Scandals involving Central Banks

 
"To a foreign exchange trader with access to large sums of money, and the cover of regular dealings in the market, having a mole in G7 was like having the key to the central vaults at Fort Knox."
Nest of Vipers by Linda Davies
 

Nest of Vipers, a novel dealing with MI6, insider trading involving central banks and the finance ministers of the G7 countries (now the G8) was written before the allegations below regarding real cases in central banks came to light. However insider trading is only one of the types of scandals that have hit the pillars of the international financial system. 


Central Bank Corruption in General

Non-Benevolent Central Banks
A paper by Johann Graf Lambsdorff and Michael Schinke of the Center for Globalization and Europeanization of the Economy (CeGE) in the University of Göttingen. In this discussion paper they consider the effects of central bank corruption on the economy which, they point out, can be a source of distorted central bank policy that leads to inflation; distrusting a corrupt central bank can be helpful in reducing this distortion. They also note that although giving central banks a high level of independence shields them from troublesome political interference it also provides the leeway necessary to carry out corrupt transactions.

International Monetary Fund

Debt crisis: IMF ‘suppressed signs that Europe was facing debt crisis’
The International Monetary Fund deliberately suppressed evidence that Europe was heading for a debt crisis, according to a blistering resignation letter from Peter Doyle, a senior economist at the fund. Telegraph, 20 Jul 2012.
 
IMF's Lagarde escapes formal investigation in court
French magistrates have decided not to place IMF chief Christine Lagarde under formal investigation over her role in a 285-million-euro ($368.5 million) arbitration payment made to a supporter of former president Nicolas Sarkozy. Reuters, 24 May 2013
 
IMF head Lagarde's flat searched in Bernard Tapie probe
French police have searched the Paris apartment of IMF chief Christine Lagarde, as they investigate her role in awarding financial compensation to businessman Bernard Tapie in 2008. BBC, 20 March 2013.
 
IMF chief Christine Lagarde facing sleaze investigation
Christine Lagarde, the head of the International Monetary Fund, is to be investigated by French courts for authorising a £270 million payout to a prominent Nicolas Sarkozy supporter when she was finance minister. Daily Telegraph, 4 August 2011.
 
IMF chief Dominique Strauss-Kahn arrested in New York over alleged sex attack on Manhattan hotel maid
Dominique Strauss-Kahn, the head of the International Monetary Fund, has been charged with a criminal sex act and attempted rape an alleged attack on a hotel maid, after he was arrested and removed from a plane on the tarmac of John F. Kennedy airport. Sunday Telegraph, 15 May 2011.
 
Dominique Strauss-Khan in sex book claims
Dominique Strauss-Kahn, the head of the International Monetary Fund is an incorrigible seducer whose weakness for women could fatally scupper his presidential ambitions, according to a new book by an anonymous French author calling herself Cassandre, who claims to be in Strauss-Khan's inner circle of advisers. Daily Telegraph, 9 May 2010.
 
Did the $4.8 billion loan from the IMF to Russia finance the Chelsea football club and the Runicom trading group>
The Chelsea football club owner Roman Abramovich, and his Runicom trading group, was one of the key suspects in the lingering mystery over the possible misuse of a $4.8 billion loan from the IMF to Russia.

World Bank

World Bank Spent More Than a Year Covering Up Destruction of Albanian Village
Managers at the World Bank provided false information to the agency's board of directors about a $39 million, politically-connected European "coastal cleanup" project that led to the destruction and destitution of a powerless village in Albania in 2007 — and then spent nearly two years trying to cover it up. Fox News, 9 February 2009.
 
Blowing the World Bank Whistle
Blowing the World Bank Whistle is an ongoing effort which started in 2004 with a Parliamentary Commission study into a World Bank financed project in the Republic of Armenia, and it continues on to an effort to persuade the Bank’s watchdog organisation, the Department of Institutional Integrity (INT), to instigate a full investigation into the wide-ranging and high-level fraud, corruption and embezzlement, exposed by the study.
 
World Bank President Resigns
The World Bank website contains a statement by the Executive Directors and a statement by the President of the Bank, Paul Wolfowitz about his career in the Bank and his resignation. May 17, 2007.
 
Wolfowitz's girlfriend problem
Not only did the World Bank president find his companion Shaha Ali Riza a cushy job in the State Department, but she received a security clearance - unprecedented for a foreign national in the United States. Sidney Blumenthal, Salon, April 19, 2007.
 
Wolfowitz email backfires
An attempt by the World Bank president, Paul Wolfowitz, to reach out to disaffected and angry employees backfired with a new wave of outrage at the pay rises and promotion given to his partner. Guardian, April 11, 2007.
 
Combating Corruption in the Multilateral Development Banks
Hearings held by the United States Senate Committee on Foreign Relations.
 
World Bank corruption may top $100 billion
World Bank corruption may exceed $100 billion and while the institution has moved to combat the problem, more must be done, according to Senator Richard Lugar, the chairman of the US Senate Foreign Relations Committee. Financial Express, May 15, 2004.
 
Corruption@World Bank
World Bank lawyer reports cover-up.
 
See the links on insider trading below for more details of allegations against the World Bank.

MI6 and Foreign Financial Institutions

The secret reality of spying on allies
An intriguing snippet of Treasury information, clearly not intended for wider circulation, has exposed an apparent covert British intelligence operation in 1993 against the French. The Times, February 10, 2005.
 
MI6 Spied on the Bundesbank
A former British secret agent, Richard Tomlinson, has alleged that MI6 had a spy in the Bundesbank code-named Orcada, who provided inside information on Germany's proposed interest rate movements.

Insider Trading

MPs demand probe to find Robert Preston's 'mole in the city'
Former Tory leader Michael Howard has called for the City watchdog and Alistair Darling to launch inquiries into how BBC business editor Robert Peston obtained details of confidential talks between banking chiefs, the Chancellor and Bank of England governor Mervyn King. Daily Mail, 9 October 2008.
 
Was there a mole in the Bank of England?
A review of a well-known economics book mentions allegations in a different book that Soros knew the Bank of England had decided not to defend the pound and thus was able to make a fortune and a name for himself as "the man who broke the Bank of England."
 
U.S. Hedge Fund Supposedly Knew About Intervention
The newspaper Frankfurter Allgemeine Zeitung reported on 27 September 2000, rumours that a leak of information from a central bank outside the Euro zone led to Citibank, one of the leading currency traders worldwide, buying up euros in large volumes for a U.S. hedge fund company.
 
World Bank Clears Ex-Aide of Disclosing Secret Data
The World Bank said this week that an eight-month investigation found no evidence to support allegations that a former Russian representative, Leonid Grigoriev, passed confidential information to a Russian commercial bank in 1993, although it did conclude that he had established a business relationship with Inkombank. New York Times, July 8, 2000.
 
Dangerous Liaisons
The World Bank is investigating allegations that Leonid Grigoriev passed on inside information to a Russian bank, Inkombank, enabling it to make large profits in various deals. October 1999.
 
Chilean Central Bank president resigns
Carlos Massad, Chile’s Central Bank president resigned on 31 March 2003 following a string of financial scandals involving the stealing of privileged information from his office by unreliable staff.
 
The Case of the Central Banker's E-Mail
Banco Central de Chile Governor Carlos Massad is on the hot seat, thanks to a scam involving confidential messages being passed to an investor. The governor's secretary, Pamela Andrada, is said to have passed the information to Enzo Bertinelli, the general manager of Inverlink. According to some other reports Andrada and Bertinelli were lovers. Business Week, February 11, 2003.
 
Compliance and Ethics: a case study of Banco Marka
A paper by Ana Carolina Cabral Murphy on how Salvatore Cacciola, the owner of Banco Marka, used inside information from the Brazilian Central Bank in 1999.
 
Former president of the Brazilian central bank arrested
Francisco Lopes, a former president of the Brazilian central bank, was arrested on 26 April 1999 after refusing to testify in a probe into allegations of insider trading on the foreign exchange market.
N.B. He was later released and the charges dropped.
 
Former Brazil bank chief to testify
Francisco Lopes changed his mind about testifying.
 
Brazil: Congressional corruption probe may be resurrected
The Brazilian government may have to re-open the investigations into claims that Salvatore Cacciola blackmailed former central bank head Chico Lopes who was allegedly selling information on exchange rate and interest rate policies to bankers ahead of the local currency devaluation in 1999. May 21, 2001.

The Vatican Bank and Banco Ambrosiano

One of the most long-running of all financial scandals. See Classic Financial Scandals for information sources.
 

The Bank of France and the European Central Bank

Acquittal clears Trichet's path to European Bank
Jacques Chirac, the French president, will formally propose Jean-Claude Trichet as the next head of the European Central Bank this week after the governor of the Bank of France was acquitted on charges of complicity in the Crédit Lyonnais banking scandal. Guardian, June 19, 2003.
 
Jean-Claude Trichet: Banker in a bind
A review of the career of the head of the Banque de France, and heir-apparent to the president of the European Central Bank, who is one of nine defendants on trial over irregularities at Credit Lyonnais, one of France's biggest banks. BBC, 6 January 2003.

The Central Bank of Nigeria and the Fashanu Report

Tracking The Fashanu Report
Information about the claims of John Fashanu, London-based former soccer star and now a successful businessman, to have uncovered a $17 billion debt-buy-scam perpetrated on Nigeria ostensibly by the very people who should have been guarding the country's money. April 10, 2000.
 
The Real Story about John Fashanu's so-called Private Investigator
A defence of Bob Minton who was criticised in the Fashanu Report. Nigeria Today, 27 August 2000.
 
Senate Committee says Nigeria saved $5 Billion from 1988-93 debt buyback scheme
The Nigerian Senate defended the scheme, criticised in the Fashanu Report, whereby the Central Bank of Nigeria used the offshore company, Greenland Holdings in buying back debt.

Central Banks of Other Countries and other types of scandals

Bank of England helped in sale of looted Nazi gold new!
The Bank of England helped in the sale of gold stolen by Nazis after the 1939 invasion of Czechoslovakia. A document from 1950 shows the gold bars were sold by the Bank on behalf of Germany's central Reichsbank. BBC, 31 July 2013.
 
RBA briefed on bribery, deputy governor admits
The Reserve Bank of Australia board was briefed twice in 2007 on information implicating subsidiary Note Printing Australia in overseas bribery, deputy governor Ric Battellino has admitted but instead of referring the bribery evidence to the Australian Federal Police for investigation, the RBA and the NPA board decided to handle the matter internally by sacking the agents, calling in the Reserve Bank's audit team and later contracting law firm Freehills to conduct an inquiry. The Age, August 27, 2011.
 
Swiss National Bank chairman Philipp Hildebrand resigns
The chairman of the Swiss National Bank (SNB), Philipp Hildebrand, has resigned with immediate effect. It follows revelations his wife Kashya bought $504,000 (£323,024) in August, three weeks before the central bank intervened to cap the Swiss franc. BBC, 9 January 2012.
 
The Tunisian job: How president's wife 'fled with $60m in gold bullion'
The final act of the kleptocracy by the Ben Ali family was to steal one and a half tonnes of gold, with the president's wife personally collecting the bullion from an initially reluctant but eventually browbeaten president of Tunisia's central bank. The Independent, 18 January 2011.
 
Tunisian bank denies gold taken by wife of president
he central bank in Tunisia has denied reports that the wife of the deposed president took 1.5 tonnes of gold bars from it before leaving the country. BBC, 17 January 2011.
 
Ukraine probes bank bosses over suspected theft
Ukraine's interior ministry has launched an investigation into senior figures at the country's national bank over the suspected theft of millions of pounds earmarked to shore up the country's creaking economy. Daily Telegraph, 11 September 2009.
 
Zimbabwe Bank Governor Easily Wins 2009 Ig Nobel in Mathematics
The citation said the prize was awarded to Gideon Gono "for giving people a simple, everyday way to cope with a wide range of numbers?from very small to very big?by having his bank print bank notes with denominations ranging from one cent ($.01) to one hundred trillion dollars ($100,000,000,000,000)."
 
Gono funded Grace Mugabe extravagancet
Gideon Gono, now the governor of Zimbabwe's reserve bank, personally raised thousands of US dollars to fund first lady Grace Mugabe's foreign shopping sprees when he was chief executive of one of the country's largest commercial banks. 11 September 2006.
 
Ig Nobel award for Icelandic bankers
The former managers of the Icelandic commercial banks and the Central Bank of Iceland have been awarded the 2009 Ig Nobel Prize for Economics. They received their honour for their great performance over the year during which they have proved to the world how small banks are capable of rapid growth and equally rapid contraction again. They received still further recognition for proving that the same can also be true for an entire country.
 
Russia’s central bank faces reform calls amid claims of corruption and murder
The Russian Finance Ministry is meeting senior figures from the banking sector this week to discuss making reforms to the country’s central bank. The move comes as the central bank has become subject to intense scrutiny and found itself at the centre of allegations of corruption and even murder. The Times April 4, 2007.
 
Banker who fought Russian mafia is killed
Andrei Kozlov,deputy chairman of Russia's Central Bank and one of Russia's most powerful anti-corruption crusaders was assassinated in a contract killing. The Independent, 15 September 2006.
 
Libor scandal: Bankers discussed concerns in 2008
Bank of England Governor Sir Mervyn King and US Treasury Secretary Timothy Geithner discussed concern about Libor interest rates as early as May 2008. BBC, 13 July 2012.
 
Libor email from Timothy Geithner to Bank of England
The full text of the email message in which Timothy Geithner, then president of the Federal Reserve Bank of New York, called for six changes he said would improve the integrity of Libor. Guardian, 13 July 2012.
 
Bank of England deputy governor faces calls to resign - report
Sir John Gieve, deputy governor of the Bank of England, is being pressed to resign following revelations of financial mismanagement at the Home Office, where he was permanent secretary. The Independent on Sunday, 30 April 2006.
 
Brazil Central Bank Robbed of $67 Million in Bills
Brazil's central bank was robbed of 156 million reais ($67.3 million) by thieves who dug a 200 meter tunnel under the bank's office in the northeastern city of Fortaleza. Bloomberg, 8 August 2005.
 
Brazil chief banker urged to quit
Henrique Meirelles, the Governor of Brazil's Central Bank is coming under mounting pressure to resign following new allegations about his financial affairs. BBC, 6 August 2004.
 
Brazilian Bank Official Resigns Amid Reports of Tax Evasion
Luiz Augusto Candiota, the director of monetary policy at Brazil's central bank, has resigned amid accusations of tax evasion that have also focused on the bank's president. New York Times, July 29, 2004.
 
Argentina's banking scandal deepens
A congressional committee originally set up to investigate accusations that the governor, Pedro Pou, had failed to investigate cases of alleged money laundering through Argentina's financial system will also investigate the bank's directors. The BBC, 21 February, 2001.
 
Berlin steps into Bundesbank row
Bundesbank chief Ernst Welteke stepped down temporarily after it was revealed that he accepted a stay in a luxury hotel from a bank he regulates. Now the Finance Ministry wants him to resign. BBC, 8 April 2004.
 
Bank of Italy governor Antonio Fazio steps down
Antonio Fazio, who is under criminal investigation, has succumbed to months of intense pressure and handed in his resignation. Scotsman, 20 December 2005.
 
Fazio, humiliated, still fails to take the hint
The refusal of Italy's central-bank chief, Antonio Fazio, to resign over a banking scandal has led to extraordinary scenes at an international finance meeting in Washington, in which Mr Fazio was openly mocked by Giulio Tremonti, Italy's new finance minister, and then stripped of his authority to represent the country. The Economist, September 26, 2005.
 
Italy bank chief will not quit
Bank of Italy governor Antonio Fazio has no plans to resign, despite growing pressure from government ministers, a central bank spokesman has said. Mr Fazio has been accused of favouring an Italian bank in a cross-border bid battle. BBC. 5 September 2005.
 
Bank of Italy's Fazio Investigated for Aiding Fraud, Ansa Says
Antonio Fazio, Italy's central bank governor, is likely to hang on to his authority in spite of being included in a fraud investigation, according to analysts. Prosecutors have announced that Fazio had been placed under investigation on suspicion of abetting suspected fraud in bond sales by Banca 121, a unit of Banca Monte dei Paschi di Siena. Bloomberg, February 24,  2004.
 
Royal Mint boss cleared of fraud
A Royal Mint manager awarded an OBE for distinguished services has been cleared of charges of striking a secret deal with the governor of the Central Bank of Gambia of an African bank in a commission scam. BBC, 21 September 2005.
 
Royal Mint manager 'pocketed fortune' with Central Bank of Gambia contract
A Royal Mint manager allegedly struck an illicit deal with the head of the Central Bank of Gambia to share commission payments in return for a substantial re-coinage contract. Western Mail, September 13, 2005.
 
Gambia Central Bank Five Paraded for Trial
Five individuals formerly in the senior cadre of the Central Bank, including the ex-governor and the former manager of the bank's foreign exchange department have been put on trial in the Gambia for alleged illegal foreign exchange transactions. March 1, 2004.
 
Dodgy rumours
The governor of the Bank of Canada, David Dodge, was criticised because of a financial scandal involving the Ministry of Health that took place when he was the Minister for Health. November 2003.
 
Saddam 'took $1bn from bank'
Saddam Hussein ordered his son to take about $1bn in cash from the Iraqi Central Bank just hours before the first bombs fell on Baghdad, the United States has said. BBC, 6 May 2003.
 
The Social Contradictions of Japanese Capitalism
An article by Murray Sayle in the Atlantic Monthly, June 1998, in which he discusses Japan's financial problems, including the arrest of a high official of the Bank of Japan on a charge of bribery - the first-ever arrest in the Japanese central bank's 116-year history.
 
What Next Japan?
The fall of the central bank chief, who took responsibility for alleged wrongdoing at the bank following the arrest of an official there on bribery charges, damages the bureaucrats and boosts the power of politicians.
 
Kenya: Corruption Scandal
The Goldenberg export compensation scandal cost Kenya billions of shillings in the early 1990s. According to witnesses at the commission's hearings, as much as 60 billion Kenyan shillings (US$850 million) - a fifth of Kenya's gross domestic product - was looted from the country's Central Bank through Kamlesh Pattni's Exchange Bank.
 
Former Indonesian central banker jailed
A former director of the Indonesian Central Bank, Heru Supraptomo, has been jailed for three years after being found guilty of corruption. BBC, 4 April 2003.
 
Central Reserve Bank of Peru and BCCI
In 1992 the New York District Attorney claimed that in 1986 and 1987, BCCI president Abedi and number two official, Swaleh Naqvi, opened a bank account in a Swiss bank in Panama to "transmit bribes and kickbacks in the amount of a percentage of the deposits maintained by the Central Reserve Bank of Peru to the two senior officers of that bank," in a total amount of $3 million, in return for Peru maintaining large central bank deposits in BCCI.
 
Indonesia's bankchief found guilty
The head of the Indonesian central bank was convicted of stealing 904 billion rupiah (£63 million) of Bank Indonesia funds in 1999 that were meant to be given to a local bank, Bank Bali, but was used by the then president, BJ Habibie, in his failed attempt to get re-elected. The banker claims he was framed by the new president. The Guardian, 14 March 2002.
 
Court acquits Indonesian banker
The Indonesian court of appeal has overturned a corruption conviction passed on the Central Bank governor, Sjahril Sabirin. BBC, 29 August, 2002.
 
Collapse of the National Bank of Fiji
The National Bank of Fiji crisis was, to date, the biggest financial scandal in Fiji. In mid-1995 the state owned bank was running bad and doubtful debts of at least $90 million. The figure progressively rose to $220 million, or 8 percent of Fiji's GDP.
 
The Economy: Scandal at the bank
The Russian prosecutor's office has accused central bank officials of secretly putting more than $50bn into the virtually-unknown offshore accounts of a company called Fimaco, based in a tax haven off in the Channel Islands. BBC February 11, 1999.
 
Fimaco Wouldn't Die: Russia's Missing Billions
An article claiming that Russia's Central Bank and the Ministry of Finance were involved in the decision to use Fimaco, a secret to manage some of the funds the International Monetary Fund lent to Russia in 1993.
 
Russia: Central Bank Under Scrutiny For Hiding Assets
Russia’s Central Bank is under close scrutiny following allegations that it channelled some $50 billion of hard currency reserves to a tiny, offshore company Financial Management Co. (FIMACO) based in Jersey, from 1993 to 1997.
 
Cubans clamber for fabled fortune
Does the Bank of England owe descendants of a Spanish nobleman $30-billion? National Post, March 31, 2001.

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Roy Davies - last updated 19 August 2013.