Know Your Customer Should Be Replaced With Know Your Bank

Even though Cyprus Banks have reopened, the amounts depositors can withdraw remains limited. While ATM withdrawals were increased to the previous €300 a day, there is a €5,000 per person limit on debit and credit card purchases per month, and no more than €3,000 can be taken out of the country. Additionally, both electronic transfers to outside the country and the cashing of checks are prohibited.

While depositors with 100,000 euros or less will be spared completely, customers holding more than €100,000 stand to lose 60% of deposits if the bank does not recover: 37.5% will be converted into voting shares in the bank while another 22.5% will be “frozen” until the bank’s assets and liabilities are evaluated and either transformed into shares or written off. Already, 40% has already been “temporarily” frozen to provide the bank with liquidity. In other words large depositors are going to be wiped out entirely.

The consequence of this theft cannot be underestimated. And, while bankers may try to justify their actions claiming that nearly one-third of the accounts with over 100,000 euros are held by Russian oligarchs, there are many individuals who have just seen their life savings  wiped out after working their entire lives. As far as I am concerned anyone holding a bank account within the Eurozone should be thinking very hard about how safe their cash is from confiscation.

Aside from the share and bondholders, lenders and affluent account holders taking a huge loss, with the closing of Laiki, and the recapitalizing of the Bank of Cyprus, thousands of jobs will inevitably be lost. And, in addition suddenly many small businesses will find that they no longer have any working capital and thus will be forced to close.

Events in Cyprus have led to the realization that people who have worked hard and put their savings into a bank are technically lenders to the bank. In the case of insolvency they are “unsecured creditors,” and not automatically entitled to their own funds. Understandably, this has caused a great deal of concern amongst depositors and investors alike, and those with some common sense should look to add gold and silver to their portfolios. As I have mentioned countless times, you cannot trust your government!

What most people don’t realise that government money printing is equally reprehensible as it takes value out of people’s savings just as surely as taking money out of their bank accounts, but in a hidden, indirect way.

We are in an era where the banking elite in collusion with governments command far too much control over individuals. Much of this began after the worst terrorist attack in history namely September 11, 2001. Unfortunately, this terrible event changed international banking and allowed governments to use this as an excuse to implement the most ridiculous financial regulations that I have ever known. And, much to my surprise no one argued their legitimacy or usefulness but simply adhered to these new laws. For years I have been vehemently opposed to these new regulations because I see them as an invasion of privacy of individuals, and a way in which governments can widen their tax base. They do not serve any purpose to the millions of individual account holders around the world other than to irritate most normal thinking people.

These new regulations arose from what was known as the USA PATRIOT Act (commonly known as the Patriot Act) that was signed into law by President George W. Bush on October 26, 2001. The title of the act is a ten letter backronym (USA PATRIOT) that stands for Uniting (and) Strengthening America (by) Providing Appropriate Tools Required (to) Intercept (and) Obstruct Terrorism Act of 2001.[1]

Title III of the Act, titled “International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001,” is intended to facilitate the prevention, detection and prosecution of international money laundering and the financing of terrorism.  While the law was supposedly intended to make it easier for authorities to identify money laundering activities and to make it harder for money launderers to mask their identities, some of the regulations implemented were so ridiculous it made me wonder what sane person even thought of such stupid questions.

Suddenly, individuals who wanted to use a bank were deemed money launderers, terrorists or drug smugglers. In some cases even though they had maintained a bank account for years, they had to produce two lots of ID to prove that they were really who they were. In addition, proof of physical address was required as if it makes any difference to where one might live. And, restrictions were placed on cash deposits and cash withdrawals. In some instances bank personal were required to report any “suspicious” behaviour. (Does a bank teller consider someone depositing more than $10,000 cash as a suspicious person?)

In the US it became a criminal offense to evade currency reporting by concealing more than US$10,000 on any person or through any luggage, merchandise or other container that moves into or out of the U.S. Frankly, I cannot see how this this amount can finance an international uprising.   And, as a traveller you were expected to take with you 3 months of utility bills as proof of physical address. It did not take into account the many people around the world who receive such bills in their postal boxes.  To be blunt some of the questions in the “Know Your Customer” or “KYC” were and are just plain stupid and a waste of time.

But, since the inception of these inane banking practices, we have not seen an end to terrorism nor have we seen an end to the meddling of the US military into numerous countries in the Middle East. When they first invaded Iraq it was on the pretense of “weapons of mass destruction.” Then, it became a need for democracy. If the US government is so concerned about introducing democracy how come they have never invaded Zimbabwe as well as several other countries in Africa?  But, getting back to the current banking laws, what has become apparent is that certain large banks have been involved in money laundering as well as being directly or indirectly complicit in a host of other crimes, and not the individuals with offshore bank accounts.

Many of the major banks have lied and cheated their own clients. They have also been involved in attempting to rig markets including Libor, currency, equities, bonds, and precious metals. In addition, time and time again, they have been found guilty of insider trading or a myriad of crimes involving investments.

According to The Wall Street Journal, large global banks will likely pay more than $100 billion in legal fees for their surreptitious dealings in mortgage-market collapse, the financial crisis, and the Libor rate scandal.

The big four U.S. banks — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo – already have doled out $61.3 billion for financial-crisis and mortgage claims over the past three years, according to SNL Financial research firm. It even seems that the Libor scandal has been conveniently forgotten.

The top US bank JP Morgan Chase is being investigated by at least eight federal agencies are investigating the bank, including the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission and the Securities and Exchange Commission. The bank is facing a criminal inquiry over whether it lied to investors and regulators about the risky deals it took.  But, in addition the bank is facing a list of charges.

Meanwhile, towards the end of last year, the British banking giant HSBC agreed to pay a record $1.92 billion settlement after a broad investigation by U.S. federal and state authorities found the bank violated federal laws by laundering money from Mexican drug trafficking and processing banned transactions on behalf of Iran, Libya, Sudan and Burma.

Recently, it was exposed that Francois Hollande’s former budget minister and tax tsar of the French government was charged with tax fraud following a shock confession that he had held a secret foreign bank account for 20 years and had repeatedly lied about it. Jérôme Cahuzac’s sudden admission that he hid €600,000 (£510,000) offshore for more than two decades is the biggest scandal to hit Hollande’s presidency.

Only last week, ABN AMRO, the largest Dutch bank in the Eurozone, issued a letter to their gold contract customers of failure of delivery, and instead will pay account holders in a paper currency equivalent to the current spot value of the metal.

ABN AMRO, the biggest Dutch bank, has sent a letter to its clients stating that they will no longer be able to take physical deliveries of the gold they have bought through ABN. Instead they are offered money at the current market rate for gold. Basically, instead of owning a risk free, physical asset (a gold bar or a gold coin), the bank’s clients now own a monetary claim on ABN AMRO, being exposed to the bank’s credit risk

Yet, despite all this undeniable and conclusive proof that the real scoundrels are the bankers themselves, not one individual banker has been prosecuted for their crimes and they still insist on “knowing the customer.” When does this madness stop?

In a world that seems to favour the criminals, and while there may be fines, the largest financial companies are unlikely to face criminal actions or meaningful sanctions. In fact the US Department of Justice recently decided that these banks are too big to prosecute to the full extent of the law, though why this also gets employees and executives off the hook remains a mystery. And the Federal Reserve refuses to rescind bank licenses, undermining the credibility, legitimacy and stability of the financial system.

Meanwhile organisations such as the OECD which is funded mainly by the United States continues to try and close the offshore banking community blaming them for hiding billions of dollars when in fact the truth is that they simply want access to those funds that have attracted investment away from the main banking system and OECD member states. Instead of wasting millions of dollars trying to locate some hidden funds in an offshore jurisdiction, they should focus their energy on corrupt governments and banks. The amount stolen by governments from tax payers is simply staggering and a lot larger than many individual accounts combined.

What is truly laughable is that the OECD Anti-Bribery Convention establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective. It is the first and only international anti-corruption instrument focused on the ‘supply side’ of the bribery transaction. The 34 OECD member countries and six non-member countries – Argentina, Brazil, Bulgaria, Colombia, Russia, and South Africa – have adopted this Convention.

In another example of government theft, recently, the auditor general of South Africa reported that 24.8 billion rand ($2.75 billion) from provincial the money had “disappeared” in “irregular, fruitless and wasteful spending.”  While this amount is staggering, probably the true figure is a lot higher. His reports annually record other billions of dollars in state funds lost in corruption by local councils and the national government. While he may not know where the money has gone, most other people know…into the pockets of government officials and their cronies who issue false or overprices tenders.

The Institute of Race Relations says the money could have built 460,000 low-cost homes to house a quarter of the population living in shanties or 400 new schools.

According to the Institute for Democracy in South Africa (Idasa) (September 2012) the levels of corruption in South Africa‘s public sector is at its highest since 1994. In 2004 the Public Service Commission (PSC) found that fraud and bribery were the most prevalent forms of corruption reported on their hotline. While President Jacob Zuma has taken a strong stance on corruption and stated that it will not be tolerated in his cabinet, corruption in the public sector is at an all-time high and is unlikely to decline in the near future.

Since the ANC came to power, South Africa has become one of the most corrupt governments in the world.   Billions have been stolen from tax payers to enrich a few politicians and their close friends.  Yet, what has the OCED done about this. Absolutely nothing! They are more intent on finding where some individual is hiding their so called fortunes in offshore accounts. In South Africa, the tax payer is being skinned alive. In return for paying taxes, you get absolutely nothing. There is no social security, no national health, the postal services will steal your packages, and the police force cannot be depended on. Furthermore, corruption is endemic, violent crime is rampant, and taxes are high. Yet, the government expects a small minority of hard working people to pay for all this theft as well as what services are left.

And, now bank depositors in Cyprus are having their accounts plundered by their government. While most people are not concerned about this and believe that this is going to be a once off, I doubt it. I think this sets a new precedent for depositors and bondholders alike anywhere in the Eurozone.

In the meantime, in this period of madness consisting of currency devaluation, asset confiscation, capital controls, corruption and theft from governments and banks, individuals are being nudged to buy more equities due to the low interest rate environment, sending global stock indices to new levels. The US DOW and S&P are up and Japan’s Nikkei stock index ended the first quarter of 2013 up 19%. That’s the best stock market performance of any major country this year.

The Nikkei was also the best-performing index in the preceding quarter – up 17%. That is the best six-month stock market performance in Japan since 1972.  Long-term interest rates in Japan are the lowest in the world. A 10-year government bond in Japan today pays less than 0.6% a year in interest. This strategy of low returns on bonds seems to be forcing more people to buy equities.

As central banks engage in a policy to debase their currencies, the purchasing power of these respective currencies is going to evaporate.  However, by owning physical gold and silver, your wealth will be protected. When Venezuela devalued its currency by 40% and when Iceland devalued if individuals had owned gold they would have lost nothing. And, of course in the case of Cyprus, if the depositors held some physical gold and silver they would not have been wiped out. How many more disasters is it going to take before individuals understand that it’s better to own gold and silver than it is to have money in a bank?

In a recent interview legendary commodity trader, Jim Rogers stated that, we are living in perilous times, and that actions by governments, finance ministers and officials across the globe have left us on the brink of a very serious collapse that will end with currency turmoilfood shortages, panic,social unrest and a total shakedown of average citizens.

Now, with Europe having taken the unprecedented step of seizing private funds of depositors, Rogers suggest that time is running short and that those with the means to do so should get ready for the worst.

Instead of being suckered into holding intrinsically worthless paper assets, a more intelligent and well-informed response favours increasing one’s personal stockpile of physical precious metals. In addition, it is important to keep some of your assets out of the main stream banking system. Not only should you accumulate gold and silver you should also open an offshore bank account.

Gold price chart



The weekly chart indicates long-term support at around $1550/oz. For the past 2 years, prices have held at this level, and I expect them to hold once again and then rebound.

About the author

David Levenstein is a leading expert on investing in precious metals . His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.

David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.

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