banking grapevine and had even been offered
a finder contract by Citibank Tokyo. The
terms were so extra-ordinarily generous that
was alerted that something was not quite
kosher and so said no. That was an unexpected
outcome and in the process got into contact
with New York, where Tokyo was seen as a
fountain of money, but something of a black
box fountain. Was asked for an opinion and
said that trouble was brewing. Heard later
that the response was apparently to have
made changes in the reporting lines so that
Japan in Tokyo did not report directly to
Global in New York, but via Asia in Singapore,
if the memory serves correctly. Thus, while
responsibility was safely confused, the money
equally safely continued to flow as it were.
That was in 1999. Became aware through FSA
contacts that around 2000 the FSA was becoming
interested in Citibank: a number of Japanese
oblique hints were dropped about certain
schemes that were being offered, although
there had been an understanding that these
had been terminated in the first closure.
The hints were not taken and Citibank moved
up the scale of the FSA problem list. Have
met the senior management man in Tokyo several
times and he is one of those larger-than-life
overly Americanised Japanese figures with
a large wardrobe of expensive imported suits
and all changed so that he never met the
same client in the same combination. Suits,
braces and ties were all carefully logged
and rotated by his secretary woman. Also
received a not entirely favourable impression
as regards his private banking/general management
expertise etc. In these circumstances, began
to advise clients to steer well clear of
Citibank as it seemed so doubtful. Client
reporting documentation was poor with accounts
showing phantom cross-entries etc with strange
and difficult to understand coding. One client
had a query about attending a Tiger Woods
golf event in the very prominent Citibank
private box etc. Said clearly no as it would
be an obvious breach of confidentiality.
General advice was always discreetly to run
down the relationship to some trivial amount
and in some innocuous product and leave well
alone. Simply closing an account in Japan
is more complication than it is worth and
raises suspicions needlessly. It is not surprising
that the FSA has waded in and it is quite
probable that the whole operation will be
closed down. The FSA inspectors are looking
at the big "Family Office" accounts
both on-shore and off-shore. That kind of
bad news gets around quickly anywhere and
especially in Japan and there will be client
flight so it is effectively the death knell
of the operation, whatever the FSA formal
decision might eventually be. There is really
little interest in the mass of retail on-shore
accounts that are such small beer and add
up to little more than an old-fashioned churn
and burn brokerage.
18 November 03
Government Bureaucrat
Per the administrative action in the parallel
case notified 19 Dec 01, there was non-securities
business conducted without prior notification/approval
in 1. Credit derivative transactions, 2.
Intermediation of sale/purchase of interest
in limited partnerships and limited liability
companies, 3. Operations for pursuing business
specific entities, 4. Operations for pursuing
business of affiliated companies other than
specific entities, 5. Intermediation of making
a sleeping partnership agreement among parties,
6. Intermediation of cash lending/borrowing
and 7. Intermediation of commodity derivative
transactions. There is no double standard
as regards the so-called Swiss-style and
US-style in private banking.
21 November 03
Foreign Private Banker
Spoke to the Citibank contact, but there
was no further information available. In
the circumstances, it had been felt inappropriate
to follow up too insistently.
17 December 03
Foreign Private Banker
Met the Citibank contact and the conversation
turned to the FSA Citibank Inspection: not
overtly concerned was the message and attitude.
Apparently, after about one month of generally
rootling around, some 40 FSA inspectors left
suddenly and there is now the rump of 10
or so continuing to rootle haphazardly. There
was, however, somewhat of an unfortunate
impression of putting a brave face on a bad
story.
06 January 04
Financial Journalist
The Asahi Chokan articles p1 "Concealed Assets JPY1bn" + p26
"A Stop Given to OB's Guidance" of 29 Dec 03 are indeed very
important. Typically the correspondent went for the obvious OB line with
the special highlighted section of a face-to-face interview. However, the
real impact is in the NTA planted comment about ignoring the legalities
of the tax efficiency and going to the underlying economic reality of the
transaction and declaring it to be a sham, keizaiteki gorisei ga nai. Then
the NTA further employed the supporting argument based on the grounds of
public equity in taxation re kazei no kohei, tax fairness. It should be
seen as a leading case in the development of a tighter control of "private
banking" schemes using complex corporate structures for tax avoidance
and the OECD highlighted vexed issue of "global trading" for
making impossible any practicable tax audit trail at all. The bizarre Citibank
Tokyo "Cult of the Personality" private banking advertising campaign
in the domestic and foreign press is a misconceived US-style attempt to
quiet client concerns about the recent FSA inspection. Obviously the clients
will have been badly rattled re tax confidentiality and the market view
is that the Citibank operation has received a death blow, whatever the
form of execution eventually decided by the FSA may be in due course. Like
all such US-style PR approaches in Japan it is profoundly counter productive
given the, to the Occidental mindset admittedly counter intuitive, established
Oriental Japanese bureaucrat mindset.
10 February 04
Financial Journalist
The story is that a leading MoF OB has just
been hired as an amakudari advisor at Citigroup
Tokyo - no doubt in an attempt to soften
the impact of the FSA inspection of the private
banking operation. He was a senior man at
MoF and is reasonably well connected. It
could have some favourable impact for Citigroup,
but not that much in the new NTA policy scheme
of things re NTA OB tax consultants being
so chewed up recently. Of course, it does
show that Citigroup is running scared: time
will tell as always.
28 February 04
Industrial Journalist
Had talked to senior editorial staff about
the news lead on the developing Citigroup
Private Bank Japan Event and the FSA inspection.
The story is apparently widely known to financial
journalists. In the current diplomatic environment
re BSE, Iraq etc, it was thought unwise to
take a lead against such a high profile US
bank. When the FSA decision is released there
will be the licence to comment and quite
detailed and very informed comment may be
expected at that point therefore.
25 March 04
Foreign Private Banker
It seems that there are investigations into
the somewhat complicated on-shore and off-shore
accounts of four leading Citigroup Private
Bank client "Family Offices": A,
B, C & D shall we circumspectly say,
although there are concrete rumours in the
market. Obviously this is highly confidential
and highly sensitive as tax confidentiality
becomes breached. The Event is most probably
going to go beyond an inappropriate behaviour
slap over the wrist and temporary closure
as there could even be a suspicion of systematic
behaviour in bad faith by Citigroup staff.
29 March 04
Financial Journalist
Given what has been going on at Citibank
in Otemachi Phase I 1986 - 1995 and in Marunouchi
Phase II 1997 - 2004 and at the NTA in Kasumigaseki
over the last ten to twenty years, the conjoint
outcome between the immoveable and the irresistible
as currently widely rumoured is understandable
and far from surprising. The Japanese tax
year is a 15 month overlapping year re the
underlying single entry cash basis accounting
method and runs from April to June of the
following year. Hence, it would be expected
that the NTA would want to determine the
tax and tax penalties payable by end-June
2004 at the latest for the bureaucratic tidiness
of determining the debtor balances and so
closing the books as accrual accounting is
not possible. That would most probably then
determine the timing of the FSA penalties,
public prosecutor decisions etc announcements.
Sometime between the end of Golden Week and
the end of June is the most reasonable guess,
say end-May/early June as a target. The media
will report extensively at that point.
16 April 04
Foreign Private Banker
The Citibank contact man continues to strike
a very nonchalant attitude towards the FSA
investigation results that must be expected
soon. It is very strange: is he a good actor
or is the FSA going to go soft on a foreign,
notably US, major?
11 June 04
Foreign Private Banker
The Citibank contact was not very cheerful
recently. In fact he seemed to be very out
of sorts. It appears the FSA private banking
inspection results announcement is about
to be made and will be highly negative with
some nasty sanctions imposed as expected
for so long now. The Head of Private Banking
has been given his marching orders, but is
still around the office clearing up until
the end of the month no doubt organising
the transport of his famous wardrobes of
suit, braces and tie matching combinations,
and the announcement will be made public
no doubt in a spin message of responsibility
being taken etc etc at the time of the sanctions.
It is the old story of foreign management
not handling Japanese compliance issues,
Japanese rogue employees and Japanese anti-
social elements probably through a mix of
complacency and ignorance. The Credit Suisse,
Doden, Kajiyama etc story is just another
such recent small link in a long chain of
foreign accidents. The Citigroup Private
Bank link is, however, an especially large
potato link in the same chain to mix metaphors.
A fall-out will be the impact on the Bank's
customers: the inspection findings generating
an adverse image for private banking and
consequently generating general customer
unease that will have to be countered. It
is all very tedious and a quite unwanted
bother.
15 June 04
Financial Planner
Did indeed say, "Would not be surprised
that some such 'accident' has occurred. Everything
was heading that way, 'ariso na hanashi da'"
in Nov 2003 as Citigroup Private Bank had
been involved in a lot of monkey business
for a very long time, as everyone knows.
It is the old bureaucrat game of watching
carefully, preparing the case and pouncing
in a cat and mouse game. The mandarinate
tradition, ichibatsu hyakkai, punishing one
warns one hundred lives gloriously. The NTA
is desperate to hold tax revenues up. The
Nikko Cayman Island tax evasion case just
reported is the most recent move, obviously
with massive overseas Japanese assets, the
NTA is keen to keep the ability to tax Japanese
assets, even when overseas, and this is all
part of the Japan in East Asia story and
trying to maintain a Switzerland position
there as regards a retained stability and
living standards gap.
13 September 04
Financial Journalist
The media reporting has been very weak on
the Citigroup Private Bank Event and the
story therefore appears to have no "traction".
However, there is actually too much traction
as it were. The FSA has a full schedule of
the many serious infractions and is perfectly
capable of moving as picked up by the media
awkward squad, Yukan Fuji and Yomiuri, Yukan
Fuji typically leading with its very good
financial coverage on Friday 03 Sep 04 p1.
The problem is that Koizumi is perceived
as being rather too friendly with Bush and
there are a lot of things going on apparently
that should not be exposed to the light of
day. An FSA punitive measures campaign against
a major US bank could cause an avalanche
of negative reporting on the US and information
control may be lost. The FSA is in a perfect
dither about what to do. Both Yukan Fuji
and Yomiuri are right wing and critical of
undue US influence on Japan particularly
financial affairs influence, so it is entirely
possible that their out-of-line reporting
was an effort to win traction and thus was
so very clearly ignored by the Establishment
press: although the Event has been an open
secret for months now. Anyhow, the financial
community in asset management, private banking,
tax etc is now casting aspersions on the
FSA as not having the guts, balls or whatever
other anatomical expressions preferred. Personally
chose and used the term balls, kintama, when
speaking to two FSA representatives the other
day. They looked very sheepish and made the
usual bureaucratic non-committal replies.
Obviously, this delay does not sit well with
the general claims of open and transparent;
free, fair and global; no double standards
etc etc. It rather more smells of sairyo
gyosei, discretionary regulation, and the
bad old days. The issues involved are very
important and the matter should really be
resolved asap.
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