As the world copes with an international economic crisis, yet another rift is developing that governments around the globe will be forced to resolve.
This one however, is fully within the responsibility of government obligations.
The Federal Bureau of Investigations is presently struggling to cope with the need for a massive level of inquiries needed in criminal aspects of the crisis. So too are Interpol and many national police forces. Governments are swamped with complaints of fraud against banks and brokers of all kinds.
The current crisis is collectively agreed to focus largely on the American sub-prime crisis, but is turning up in the strangest of places, such as Iceland, South Korea, and so on, with illegal activities by bankers, brokers and financial managers around the world.
Investigatory services are ill-equipped to deal with national, never mind international enforcement actions, with low budgets and few trained agents qualified to deal with complex domestic or international transactions.
Governments around the world will have to rapidly increase the size of these forces, or collectively create an international financial investigations service capable and authorized to deal with such matters. Certainly with the U.S. sub-prime mess at the heart of this particular mess, it is essential that Congress appropriate additional funds for this purpose.
But in the light of this situation, is the FBI really the right body to investigate these matters? In point of fact, there are many financial investigatory bodies within the Federal government, each separated by its unique legislative charge. For example, the Secret Service investigates matters having to do with monetary fraud where currency or money transfers are involved. The Secret Service, as few will remember, falls under the jurisdiction of the U. S. Treasury.
U. S. Customs and other bodies have financial investigators, as do a number of agencies and commissions. While each of these investigatory divisions is already working hard, it is critical to point out that each has a different, unique perspective and level of experience within financial transactions.
We believe it is time to merge or coordinate these under one umbrella, and to expand the capabilities beyond present limitations. Moreover, we believe that for regulations to work, investigators must be at hand capable of dealing with any anomalies, with the flexibility and knowledge of how to deal with those. In many cases, the laws are already on the books, but investigators are unfamiliar with them, or with the uniqueness of some financial activities.
A totalitarian state is hardly our goal, however, the nature of financial processes today require a broader approach and necessitate an extensive increase in capabilities.
With banks and insurance companies growing into international mega-corporations, it is very easy for a rogue employee to commit crimes, or for management to intentionally mislead investors, depositors or account holders.
As we wrote recently about the lessons of Nick Leeson, actions in one country will have impact globally and this requires international investigations capabilities by qualified, trained financial investigators.
We are likely to find, in the course of investigations, that corruption in the financial world is systemic, and that inadequate regulation, particularly international regulation allows companies to do things illegally, as a matter of routine and with impunity.
This concerns us at the Institute, as such a discovery could result in further, and potentially total erosion of trust in the capitalistic system. That could result in a global revolution and the collapse of many Western governments in favor of a more socialist system, along the lines of Sweden, if we’re lucky, but in many cases, more like Soviet Russia, where everything is state-owned.
Careful policing of the financial services sector is essential. Prevention must be the order of the day.
Mr. Leeson’s actions prove the need to limit the growth of financial companies, and limit their exposure to the individual countries, not to the broader company. Why, for example, should a case of fraud or mismanagement in one country, affect the operations of a bank or financial services firm in all other countries? That one location should be isolated from all the other parts of the institution.
We believe that it is essential for regulators to have the ability to observe or monitor lending transactions pre-closing, and for those loans to be better qualified by an independent third party working in cooperation with regulators. This provides the system of checks and balances on which the United States government is founded. Presently, banks and financial companies are expected to police themselves, but have repeatedly proven they cannot – a fact that has been established as far back as 1790.
In regard to policing, recognizing that banks and financial institutions will not be able to do that role for themselves, we believe government must find the funding and increase the staffing of financial investigators by at least 750% over current levels. We further believe in the creation of a Federal Financial Services Investigations Agency, pulling together those investigators from the various existing agencies into one authoritative body.
Only time will tell what Congress and foreign governments do in the very near future.
