U.S. moves toward legal action against Swiss bank: sources

(Reuters) - U.S. authorities are moving toward taking legal action against Wegelin & Co, which could lead to an indictment of one of Switzerland's last pure private banks, on charges that it enabled wealthy Americans to evade taxes, according to two persons with knowledge of the case.

Negotiations in the case have reached a critical stage, with an indictment possible though the bank is seeking a deferred prosecution agreement, which would be less damaging. The outcome depends on how prosecutors, the U.S. State Department and the U.S. Treasury Department agree to treat the matter, the sources said.

Founded in 1741, Wegelin is one of Switzerland's oldest banks. An indictment of it would be a blow to a national tradition of banking secrecy that dates back to the Middle Ages. It would be a step forward for a U.S. crackdown on offshore tax evasion by Americans through Swiss banks.

The crackdown started around 2007 with an investigation of UBS AG, Switzerland's largest bank. It has since spread to the entire Swiss banking industry. Dozens of U.S. clients and at least two dozen Swiss bankers have been charged, in moves that have strained U.S.-Swiss relations.

Albena Bjorck, a spokeswoman for Wegelin, declined to comment on Friday when asked whether the bank was considering the possibility of being indicted. Charles Miller, a Justice Department spokesman, declined to comment.

The latest turn in the Wegelin case comes amid a broad criminal probe by the U.S. Justice Department of 11 Swiss and Swiss-style banks, including Wegelin, suspected of selling offshore tax evasion services to tens of thousands of wealthy Americans. Inquiries, growing out of scrutiny of UBS, are focused on Credit Suisse AG and Basler Kantonalbank among others.

Basler Kantonalbank confirmed a year ago that it was under investigation and in contact with U.S. authorities. Credit Suisse said in July its offshore private banking practices were under investigation and that it would "continue to cooperate with the U.S. authorities."

On a parallel track, Swiss government officials and the U.S. Internal Revenue Service are trying to negotiate a civil settlement for more than 300 other Swiss banks - the remainder of the Swiss banking industry - on the matter of private banking services that may have enabled tax evasion.

THREE BANKERS INDICTED

Wegelin confirmed on Wednesday that three of its employees had been indicted by U.S. prosecutors in Manhattan for selling tax evasion services to wealthy Americans. The charges outlined the sales role of senior unnamed partners at the bank.

The office of the Manhattan U.S. Attorney said on Tuesday that the indictment of the three bankers charged them with trying to "capture business lost by UBS AG and another large international Swiss bank in the wake of widespread news reports that the Internal Revenue Service was investigating UBS" in 2008 and 2009.

In 2009, UBS paid $780 million to settle Justice Department criminal charges that it helped thousands of U.S. clients hide $20 billion. UBS later turned over 4,450 American client names, on top of an initial 255 at the time of the settlement. It was a watershed breach in Swiss bank secrecy, which protects client confidentiality under law and does not consider tax evasion a crime.

If Wegelin could negotiate a deferred prosecution deal, it could resemble the one struck by U.S. authorities with UBS. Under such an arrangement, Wegelin would admit to criminal wrongdoing with its offshore private banking services, pay an undisclosed fine and agree to be monitored for a period of time.

Bjorck said in an emailed statement on Thursday that "Wegelin & Co. acknowledges the U.S. justice authorities' decision to press charges against three of its employees. Since April 2011, both external and bank internal experts have, in minute detail, examined its entire banking business with U.S. clients over the last 10 years.

"The bank and its U.S. lawyers have prepared their legal assessment of the matter in anticipation of the expected proceedings."

She declined on Friday to elaborate what she meant by "expected proceedings." Wegelin is based in St. Gallen, in northeastern Switzerland.

NO U.S. OFFICES

Wegelin is a small bank where eight partners hold unlimited liability for its operations. It has no U.S. offices or branches and it conducted its tax evasion business in part through correspondent banking accounts at UBS in Stamford, Conn., according to the indictment of the three Wegelin bankers.

One of Wegelin's eight top managing partners, Konrad Hummler, a leader in Swiss financial circles, has publicly lambasted the U.S. crackdown on Swiss private banking.

In a 2009 "investment commentary" entitled "Farewell America", which is on Wegelin's website, Hummler chastised the United States for "breathtaking moral duplicity in maintaining enormous offshore tax havens in Delaware, Florida and others of its states" and "for waging wars" in foreign countries "and at home (according to reliable sources, the tentacles of the narcotics mafia now reach well into political circles)."

http://www.reuters.com/article/2012/01/09/us-swiss-bank-wegelin-idUSTRE80808X20120109

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Iran Is Now Gearing Up For Its 'Greatest Wargames Ever' In The Strait Of Hormuz Read more: http://www.businessinsider.com/iran-new-naval-exercises-strait-of-hormuz-2012-1#ixzz1ihMZ1j1d

Just two days after finishing up its 10 day naval drills, Iran's Revolutionary Guard announced they will hold new military exercises in the Strait of Hormuz.

The Associated Press reports the Guard's naval commander Admiral Ali Fadavi says the seventh annual drill will be called "The Great Prophet" and be "different" from the previous exercises (via USA Today).

Scheduled for the month of Bahman, around February, the announcement comes on the heels of new oil sanctions against Iran.

Last month Tehran took a stand against the proposed sanctions, claiming that if they were passed Tehran would shut down the Strait of Hormuz and choke the world's oil supply from the Persian Gulf.

Fadavi tells PressTV that the Iranian Navy is "in full control of the Strait of Hormuz and monitors all moves in the area."

In RiaNovosti the admiral is quoted as the upcoming Naval exercise will be "its greatest naval war games."

The new drills may occur as the US and Israel prepare for their largest ever joint missile defense drill. Conflicting reports have come out saying both that the drills will be held in early spring and in a few weeks.

Iran announced yesterday it believes the drills will be launched in January, and finds them to be the precursors for war.

The Iranian Navy, the smallest branch of the country's military, is traditionally tasked with protecting Iran's coastline and ports; but last week's naval exercises seemed to illustrate that the Navy may be taking a more aggressive stance in the Gulf following the most recent round of sanctions imposed by the U.S.

Tehran's Navy is made up largely of domestically produced vessels with ships from North Korea, China, and Russia thrown in as well.

Its three largest destroyers are more than 50 years old and have been in service since Iran rebuilt its Navy following Word War II.

http://www.businessinsider.com/iran-new-naval-exercises-strait-of-hormuz-2012-1

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China finds $84bn local government debt irregularities

The National Audit Office said breaches included "irregular credit guarantees", "irregular collateral" and "fraudulent and underpayment of registered capital".

There are growing concerns about the amount of bad loans being held by local governments.

Official figures show they held debt of 10.7tn yuan ($1.7tn; £1.1tn) in 2010.

"The State Council is studying proposals to enhance local government debt management and to address fiscal and financial risks," the audit office said in the report.

'Again and again'

Continue reading the main story

“Start Quote

A lot of the local debt will be absorbed by the central government”

Michael PettisPeking University

Local governments have been borrowing money from Chinese banks to fund projects aimed at maintaining economic growth.

According to the China Banking Regulatory Commission, local governments took up 80% of total bank lending in China at the end of 2010.

However, analysts said that although the lending had helped to spur investment and boost growth, it was now weighing on local governments.

"Whenever you look at lending that spurs growth miracles, it starts off with an increasing ability to pay the debt," Professor Michael Pettis of Peking University told the BBC.

"But in every case that ability fades. That is the process that is happening in China," he explained. "We are going to see stories like this again and again."

Easing burden?

In October last year, China allowed four local governments to sell bonds for the first time in 17 year. It was hoped the sale would help them pay their loans.

However, the central government put a limit on the amount of bonds the local governments could issue despite the fact that there was a lot of interest among investors.

According to the Xinhua news agency, Shanghai's bond sale received bids for three times the amount of bonds on offer.

As a result, many of the local governments still have sizeable debts and while the central government may let them raise money, it may also have to take further measures to solve the problem, analysts said.

"A lot of the local debt will be absorbed by the central government," said Mr Pettis of Peking University.

http://www.bbc.co.uk/news/business-16405253

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China's city dwellers to breathe unhealthy air 'for another 20-30 years

Millions of city dwellers in China will be breathing unhealthy air for at least another 20 years despite recent moves to tighten controls on the most harmful form of pollution, one of the country's leading experts has warned.

The cautionary note comes at the start of a year when Beijing, Shanghai and several other Chinese metropolises will begin publicly releasing data on tiny particulates known as PM2.5, which account for more than half of the country's air-borne contaminants and have the most damaging impact on human health.

The promise of more transparency has been welcomed as an important step towards a clear-up of the foul smogs that plague urban China, but environment officials stress that more time is needed to turn grey skies to blue.

"It took the US and Europe 50 years to deal with their problem. Even if we cut that [PM2.5] in half, it will still take 20 to 30 years," said Wu Dui, a haze expert at the Guangdong Meteorological Agency.

His comments, which were carried by the Beijing Times, come as the government tries to massage down public expectations ahead of the release of politically sensitive PM2.5 data, which will show just how far China is from global health standards.

The government says about 70% of the air in Chinese cities meets existing national standards, which include measurements of sulphur dioxide, nitrogen oxide and bigger PM10 particulate matter.

But deputy environment minister Zhang Lijun has warned that 70% will fall below acceptable levels if PM2.5 is added to the index.

Health campaigners insist the inclusion of PM2.5 is crucial because smaller particulates can enter the bloodstream and do far more damage to the respiratory system than bigger matter.

Several cities have been quietly monitoring this data for several years. US embassy officials noted in 2006 that China was failing to release data on PM2.5 and ozone because the levels were unsafe and politically sensitive, according to a US diplomatic cable released by Wikileaks.

China's omission has been made more glaring by real-time data on PM2.5 released via the @Beijingair Twitter account by the US embassy in Beijing. It has revealed that pollution is often hazardous, contrary to the municipality's claims of 286 "blue sky days" (the term used for days on which the air meets the government's lax standards) in both 2010 and 2011.

Following a public outcry, the government recently promised to change the index this year in Beijing, Tianjin, Hebei and the Yangtze River and Pearl River deltas. The new system will be implemented nationwide by 2016.

(Additional reporting by Cecily Huang)  

http://www.guardian.co.uk/environment/2012/jan/03/china-unhealthy-air-pollution

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All Eyes On German Renewable Energy Efforts

FELDHEIM, Germany (AP) — This tiny village of 37 gray homes and farm buildings clustered along the main road in a wind-swept corner of rural eastern Germany seems an unlikely place for a revolution.

Yet environmentalists, experts and politicians from El Salvador to Japan to South Africa have flocked here in the past year to learn how Feldheim, a village of just 145 people, is already putting into practice Germany's vision of a future powered entirely by renewable energy.

Chancellor Angela Merkel's government passed legislation in June setting the country on course to generate a third of its power through renewable sources — such as wind, solar, geothermal and bioenergy — within a decade, reaching 80 percent by 2050, while creating jobs, increasing energy security and reducing harmful emissions.

The goals are among the world's most ambitious, and expensive, and other industrialized nations from the U.S. to Japan are watching to see whether transforming into a nation powered by renewable energy sources can really work.

"Germany can't afford to fail, because the whole world is looking at the German model and asking, can Germany move us to new business models, new infrastructure?," said Jeremy Rifkin, a U.S. economist who has advised the European Union and Merkel.

In June, the nation passed the 20 percent mark for drawing electric power from a mix of wind, solar and other renewables. That compares with about 9 percent in the United States or Japan — both of which rely heavily on hydroelectric power, an energy source that has long been used.

Expanding renewables depends on the right mix of resources, as well as government subsidies and investment incentive — and a willingness by taxpayers to shoulder their share of the burden. Germans currently pay a 3.5 euro cent per kilowatt-hour tax, roughly euro157 ($205) per year for a typical family of four, to support research and investment in and subsidize the production and consumption of energy from renewable sources.

That allows for homeowners who install solar panels on their rooftops, or communities like Feldheim that build their own biogas plants, to be paid above-market prices for selling back to the grid, to ensure that their investment at least breaks even.

Critics, like the Institute for Energy Research, based in Washington, D.C., maintain such tariffs put an unfair burden of expanding renewables squarely on the taxpayer. At the same time, to make renewable energy work on the larger scale, Germany will have to pour billions into infrastructure, including updating its grid.

Key to success of the transformation will be getting the nation's powerful industries on board, to drive innovation in technology and create jobs. According to the Environment Ministry, overall investment in renewable energy production equipment more than doubled to euro29.4 billion ($38.44 billion) in 2011. Solid growth in the sector is projected through the next decade.

Some 370,000 people in Germany now have jobs in the renewable sector, more than double the number in 2004, a point used as proof that tax payers' investment is paying off.

Feldheim has zero unemployment — despite its tiny size — compared with roughly 30 percent in other villages in the economically depressed state of Brandenburg, which views investments in renewables as a ticket for a brighter future. Most residents work in the plant that produces biogas — fuel made by the breakdown of organic material such as plants or food waste — or maintain the wind and solar parks that provide the village's electricity.

"The energy revolution is already taking place right here," says Werner Frohwitter, spokesman for the Energiequelle company that helped set up and run Feldheim's energy concept.

But it's not only in the country. Earlier this month in Berlin, officials unveiled a prototype of a self-sustaining, energy-efficient home, built from recycled materials and complete with electric vehicles that can be charged in its garage.

The aim of the prototype home is to produce twice as much energy as is used by a family of four — chosen from a willing pool of volunteers who will be selected to live in the home for 15 months — through a combination of solar photovoltaics and energy management technology, in order to show the technology already exists to allow people to be energy self-sufficient.

"We want to show people that already today it is possible to live completely from renewable energy," said German Transport Minister Peter Ramsauer as the project, dubbed "Efficiency House Plus," was unveiled. The house is part of a wider euro1.2 million ($1.57 million) project investing in energy-efficient buildings.

"The Efficiency House Plus will set standards that can be adopted by the majority in the short term," Ramsauer told The Associated Press. "The basic principle is that the house produces more energy than needed to live. The extra energy is then used to charge electric-powered cars and bicycles or sold back to the public grid."

Germany's four leading car makers are also participating in the project with BMW AG, Daimler AG, Volkswagen AG and Opel, which is part of Buick's parent company, General Motors Co., each making an E-car for use by in the home.

Such strong cooperation between Germany's industrial sector coupled with a political landscape that emphasizes stability and a heightened public ecological sensibility makes Germany fertile ground to lead the way in the transformation from a post-carbon economy to one run on renewable energy.

"Germany has the most robust industrial economy per capita. When you talk about industrial revolution, that's Germany. It's German technology, it's German IT, it's German commutation," said Rifkin, who outlines what he calls the "The Third Industrial Revolution," in a newly released book of the same title that explains how the economies in the future could swap fossil fuels for renewable energies and still maintain growth.

Robert Pottmann, an asset manager with Munich Re, one of the world's biggest reinsurers, says the company seeks to invest about euro2.5 billion ($3.27 billion) in the next few years in renewable energy assets such as "wind farms, solar projects or maybe new electricity grids."

Alan Simpson, an independent energy and climate adviser from Britain who visited Feldheim as part of a wider tour of Germany last month to see what the renewable revolution looks like up close said it was inspiring to view what is being accomplished on the ground.

"It's great to think about Germany delivering on everything that we are being told in Great Britain is impossible," Simpson said.

Amid the excitement, there is also an awareness of the real need for the German experiment to succeed.

"If Germany can't pull this off," said Rifkin. "We don't have a plan B."

http://www.npr.org/templates/story/story.php?storyId=144417399

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Belgium Is In Deep Financial Trouble Due To Bank Bailouts, But Now, Finally, A Bank CEO Is Getting Sued

Dexia SA, the Franco-Belgian mega-bank that collapsed and was bailed out in 2008 and that re-collapsed in early October, is a big deal in Belgium where it employs 10,000 people and has over 21 million bank accounts. Its assets of $715 billion dwarf Belgium's $395 billion economy.

The three countries involved in the bailout agreed in October to guarantee €90 billion in loans, of which Belgium will be responsible for 60.5%, France for 36.5%, Luxembourg for 3%. Belgium’s portion, €54.5 billion, represents nearly 14% of its GDP. The process is moving forward. On December 21, the European Commission approved on a temporary basis €45 billion of those guarantees though they violate EU rules on government subsidies for private companies.

Taxpayers are paying a heavy price for Dexia’s bailout. Belgium nationalized the Belgian entities of Dexia, including untold amounts of toxic assets. The French entity, which was involved in an enormous subprime scandal à la française, was taken over by the Caisse des Dépôts and the Banque Postale—both owned by the French government. Precision Capital, a Luxembourg company controlled by Qatari investors, bought 90% of Dexia Bank International Luxembourg, valuing the firm at €730 million, a steep discount from the expected €1 billion. Luxembourg acquired the remaining 10%. Other entities remain on the block.

In trying to bail out its financial sector, Belgium has guaranteed a total of €138.1 billion in debt (35% of its GDP) and has injected €15.7 billion in capital and €8.6 billion in loans, according to Belgium’s Cour des Comptes (Audit Court), which released the results of its annual audit on December 20 (PDF of the 412-page 168th Cahier) . The largest recipients: Dexia Banque Belgique, Dexia SA, BNP Paribas, and Fortis Banque.

The ultimate costs to Belgian taxpayers will be huge and long-term, given how small the country is. Yet there have been no legal consequences for those responsible. Until now....

Lynx Capital, a Belgian investment firm, has sued Dexia SA and former CEO Pierre Mariani for "spreading false and misleading information" and “market manipulation.” The amount in the case is small—and irrelevant. Lynx purchased 5,350 shares on September 5, 2011, for €1.46 per share and lost 82% of its investment over the next few months. But in a potentially significant development for Belgium, where class-action law doesn’t exist, Bernard Delhez, CEO of Lynx, is now trying to encourage other shareholders to join the cause.

The complaint alleges that Mariani and Jean-Luc Dehaene, Dexia’s former president, issued reassuring statements about the financial condition of the bank from the time they took over, following its bailout in 2008, until September 2011. Because the bank was in a precarious situation throughout and engaged in high-risk activities, the information in those reassuring statements was false and misleading and was intended to artificially inflate Dexia’s share price. Hence, Dexia and Mariani engaged in market manipulation.

Moreover, Mariani must have known that the information was false and misleading. For example, Mariani confided in Dehaene in 2008 that Dexia was "not a bank but a hedge fund" (L’Expansion). Dehaene spilled the beans on this conversation last October during the presentation of the breakup plan. Among the others reasons why Mariani must have known about the true condition of Dexia was a note that Luc Coene, Governor of the National Bank of Belgium, had sent to Dexia last August, in which he recommended that Dexia be dismantled.

For Robert Witterwulghe, Lynx’s lawyer, the facts demonstrate that Mariani knew as early as October, 2008, that Dexia was in a precarious situation, and that the reassuring communications since then were willfully false and misleading.

The court action is based on the law of August 2, 2002, concerning insider trading and market manipulation. But: "Why impose a system for everyone when it is not applied in certain cases?" Delhez said (L’Echo), perhaps to justify in part why he is pushing the case though his investment is small and his legal expenses will pile up quickly.

When a bank collapses, the lies behind its financial statements come out of the woodwork—and Dexia is no exception: a report surfaced with the damning results of an earlier investigation by French regulators. And what happened then? Nothing.... Regulators Knew of Dexia's Problems But Were Silenced.

http://www.businessinsider.com/belgium-in-deep-financial-trouble-due-to-bank-bailouts-but-finally-a-bank-ceo-gets-sued-2011-12

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North Korea Mourns Kim Jong Il; Son Is 'Successor

North Koreans marched by the thousands Monday to their capital's landmarks to mourn Kim Jong Il, many crying uncontrollably and flailing their arms in grief over news of their "dear leader's" death.

North Korean state media proclaimed his twenty-something son Kim Jong Un a "great successor," while a vigilant world watched for any signs of a turbulent transition to the untested leader in an unpredictable nation known to be pursuing nuclear weapons.

South Korea's military went on high alert in the face of the North's 1.2 million-strong armed forces following news of Kim's death, after 17 years in power, on Saturday while carrying out official duties on a train trip. President Barack Obama agreed by phone with South Korean President Lee Myung-bak to closely monitor developments.

On the streets of the North Korean capital, Pyongyang, people wailed in grief, some kneeling on the ground or bowing repeatedly. Children and adults laid flowers at key memorials.

A tearful Kim Yong Ho said Kim Jong Il had made people's lives happier. "That is what he was doing when he died: working, traveling on a train," he said.

Other North Koreans walked in line past a giant painting of Kim Jong Il and his late father, national founder Kim Il Sung, standing together on Mount Paektu, Kim Jong Il's official birthplace. Wreaths were neatly placed below the painting.

"How could the heavens be so cruel? Please come back, general. We cannot believe you're gone," Hong Son Ok shouted in an interview with North Korea's official television, her body shaking wildly.

A foreigner who teaches at a university in Pyongyang told The Associated Press that students told about Kim's death from a reported heart attack looked very serious but didn't show any outward emotion.

"There was a blanket of silence" over Pyongyang, said the teacher, who spoke on condition of anonymity because of worries about his security. "People were going about their business. Lots of people were lining up to lay flowers at official portraits. People looked a little stunned and very serious, but composed and respectful."

"He passed away too suddenly to our profound regret," said a statement carried by the North's official Korean Central News Agency. "The heart of Kim Jong Il stopped beating, but his noble and august name and benevolent image will always be remembered by our army and people."

North Korean state media fell short of calling Kim Jong Un the country's next leader, but gave clear indications that the third son of Kim Jong Il would succeed his father.

The North said in a dispatch that the people and the military "have pledged to uphold the leadership of comrade Kim Jong Un" and called him a "great successor" of the country's revolutionary philosophy of juche, or self reliance.

The death could set back efforts by the United States and others to get Pyongyang to abandon its nuclear weapons ambitions, because the untested successor may seek to avoid any perceived weakness as he moves to consolidate control.

"The situation could become extremely volatile. What the North Korean military does in the next 24-48 hours will be decisive," said Bill Richardson, a former U.S. ambassador to the United Nations who has made several high-profile visits to North Korea.

http://abcnews.go.com/International/wireStory/north-korea-leader-kim-jong-il-died-15185456#.Tu9lntQS0-c

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