Friday, June 30, 2006
As might be expected from a competitor, WSJ criticizes NYT's decision to publish the story:
Just as dubious is the defense in a Times editorial this week that "The Swift story bears no resemblance to security breaches, like disclosure of troop locations, that would clearly compromise the immediate safety of specific individuals." In this asymmetric war against terrorists, intelligence and financial tracking are the equivalent of troop movements. They are America's main weapons.And then there is a call for calm: "Counterterrorism has become a source of continuing domestic and international political controversy. Much of it, like the role of the Iraq war in inspiring new terrorists, deserves analysis and debate. Increasingly, however, many of the political issues surrounding counterterrorism are formulaic, knee-jerk, disingenuous and purely partisan. The current debate about United States monitoring of transfers over the Swift international financial system strikes us as a case of over-reaction by both the Bush administration and its critics."
The Times itself said as much in a typically hectoring September 24, 2001, editorial "Finances of Terror": "Much more is needed, including stricter regulations, the recruitment of specialized investigators and greater cooperation with foreign banking authorities." Isn't the latter precisely what the Swift operation is?
That's a relief, but will data security reforms still proceed?
Thursday, June 29, 2006
Connecticut Attorney General Richard Blumenthal (D) urged Congress yesterday to heighten federal scrutiny of the secretive hedge fund industry or face the prospect of a patchwork group of state authorities stepping in to monitor the rapidly growing investment pools to prevent fraud.
Blumenthal, whose state is the headquarters for scores of hedge funds, told the Senate Judiciary Committee that last week's federal appeals court ruling striking down oversight of the funds by federal regulators left investors "in a regulatory void, without any disclosure or accountability."
Speaking of which, WaPo editorial weighs in on the NYT decision to disclose the financial data monitoring program: "The decision on whether to publish information that government officials assert would damage national security is one of the gravest choices a newspaper can face. There may be times when editors get it wrong, either printing material that proves harmful or withholding information that should have come to light. But these are risks that the Constitution contemplated and that the Framers were persuaded were worth tolerating to ensure a free and vigorous press.
Wednesday, June 28, 2006
Update: "A former government attorney [Gary Aguirre] told Congress on Wednesday that he was fired for investigating a hedge fund too aggressively and said law enforcement is failing in its duty to protect investors in the growing hedge fund industry." See also Gary Aguirre's Testimony.
Economies advance through the adoption of better technologies and business methods. Production and efficiency improve. Prices go down or incomes go up. Either way, people can buy more -- more old stuff (say, food or housing); or more new stuff (say, Internet connections or iPods). In Mexico, this process is weak. To simplify slightly: Its economy consists of two vast sectors, each slow to adopt better technology and business practices.Samuelson does not consider the impact of a third sector of Mexico's economy -- the "grey sector" -- which has developed around corruption and illicit trade and finance. This sector has a corrosive effect on the other two sectors, and acts to undermine overall growth.
One sector involves large, modern firms in semi-protected markets that limit the pressure to improve efficiency or lower prices. "Mexico's business sector is risk-averse. It's never had to operate in a true competitive environment," says Pamela Starr, an analyst for the Eurasia Group, a consulting firm. "It's operated with monopolies and oligopolies encouraged by the government."
The other part of the economy is usually called the "informal sector." It consists of thousands of small firms -- street vendors, stores, repair shops, tiny manufacturers -- that theoretically aren't legal, because they haven't registered with the government and often don't pay taxes or comply with regulations on wages and hiring and firing. Almost two-thirds of Mexico's workers may be employed in the informal sector, according to one rough estimate by the International Monetary Fund.
Around the country, doctors in private practice have set up tax-exempt charities into which drug companies and medical device makers are, with little fanfare, pouring donations — money that adds up to millions of dollars a year. And some medical experts see that as a big problem.
The charities are typically set up to engage in medical research or education, and the doctors involved defend those efforts as legitimate charitable activities that benefit the public. But because they operate mainly under the radar, the tax-exempt organizations represent what some other doctors, as well as regulators and industry consultants, say is a growing conduit for industry money. The payments, they say, can bias the treatment decisions of physicians, may lead to suspect research findings and at times may even risk running afoul of anti-kickback laws.
Federal officials are starting to take notice of such tax-exempt charities, which critics say are becoming increasingly popular as other forms of industry support to physicians — like lucrative consulting agreements that involve little actual work — have come under scrutiny from regulators and others worried about the potential conflicts.
The Swift story bears no resemblance to security breaches, like disclosure of troop locations, that would clearly compromise the immediate safety of specific individuals. Terrorist groups would have had to be fairly credulous not to suspect that they would be subject to scrutiny if they moved money around through international wire transfers. In fact, a United Nations group set up to monitor Al Qaeda and the Taliban after Sept. 11 recommended in 2002 that other countries should follow the United States' lead in monitoring suspicious transactions handled by Swift. The report is public and available on the United Nations Web site.And a U.S. Senator called for a damage assessment: "Senator Pat Roberts, the chairman of the Senate intelligence committee, asked the director of national intelligence on Tuesday to assess any damage to American counterterrorism efforts caused by the disclosure of secret programs to monitor telephone calls and financial transactions."
Howard Kurtz chronicles the "piling on": "Even by modern standards of media-bashing, the volume of vitriol being heaped upon the editors on Manhattan's West 43rd Street is remarkable -- especially considering that the Los Angeles Times and Wall Street Journal also published accounts Friday of a secret administration program to monitor the financial transactions of terror suspects. So, in its later editions, did The Washington Post."
Meanwhile: "A human rights group in London said Tuesday that it had lodged complaints in 32 countries against a banking consortium in Brussels, contending that it violated European and Asian data protection rules by providing the United States with confidential information about international money transfers."
I think, in simple terms, that they have forgotten that they are citizens, and that they have an obligation to the polity that goes beyond writing the good story. I don't think they are alone; I think that many people and institutions in the country today have forgotten they are citizens, whether they are poor residents of New Orleans defrauding FEMA or corporate chieftains who are maximizing their bonuses at the expense of a healthy economy.Of course, that's the blog post that needs to be written. The point about journalism and citizenship is important, but the broader issue of citizenship is even more important because it has so much to do with the complex issues of the day. A deeply-felt individual notion of positive citizenship (whether it be duty to family, workplace, community, or country) is a significant deterrent to fraud and corruption of all stripes. Perhaps implicit here is the idea that publishing a story that directly endangers fellow citizens' lives, which is the hypothetical scenario Armed Liberal discusses, can be construed as a type of corruption of journalism.
But that's another blog post.
Rep. Howard Berman (D-Calif.) reluctantly assumed the ranking member’s post at the House ethics committee two months ago, insisting that his reign as senior Democrat be temporary. But since Berman’s arrival, the ethics panel has started three new probes and created a voluntary approval process for member travel, with Berman displaying a warm rapport with Chairman Doc Hastings (R-Wash.) that Mollohan noticeably lacked.
Mollohan continues to weather the federal probe of his earmarks and real-estate investments that prompted him to step down from the panel, a complex inquiry that could remain active well into next year. Still, whether Berman will or should extend his stay at ethics — as a potential chairman, if Democrats take the House — remains an open question.
Needless to say, the decision has rippled across the white collar bar: "A federal judge ruled yesterday that a tactic used by prosecutors to crack down on corporate misconduct violated the constitutional rights of employees, a decision that may change the way the government pursues white-collar cases." See also WaPo.
WCCC Prof Blog has the highlights and is already drawing comparisons to Learned Hand.
To make a long story short, though, Judge Kaplan reasoned that under the Thompson Memo, which sets forth the DOJ's policy on prosecution of corporate entities, prosecutors were pressuring KPMG, which was facing a possible indictment of its own, to cut of their employee-defendant's legal fees, even though corporations routinely advance such fees. Such pressure probably would be proper if the pressure was narrowly tailoring, for example if the government was considering charging KPMG with obstruction or a similar allegation in which the payment of the fees might play a part. But otherwise, that pressure to cut off employees impinges on employees' abilities to defend themselves. Therefore, Judge Kaplan is going to allow the individual defendants to file claims for fees from KPMG.
In terms of analysis, WCCC Prof Blog favorably notes that Judge Kaplan recognized that white collar cases can be costly to individual defendants. And/but, as a consequence, director and officer insurers are probably taking note, and may impose their own restrictions on the advancement of fees to employee-defendants.
WSJ Law Blog has winners and losers and a hodge podge of views.
Tuesday, June 27, 2006
Warren Buffett and Bill Gates stood side by side today as the new face of philanthropy, promising a charitable foundation unlike any the world has seen and one that will test the limits of what a single group can do against global problems of health, poverty and education.
Buffett's decision to sign over nearly $31 billion of his company's stock to the Bill & Melinda Gates Foundation creates a Microsoft of the charity world, a colossus that by law and under Buffett's conditions will have to give away $3 billion a year by 2009.
The relative virtues of philanthropy: "On the other hand, larger and well-run philanthropic foundations can be wonderful things: They are at least as sophisticated as government programs but are untrammeled by the oversight and second-guessing that necessarily come with taxpayers' money. This frees them to concentrate their resources on a few big challenges without regard to political considerations and to make long-term commitments that governments have trouble sustaining."
And the challenge: "Spending an extra $1.5 billion a year sounds like a problem any institution would love to have, but think about it. The Gates Foundation, already the biggest philanthropy in the country by far, has to double its annual spending. That means finding productive ways to disburse an extra $4 million a day, including Saturdays and Sundays -- and Bill and Melinda won't be allowed to just take the money out into the back yard and burn it. Buffett will be watching, and he joked to Gates that 'I won't grade you more often than daily' on how the money is being used."
With so much money, there is a real opportunity for progress on important issues, but there should also be a real concern about waste, fraud, and abuse. As sophisticated a foundation it is, with such a large influx from Buffet, the Bill & Melinda Gates Foundation will certainly need to enhance its internal controls, as well as grantee oversight, to ensure all the money goes where it should.
The schemes are amazing. Someone should write a book about this.
For military widows, many of them young, stay-at-home mothers, the shock of losing a husband is often followed by the confounding task of untangling a collection of benefits from assorted bureaucracies.Does it seem like the Pentagon spends billions on equipment (maybe not body armor), but pinches pennies when it comes to soldiers and their families?
While the process runs smoothly for many widows, for others it is characterized by lost files, long delays, an avalanche of paperwork, misinformation and gaps in the patchwork of laws governing survivor benefits.
Sometimes it is simply the Pentagon's massive bureaucracy that poses the problem. In other cases, laws exclude widows whose husbands died too early in the war or were killed in training rather than in combat. The result is that scores of families — it is impossible to know how many — lose out on money and benefits that they expected to receive or believed they were owed, say widows, advocates and legislators.
Mr. DiStefano said two committees had found evidence of serious misconduct in the professor's record, including plagiarism, misrepresentation of facts and fabrication of scholarly work.
Professor Churchill's lawyer, David Lane, said that the professor's ultimate dismissal was now inevitable, and that retribution for politically unpopular speech was the real reason. A lawsuit against the university alleging violations of the professor's First Amendment rights is also inevitable, Mr. Lane said.
A 15-month inquiry by a top House Democrat has found that enforcement of the nation's food and drug laws declined sharply during the first five years of the Bush administration.See also House Government Reform Committee Minority.
For instance, the investigation found, the number of warning letters that the Food and Drug Administration issued to drug companies, medical device makers and others dropped 54 percent, to 535 in 2005 from 1,154 in 2000.
The seizure of mislabeled, defective or dangerous products dipped 44 percent, according to the inquiry, pursued by Representative Henry A. Waxman of California, the senior Democrat on the House Government Reform Committee.
The research found no evidence that such declines could be attributed to increased compliance with regulations. Investigators at the F.D.A. continued to uncover about the same number of problems at drug and device companies as before, Mr. Waxman's inquiry found, but top officials of the agency increasingly overruled the investigators' enforcement recommendations.
The biggest decline in enforcement actions was found at the agency's device center, where they decreased 65 percent in the five-year period despite a wave of problems with devices including implantable defibrillators and pacemakers.
This is just one issue in the growing debate about the scope of executive power, and by extension, the balance of power between the three branches.
Leading the charge was President Bush: "President Bush offered an impassioned defense of his secret international banking surveillance program yesterday, calling it a legal and effective tool for hunting down terrorists and denouncing the media's disclosure of it as a "disgraceful" act that does "great harm" to the nation." See also LA Times.
NYT carried Keller's defense:
The executive editor of The Times, Bill Keller, said in an e-mail statement on Monday evening that the decision to publish had been "a hard call." But Mr. Keller noted that since the Sept. 11, 2001, terrorist attacks, the Bush administration has "embarked on a number of broad, secret programs aimed at combating terrorism, often without seeking new legal authority or submitting to the usual oversight."And FishbowlDC provided a little insight as to who was (or was not) involved in attempting to stop NYT from running the story:
He added, "I think it would be arrogant for us to pre-empt the work of Congress and the courts by deciding these programs are perfectly legal and abuse-proof, based entirely on the word of the government."
[DC Examiner reporter Bill] Sammon: One last thing. How hard did you push to convince the press not to publish this --
[WH Press Secretary Tony] Snow: I was not directly involved. The Department of the Treasury, since it has been operating the SWIFT program, did the work, and they're the ones who made the contacts, primarily to The New York Times, but to others, as well.
A former finance employee at Enron was sentenced to two years probation for filing false income tax returns.See also WCCC Prof Blog.
Lawrence Lawyer, a 38-year-old Houston resident, faced up to three years in prison for failing to report $79,469 he received over a four-year period beginning in 1997 from then-Enron executive Michael Kopper, a lieutenant of ex-Enron CFO Andrew Fastow.
In handing out the sentence, District Court Judge Kenneth Hoyt said if it weren't for the "storm" caused by the Enron scandal, Lawyer's case may not have even made it to the courtroom.
Monday, June 26, 2006
The death of one-party rule in Mexico promised a new era of cleaner elections.For example: "Eleven people, including four police officers, were murdered over the weekend in southern Mexico, officials said Sunday. Drug and gang-related violence have been rising in advance of Mexico's presidential election July 2."
But two studies suggest that the first presidential contest since Vicente Fox ended the Institutional Revolutionary Party's seven-decade hold on power in 2000 may be tainted by many of the same coercive tactics that marred previous balloting.
This is an issue not only in Mexico, but in many other fragile democracies. The concern is that such political systems can be hollowed out by corruption so that they have the pomp and circumstance of true democracies, but lack the substantive traits of democratic government. That situation is corrosive and results in a rotting of social institutions, which creates a haven for the range of illicit actors, including traffickers and terrorists. For this reason, corruption in foreign governments can become a national security concern here at home. Accordingly, U.S. public diplomacy should include public integrity/anti-corruption efforts.
IN the spring of 2003, the chairman of the New York Stock Exchange, Richard A. Grasso, had his eyes on a very rich prize. Although Mr. Grasso's annual compensation at the time was about $12 million, on a par with the salaries of Wall Street titans whose companies the exchange helped regulate, he had accumulated $140 million in pension savings that he wanted to cash in — while still staying on the job.As we now know, it was Paulson (current Treasury Secretary nominee) who would later push Grasso out.
Now Henry M. Paulson Jr., the chairman of Goldman Sachs and a member of the exchange's compensation committee, was grilling Mr. Grasso about the propriety of drawing down such an enormous amount and suggested that he seek legal advice. So Mr. Grasso said he would call Martin Lipton, a veteran Manhattan lawyer and the Big Board's chief counsel on governance matters. Would it be legal, Mr. Grasso subsequently asked Mr. Lipton, to just withdraw the $140 million if the exchange's board approved it? Mr. Grasso told Mr. Lipton that he worried that a less accommodating board might not support such a move, according to an account of the conversation that Mr. Lipton recently provided to New York State prosecutors. (Mr. Grasso has denied voicing that concern.) Mr. Lipton said he told Mr. Grasso not to worry; as long as directors used their best judgment, Mr. Grasso's request was appropriate.
Which prompts a WaPo editorial: "Never underestimate the congressional impulse to do nothing -- especially when doing something could make life less pleasant for lawmakers."
And NYT: "Dennis Hastert, the speaker of the House, promised credible reform back when the stench of illegal quid pro quo dealings between lobbyists and ethically challenged lawmakers seized public attention. But nothing close to true self-policing is emerging from Congress."
Amid all of this there's fresh reporting on the probe of Appropriations chairman Jerry Lewis:
When defense contractor Nicholas Karangelen launched a political action committee directed by the stepdaughter of the chairman of the House Appropriations Committee, he added another dimension to a tight circle of Capitol Hill relationships that is under federal investigation.See also TPMMuckraker; Harper's Washington Babylon.
The relationships revolve around Rep. Jerry Lewis, R-Redlands, who leads the Appropriations Committee and has extraordinarily close ties to lobbyists Letitia White and Bill Lowery.