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Westlake Legal Group > Banking and Financial Institutions

Why Is a Secretive Billionaire Buying Up the Cayman Islands?

One humid Tuesday in July, I summited the highest point on Grand Cayman, an eight-story dump known affectionately by the locals as Mount Trashmore. From the top of the foul mound — a collection of almost every piece of garbage discarded on the island since it went all-in on financial services in the 1960s — I imagined I could just make out the enshrouded beach estate of the secretive investor Kenneth Dart.

I had been on Grand Cayman for more than a week, but I was no closer to speaking with him than when I first arrived. The heir to a famously private foam-container dynasty and a reclusive businessman in his own right, Mr. Dart apparently hasn’t spoken to the press since 1993. Though he has lived on Grand Cayman for 25 years and is widely believed to be the biggest private landholder on the archipelago, almost nobody I interviewed was sure if they had seen him. Residents compared him to Batman, Howard Hughes, a Bond villain and both Warren and Jimmy Buffett.

Mr. Dart lives on Seven Mile Beach, in an old hotel — the entire hotel — once known as the West Indian Club. He acquired the property in 1994 after renouncing his United States citizenship, a tax dodge so audacious it inspired federal legislation. Though Cayman was initially a refuge for the financier, Mr. Dart, who is thought to be 64, has taken to his adopted home with zeal. With his fortune and his company, Dart Enterprises, he has increasingly come to define the islands’ future.

In 2007, he opened a major development, a sprawling mix of retail and entertainment venues called Camana Bay, and began amassing a portfolio of high-end properties. His list now includes the Ritz-Carlton, the Yacht Club and a new Kimpton resort. In February, his group proposed a $1.5 billion “iconic skyscraper” that would rival the Eiffel Tower and the Burj Khalifa of Dubai.

As a place to conduct business, Cayman’s appeal is obvious. The country, a British Overseas Territory, levies no income or corporate taxes, and, since the 1960s, it has become one of the world’s most sophisticated banking centers. While Cayman was once a shady place to stash illicit cash — a reputation cemented by the 1991 John Grisham novel “The Firm” and a subsequent Tom Cruise thriller — it has long since moved aggressively upmarket, courting institutional investors, private equity and trading firms seeking to minimize taxes and bureaucracy. As of 2016, according to one analysis, it domiciled 60 percent of global hedge fund assets.

But for his base of operations, Mr. Dart has chosen an existentially vulnerable piece of land. At 76 square miles, Grand Cayman is roughly the size of Brooklyn and is, on average, only seven feet above sea level. In 2004, Ivan, a Category 5 hurricane, submerged most of the island. The damage was valued at close to $3 billion. Bodies buried in beach cemeteries floated out to sea. Animals escaped their enclosures, and, to this day, rewilded chickens roam the islands.

ImageWestlake Legal Group merlin_162867393_68d51d81-bf9b-48b0-b332-03ff9a434f13-articleLarge Why Is a Secretive Billionaire Buying Up the Cayman Islands? Tax Shelters Hurricanes and Tropical Storms High Net Worth Individuals Global Warming Dart, Kenneth B Corporate Taxes Cayman Islands Banking and Financial Institutions

Seven Mile Beach.CreditCarter Johnston for The New York Times

“Problem is, even if hurricanes don’t get any more prevalent, they’ll get stronger,” said James Whittaker, a Caymanian who is a former banker and regulator turned clean energy entrepreneur. “If sea-level rise is a foot, well, that means that a Category 1 now is going to do the same damage that a Category 4 used to do.” Even if Cayman built enough infrastructure to survive the rising water, he added, “The problem is insurance. You’ll never be able to insure the country anymore.”

As I stood atop Mount Trashmore, looking out at the crystalline water, I wondered what Mr. Dart thought about the country’s vulnerability to rising seas. Or if, like me, he had quickly fallen into a tropical reverie — a feeling that nothing could possibly go wrong on this exclusive stretch of paradise. Would a wildly successful investor like him buy up so much of a country that was really doomed to disappear?

Until the 1960s, when the first banking laws were put in place to attract international capital, the Cayman Islands was a backwater, with an economy dependent on seamen who would send their remittances back home. When a Cambridge-trained lawyer named William Walker arrived in 1963, he described the place as having “cows wandering through Georgetown, only one bank, only one paved road, and no telephones.” The population was just over 8,000, and the mangrove-covered island was swarming with mosquitoes.

The banks moved in first, then the accounting and law firms. Seven Mile Beach, previously undeveloped, became an international tourist attraction for both divers and money managers. By the end of the 1990s, the jurisdiction had established itself firmly as a leading global banking center, and today financial services accounts for over half of its economy.

Proponents of the Cayman business model argue that its benefits accrue to all of the islands’ citizens, who can boast of having one of the highest gross domestic products per capita in the world. Foreign capital, much of it in the form of duties and fees, helps fund schools and infrastructure. Regulations direct employers to give special consideration to Caymanians for jobs and require that Caymanians own shares in local businesses. But many islanders complain of a two-tiered system. Caymanians get jobs, but are then passed over for promotions. The best-paid positions often go to highly educated expatriates, who make up just under half the resident population of about 66,000.

“They say this is a trickle-down economy,” said Roy Bodden, a historian of the Cayman Islands and former member of the Legislative Assembly. “So, here’s my argument. Why should it be a trickle for us? Why aren’t we holding the cup?” Mr. Bodden has been a vocal critic of the islands’ unchecked development and what he sees as the disenfranchisement of the island population. “You talk about the American dream, well, we had a Caymanian dream,” he said. The way he told the story, the elites had sold the country out.

When Kenneth Dart relocated to Grand Cayman, his secretiveness and colorful business dealings aroused local suspicion. In 1993, his home in Sarasota, Fla., burned to the ground in an arson that was never fully explained. After Mr. Dart renounced his ties to America a few months later, he moved first to Belize, whose government in 1995 proposed to the State Department a Belizean consulate in Sarasota, where Mr. Dart and his family could live, presumably tax-free. The idea was never seriously considered, and Mr. Dart settled on Grand Cayman.

It is a closely guarded secret how much of the three-island territory — Little Cayman and Cayman Brac hover just to the northeast of the big island — Mr. Dart and his subsidiaries own. Many islanders take it for granted that he is the biggest private landholder on the islands, and some suspect he owns more land than the government. (A spokeswoman for Dart Enterprises said the company would not comment on its investment decisions.)

After the 2008 financial crisis, the Cayman economy contracted. But Mr. Dart picked up the slack. In addition to resorts, office buildings and residential properties, his company began planning and building major municipal infrastructure projects like tunnels and roads, reinvigorating long-held concerns on Grand Cayman that Mr. Dart and his subsidiaries controlled too much of the island. A 2015 audit of the government’s land management scolded ministers for allowing Dart subsidiaries such free rein.

Some speculate Mr. Dart is private because he fears for his safety. As the scion of a Michigan family business, Dart Container, that has long dominated the polystyrene foam market (it also makes plastic Solo cups and other iconic food service products), Mr. Dart was born into a significant fortune. But he also had a talent for trading, making lucrative investments over the decades in financial firms, biotech companies, Russian public vouchers and steeply discounted sovereign debt in Greece and Argentina, among many other companies and countries. Some investments made him enemies. His yacht was armored to withstand torpedo fire, one of his two brothers, Tom, told Bloomberg News in 1995. When he first moved to the islands, he could be seen flanked by bodyguards.

In 2014, Mr. Dart stepped down as president of his family’s container business and has, according to comments made in 2015 by the Dart Enterprises chief executive, Mark VanDevelde, become more focused on real-estate development and conservation. He also oversees an extensive nursery on the island, where he collects native and endemic trees and plants.

According to materials shared or published by Dart Enterprises, the company has invested more than $1.5 billion in the Cayman Islands, with another $1 billion in the development pipeline. This does not include the estimated price tag for the skyscraper. Bloomberg puts Mr. Dart’s net worth at $5.8 billion. “They’ll tell you they have ‘patient capital,’” Mr. Whittaker said. “That’s the word they like to use. Which means ‘I’m going to throw two, three billion dollars in the ground and my kids or my grandkids will reap the rewards once it gets built.’”

Mr. Dart’s vision for Cayman is comprehensive. In a 2018 video presented at the local Chamber of Commerce, his company outlined a building program that would connect the white sands of Seven Mile Beach to a protected bay known as the North Sound, incorporating extensive landscaped pedestrian parks and revamped roadways — in effect, designing a whole town. It would include major new residential developments and offices, in addition to yet another five-star resort on a stretch of beach that abuts the billionaire’s residence.

The plans reminded me of a game of Monopoly — if a player purchased all of the fanciest properties and packed them with houses and hotels for money managers. When I went to the island, I made an effort to book one of the few Seven Mile Beach hotels that Mr. Dart doesn’t own; halfway through my stay, I read an announcement in the local paper that he had bought it.

Improbably enough, Mr. Dart’s most audacious investment involves Mount Trashmore. Haphazardly established in the 1960s, the massive garbage pile was never trenched or lined, and no one knows what might be leaking from the dump into the ground. Parts of the mountain sometimes spontaneously combust, requiring evacuation of local businesses and a nearby Dart-developed private school. Since Mr. Dart started building on Grand Cayman, the dump has been an obstacle, impeding new development. His company has proposed to cap Mount Trashmore and build a new waste-to-energy facility to dispose of future garbage, which it would manage for the next 25 years, at an estimated cost of nearly half a billion dollars.

The arrangement — the heir to a disposable-cup fortune offering to clean up an entire country’s garbage — seemed remarkable to me, but the Caymanians I spoke with didn’t bat an eye. Except when the stink wafted down the mountain; then they batted their eyes a lot, because they were watering.

For three weeks before arriving on the island, I corresponded with a Dart company spokeswoman, who made it cordially clear that an interview with Mr. Dart was a non-starter. At one point, she offered to consider written questions and present them to Dart executives. I asked what Mr. Dart saw from a real-estate perspective in Cayman. “Not everyone who moves to a place they love invests in it so heavily,” I wrote. I also asked about the dump and the risks of global warming. As far as I knew, Mr. Dart was neither a climate skeptic nor a denier, and yet he continued to acquire significant parcels of a country that was, topographically speaking, one of the most vulnerable on earth.

Nick Robson, the founder of the Cayman Institute, a nonprofit organization that has advocated better long-term planning on the island, says Cayman is nowhere near prepared for rising seas and extreme weather. We met on the terrace at a Westin resort, which, like many developments on Seven Mile Beach, is on an elevated concrete slab. The United Nations Intergovernmental Panel on Climate Change, he said, predicted that sea levels would rise by roughly one meter by the end of the century.

Some people minimize the risk, he said: “‘Well, O.K., that’s three-and-a-quarter feet. Oh, no big thing.’ Sorry, we’re seven feet above sea level, for the most part. That’s halfway up! When you model a hurricane with storm surge, you can have 15 feet of storm surge, and then you’re looking at 18½ feet above normal sea level.” (None of the many elected officials I contacted would agree to be interviewed on the record, but Suzette Ebanks, the chief information officer, sent a three-page response to written questions that highlighted several initiatives, including “environmental impact assessments for major capital projects” and a focus on transitioning to renewable energy.)

Mr. Robson said he also worried that Cayman’s economic reliance on financial services wasn’t sustainable. “It’s almost a post-colonial dispensation,” he said, describing the sometimes uneasy relationship that has always existed between Cayman, Britain and the international community.

After the 2008 financial crisis, the political will to reform systems that facilitate tax avoidance reached a high. In 2010, the United States passed the Foreign Account Tax Compliance Act, which requires foreign financial institutions to identify American citizens who are account holders and report that to the Treasury. Since 2013, the Organization for Economic Cooperation and Development has been creating an international framework that aims to reduce corporate tax avoidance, particularly for large multinational and Internet-based firms.

Meanwhile, Britain has promised to adopt a set of stringent European Union policies designed to combat money laundering and terrorism. If fully implemented, protectorates like Cayman would be expected to create public registers of company owners and provide access to the names of the beneficiaries of trusts. The registers could be accessible not only to law enforcement but also to those with “legitimate interest,” including investigative journalists and nongovernmental organizations. “What’s in the wind now is potentially existential for the financial services industry in Cayman,” said Alex Cobham, chief executive of the Tax Justice Network, a watchdog group. “I think it does start to look like it could be a perfect storm for Cayman.”

If the colonial period was Cayman’s opening act, and financial services its middle, it seemed to me that Mr. Dart was quietly preparing for Cayman’s possible finale: as an upscale tax domicile and tourist attraction for the global ultra-wealthy who could afford to come and go from an existentially imperiled island.

Justin Howe, a Dart group executive vice president, talked up the proposed skyscraper’s benefits at a recent economic forum. “We’re looking to bring in more high net worth, ultrahigh net worth, potentially even more billionaires,” he said during a question-and-answer session. “They take virtually nothing out of the economy and they put massive amounts into the economy, so we think that’s what a five-, five-plus-star resort has the potential to do.”

The plan is to build the tower set back from Seven Mile Beach, in the middle of the Camana Bay development. Whatever might happen with international tax legislation or volatile financial markets, the building would be a hedge of sorts, positioned to bring in capital and withstand the rising ocean.

“Is everything he does great? I won’t say everything he does is great,” Mr. Whittaker said of Mr. Dart, after showing me a map of Hurricane Ivan’s devastation. “I think in overall net benefit, yes, he’s been a net benefit to the island. We need to get one or two more like him, and we’ll be insulated from world shocks.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Why Is a Secretive Billionaire Buying Up the Cayman Islands?

One humid Tuesday in July, I summited the highest point on Grand Cayman, an eight-story dump known affectionately by the locals as Mount Trashmore. From the top of the foul mound — a collection of almost every piece of garbage discarded on the island since it went all-in on financial services in the 1960s — I imagined I could just make out the enshrouded beach estate of the secretive investor Kenneth Dart.

I had been on Grand Cayman for more than a week, but I was no closer to speaking with him than when I first arrived. The heir to a famously private foam-container dynasty and a reclusive businessman in his own right, Mr. Dart apparently hasn’t spoken to the press since 1993. Though he has lived on Grand Cayman for 25 years and is widely believed to be the biggest private landholder on the archipelago, almost nobody I interviewed was sure if they had seen him. Residents compared him to Batman, Howard Hughes, a Bond villain and both Warren and Jimmy Buffett.

Mr. Dart lives on Seven Mile Beach, in an old hotel — the entire hotel — once known as the West Indian Club. He acquired the property in 1994 after renouncing his United States citizenship, a tax dodge so audacious it inspired federal legislation. Though Cayman was initially a refuge for the financier, Mr. Dart, who is thought to be 64, has taken to his adopted home with zeal. With his fortune and his company, Dart Enterprises, he has increasingly come to define the islands’ future.

In 2007, he opened a major development, a sprawling mix of retail and entertainment venues called Camana Bay, and began amassing a portfolio of high-end properties. His list now includes the Ritz-Carlton, the Yacht Club and a new Kimpton resort. In February, his group proposed a $1.5 billion “iconic skyscraper” that would rival the Eiffel Tower and the Burj Khalifa of Dubai.

As a place to conduct business, Cayman’s appeal is obvious. The country, a British Overseas Territory, levies no income or corporate taxes, and, since the 1960s, it has become one of the world’s most sophisticated banking centers. While Cayman was once a shady place to stash illicit cash — a reputation cemented by the 1991 John Grisham novel “The Firm” and a subsequent Tom Cruise thriller — it has long since moved aggressively upmarket, courting institutional investors, private equity and trading firms seeking to minimize taxes and bureaucracy. As of 2016, according to one analysis, it domiciled 60 percent of global hedge fund assets.

But for his base of operations, Mr. Dart has chosen an existentially vulnerable piece of land. At 76 square miles, Grand Cayman is roughly the size of Brooklyn and is, on average, only seven feet above sea level. In 2004, Ivan, a Category 5 hurricane, submerged most of the island. The damage was valued at close to $3 billion. Bodies buried in beach cemeteries floated out to sea. Animals escaped their enclosures, and, to this day, rewilded chickens roam the islands.

ImageWestlake Legal Group merlin_162867393_68d51d81-bf9b-48b0-b332-03ff9a434f13-articleLarge Why Is a Secretive Billionaire Buying Up the Cayman Islands? Tax Shelters Hurricanes and Tropical Storms High Net Worth Individuals Global Warming Dart, Kenneth B Corporate Taxes Cayman Islands Banking and Financial Institutions

Seven Mile Beach.CreditCarter Johnston for The New York Times

“Problem is, even if hurricanes don’t get any more prevalent, they’ll get stronger,” said James Whittaker, a Caymanian who is a former banker and regulator turned clean energy entrepreneur. “If sea-level rise is a foot, well, that means that a Category 1 now is going to do the same damage that a Category 4 used to do.” Even if Cayman built enough infrastructure to survive the rising water, he added, “The problem is insurance. You’ll never be able to insure the country anymore.”

As I stood atop Mount Trashmore, looking out at the crystalline water, I wondered what Mr. Dart thought about the country’s vulnerability to rising seas. Or if, like me, he had quickly fallen into a tropical reverie — a feeling that nothing could possibly go wrong on this exclusive stretch of paradise. Would a wildly successful investor like him buy up so much of a country that was really doomed to disappear?

Until the 1960s, when the first banking laws were put in place to attract international capital, the Cayman Islands was a backwater, with an economy dependent on seamen who would send their remittances back home. When a Cambridge-trained lawyer named William Walker arrived in 1963, he described the place as having “cows wandering through Georgetown, only one bank, only one paved road, and no telephones.” The population was just over 8,000, and the mangrove-covered island was swarming with mosquitoes.

The banks moved in first, then the accounting and law firms. Seven Mile Beach, previously undeveloped, became an international tourist attraction for both divers and money managers. By the end of the 1990s, the jurisdiction had established itself firmly as a leading global banking center, and today financial services accounts for over half of its economy.

Proponents of the Cayman business model argue that its benefits accrue to all of the islands’ citizens, who can boast of having one of the highest gross domestic products per capita in the world. Foreign capital, much of it in the form of duties and fees, helps fund schools and infrastructure. Regulations direct employers to give special consideration to Caymanians for jobs and require that Caymanians own shares in local businesses. But many islanders complain of a two-tiered system. Caymanians get jobs, but are then passed over for promotions. The best-paid positions often go to highly educated expatriates, who make up just under half the resident population of about 66,000.

“They say this is a trickle-down economy,” said Roy Bodden, a historian of the Cayman Islands and former member of the Legislative Assembly. “So, here’s my argument. Why should it be a trickle for us? Why aren’t we holding the cup?” Mr. Bodden has been a vocal critic of the islands’ unchecked development and what he sees as the disenfranchisement of the island population. “You talk about the American dream, well, we had a Caymanian dream,” he said. The way he told the story, the elites had sold the country out.

When Kenneth Dart relocated to Grand Cayman, his secretiveness and colorful business dealings aroused local suspicion. In 1993, his home in Sarasota, Fla., burned to the ground in an arson that was never fully explained. After Mr. Dart renounced his ties to America a few months later, he moved first to Belize, whose government in 1995 proposed to the State Department a Belizean consulate in Sarasota, where Mr. Dart and his family could live, presumably tax-free. The idea was never seriously considered, and Mr. Dart settled on Grand Cayman.

It is a closely guarded secret how much of the three-island territory — Little Cayman and Cayman Brac hover just to the northeast of the big island — Mr. Dart and his subsidiaries own. Many islanders take it for granted that he is the biggest private landholder on the islands, and some suspect he owns more land than the government. (A spokeswoman for Dart Enterprises said the company would not comment on its investment decisions.)

After the 2008 financial crisis, the Cayman economy contracted. But Mr. Dart picked up the slack. In addition to resorts, office buildings and residential properties, his company began planning and building major municipal infrastructure projects like tunnels and roads, reinvigorating long-held concerns on Grand Cayman that Mr. Dart and his subsidiaries controlled too much of the island. A 2015 audit of the government’s land management scolded ministers for allowing Dart subsidiaries such free rein.

Some speculate Mr. Dart is private because he fears for his safety. As the scion of a Michigan family business, Dart Container, that has long dominated the polystyrene foam market (it also makes plastic Solo cups and other iconic food service products), Mr. Dart was born into a significant fortune. But he also had a talent for trading, making lucrative investments over the decades in financial firms, biotech companies, Russian public vouchers and steeply discounted sovereign debt in Greece and Argentina, among many other companies and countries. Some investments made him enemies. His yacht was armored to withstand torpedo fire, one of his two brothers, Tom, told Bloomberg News in 1995. When he first moved to the islands, he could be seen flanked by bodyguards.

In 2014, Mr. Dart stepped down as president of his family’s container business and has, according to comments made in 2015 by the Dart Enterprises chief executive, Mark VanDevelde, become more focused on real-estate development and conservation. He also oversees an extensive nursery on the island, where he collects native and endemic trees and plants.

According to materials shared or published by Dart Enterprises, the company has invested more than $1.5 billion in the Cayman Islands, with another $1 billion in the development pipeline. This does not include the estimated price tag for the skyscraper. Bloomberg puts Mr. Dart’s net worth at $5.8 billion. “They’ll tell you they have ‘patient capital,’” Mr. Whittaker said. “That’s the word they like to use. Which means ‘I’m going to throw two, three billion dollars in the ground and my kids or my grandkids will reap the rewards once it gets built.’”

Mr. Dart’s vision for Cayman is comprehensive. In a 2018 video presented at the local Chamber of Commerce, his company outlined a building program that would connect the white sands of Seven Mile Beach to a protected bay known as the North Sound, incorporating extensive landscaped pedestrian parks and revamped roadways — in effect, designing a whole town. It would include major new residential developments and offices, in addition to yet another five-star resort on a stretch of beach that abuts the billionaire’s residence.

The plans reminded me of a game of Monopoly — if a player purchased all of the fanciest properties and packed them with houses and hotels for money managers. When I went to the island, I made an effort to book one of the few Seven Mile Beach hotels that Mr. Dart doesn’t own; halfway through my stay, I read an announcement in the local paper that he had bought it.

Improbably enough, Mr. Dart’s most audacious investment involves Mount Trashmore. Haphazardly established in the 1960s, the massive garbage pile was never trenched or lined, and no one knows what might be leaking from the dump into the ground. Parts of the mountain sometimes spontaneously combust, requiring evacuation of local businesses and a nearby Dart-developed private school. Since Mr. Dart started building on Grand Cayman, the dump has been an obstacle, impeding new development. His company has proposed to cap Mount Trashmore and build a new waste-to-energy facility to dispose of future garbage, which it would manage for the next 25 years, at an estimated cost of nearly half a billion dollars.

The arrangement — the heir to a disposable-cup fortune offering to clean up an entire country’s garbage — seemed remarkable to me, but the Caymanians I spoke with didn’t bat an eye. Except when the stink wafted down the mountain; then they batted their eyes a lot, because they were watering.

For three weeks before arriving on the island, I corresponded with a Dart company spokeswoman, who made it cordially clear that an interview with Mr. Dart was a non-starter. At one point, she offered to consider written questions and present them to Dart executives. I asked what Mr. Dart saw from a real-estate perspective in Cayman. “Not everyone who moves to a place they love invests in it so heavily,” I wrote. I also asked about the dump and the risks of global warming. As far as I knew, Mr. Dart was neither a climate skeptic nor a denier, and yet he continued to acquire significant parcels of a country that was, topographically speaking, one of the most vulnerable on earth.

Nick Robson, the founder of the Cayman Institute, a nonprofit organization that has advocated better long-term planning on the island, says Cayman is nowhere near prepared for rising seas and extreme weather. We met on the terrace at a Westin resort, which, like many developments on Seven Mile Beach, is on an elevated concrete slab. The United Nations Intergovernmental Panel on Climate Change, he said, predicted that sea levels would rise by roughly one meter by the end of the century.

Some people minimize the risk, he said: “‘Well, O.K., that’s three-and-a-quarter feet. Oh, no big thing.’ Sorry, we’re seven feet above sea level, for the most part. That’s halfway up! When you model a hurricane with storm surge, you can have 15 feet of storm surge, and then you’re looking at 18½ feet above normal sea level.” (None of the many elected officials I contacted would agree to be interviewed on the record, but Suzette Ebanks, the chief information officer, sent a three-page response to written questions that highlighted several initiatives, including “environmental impact assessments for major capital projects” and a focus on transitioning to renewable energy.)

Mr. Robson said he also worried that Cayman’s economic reliance on financial services wasn’t sustainable. “It’s almost a post-colonial dispensation,” he said, describing the sometimes uneasy relationship that has always existed between Cayman, Britain and the international community.

After the 2008 financial crisis, the political will to reform systems that facilitate tax avoidance reached a high. In 2010, the United States passed the Foreign Account Tax Compliance Act, which requires foreign financial institutions to identify American citizens who are account holders and report that to the Treasury. Since 2013, the Organization for Economic Cooperation and Development has been creating an international framework that aims to reduce corporate tax avoidance, particularly for large multinational and Internet-based firms.

Meanwhile, Britain has promised to adopt a set of stringent European Union policies designed to combat money laundering and terrorism. If fully implemented, protectorates like Cayman would be expected to create public registers of company owners and provide access to the names of the beneficiaries of trusts. The registers could be accessible not only to law enforcement but also to those with “legitimate interest,” including investigative journalists and nongovernmental organizations. “What’s in the wind now is potentially existential for the financial services industry in Cayman,” said Alex Cobham, chief executive of the Tax Justice Network, a watchdog group. “I think it does start to look like it could be a perfect storm for Cayman.”

If the colonial period was Cayman’s opening act, and financial services its middle, it seemed to me that Mr. Dart was quietly preparing for Cayman’s possible finale: as an upscale tax domicile and tourist attraction for the global ultra-wealthy who could afford to come and go from an existentially imperiled island.

Justin Howe, a Dart group executive vice president, talked up the proposed skyscraper’s benefits at a recent economic forum. “We’re looking to bring in more high net worth, ultrahigh net worth, potentially even more billionaires,” he said during a question-and-answer session. “They take virtually nothing out of the economy and they put massive amounts into the economy, so we think that’s what a five-, five-plus-star resort has the potential to do.”

The plan is to build the tower set back from Seven Mile Beach, in the middle of the Camana Bay development. Whatever might happen with international tax legislation or volatile financial markets, the building would be a hedge of sorts, positioned to bring in capital and withstand the rising ocean.

“Is everything he does great? I won’t say everything he does is great,” Mr. Whittaker said of Mr. Dart, after showing me a map of Hurricane Ivan’s devastation. “I think in overall net benefit, yes, he’s been a net benefit to the island. We need to get one or two more like him, and we’ll be insulated from world shocks.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Big Banks Were the Loudest Optimists. They’re Getting Quieter.

Westlake Legal Group 15banks2-facebookJumbo Big Banks Were the Loudest Optimists. They’re Getting Quieter. Wells Fargo&Company United States Economy Solomon, David M JPMorgan Chase&Company Goldman Sachs Group Inc Dimon, James Corbat, Michael L Company Reports Citigroup Inc Banking and Financial Institutions

The heads of America’s largest banks have been some of the country’s most prominent optimists over the past two years, shooing away questions about the potential effects of President Trump’s trade policies, cheering his tax cuts and offering periodic reassurances that things would all work out for the American economy.

But manufacturing activity and job growth are slowing, and trade talks with China have so far produced only an interim agreement that still has to be written and signed. And bankers are starting to worry.

“Of course there’s a recession ahead — what we don’t know is if it’s going to happen soon,” Jamie Dimon, the chief executive of JPMorgan Chase, said during a call on Tuesday with journalists to discuss the bank’s third-quarter earnings.

Even as his bank announced record-high revenue, Mr. Dimon warned that the strong position of consumers in the United States had come under pressure from “increasingly complex geopolitical risks, including tensions in global trade.”

The warning was new: Just six months ago, during another discussion of the bank’s earnings, Mr. Dimon had predicted that United States economic growth “could go on for years.”

“We’ll just have to wait and see,” he said on Tuesday.

JPMorgan’s quarterly earnings were no worse for wear. The bank took in a record $29.3 billion during the third quarter and earned $2.68 per share, beating analysts’ expectations by 23 cents. Its deposits grew by 3 percent compared with the same period last year.

The report from Goldman Sachs, which also announced third-quarter results, along with Citigroup and Wells Fargo, was less rosy. The bank’s net earnings of just under $1.9 billion for the quarter were 26 percent lower than the same period last year and 22 percent lower than the second quarter of 2019. Goldman also announced that it had set aside $291 million for credit losses, a 67 percent increase from last year.

The bank’s chief executive, David Solomon, shrugged off some of the recent turmoil on Wall Street, which has included disappointing debuts by tech companies like Uber and botched initial public offerings like WeWork, saying he believed the I.P.O. market was in fact healthy. But, he said, the bank is closely watching “where we are in the economic cycle” as it manages risks across the firm.

Citigroup’s chief financial officer, Mark Mason, said on a call with journalists that the bank had begun making adjustments to its business operations to accommodate changing economic conditions.

“We’ve been very thoughtful about the pacing of our hiring,” he said.

Citigroup’s revenue was $18.6 billion, slightly lower than the previous quarter but a bit higher than its third-quarter revenue a year ago. But its corporate lending revenue decreased by 6 percent from a year earlier.

Citigroup’s business customers have been showing “pause,” Mr. Mason said, “in terms of whether they actually want to invest in building out facilities or operations, pause in terms of whether they want to consider entering into new markets.”

That was a subtle but significant admission that the slowdown was affecting Citigroup’s business.

The bank’s chief executive, Michael Corbat, had been saying for months that its global footprint allowed it to take advantage of shifting trade routes so that the president’s tariffs did not actually hurt the bank. He offered a more troubled view on Tuesday during a call with analysts.

“It has caused a slowdown in terms of trade,” Mr. Corbat said of the trade war. “If we could start to get some clarity on some of these things, where I think businesses can have some more surety on the future, our trade business would definitely benefit from that.”

Wells Fargo reported $22 billion in revenue for the quarter, slightly more than the $21.9 billion it generated in the same three months a year ago, and said it had $50 million left over from what it had set aside for loan losses in the most recent quarter.

And the bank’s chief financial officer, John Shrewsberry, pointed to a different concern that was closer to home for his business clients. “To date, while our customers are cautious, the most common concern they identify is their ability to hire enough qualified workers,” he said on a call with analysts.

Wells Fargo, the country’s fourth-largest bank, is still operating under growth restrictions imposed by its regulators, and its per-share earnings of 92 cents were lower than analysts’ expectations because of expenses from legal woes stemming from a series of scandals that began to come to light in 2016.

The bank has continued to stumble lately. Its chief executive stepped down suddenly in March not long after lawmakers grilled him over lingering problems, and The New York Times reported in August that customers whose accounts had been closed were still being charged fees for activity after the closing date. The bank’s interim chief executive, C. Allen Parker, told analysts that Wells Fargo was still looking into the matter.

The bank’s new chief executive, Charles W. Scharf, starts next week.

Wells Fargo reported a $1.6 billion charge for legal expenses related to “one of the largest lingering issues related to sales practices,” Mr. Shrewsberry said, but he declined to go into details.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Inside a Brazen Scheme to Woo China: Gifts, Golf and a $4,254 Wine

It was a brazen campaign to win business in China by charming and enriching the country’s political elite.

The bank gave a Chinese president a crystal tiger and a Bang & Olufsen sound system, together worth $18,000. A premier received a $15,000 crystal horse, his Chinese zodiac animal, and his son got $10,000 in golf outings and a trip to Las Vegas. A top state banking official, a son of one of China’s founding fathers, accepted a $4,254 bottle of French wine — Château Lafite Rothschild, vintage 1945, the year he was born.

Millions of dollars were paid out to Chinese consultants, including a business partner of the premier’s family and a firm that secured a meeting for the bank’s chief executive with the president. And more than 100 relatives of the Communist Party’s ruling elite were hired for jobs at the bank, even though it had deemed many unqualified.

This was all part of Deutsche Bank’s strategy to become a major player in China, beginning nearly two decades ago when it had virtually no presence there. And it worked. By 2011, the German company would be ranked by Bloomberg as the top bank for managing initial public offerings in China and elsewhere in Asia, outside Japan.

The bank’s rule-bending rise to the top was chronicled in confidential documents, prepared by the company and its outside lawyers, that were obtained by the German newspaper Süddeutsche Zeitung. The previously undisclosed documents, shared with The New York Times, cover a 15-year period and include spreadsheets, emails, internal investigative reports and transcripts of interviews with senior executives.

The documents show that Deutsche Bank’s troubling behavior in China was far more extensive than the authorities in the United States have publicly alleged. And they show that the bank’s top leadership was warned about the activity but did not stop it.

Josef Ackermann, the bank’s chief executive until 2012, said in an interview with The Times and separately in answers to written questions that he was not familiar with many of the details contained in the documents. But he defended the bank’s broader practices.

“This was part of doing business in this country,” Mr. Ackermann said. “At the time, this was the way things were done.”

For years, Deutsche Bank has been a poster child for misconduct in the finance industry. Regulators and prosecutors around the world have imposed billions of dollars in penalties against the bank for its role in a wide range of scandals. Most recently, the bank has been under investigation for the facilitation of money laundering in Russia and elsewhere.

Deutsche Bank — which for two decades was the primary lender to President Trump — also has been under scrutiny by two congressional committees and by state prosecutors in New York who are investigating Mr. Trump’s finances.

In August, the bank agreed to pay $16 million in a settlement with the United States Securities and Exchange Commission related to allegations that it had used corrupt means to win business in both China and Russia, violating anti-bribery laws, though it did not admit wrongdoing.

That penalty, the documents show, amounted to a small fraction of the revenues gained in China from business stemming in part from the activities. The bank’s outside lawyers had warned executives in 2017 that they could face a penalty of more than $250 million from the S.E.C. related to China. There is no evidence that German regulators investigated the bank’s activities in China, though they were alerted to some of it, according to the documents.

[Here are six key takeaways from the investigation.]

Reasons for concern appear throughout the documents, which include internal investigations conducted by two law firms, Gibson, Dunn & Crutcher and Allen & Overy, at the time of the S.E.C.’s action.

Deutsche Bank, the documents show, dispensed hundreds of thousands of dollars to secure meetings for top executives with China’s leadership. An obscure company received $100,000 to arrange a 2002 meeting between Mr. Ackermann and Jiang Zemin, then the country’s president.

In all, the documents show, the bank paid seven consultants more than $14 million, including for help buying a stake in a Chinese bank and winning coveted assignments from state-owned companies. Some of the payments were flagged internally as problematic but allowed to go through.

On multiple occasions, according to the documents, Deutsche Bank tried to win business by collaborating with family members of Wen Jiabao, China’s premier from 2003 to 2013. The Wens’ enormous accumulation of wealth was the focus of a 2012 investigation by The Times that found family members had controlled assets worth at least $2.7 billion.

Winning Over the Wens

Among its many ties to China’s political elite, Deutsche Bank cultivated a deep relationship with the family of Wen Jiabao during his term as premier of China. Mr. Wen himself received gifts from the bank valued at more than $15,000. But it was a family affair, involving his son, daughter and their spouses, as well as a close business associate of the family.

Westlake Legal Group 1014-web-for-DEUTSCHE-CHINA-Artboard_2 Inside a Brazen Scheme to Woo China: Gifts, Golf and a $4,254 Wine Wen Jiabao Gifts to Public Officials Fines (Penalties) Ethics and Official Misconduct Deutsche Bank AG Corruption (Institutional) China Bribery and Kickbacks Banking and Financial Institutions Ackermann, Josef

Wen Jiabao

Zhang Beili

Premier

2003-13

Diamond expert

Wen family

SON-IN-LAW

DAUGHTER-IN-LAW

Liu

Chunhang

Wen

Ruchun

Yang

Xiaomeng

Winston

Wen

GOLF

PARTNER

Co-founder of the

New Horizon Capital

private equity firm

RECOMMENDED

ACQUAINTANCE

RECOMMENDED

Huang

Xuhuai

Josef Ackermann provided Mr. Wen with a crystal horse sculpture valued at more than $15,000.

Deutsche Bank hired several job candidates referred to them by members of the Wen family.

Deutsche Bank invested in Winston Wen’s private equity firm, as well as paying for golfing vacations for him.

Lee Zhang hired Mr. Huang as a consultant in 2005 and again in 2006, paying him more than $5 million.

Deutsche Bank

Josef Ackermann

Chief executive

2002-12

Head of corporate

finance in Asia

2004-10

Westlake Legal Group 1014-web-for-DEUTSCHE-CHINA-Artboard_3 Inside a Brazen Scheme to Woo China: Gifts, Golf and a $4,254 Wine Wen Jiabao Gifts to Public Officials Fines (Penalties) Ethics and Official Misconduct Deutsche Bank AG Corruption (Institutional) China Bribery and Kickbacks Banking and Financial Institutions Ackermann, Josef

Wen Jiabao

Zhang Beili

Premier

2003-13

Diamond expert

WEN FAMILY

SON-

IN-LAW

DAUGHTER-

IN-LAW

Liu

Chunhang

Wen

Ruchun

Yang

Xiaomeng

Winston

Wen

GOLF

PARTNER

ACQUAINTANCE

RECOMMENDED

RECOMMENDED

Huang

Xuhuai

DEUTSCHE BANK

Josef

Ackermann

Head of

corporate

finance in Asia

2004-10

Chief

executive

2002-12

Source: Documents compiled in internal Deutsche Bank investigation.

By Guilbert Gates

The bank, at least in part through its hiring of people with political connections, won hundreds of millions of dollars in Chinese deals. Such hires can be illegal if they are done in exchange for business. The bank’s outside lawyers calculated that just 19 of its so-called relationship hires helped bring in $189 million in revenue, including a plum assignment in 2006 managing a state bank’s market debut, then the biggest initial public offering in history.

Most of the Chinese government officials entangled in the bank’s activities have since retired, among them Mr. Jiang and Mr. Wen. But two parents of people the bank employed are now members of the Politburo Standing Committee, the country’s pinnacle of power. And the country’s vice president, Wang Qishan, accepted gifts from the bank when he held previous positions, such as mayor of Beijing.

Efforts by The Times and Süddeutsche Zeitung to reach Mr. Jiang, Mr. Wang and Mr. Wen — as well as other Chinese officials, executives and relatives mentioned in the documents — either were unsuccessful or received no response. Several current and former Deutsche Bank employees declined to comment.

Tim-Oliver Ambrosius, a spokesman for the bank, did not respond to specific questions about the documents. In a written statement, he said that the company had “thoroughly investigated and reported to authorities certain past conduct,” adding that the bank had “enhanced our policies and controls, and action has been taken where issues have been identified.”

“These events date back as far as 2002 and have been dealt with,” the statement said.

Mr. Ackermann said that he had cautioned the bank’s staff that “no business is worth risking the bank’s reputation.” Though he pushed employees to increase revenue and profits, he said, “feeling pressure cannot excuse violating compliance rules and regulations or the law of the land.”

When Mr. Ackermann was picked in 2000 as the next chief executive, his ambition was for Deutsche Bank to be universally recognized as a global leader. And he wanted it done fast.

China was critical. It was the most populous country in the world and on its way to becoming the second-largest economy. Yet Deutsche Bank was far behind its rivals there.

Goldman Sachs and Morgan Stanley had been at the forefront of helping China modernize its moribund financial system and network of state-owned businesses. In 1995, Morgan Stanley helped set up the country’s first investment bank, China International Capital Corporation. Goldman won the rights in 1997 to bring China Telecom, the country’s phone monopoly, to the international market through an initial public offering in Hong Kong.

Mr. Ackermann had to play catch-up.

A first step for the bank was poaching Lee Zhang, the head of Goldman Sachs’s Beijing office. Mr. Zhang was fluent in the ways of both China and Western business. Born and raised in China, he had studied in Canada and later moved to California, where he worked for Hewlett-Packard and studied business administration. He then went to Hong Kong, eventually landing at Goldman.

Mr. Zhang’s mandate was to transform Deutsche Bank into a player in China. That required winning over the Communist Party.

Mr. Zhang began hiring aggressively. Many of his recruits — dozens and dozens of them, according to spreadsheets compiled by the bank’s lawyers — were young, inexperienced and well connected. They came to know him as Uncle Zhang.

Ma Weiji, whose parents were senior executives at state-owned companies, interviewed for a job in 2007. It did not go well. A senior Deutsche Bank executive emailed Mr. Zhang that Mr. Ma “was probably one of the worst candidates.”

He got the job nevertheless. Soon, Mr. Ma was using his family connections to secure meetings for the bank with his parents’ companies, according to a memo by Allen & Overy.

Another job candidate was a son of Liu Yunshan, then China’s propaganda minister. He “cannot meet our standard,” a Deutsche Bank employee wrote in an email about the company’s equity capital markets group. He was offered a job anyway.

The younger daughter of Li Zhanshu — now a top member of the Politburo Standing Committee — was judged unqualified for the bank’s corporate communications team. She got an offer, too.

Even for qualified candidates, political connections were taken into account.

Wang Xisha, whose father was the top official in Guangdong Province when she applied in 2010, was a veteran of the rival bank UBS and had also interned at Goldman Sachs. During her recruitment process, one banker noted that she would “have access” to a state-owned automaker, according to Allen & Overy. Her father, Wang Yang, is now a member of the Politburo Standing Committee.

In 2006, Deutsche Bank began to engage in what it called referral hiring. The goal was to drum up business for the bank by doling out personal favors to current and prospective clients, the S.E.C. found. Premier Wen Jiabao’s son-in-law, who was a senior official at China’s banking regulator, referred one candidate. Mr. Wen’s daughter-in-law referred another. Both were hired.

A state railway executive in China referred the son of a judge on the Supreme People’s Court. The assistant president of the oil refiner Sinopec referred a candidate, too. So did the general manager of the state-owned Industrial and Commercial Bank of China.

Mr. Zhang, reached by phone, declined to be interviewed for this article. He also did not respond to written questions sent through a business associate.

“It’s a relationship country,” Mr. Ackermann said in the interview. “Of course we cultivated these people.”

The roster was set. The first nine foursomes to tee off at Deutsche Bank’s Beijing golf invitational in October 2003 were a predictable mix of German and Chinese executives.

The 10th group was different. It included Winston Wen, son of the newly appointed premier, as well as Huang Xuhuai, a close business associate of the Wen family. They were joined by a top official from PetroChina, a state-owned oil company.

The fourth player was Mr. Zhang. The following month, he, Mr. Huang and Mr. Wen would be off to Thailand for more golf, and later to Germany, according to documents compiled for the bank’s internal investigation.

The relationships that Mr. Zhang built with the golfers were microcosms of how the bank made a name for itself in China beyond its strategic hiring. They were showered with gifts. They were enlisted to introduce Deutsche Bank executives to Chinese decision makers. And they were hired as consultants to help win the bank work.

Among dozens of gifts to political leaders and heads of state-run companies, the oil executive received golf clubs and a bag valued at more than $2,500.

Executives at China Life Insurance, which picked Deutsche Bank to help manage its I.P.O. in 2003, were treated to Louis Vuitton luggage, cashmere overcoats, golf clubs, even a sofa, totaling more than $22,000, according to a memo by Gibson, Dunn & Crutcher.

The bank prohibited gifts to public officials unless the legal and compliance departments signed off, and Gibson Dunn found that Mr. Zhang, who generated many of the expenses, had violated that policy.

The law firm’s research showed that from 2002 to 2008, bank officials gave more than $200,000 in gifts to Chinese officials, their relatives and executives of state-owned companies. More than a fourth went to people on the Politburo or their relatives, including Mr. Jiang, the president; and Mr. Wen, the premier.

Some of the gifts, like the crystal tiger for Mr. Jiang, who was born in 1926, the year of the tiger, were “provided” by Mr. Ackermann, according to the internal investigation.

Mr. Ackermann said that while he didn’t recall personally giving the items, he was aware that the bank’s staff thought it a good idea. He has not been accused of wrongdoing in China.

“They said that’s what Goldman and JPMorgan are doing, so we should do it,” Mr. Ackermann said in the interview. “I don’t think Wen Jiabao would be somehow influenced by a gift of a few thousand.”

In 2016, JPMorgan was fined $264.4 million by the Justice Department for its Chinese hiring. Other banks were also known to engage in similar practices. The Swiss bank Credit Suisse paid $77 million last year in criminal penalties and other fines. Goldman Sachs has not been accused of wrongdoing in its China business.

The plan to increase Deutsche Bank’s clout in China also included buying a big stake in a midsize Beijing bank, Huaxia.

The acquisition plan, code-named Project Rooster, involved hiring Mr. Huang, one of Mr. Zhang’s golf partners. Mr. Huang had no experience in banking but had worked in a diamond company run by the wife of the premier, according to a background check that was done for the bank at the time. He was paid the equivalent of more than $2 million.

The bank’s compliance department didn’t stand in the way of the consulting role, but some senior executives were uneasy.

“Based on the information from the search firm, if this person is not known to the market and industry, why are we paying for the service and what are we paying for?” Polly Lee, the bank’s head of compliance in Hong Kong, wrote in an email to Till Staffeldt, a regional executive who was pushing for Mr. Huang’s hiring. “My concern is this individual is fronting for someone else.”

Mr. Staffeldt is now Deutsche Bank’s global chief operating officer for regulation, compliance and preventing financial crime.

Deutsche Bank’s bid for Huaxia was successful. In late 2005, the bank secured a 9.9 percent stake, which later increased to almost 20 percent. It was unclear what Mr. Huang did to help the deal go through, but Gibson Dunn later found that the circumstances around his hiring raised “red flags” that might have violated the Foreign Corrupt Practices Act, in part because of Mr. Huang’s ties to the family of the premier, Mr. Wen.

In 2006, Deutsche Bank again brought Mr. Huang on as a consultant. This time, his task was to “study in-depth the financial safety of China’s banking industry.” He received $3 million.

Inside the bank, concerns had been mounting about Mr. Zhang’s use of consultants to win business. Frank Nash, who ran the bank’s Asian corporate finance division until 2004, warned a top executive, Michael Cohrs, about the problematic use of politically connected consultants.

Mr. Cohrs shared those concerns with the bank’s lawyers, including Richard Walker, a general counsel. They concluded that Mr. Zhang was operating inside the law, three people familiar with those discussions told The Times.

Mr. Zhang kept going. In 2006 he turned to another consultant named Huang to help the bank secure a role in the I.P.O. of Industrial and Commercial Bank of China. The stock offering was set to be the world’s largest ever. The banks handling the transaction reaped not only huge fees but also coveted bragging rights.

That man, Huang Xianghui, was lacking in banking experience, and a background check found that the Beijing company he claimed to work for did not appear to exist at the address on his business card. But what he did have, according to the bank’s documents, was a previous affiliation with PetroChina, the state oil company. Mr. Zhang hired him.

Mr. Huang’s original contract said he would receive $3 million for services that were “solely focused on the energy industry.” In a draft, someone crossed out “the energy industry” and wrote “ICBC,” a reference to the giant state-owned bank. Deutsche Bank went on to win a high-profile role in the I.P.O.

The success ingratiated Mr. Zhang with his superiors, especially Mr. Ackermann. Mr. Zhang would escort him to meetings with top Chinese leaders, including the president and premier, as well as to gatherings with cultural and academic experts, Mr. Ackermann said. While at Deutsche Bank, Mr. Zhang was appointed to a top government advisory body, signaling his insider status.

“He introduced me to all sorts of people,” Mr. Ackermann said in the interview. “He was always an honest person and had good ethical standards.”

But Mr. Cohrs, who was the head of investment banking, warned the company’s lawyers that he was “scared of how Lee Zhang was doing business and whether there was money being passed around in envelopes,” the documents show.

There was reason to be concerned.

In 2010, the head of I.C.B.C. approached Mr. Ackermann and said he wanted to hire Mr. Zhang, citing his excellent work at Deutsche Bank, according to Mr. Ackermann. He became senior executive vice president at the giant Chinese bank.

Two years later, Mr. Ackermann stepped down as chief executive. A top executive warned his successor, Anshu Jain, that the bank had grown overly reliant on winning business from state-owned companies, an area rife with corruption risks, according to a person with direct knowledge of the warning.

In 2013, when the United States began investigating JPMorgan’s hiring practices in China, Deutsche Bank initiated an internal review. It found a troubling pattern of politically connected hiring, and reported the findings to the S.E.C. and the Justice Department.

The S.E.C. subpoenaed the bank in April 2014. Months later, Deutsche Bank sued Mr. Zhang, accusing him of profiting from one of the consulting companies he had hired because it was owned by a relative. Mr. Zhang denied wrongdoing in the suit.

The Times and Süddeutsche Zeitung found two other consulting companies used by Deutsche Bank that appeared to be owned by Mr. Zhang’s wife.

Amazing Channel Holdings and Speedy Link Holdings, both registered in the British Virgin Islands, list Ji Zhengrong as the owner, according to documents found in the Panama Papers. Mr. Zhang’s wife has the same name, and her birth date, listed in Hong Kong court records, matches the birth date in the offshore company records.

Speedy Link was paid $3.65 million by Deutsche Bank to assist in its successful bid to help manage the I.P.O. of China Life Insurance Company in 2003, according to the bank’s documents. Amazing Channel Holdings was paid $100,000.

At the time, Deutsche Bank’s top lawyer was Mr. Walker, who had been warned of executives’ concerns about politically connected consultants in China.

Before joining Deutsche Bank, Mr. Walker had been the head of the S.E.C.’s enforcement division. Now, as the agency’s investigation unfolded, bank officials were feeling optimistic.

Lawyers for Deutsche Bank traveled to the S.E.C.’s office in Salt Lake City to give a presentation on the company’s internal investigation. They argued that its hiring of Chinese princelings was far less extensive and systematic than at other banks, according to a person briefed on the meeting.

The lawyers told Mr. Walker afterward that the S.E.C. seemed to share the bank’s perspective, the person said. The agency’s investigators had concluded that when the bank hired politically connected employees, they were generally well qualified — something the bank’s internal reviews had cast doubt on.

This August, the S.E.C. announced that it was closing its investigation and had settled with the bank without requiring an admission of wrongdoing. Asked about the previously undisclosed Deutsche Bank documents, Chandler Costello, an S.E.C. spokeswoman, said, “The S.E.C. does not comment on details of any investigation, but, as always, the S.E.C. is committed to pursuing violations of federal securities law, wherever or by whomever they may occur.”

Earlier this year, the bank disclosed that it remained under investigation by the Justice Department for its hiring practices and use of consultants in foreign countries.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

A Brazen Scheme, and a Minor Penalty, for Winning Business in China

It was a brazen campaign to win business in China by charming and enriching the country’s political elite.

The bank gave a Chinese president a crystal tiger and a Bang & Olufsen sound system, together worth $18,000. A premier received a $15,000 crystal horse, his Chinese zodiac animal, and his son got $10,000 in golf outings and a trip to Las Vegas. A top state banking official, a son of one of China’s founding fathers, accepted a $4,254 bottle of French wine — Château Lafite Rothschild, vintage 1945, the year he was born.

Millions of dollars were paid out to Chinese consultants, including a business partner of the premier’s family and a firm that secured a meeting for the bank’s chief executive with the president. And more than 100 relatives of the Communist Party’s ruling elite were hired for jobs at the bank, even though it had deemed many unqualified.

This was all part of Deutsche Bank’s strategy to become a major player in China, beginning nearly two decades ago when it had virtually no presence there. And it worked. By 2011, the German company would be ranked by Bloomberg as the top bank for managing initial public offerings in China and elsewhere in Asia, outside Japan.

The bank’s rule-bending rise to the top was chronicled in confidential documents, prepared by the company and its outside lawyers, that were obtained by the German newspaper Süddeutsche Zeitung. The previously undisclosed documents, shared with The New York Times, cover a 15-year period and include spreadsheets, emails, internal investigative reports and transcripts of interviews with senior executives.

The documents show that Deutsche Bank’s troubling behavior in China was far more extensive than the authorities in the United States have publicly alleged. And they show that the bank’s top leadership was warned about the activity but did not stop it.

Josef Ackermann, the bank’s chief executive until 2012, said in an interview with The Times and separately in answers to written questions that he was not familiar with many of the details contained in the documents. But he defended the bank’s broader practices.

“This was part of doing business in this country,” Mr. Ackermann said. “At the time, this was the way things were done.”

For years, Deutsche Bank has been a poster child for misconduct in the finance industry. Regulators and prosecutors around the world have imposed billions of dollars in penalties against the bank for its role in a wide range of scandals. Most recently, the bank has been under investigation for the facilitation of money laundering in Russia and elsewhere.

Deutsche Bank — which for two decades was the primary lender to President Trump — also has been under scrutiny by two congressional committees and by state prosecutors in New York who are investigating Mr. Trump’s finances.

In August, the bank agreed to pay $16 million in a settlement with the United States Securities and Exchange Commission related to allegations that it had used corrupt means to win business in both China and Russia, violating anti-bribery laws, though it did not admit wrongdoing.

That penalty, the documents show, amounted to a small fraction of the revenues gained in China from business stemming in part from the activities. The bank’s outside lawyers had warned executives in 2017 that they could face a penalty of more than $250 million from the S.E.C. related to China. There is no evidence that German regulators investigated the bank’s activities in China, though they were alerted to some of it, according to the documents.

[Here are six key takeaways from the investigation.]

Reasons for concern appear throughout the documents, which include internal investigations conducted by two law firms, Gibson, Dunn & Crutcher and Allen & Overy, at the time of the S.E.C.’s action.

Deutsche Bank, the documents show, dispensed hundreds of thousands of dollars to secure meetings for top executives with China’s leadership. An obscure company received $100,000 to arrange a 2002 meeting between Mr. Ackermann and Jiang Zemin, then the country’s president.

In all, the documents show, the bank paid seven consultants more than $14 million, including for help buying a stake in a Chinese bank and winning coveted assignments from state-owned companies. Some of the payments were flagged internally as problematic but allowed to go through.

On multiple occasions, according to the documents, Deutsche Bank tried to win business by collaborating with family members of Wen Jiabao, China’s premier from 2003 to 2013. The Wens’ enormous accumulation of wealth was the focus of a 2012 investigation by The Times that found family members had controlled assets worth at least $2.7 billion.

Winning Over the Wens

Among its many ties to China’s political elite, Deutsche Bank cultivated a deep relationship with the family of Wen Jiabao during his term as premier of China. Mr. Wen himself received gifts from the bank valued at more than $15,000. But it was a family affair, involving his son, daughter and their spouses, as well as a close business associate of the family.

Westlake Legal Group 1014-web-for-DEUTSCHE-CHINA-Artboard_2 A Brazen Scheme, and a Minor Penalty, for Winning Business in China Wen Jiabao Gifts to Public Officials Fines (Penalties) Ethics and Official Misconduct Deutsche Bank AG Corruption (Institutional) China Bribery and Kickbacks Banking and Financial Institutions Ackermann, Josef

Wen Jiabao

Zhang Beili

Premier

2003-13

Diamond expert

Wen family

SON-IN-LAW

DAUGHTER-IN-LAW

Liu

Chunhang

Wen

Ruchun

Yang

Xiaomeng

Winston

Wen

GOLF

PARTNER

Co-founder of the

New Horizon Capital

private equity firm

RECOMMENDED

ACQUAINTANCE

RECOMMENDED

Huang

Xuhuai

Josef Ackermann provided Mr. Wen with a crystal horse sculpture valued at more than $15,000.

Deutsche Bank hired several job candidates referred to them by members of the Wen family.

Deutsche Bank invested in Winston Wen’s private equity firm, as well as paying for golfing vacations for him.

Lee Zhang hired Mr. Huang as a consultant in 2005 and again in 2006, paying him more than $5 million.

Deutsche Bank

Josef Ackermann

Chief executive

2002-12

Head of corporate

finance in Asia

2004-10

Westlake Legal Group 1014-web-for-DEUTSCHE-CHINA-Artboard_3 A Brazen Scheme, and a Minor Penalty, for Winning Business in China Wen Jiabao Gifts to Public Officials Fines (Penalties) Ethics and Official Misconduct Deutsche Bank AG Corruption (Institutional) China Bribery and Kickbacks Banking and Financial Institutions Ackermann, Josef

Wen Jiabao

Zhang Beili

Premier

2003-13

Diamond expert

WEN FAMILY

SON-

IN-LAW

DAUGHTER-

IN-LAW

Liu

Chunhang

Wen

Ruchun

Yang

Xiaomeng

Winston

Wen

GOLF

PARTNER

ACQUAINTANCE

RECOMMENDED

RECOMMENDED

Huang

Xuhuai

DEUTSCHE BANK

Josef

Ackermann

Head of

corporate

finance in Asia

2004-10

Chief

executive

2002-12

Source: Documents compiled in internal Deutsche Bank investigation.

By Guilbert Gates

The bank, at least in part through its hiring of people with political connections, won hundreds of millions of dollars in Chinese deals. Such hires can be illegal if they are done in exchange for business. The bank’s outside lawyers calculated that just 19 of its so-called relationship hires helped bring in $189 million in revenue, including a plum assignment in 2006 managing a state bank’s market debut, then the biggest initial public offering in history.

Most of the Chinese government officials entangled in the bank’s activities have since retired, among them Mr. Jiang and Mr. Wen. But two parents of people the bank employed are now members of the Politburo Standing Committee, the country’s pinnacle of power. And the country’s vice president, Wang Qishan, accepted gifts from the bank when he held previous positions, such as mayor of Beijing.

Efforts by The Times and Süddeutsche Zeitung to reach Mr. Jiang, Mr. Wang and Mr. Wen — as well as other Chinese officials, executives and relatives mentioned in the documents — either were unsuccessful or received no response. Several current and former Deutsche Bank employees declined to comment.

Tim-Oliver Ambrosius, a spokesman for the bank, did not respond to specific questions about the documents. In a written statement, he said that the company had “thoroughly investigated and reported to authorities certain past conduct,” adding that the bank had “enhanced our policies and controls, and action has been taken where issues have been identified.”

“These events date back as far as 2002 and have been dealt with,” the statement said.

Mr. Ackermann said that he had cautioned the bank’s staff that “no business is worth risking the bank’s reputation.” Though he pushed employees to increase revenue and profits, he said, “feeling pressure cannot excuse violating compliance rules and regulations or the law of the land.”

When Mr. Ackermann was picked in 2000 as the next chief executive, his ambition was for Deutsche Bank to be universally recognized as a global leader. And he wanted it done fast.

China was critical. It was the most populous country in the world and on its way to becoming the second-largest economy. Yet Deutsche Bank was far behind its rivals there.

Goldman Sachs and Morgan Stanley had been at the forefront of helping China modernize its moribund financial system and network of state-owned businesses. In 1995, Morgan Stanley helped set up the country’s first investment bank, China International Capital Corporation. Goldman won the rights in 1997 to bring China Telecom, the country’s phone monopoly, to the international market through an initial public offering in Hong Kong.

Mr. Ackermann had to play catch-up.

A first step for the bank was poaching Lee Zhang, the head of Goldman Sachs’s Beijing office. Mr. Zhang was fluent in the ways of both China and Western business. Born and raised in China, he had studied in Canada and later moved to California, where he worked for Hewlett-Packard and studied business administration. He then went to Hong Kong, eventually landing at Goldman.

Mr. Zhang’s mandate was to transform Deutsche Bank into a player in China. That required winning over the Communist Party.

Mr. Zhang began hiring aggressively. Many of his recruits — dozens and dozens of them, according to spreadsheets compiled by the bank’s lawyers — were young, inexperienced and well connected. They came to know him as Uncle Zhang.

Ma Weiji, whose parents were senior executives at state-owned companies, interviewed for a job in 2007. It did not go well. A senior Deutsche Bank executive emailed Mr. Zhang that Mr. Ma “was probably one of the worst candidates.”

He got the job nevertheless. Soon, Mr. Ma was using his family connections to secure meetings for the bank with his parents’ companies, according to a memo by Allen & Overy.

Another job candidate was a son of Liu Yunshan, then China’s propaganda minister. He “cannot meet our standard,” a Deutsche Bank employee wrote in an email about the company’s equity capital markets group. He was offered a job anyway.

The younger daughter of Li Zhanshu — now a top member of the Politburo Standing Committee — was judged unqualified for the bank’s corporate communications team. She got an offer, too.

Even for qualified candidates, political connections were taken into account.

Wang Xisha, whose father was the top official in Guangdong Province when she applied in 2010, was a veteran of the rival bank UBS and had also interned at Goldman Sachs. During her recruitment process, one banker noted that she would “have access” to a state-owned automaker, according to Allen & Overy. Her father, Wang Yang, is now a member of the Politburo Standing Committee.

In 2006, Deutsche Bank began to engage in what it called referral hiring. The goal was to drum up business for the bank by doling out personal favors to current and prospective clients, the S.E.C. found. Premier Wen Jiabao’s son-in-law, who was a senior official at China’s banking regulator, referred one candidate. Mr. Wen’s daughter-in-law referred another. Both were hired.

A state railway executive in China referred the son of a judge on the Supreme People’s Court. The assistant president of the oil refiner Sinopec referred a candidate, too. So did the general manager of the state-owned Industrial and Commercial Bank of China.

Mr. Zhang, reached by phone, declined to be interviewed for this article. He also did not respond to written questions sent through a business associate.

“It’s a relationship country,” Mr. Ackermann said in the interview. “Of course we cultivated these people.”

The roster was set. The first nine foursomes to tee off at Deutsche Bank’s Beijing golf invitational in October 2003 were a predictable mix of German and Chinese executives.

The 10th group was different. It included Winston Wen, son of the newly appointed premier, as well Huang Xuhuai, a close business associate of the Wen family. They were joined by a top official from PetroChina, a state-owned oil company.

The fourth player was Mr. Zhang. The following month, he, Mr. Huang and Mr. Wen would be off to Thailand for more golf, and later to Germany, according to documents compiled for the bank’s internal investigation.

The relationships that Mr. Zhang built with the golfers were microcosms of how the bank made a name for itself in China beyond its strategic hiring. They were showered with gifts. They were enlisted to introduce Deutsche Bank executives to Chinese decision makers. And they were hired as consultants to help win the bank work.

Among dozens of gifts to political leaders and heads of state-run companies, the oil executive received golf clubs and a bag valued at more than $2,500.

Executives at China Life Insurance, which picked Deutsche Bank to help manage its I.P.O. in 2003, were treated to Louis Vuitton luggage, cashmere overcoats, golf clubs, even a sofa, totaling more than $22,000, according to a memo by Gibson, Dunn & Crutcher.

The bank prohibited gifts to public officials unless the legal and compliance departments signed off, and Gibson Dunn found that Mr. Zhang, who generated many of the expenses, had violated that policy.

The law firm’s research showed that from 2002 to 2008, bank officials gave more than $200,000 in gifts to Chinese officials, their relatives and executives of state-owned companies. More than a fourth went to people on the Politburo or their relatives, including Mr. Jiang, the president; and Mr. Wen, the premier.

Some of the gifts, like the crystal tiger for Mr. Jiang, who was born in 1926, the year of the tiger, were “provided” by Mr. Ackermann, according to the internal investigation.

Mr. Ackermann said that while he didn’t recall personally giving the items, he was aware that the bank’s staff thought it a good idea. He has not been accused of wrongdoing in China.

“They said that’s what Goldman and JPMorgan are doing, so we should do it,” Mr. Ackermann said in the interview. “I don’t think Wen Jiabao would be somehow influenced by a gift of a few thousand.”

In 2016, JPMorgan was fined $264.4 million by the Justice Department for its Chinese hiring. Other banks were also known to engage in similar practices. The Swiss bank Credit Suisse paid $77 million last year in criminal penalties and other fines. Goldman Sachs has not been accused of wrongdoing in its China business.

The plan to increase Deutsche Bank’s clout in China also included buying a big stake in a midsize Beijing bank, Huaxia.

The acquisition plan, code-named Project Rooster, involved hiring Mr. Huang, one of Mr. Zhang’s golf partners. Mr. Huang had no experience in banking but had worked in a diamond company run by the wife of the premier, according to a background check that was done for the bank at the time. He was paid the equivalent of more than $2 million.

The bank’s compliance department didn’t stand in the way of the consulting role, but some senior executives were uneasy.

“Based on the information from the search firm, if this person is not known to the market and industry, why are we paying for the service and what are we paying for?” Polly Lee, the bank’s head of compliance in Hong Kong, wrote in an email to Till Staffeldt, a regional executive who was pushing for Mr. Huang’s hiring. “My concern is this individual is fronting for someone else.”

Mr. Staffeldt is now Deutsche Bank’s global chief operating officer for regulation, compliance and preventing financial crime.

Deutsche Bank’s bid for Huaxia was successful. In late 2005, the bank secured a 9.9 percent stake, which later increased to almost 20 percent. It was unclear what Mr. Huang did to help the deal go through, but Gibson Dunn later found that the circumstances around his hiring raised “red flags” that might have violated the Foreign Corrupt Practices Act, in part because of Mr. Huang’s ties to the family of the premier, Mr. Wen.

In 2006, Deutsche Bank again brought Mr. Huang on as a consultant. This time, his task was to “study in-depth the financial safety of China’s banking industry.” He received $3 million.

Inside the bank, concerns had been mounting about Mr. Zhang’s use of consultants to win business. Frank Nash, who ran the bank’s Asian corporate finance division until 2004, warned a top executive, Michael Cohrs, about the problematic use of politically connected consultants.

Mr. Cohrs shared those concerns with the bank’s lawyers, including Richard Walker, a general counsel. They concluded that Mr. Zhang was operating inside the law, three people familiar with those discussions told The Times.

Mr. Zhang kept going. In 2006 he turned to another consultant named Huang to help the bank secure a role in the I.P.O. of Industrial and Commercial Bank of China. The stock offering was set to be the world’s largest ever. The banks handling the transaction reaped not only huge fees but also coveted bragging rights.

That man, Huang Xianghui, was lacking in banking experience, and a background check found that the Beijing company he claimed to work for did not appear to exist at the address on his business card. But what he did have, according to the bank’s documents, was a previous affiliation with PetroChina, the state oil company. Mr. Zhang hired him.

Mr. Huang’s original contract said he would receive $3 million for services that were “solely focused on the energy industry.” In a draft, someone crossed out “the energy industry” and wrote “ICBC,” a reference to the giant state-owned bank. Deutsche Bank went on to win a high-profile role in the I.P.O.

The success ingratiated Mr. Zhang with his superiors, especially Mr. Ackermann. Mr. Zhang would escort him to meetings with top Chinese leaders, including the president and premier, as well as to gatherings with cultural and academic experts, Mr. Ackermann said. While at Deutsche Bank, Mr. Zhang was appointed to a top government advisory body, signaling his insider status.

“He introduced me to all sorts of people,” Mr. Ackermann said in the interview. “He was always an honest person and had good ethical standards.”

But Mr. Cohrs, who was the head of investment banking, warned the company’s lawyers that he was “scared of how Lee Zhang was doing business and whether there was money being passed around in envelopes,” the documents show.

There was reason to be concerned.

In 2010, the head of I.C.B.C. approached Mr. Ackermann and said he wanted to hire Mr. Zhang, citing his excellent work at Deutsche Bank, according to Mr. Ackermann. He became senior executive vice president at the giant Chinese bank.

Two years later, Mr. Ackermann stepped down as chief executive. A top executive warned his successor, Anshu Jain, that the bank had grown overly reliant on winning business from state-owned companies, an area rife with corruption risks, according to a person with direct knowledge of the warning.

In 2013, when the United States began investigating JPMorgan’s hiring practices in China, Deutsche Bank initiated an internal review. It found a troubling pattern of politically connected hiring, and reported the findings to the S.E.C. and the Justice Department.

The S.E.C. subpoenaed the bank in April 2014. Months later, Deutsche Bank sued Mr. Zhang, accusing him of profiting from one of the consulting companies he had hired because it was owned by a relative. Mr. Zhang denied wrongdoing in the suit.

The Times and Süddeutsche Zeitung found two other consulting companies used by Deutsche Bank that appeared to be owned by Mr. Zhang’s wife.

Amazing Channel Holdings and Speedy Link Holdings, both registered in the British Virgin Islands, list Ji Zhengrong as the owner, according to documents found in the Panama Papers. Mr. Zhang’s wife has the same name, and her birth date, listed in Hong Kong court records, matches the birth date in the offshore company records.

Speedy Link was paid $3.65 million by Deutsche Bank to assist in its successful bid to help manage the I.P.O. of China Life Insurance Company in 2003, according to the bank’s documents. Amazing Channel Holdings was paid $100,000.

At the time, Deutsche Bank’s top lawyer was Mr. Walker, who had been warned of executives’ concerns about politically connected consultants in China.

Before joining Deutsche Bank, Mr. Walker had been the head of the S.E.C.’s enforcement division. Now, as the agency’s investigation unfolded, bank officials were feeling optimistic.

Lawyers for Deutsche Bank traveled to the S.E.C.’s office in Salt Lake City to give a presentation on the company’s internal investigation. They argued that its hiring of Chinese princelings was far less extensive and systematic than at other banks, according to a person briefed on the meeting.

The lawyers told Mr. Walker afterward that the S.E.C. seemed to share the bank’s perspective, the person said. The agency’s investigators had concluded that when the bank hired politically connected employees, they were generally well qualified — something the bank’s internal reviews had cast doubt on.

This August, the S.E.C. announced that it was closing its investigation and had settled with the bank without requiring an admission of wrongdoing. Asked about the previously undisclosed Deutsche Bank documents, Chandler Costello, an S.E.C. spokeswoman, said, “The S.E.C. does not comment on details of any investigation, but, as always, the S.E.C. is committed to pursuing violations of federal securities law, wherever or by whomever they may occur.”

Earlier this year, the bank disclosed that it remained under investigation by the Justice Department for its hiring practices and use of consultants in foreign countries.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Facebook’s Libra Cryptocurrency Faces Exodus of Partners

Westlake Legal Group 11LIBRA-facebookJumbo Facebook’s Libra Cryptocurrency Faces Exodus of Partners Zuckerberg, Mark E Stripe Inc Social Media Regulation and Deregulation of Industry MasterCard Inc Marcus, David A Libra (Currency) Facebook Inc eBay Inc Computers and the Internet Banking and Financial Institutions

Facebook’s troubled cryptocurrency initiative, Libra, suffered new blows on Friday as the departures of key partners became an exodus.

Stripe, Mastercard, Visa and eBay said they were all pulling out of Libra, a week after PayPal became the first company to drop out. While they continue to support the idea of Libra, the companies said, they will no longer be part of the coalition that is backing the effort.

“EBay has made the decision to not move forward as a founding member,” a company spokesman said. Mastercard said it was focused on its own strategy “and our own significant efforts to enable financial inclusion around the world,” and Visa said its future participation would depend, in part, on Libra’s “ability to fully satisfy all requisite regulatory expectations.”

A spokesman for Stripe said, “We will follow its progress closely and remain open to working with the Libra Association at a later stage.”

Libra has been met with doubts and questions almost from the moment that Facebook unveiled the effort in June.

At the time, the social network positioned Libra as the potential foundation for a new financial system that would not be directed by today’s power brokers on Wall Street or central banks. The cryptocurrency could be freely traded inside Facebook’s properties, like Messenger and WhatsApp, and be used for international exchange, Facebook added.

As part of that, the social network said, it had more than 27 corporate partners — including PayPal, Visa, Mastercard and companies like Uber — that had pledged to support the project. The partners are important because Libra will be controlled not by the social network but by a broad network of corporations, Facebook said.

Yet many world leaders, regulators and central bankers — including President Trump and Treasury Secretary Steven Mnuchin — immediately criticized Libra and the idea of an unregulated currency. And they questioned whether Facebook, which is grappling with numerous regulatory issues around privacy and antitrust, should be heading up such an initiative.

Lawmakers asked David Marcus, the Facebook executive leading Libra, to testify in Congress about the plans, and he faced two days of questioning in July. Facebook’s chief executive, Mark Zuckerberg, is scheduled to testify at a congressional hearing about Libra on Oct. 23.

Facebook did not immediately respond to a request for comment.

The Libra Association, a Swiss organization that Facebook created to oversee the project, is “focused on moving forward and continuing to build a strong association,” said Dante Disparte, its head of policy and communication. Even if the members change, he added, its underlying principles “will remain resilient.”

The Libra Association plans to announce its membership at a meeting on Monday, Mr. Disparte said.

Senator Sherrod Brown, a Democrat from Ohio on the Senate’s banking committee, applauded the withdrawals of Visa, Mastercard, eBay and Stripe.

“Large payment companies are wise to avoid legitimizing Facebook’s private, global currency,” Mr. Brown said. “Facebook is too big and too powerful, and it is unconscionable for financial companies to aid it in monopolizing our economic infrastructure. I trust others will see the wisdom of avoiding this ill-conceived undertaking.”

The Libra coalition has been fraying for months. In the weeks after Facebook announced the initiative, some of the partners began having second thoughts. Many were wary that Facebook’s issues with regulators and the uncertain legality of cryptocurrencies might hurt Libra. Some of the companies, particularly payments providers, rely on good relationships with financial regulators.

The partners signed nonbinding agreements, so backing out would be fairly easy, executives at seven of the partner companies told The New York Times in June. They also weren’t obliged to use or promote the digital token.

“We will not do anything that we think doesn’t meet our own personal standards, as well as the standards of regulators that we respect around the world,” Al Kelly, Visa’s chief executive, told CNBC this year.

In recent months, as skepticism around Libra was mounting, some of the partners realized the amount of resources they would have to commit to the effort was growing, said one person with knowledge of the situation, who declined to be named because the discussions were confidential.

PayPal, which Mr. Marcus used to lead, said last week that it would leave the Libra initiative so it could instead “continue to focus on advancing our existing mission and business priorities.”

Early this month, Mr. Marcus acknowledged some of the difficulties Libra faced. On Twitter, he wrote: “Change of this magnitude is hard and requires courage + it will be a long journey.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Facebook’s Libra Cryptocurrency Faces Exodus of Partners

Westlake Legal Group 11LIBRA-facebookJumbo Facebook’s Libra Cryptocurrency Faces Exodus of Partners Zuckerberg, Mark E Stripe Inc Social Media Regulation and Deregulation of Industry MasterCard Inc Marcus, David A Libra (Currency) Facebook Inc eBay Inc Computers and the Internet Banking and Financial Institutions

Facebook’s troubled cryptocurrency initiative, Libra, suffered new blows on Friday as the departures of key partners became an exodus.

Stripe, Mastercard, Visa and eBay said they were all pulling out of Libra, a week after PayPal became the first company to drop out. While they continue to support the idea of Libra, the companies said, they will no longer be part of the coalition that is backing the effort.

“EBay has made the decision to not move forward as a founding member,” a company spokesman said. Mastercard said it was focused on its own strategy “and our own significant efforts to enable financial inclusion around the world,” and Visa said its future participation would depend, in part, on Libra’s “ability to fully satisfy all requisite regulatory expectations.”

A spokesman for Stripe said, “We will follow its progress closely and remain open to working with the Libra Association at a later stage.”

Libra has been met with doubts and questions almost from the moment that Facebook unveiled the effort in June.

At the time, the social network positioned Libra as the potential foundation for a new financial system that would not be directed by today’s power brokers on Wall Street or central banks. The cryptocurrency could be freely traded inside Facebook’s properties, like Messenger and WhatsApp, and be used for international exchange, Facebook added.

As part of that, the social network said, it had more than 27 corporate partners — including PayPal, Visa, Mastercard and companies like Uber — that had pledged to support the project. The partners are important because Libra will be controlled not by the social network but by a broad network of corporations, Facebook said.

Yet many world leaders, regulators and central bankers — including President Trump and Treasury Secretary Steven Mnuchin — immediately criticized Libra and the idea of an unregulated currency. And they questioned whether Facebook, which is grappling with numerous regulatory issues around privacy and antitrust, should be heading up such an initiative.

Lawmakers asked David Marcus, the Facebook executive leading Libra, to testify in Congress about the plans, and he faced two days of questioning in July. Facebook’s chief executive, Mark Zuckerberg, is scheduled to testify at a congressional hearing about Libra on Oct. 23.

Facebook did not immediately respond to a request for comment.

The Libra Association, a Swiss organization that Facebook created to oversee the project, is “focused on moving forward and continuing to build a strong association,” said Dante Disparte, its head of policy and communication. Even if the members change, he added, its underlying principles “will remain resilient.”

The Libra Association plans to announce its membership at a meeting on Monday, Mr. Disparte said.

Senator Sherrod Brown, a Democrat from Ohio on the Senate’s banking committee, applauded the withdrawals of Visa, Mastercard, eBay and Stripe.

“Large payment companies are wise to avoid legitimizing Facebook’s private, global currency,” Mr. Brown said. “Facebook is too big and too powerful, and it is unconscionable for financial companies to aid it in monopolizing our economic infrastructure. I trust others will see the wisdom of avoiding this ill-conceived undertaking.”

The Libra coalition has been fraying for months. In the weeks after Facebook announced the initiative, some of the partners began having second thoughts. Many were wary that Facebook’s issues with regulators and the uncertain legality of cryptocurrencies might hurt Libra. Some of the companies, particularly payments providers, rely on good relationships with financial regulators.

The partners signed nonbinding agreements, so backing out would be fairly easy, executives at seven of the partner companies told The New York Times in June. They also weren’t obliged to use or promote the digital token.

“We will not do anything that we think doesn’t meet our own personal standards, as well as the standards of regulators that we respect around the world,” Al Kelly, Visa’s chief executive, told CNBC this year.

In recent months, as skepticism around Libra was mounting, some of the partners realized the amount of resources they would have to commit to the effort was growing, said one person with knowledge of the situation, who declined to be named because the discussions were confidential.

PayPal, which Mr. Marcus used to lead, said last week that it would leave the Libra initiative so it could instead “continue to focus on advancing our existing mission and business priorities.”

Early this month, Mr. Marcus acknowledged some of the difficulties Libra faced. On Twitter, he wrote: “Change of this magnitude is hard and requires courage + it will be a long journey.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Jeffrey Epstein Raked In $200 Million After Legal and Financial Crises

Jeffrey Epstein’s biggest client had deserted him, his money management firm had lost more than $150 million during the financial crisis, and he was a registered sex offender. But after he started a new company with a wildly speculative business plan in 2012, Mr. Epstein had no problem pulling in cash.

His start-up, Southern Trust, reported more than $200 million in revenues over the next five years, according to a review of previously unreported financial statements filed in the Virgin Islands.

Despite a name that calls to mind a financial services firm, the fledgling company with a handful of employees said it was developing a DNA data-mining service. Southern Trust was trying to gauge customers’ predisposition to cancer by “basically organizing mathematical algorithms,” Mr. Epstein told Virgin Islands officials as he sought a lucrative tax break in 2012.

ImageWestlake Legal Group 00epsteinvi-03-articleLarge Jeffrey Epstein Raked In $200 Million After Legal and Financial Crises Tax Credits, Deductions and Exemptions St Thomas (Virgin Islands) Sex Crimes Epstein, Jeffrey E (1953- ) Corporate Taxes Banking and Financial Institutions

The 2013 balance sheet for Southern Trust, which Mr. Epstein founded for DNA research.

Mr. Epstein’s business revival is documented in financial statements and other filings obtained by The New York Times. The documents — from Southern Trust and his earlier firm, Financial Trust — offer a glimpse of Mr. Epstein’s mysterious finances. They show that Financial Trust peaked at the end of 2004, when it reported $563 million in assets and net income of $108 million. And they demonstrate how Mr. Epstein rebuilt his business in his later years, with Southern Trust reporting $175 million in retained earnings — leftover profits that can be reinvested — in 2017, the last year for which statements were available.

But the documents do not say who was paying vast sums of money to Mr. Epstein’s new venture just a few years after his 2008 guilty plea to soliciting a minor for prostitution. Nor do they offer an explanation for why customers would hand over money to a man who had apparently switched from financial services to DNA research.

They do, however, offer a reason for that sudden change in focus. In 2012, Mr. Epstein asked the Virgin Islands Economic Development Authority to note that Financial Trust no longer managed money, so it would not have to register with federal securities regulators as required under the Dodd-Frank Act. Later that year, Financial Trust was replaced by Southern Trust, which Mr. Epstein told territorial officials would still maintain a “financial arm.”

The single-page unaudited financial statements for both companies — obtained through a public-records lawsuit against the territory’s Division of Corporations and Trademarks — are littered with curious line items.

At Financial Trust, a company with fewer than a dozen employees, investment expenses varied widely, from $1.3 million in 2000 to $16 million in 2004 to $42 million in 2005. In 2006 — the year Mr. Epstein was charged in Florida — Financial Trust pushed $117 million into an unnamed subsidiary whose purpose was undisclosed. The subsidiary was apparently transferred to Southern Trust in 2013, and by the end of 2017 the subsidiary accounted for more than half of the company’s $391 million in assets. The filings also disclose that Southern Trust received a $30.5 million loan that same year, but don’t say who provided it.

One thing the financial statements make clear: Mr. Epstein paid himself handsomely. He pocketed $400 million in dividends and other payments from the companies starting in 1999 — the first full year after he moved his operations to the Virgin Islands from New York.

The opacity of Mr. Epstein’s financial dealings has been a perplexing issue since he was arrested in July on federal charges of sex trafficking with underage girls. Although the criminal case against him closed after he committed suicide in federal custody in August, Mr. Epstein’s finances remain an important matter for women who are suing his estate claiming they were among his victims.

Two days before he killed himself, Mr. Epstein signed a will that placed his estate — estimated in court records at more than $500 million — into a trust, potentially an attempt to shield it from public scrutiny. The will lists Darren K. Indyke and Richard D. Kahn, two longtime associates, as executors.

On this sheet, Southern Trust reported net income of more than $57 million in 2013, its first full year in business.

The financial statements and accompanying documents reviewed by The Times were signed at various times by Mr. Indyke, a lawyer who incorporated dozens of Mr. Epstein’s companies, and Mr. Kahn, a New York accountant. Mr. Indyke served as president of Financial Trust for two years, which included the period that Mr. Epstein was serving a prison sentence in Florida after his 2008 guilty plea.

Neither Mr. Indyke nor Mr. Kahn responded to repeated requests for comments. Lawyers for the men also did not respond to messages.

For many years, Mr. Epstein’s businesses in the Virgin Islands operated out of an office suite at a marina complex on St. Thomas. After Mr. Epstein’s death, a man at the office told a visitor through an intercom that no one at Southern Trust was available to talk.

Documents obtained from the Virgin Islands Economic Development Authority show how officials rarely pressed Mr. Epstein on his dealings, even as they granted lucrative exemptions that allowed him to pay as little as 10 percent in corporate income tax. The tax breaks are granted to companies that agree to minimum hiring requirements and commit to investing at least $100,000 in an industry that advances the territory’s “economic well-being.” Currently 71 companies, including Southern Trust, receive the incentive.

By the end of 2017, Southern Trust reported having $175 million in leftover profits.

The development authority did not respond to messages seeking comment.

Government watchdogs and others have long criticized the territory’s history of light regulatory oversight. “Rich people have tried to make it their residence and do business there,” said Jack Blum, a Washington lawyer who has led corruption investigations for several Senate committees. “The idea was to keep it all out of the hands of the I.R.S.”

Mr. Epstein set up shop in the Virgin Islands in 1998, calling himself a “financial doctor” who had decided to settle there after “vacationing up and down the world,” according to a transcript of a hearing the next year as he sought tax incentives that were ultimately granted. During his extensive remarks — an official interrupted Mr. Epstein’s soliloquy at one point to remind him he had only 15 minutes to make a presentation — he discussed working at Bear Stearns and opined about that “electronic mail” was rendering the fax machine obsolete.

He also boasted about managing money for Leslie H. Wexner, the longtime chief executive of the company that runs Victoria’s Secret, who recently said Mr. Epstein had misappropriated large sums of money from him.

The end of their association is evident in the income statements of Financial Trust. The company reported fee income — money charged to clients for services, rather than gains from investments — of $66 million in 2006. In 2007, the year that Mr. Wexner said he had cut ties with Mr. Epstein, Financial Trust’s fee income was just shy of $4 million. In 2008, it was $100,000.

Financial Trust reported fee income of $100,000 for the next three years, then none in 2012 — the year Southern Trust was founded.

In 2013, its first full year in existence, Southern Trust reported fee income of $51 million.

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How the Fed Is Trying to Fix Its White Male Problem

The Federal Reserve’s research staff is far less diverse than the American population it is meant to serve, a reality that the central bank is trying to change as a reckoning over inclusion sweeps through the economics profession.

Three in four Fed economists are men and a majority of those are white. That matters beyond optics: Varied backgrounds can help the Fed better understand the people its policies are meant to help, from working mothers to the underemployed.

The Fed’s lack of diversity is not atypical in economics. Fewer women and minorities express interest in and complete degrees in the field. About 32 percent of economics Ph.D.s awarded in 2018 were to women, based on one survey, a share that has hardly budged over the past two decades.

But a few years ago, officials at the Fed Board in Washington realized that entry-level hiring criteria were exacerbating the lack of diversity early in the Fed’s hiring pipeline.

The board receives hundreds of applications each year for research assistant positions, jobs that require technical skills in coding and statistics, but only a bachelor’s degree. To go through the résumés efficiently, managers would often prioritize highly ranked programs and would sometimes insist that students had earned good grades in a high-level math course called real analysis.

That left the candidate pool unintentionally skewed in favor of those who gravitated toward the desired class and who could afford top universities — and that group seemed to be heavily made up of white men from privileged backgrounds, said David Wilcox, a senior fellow at the Peterson Institute who ran the Fed’s research and statistics division.

It showed through to the numbers. At the Fed Board of Governors in Washington, about 34 percent of research assistants were women in 2013, and 23 percent were minorities, according to a recent Brookings Institution report. That may have had a lasting impact, because research assistants often go back for doctorates and become full-fledged central bank economists.

Criteria used to screen résumés were also poor predictors of which candidates would make great research assistants, Mr. Wilcox said.

So starting several years ago, the central bank shook things up. It has begun casting a wider net for applicants, adding a recruiter who trekked out to a more varied set of schools. Starting in 2015, it brought in Amanda Bayer — a former Fed researcher who teaches at Swarthmore College — to help to rethink how résumés were reviewed. While the Fed cannot legally hire based on race and gender, it could make sure a broader swath of applicants were considered.

ImageWestlake Legal Group merlin_161907192_f732c1ad-4121-4058-bef7-f147438473e5-articleLarge How the Fed Is Trying to Fix Its White Male Problem Women and Girls United States Economy Research Minorities Hiring and Promotion Federal Reserve System Economics (Theory and Philosophy) Brookings Institution Banking and Financial Institutions

Amanda Bayer, a former Fed researcher, is helping to rethink how the central bank reviews résumés.CreditLauren Lancaster for The New York Times

A centralized committee began conducting an initial review of applicant résumés, and the Fed started prioritizing qualities key to success in the job, like collaboration and teamwork. It took into account work experience and activities beyond the classroom. And the board standardized interview questions, so that instead of chatting about shared experiences, candidates and interviewers would focus on job-related skills.

Grades were kicked to the curb as a be-all and end-all, Ms. Bayer said.

“If a student comes in with a 3.9 G.P.A. from college, it means they hit the ground running in college,” she said. “That’s another tendency for economists: Just set a higher quantitative bar. You’re going to omit a lot of fabulous people that way.”

The new approach has had an impact. The Fed Board employed 150 research assistants in 2017, 39 percent of them women. That is up five percentage points from four years earlier. Minorities made up 29 percent of economists, up six points, Brookings found.

The Fed’s push illustrates how gender, racial and ethnic imbalances, often assumed to be unavoidable given the available crop of qualified students, might be possible to change with reworked selection criteria.

In fact, the hiring revamp created a sort of natural experiment.

The central bank mainly hires in two rounds, fall and spring, and the autumn phase began updating its hiring approach seven years ago. It has mostly driven the Fed’s recent gains in gender parity. The spring round, which has been slower to adopt the new procedures, has also lagged in gender balance.

But re-examining recruiting is not a silver bullet: Progress beyond the entry level has remained elusive.

Among Ph.D. economists throughout the Federal Reserve System, the share of women held steady at 24 percent between 2013 and 2018, according to Brookings. At the board in Washington, the share of women has actually slipped over time.

The fact that there is a limited supply of female economics Ph.D.s can make it harder to attract a balanced group of full-fledged economists. Macroeconomics and finance fields are especially male dominated, and they are the Fed Board’s chief areas.

Cultural barriers and biases in economics can dog women as they progress through their careers. Economics conferences can be hostile — paper discussions often feature overt takedowns of fresh research — and women may get more aggressive questions, research suggests. Fed economists tend to write papers with colleagues of the same gender, which could hamper women’s career progression.

Yet trouble in making diverse hires is not universal. Women make up 43 percent of all the economists at the Boston Fed branch, but just 10 percent in St. Louis, based on the Brookings analysis.

In Boston, which has also made the most progress toward gender equity of any Fed bank since 2014, a decades-long history of hiring and employing women has helped with recruitment, said Joel Werkema, a spokesman for the bank. The Fed’s top research job has been held by women — Alicia Munnell in the 1980s and Lynn Browne in the 1990s.

In St. Louis, meanwhile, attracting women has been a struggle.

“Since 2017, we made eight offers to female Ph.D. economists; only one accepted,” B. Ravikumar, the senior vice president and deputy research director in St. Louis, said in an email. “Making material progress on the numerator is a challenge, but one we’re committed to.”

Diversity extends beyond gender, and the Fed is making improvements — albeit slow ones — when it comes to hiring minority economists.

About 25 percent of doctoral-level economists were from those underrepresented groups in 2018, up slightly from 22 percent in 2013.

Iterative progress could help to crack open a door into economics, allowing others to follow.

“In the black community, it is seen as a degree you get to go into business,” said Kadija Yilla, 23, a senior research assistant at Brookings who studied economics at Pomona College and is currently weighing whether to go to graduate school. “It’s also the environment.”

Walking into an economics department filled with white men can be “daunting,” Ms. Yilla said. She has become involved with the Sadie Collective, a new initiative meant to support black women in economics.

The Fed sent representatives to the collective’s inaugural event this year, and Lael Brainard, a Fed governor, spoke. The central bank has also been sending economists to teach at Howard University, a historically black college in Washington, among other initiatives.

Janet L. Yellen, who was the Fed’s first female chair, often makes a case for greater representation on the basis of pure practicality. Women focus on different issues and have different economic priors than men, based on survey data.

“Beyond fairness, the lack of diversity harms the field because it wastes talent,” Ms. Yellen said at a Brookings Institution event last week. “It also skews the field’s viewpoint and diminishes its breadth.”

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Spying Scandal at Credit Suisse Leads to Top Executive’s Resignation

When Tidjane Thiam joined Credit Suisse as chief executive in 2015, he was charged with turning around the Swiss bank and steadying its profit.

A drive for revenue at any cost had pushed traders at Credit Suisse to take outsized positions in risky and hard-to-sell securities. As trading conditions soured, the bank had to cut thousands of jobs.

By 2016, Mr. Thiam pivoted away from the volatile trading of its investment bank to enhance its more reliable wealth management division. Now that division has produced an unlikely, and embarrassing, corporate spy scandal.

The Swiss bank’s chief operating officer, Pierre-Olivier Bouée, resigned on Tuesday after a company board ordered an examination into his ordering the surveillance of its top wealth manager who quit to work for UBS.

Mr. Bouée could not be reached for comment.

In August, Mr. Bouée ordered the Swiss bank’s head of security services to track Iqbal Khan, its head of wealth management who was leaving after a personal disagreement with Mr. Thiam. Outside investigators were hired to follow Mr. Khan and see if he was trying to poach employees or clients in breach of his Credit Suisse contract.

But the investigation turned messy after a confrontation between Mr. Khan and a corporate spook outside a Zurich restaurant in mid-September.

Mr. Khan, who had left Credit Suisse weeks earlier, submitted a criminal complaint about the encounter, and Zurich’s public prosecutor now is investigating. The Swiss Justice Department also is looking into the death of a security expert involved in the surveillance, the prosecutor’s office said in a statement Tuesday. The office said it was examining the circumstances.

Urs Rohner, the chairman of Credit Suisse, said in a news conference Tuesday morning that the surveillance of Mr. Khan was “wrong.”

“The measure that was taken was disproportionate and did not reflect the criteria and standards by which we measure our own work,” Mr. Rohner said. He added: “The observation was wrong and inappropriate, even though the instructions were subjectively provided for the protection of our firm’s interest.”

The results of a Credit Suisse investigation into the episode, conducted by an external law firm for the board of directors, were announced on Tuesday. The board was told that the surveillance had found no evidence that Mr. Khan had tried to poach employees or clients from Credit Suisse.

The investigation also found that Mr. Thiam and other executives were not aware of the spying. Because of this, Mr. Rohner said, “we strongly reject any and all assertions made over the last days that call into question the personal and professional integrity of our C.E.O.”

The bank said on Tuesday that James B. Walker, who was chief financial officer for the United States, had been appointed to take over Mr. Bouée’s role. It also said that it had accepted the resignation of the head of global security.

After several years of putting its house in order, the bank on Tuesday faced questions about whether Mr. Thiam was properly informed about the surveillance — or what was happening under his management if he did not know that Mr. Khan was being watched.

“I don’t believe in my own mind, speaking as a board member, that that suggests that Mr. Thiam is not on top of the rest of the organization,” said John Tiner, chairman of the audit committee, during the news conference.

Mr. Rohner said there were personal differences and “heated discussions” between Mr. Khan and Mr. Thiam that ended in Mr. Kahn’s leaving, but he did not elaborate on their relationship. The investigation, he said, did not find any proof the spying was linked to animosity between the two men.

Still, Mr. Rohner apologized, saying that the results of the Credit Suisse investigation “do not change anything about the fact that the reputation of our bank has suffered in the last few days.”

Despite the revelations of the past month, Credit Suisse’s restructuring has had some positive effect on the bank. In the second quarter of this year, the bank’s net profits were 45 percent higher than the year before.

“I am aware that these events were damaging for the reputation of Credit Suisse, but also for the entire financial center of Switzerland, and for this I would like to sincerely apologize,” Mr. Rohner said.

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