Bank Lawyer's Blog

An Act of War: Against Banks

Supporting terrorist groups worldwide is a very bad thing. Killing your own people when they publicly oppose the existing government is a very bad thing. Building a nuclear weapon and threatening to annihilate your neighbors is a very bad thing. Having a president who wears a bomber jacket, sports a three-day growth of beard, and goes by a moniker that sounds like "I'm-A-Major-Whack-Job" is a very bad thing. However, launching denial-of-service attacks on bank webistes is beyond the pale.

The website glitches and outages that affected Bank of America and Chase last week are rumored to be just that sort of attack. In fact, financial fraud sources say both banks were hit with denial-of-service attacks likely backed by Iran.

Experts say banks better brace themselves, and they're right. With the U.S. election approaching, institutions can count on more DDoS attacks sponsored by nation-states.

Nation "states"? It sounds one nation "state" to me. I suppose this is to be expected from a government with whom this country and its ally, Israel, have been waging an undeclared war that, according to some sources, includes the introduction of destructive computer viruses into Iranian computer systems and the delivery of bullets to the heads of Iranian scientists.

The experts were correct about banks bracing themselves for further attacks, because following the date the above-linked blog post was posted, Wells Fargo was also hit. What are banks supposed to do?

A fraud alert issued Sept. 17 by FS-ISAC, the Federal Bureau of Investigation and the Internet Crime Complaint Center, suggests 17 steps institutions should take to mitigate risks posed by cyberthreats...

Among those steps:

• Educate employees about phishing e-mails and suspicious attachments;
• Monitor site traffic spikes, which could indicate a DDoS attack;
• Limit employees' ability to remotely access internal networks and work-related e-mails from personal devices.

[...]

"Traditional preventive measures, such as bandwidth over-provisioning, firewalls and intrusion prevention systems, continue to provide some protection. However, traditional measures are ineffective against today's DDoS attacks," the FS-ISAC says, calling for the use of layered defenses.

[...]

Banks and credit unions should ensure that their tellers and other branch personnel are well-educated about all the security steps the organization is taking and can communicate that information clearly to customers.

As if banks didn't have enough to do merely trying to survive the terror imposed by the CFPB. Now they have to deal with cyber-terror launched by a nation whose leaders make even Liz Warren seem rational in comparison.

Cordray's Appointment: Let The Lawsuits Begin

The partisan bile from both sides of the political spectrum was spewing today over Obama's "recess appointment" of Richard Cordray to head the CFPB. As I said last month, the recess appointment was not unexpected, notwithstanding warnings I received via e-mail from faithful readers who proclaimed that Mitch McConnell would never let the recess last more than three days, which, I was assured, both sides figured was the minimum time needed to give a recess appointment a chance of passing constitutional muster. My correspondents were correct as to McConnell's intent, but The One obviously wants to test the outer limits of the recess appointment envelope.

I still would have preferred that The Change had appointed Lizzie Warren. She's got more entertainment value than the more mundane, seemingly less ideological, Cordray.

As Wilmer Hale points out in an alert issued today (and kudos to the firm for being so fast out of the gate), "the President's recess appointment raises significant legal issues, and could be subject to legal challenges brought in federal court by, among others, institutions (or associations containing such institutions) injured by any Bureau action that could not have been performed prior to the appointment of a Director." Yes, we expect this issue to make its way (quickly, we hope) to The Supremes, where, given the current composition of the Court, a decision could go either way. In the interim, every decision of Cordray's and the CFPB under his leadership is going to be subject to a big, black cloud of legal uncertainty, subject to being upended because the "recess appointment" of Codray is later determined not to have been constitutional. If I weren't a citizen of this country with a stake in the outcome of this political and constitutional battle, this all might be entertaining. Instead, it's disconcerting.

Based upon some of the comments I read in the post on The Hill blog linked above, passions on this issue are running extremely high on both sides. Partisans at both ends are suffering a hardening of their positions (and perhaps cranial arteries) into semi- (or not so semi-) fanaticism that is causing them to forget the fact that this country is based upon the rule of law, not on "by whatever means necessary" on one side of the ledger and "armed revolution" on the other. Students of recent history can take a lesson from Dick Nixon as to what happens to an unpopular president who tries to use whatever means necessary to ensure power. As to the right-wing revolutionists, take a lesson from the Symbionese Liberation Army, the Weather Underground, and all the rioters of the 1960s. If you'd like to stack up your weekend-warrior brigades against the 101st Airborne, be my guest. Paintball and hardball are two different games.

The vast majority of the American public is middle class, and no matter how pissed off they may be at Congress, the White House, Wall Street, the cratering of their residential real estate nest eggs, the lousy economy, and life in general at the moment, most of them still have too much skin in the game to brook an armed insurrection for longer than it takes to stamp it out with extreme prejudice. I mean, as one South Central LA resident exclaimed after six Symbionese Liberation Army members died in a shootout with the LA SWAT, although the SLA assumed that South Central residents would rise up and join the revolution once the shooting started, "Hey, this isn't Berkeley." Not even Berkley's Berkley anymore, sport.

If it makes you feel like a tough guy to talk about revolution in the comments section of some blog, or even advocate assassinating the president (as I saw in a combox this evening), you'd better make sure you don't use an IP address the Secret Service or the FBI can easily track. Those organizations tend to take a dim view of such talk and I doubt many of them are intimidated by the existence of either the First or Second Amendments into not enforcing federal criminal laws (using only "reasonable force," of course).

No, although it's almost as much fun to poke a stick in a lawyer's eye as it is a politician's, over the ensuing months leading up to next fall's elections, a large portion of this battle will be fought out in the federal courts by lawyers. Of course, next November, the political process will get one more chance to make the change we've been waiting for. If it's a dramatic change, then all this current wrangling may shortly become ancient history.

And You Don't Even Own Clubs

Great news: "[T]op investment banks are now intending to hire one-third more graduates this year than last. Their remarkable resilience to the downturn, and this year's strong recovery in the financial markets, mean that opportunities still exist in banking for those with the skill and tenacity to get them."

That sure warms the cockles of my heart. How about you?

What they don't tell recruits, however, is that the world of investment banking is full of hidden perils, not the least of which is the risk of a broken heart. From Columbia Business School's Follies of 2006 comes a trailer for a movie about the dangers of office romance in a business that broke the back of the American economy.

Note to politically correct hypersensitive readers: if you're offended, take it up with CBS. Don't hate the playa, hate the game.

Another Great Leap Forward

Hard on the heels of its recent successful stint as the host of the Summer Olympic Games (at least, we understand that they were successful; we never watched anything other than women's beach volleyball), China offers further proof of its rise in the world, this time the world of international banking: it's being sued by Israeli victims of radical Muslim terrorists.

A lawsuit filed in Los Angeles Superior Court claims that one of China's biggest banks transferred millions of dollars for terrorist groups bent on attacking Israel, ignoring demands by Israeli counterterrorism officials to halt the practice.

The lawsuit, against Bank of China Ltd., was brought on behalf of more than 100 victims of terrorism in Israel and alleges that the money was transferred for the militant groups Hamas and Palestinian Islamic Jihad in Iran and Syria, and processed through Bank of China's branches in the U.S. and China. Bank of China, which is one of China's Big Four banks and is listed in both Hong Kong and Shanghai, has the widest overseas network of the nation's banks.

The suit alleges that the money helped fund attacks between 2004 and 2007, and calls on the bank to stop transferring money for terrorist groups. It claims that in April 2005, Israeli counterterrorism officials informed officials of China's public security ministry and its central bank, the People's Bank of China, of their concerns over the wire transfers.

"Most of the banks of the world are not doing business with terrorist organizations," said Federico Castelan Sayre, an attorney representing the plaintiffs. "They chose to do so willingly."

Naturally, the Chinese deny holding talks with any Israeli counterterrorism officials. They also make the implausible assertion that the Bank of China "always complies with the United Nations' anti-money-laundering regulations. Also, our New York branch and related representative offices always follow U.S. banking regulations." Unlike U.S. and European banks, when it comes to compliance with bank regulations, Chinese banks are, like the Pope when acting in concert with the bishops on matters of the Roman Catholic faith, infallible. They "always comply" with the law, never failing, even inadvertently, to hit it on the sweet spot.

On one level, you have to admire the utter cynicism of "The Big Lie." If you're going to tell a lie, at least make it laugh-worthy. US and European compliance officers are bent over double at that one.

However, don't expect the Israelis to find that assertion to be amusing. They tend to treat these matters with the utmost gravity. The Bank of China has now earned a place in the dock alongside such Western counterparts as Credit Lyonnais and NatWest, who have been in the crosshairs of the Israelis for the past few years, and not enjoying it one bit.

Congratulations, and welcome to the First World of Banking, B  of C!

A Wake-up Call

Think about world peace; while you're doing that I'll be over here stealing your stuff.
--Jack Handey

We noted this past March that a lawsuit filed by former employees of Dutch bank ABN Amro publicly disclosed a common practice among European banks: instituting procedures to evade US restrictions on funding terrorist organizations and the states that love them. We didn't much like to hear that. Neither, apparently, did the US government.

People close to several European banks say that US regulators and criminal investigators have broadened the scope of a probe that began with the Dutch bank.

They are now examining whether a handful of banks similarly violated laws by processing US dollar payments through US counterparts for clients in Iran, Cuba, Libya and Sudan, countries that – with the exception of Libya after 2004 – are still subject to US sanctions programmes.

Some legal experts say the case against ABN Amro, which promised in April to set aside hundreds of millions of euros to resolve a criminal investigation by the US justice department into its US dollar clearing practices, clarified for the first time the Bush administration’s position and interpretation of sanctions rules and their application to the financial services industry.

Namely, that US banks and individuals are not allowed to facilitate banking activity abroad in which they could not engage directly.

[...]

“As a result, it is a wake-up call for the financial community with respect to the handling of wire transfers by foreign banks that ultimately touch on US-embargoed states,” says Wynn Segall, a partner at law firm Akin Gump in Washington.

I wonder whether the wake-up call will be enough. Maybe a loud pounding on the bedroom door, followed by kicking it in, then spraying the sleepy foreign bankers with semi-frozen yak spit, will be required. If so, I hope that I get to watch.

There has been the expected whining and sniveling from various quarters, along the lines of "everybody does it" and "but you let it go on for so long, you can't  punish us now."

Some people familiar with the investigations, who asked not to be named, say that the looming possibility of financial penalties raises questions about the authority of US regulators to penalise banks for conduct that went unchecked for years.

“This is an issue where the legal lines are not clear. It is the kind of thing that banks around the world engaged in.

That line of pathetic excuse-making never worked for me with my parents, and it won't work on Uncle Sammy.

But if the ABN Amro case represents a model for the kinds of cases that US authorities may be bringing against other banks in the future, as some legal experts believe, then the US government would have a strong case to argue that the violations under scrutiny were not just routine technical blunders.

In the case of the Dutch bank, regulators found that one of ABN Amro’s foreign branches was able to develop and implement “special procedures” for certain fund transfers and other operations “designed and used” to circumvent compliance systems established to comply with US laws.

James Freis, director of the Financial Crimes Enforcement Network (FinCen), a division of the Treasury that investigates money laundering, said last month that “myths” about big penalties for minor lapses in banking requirements should be dispelled and that federal financial regulators were making “great efforts” to eliminate uncertainty about what they expect in a “solid, risk-based”, anti-money laundering programme.

As we understand it, as part of the stepped-up US enforcement effort, those foreign banks that violate US restrictions will henceforth find themselves facing "sanctions" imposed by one US "Treasury Agent" known as Jack Bauer. He hates foreigners, and he isn't real keen on bankers.

Will Thawing Frozen Funds Generate Any Heat on North Korea?

A story in last Friday's The Wall Street Journal (paid subscription required) reveals that the previously "frozen funds" of North Korea (which we discussed here and here) have been thawed and delivered, finally, to North Korea. Now comes the next act: whether, in return for the cash, the renegades that run the "thugocracy" in North Korea will "play ball" with the U.S. and dismantle their nuclear weapons program.

The coming weeks will be crucial to seeing whether Kim Jong Il's regime plans to honor its February pledge to shut down its nuclear reactor at Yongbyon and move forward with other disarmament commitments, U.S. officials said.

In March, the U.S. Treasury Department formally blacklisted Banco Delta Asia in Macau for its alleged involvement in aiding North Korean illicit activities, a charge the bank has denied. The ruling prevented all U.S. banks or companies from conducting any financial transactions with BDA. As part of the crackdown, Macau authorities froze $25 million deposited in North Korean accounts after depositors initiated a run on BDA in late 2005.

The U.S. subsequently agreed to help facilitate the return of the funds to North Korea as part of the denuclearization agreement. But the transfer stalled after many international banks in Asia and the U.S. declined to accept the money, for fear of running afoul of Treasury's antimoney-laundering regulations.

Yesterday, BDA successfully transferred $20 million of the funds via the Federal Reserve Bank of New York and Russia's central bank, people familiar with the transaction said. The money was expected to be deposited at a North Korean-controlled account at a small, private Russian bank, Far East Commercial Bank.

North Korea has broken past agreements with the U.S., so  we won't hold our breath in anticipation of full cooperation from this mob family masquerading as a legitimate nation-state. Once the money is in their hands, they're just as likely to start talking crazy again and test firing missiles into the Sea of Japan as they pursue their exalted ruler's quest for good cognac and a really fine hair gel.

An interesting facet of this story is the disagreement within the U.S. government over the use of "smart sanctions" by the U.S. Treasury Department against rogue regimes that are designed to freeze them out of the international banking system through the use of U.S. law that allows the regulators to "blacklist" foreign banks that deal with these regimes. Such sanctions prohibit U.S. businesses and banks from transacting business with or for such sanctioned banks, which can be painful. In addition, the pressure on foreign governments whose banks are blacklisted to act against the targeted regime, in order to get their banks off the list, works. At least, it worked in the case of BDA and North Korea.

"The effect on North Korea has been significant, because even the most reclusive regime depends on access to the international financial system," Treasury Secretary Henry Paulson said in New York yesterday. He argued that similar tools would be effective in combating Iran and its alleged attempts to acquire nuclear weapons.

Some of Paulson's cohorts in the U.S. government demur.

But some U.S. diplomats working on North Korea said the lack of coordination between the State and Treasury departments over the BDA issue undercut the disarmament talks for months. Critics of the White House also argue that the Bush administration relinquishes one of its most important leverages against Mr. Kim by returning the North Korean funds.

Second guessing the Bush White House on matters large and small is a national pastime, so we'll discount that criticism as pro forma for a member of the national press. No rational person can be certain that any action or inaction that should logically spur another rational person to act in a certain manner will have any effect on the nutroots in Pyongyang.

On the other hand, the fact that the Treasury Department and State Department couldn't coordinate their actions over the BDA matter is disturbing. I'm all for using federal banking regulators to deter our enemies and those who aid them. I'm not in favor of doing it incompetently. Undercutting disarmament talks for months because bankers and diplomats on the same side of the table can't talk to one another indicates to me that either we need people in charge who "get it" or the banking regulators ought to stay out of the mix. "Smart sanctions" aren't "smart" when applied by the inept.

Terrorism As Opportunity

Leaving aside the subprime mortgage "crisis" for a few days, let's look at a story that's been lurking under most people's radar. It's the story about ABN Amro, the big Dutch bank that currently is in play, with Barclays in "exclusive" hot pursuit at the moment, but with a large shareholder urging the breakup of the holding company and/or the entry of other suitors into the race for a merger with or acquisition of the bank.

According to an article in last Friday's The Wall Street Journal (paid subscription required), five former employees of the bank, all U.S. citizens, are suing the bank for wrongful termination. The ex-employees allege that they are being made scapegoats for a practice that is widespread among European banks: helping terrorists and their sponsors ignore and evade U.S. restrictions.

Lawyers for the plaintiffs in the New York case claim to have unearthed an internal ABN Amro memo describing how European banks evade U.S. sanctions on Iran. "The Central Bank of Iran is faced with difficulties for USD denominated clearing transactions due to sanctions imposed by the U.S.," the alleged memo states. "The Swiss and other European Banks have worked out a solution for this. The payment instructions are sent directly to the beneficiary's bank and cover payment is made to the beneficiary bank's U.S. Correspondent as inter-bank payments." In other words, the banks simply remove any reference to Iran from the documentation accompanying the wire transfers.

This practice was dictated by the Iranians, the ex-employees claim. "The Central Bank of Iran had communicated to the Central Bank Desk of ABN AMRO Bank, Amsterdam, the procedure to be followed for repayment of USD deposits to their accounts with European Banks in London. This procedure stipulated that payment messages sent to U.S. clearing Banks for payment of USD funds to the Central Bank of Iran should not contain any reference to the Central Bank of Iran or any other reference relating to Iran."

In one internal 2003 email cited in the suit, a senior ABN Amro executive allegedly discussed the merits of the technique for avoiding detection in New York. "There is no way the payment will get stopped as all NY ever sees is a bank to bank instruction," the executive is alleged to have written.

Another alleged 2003 email by an ABN executive appeared to justify evasion of the U.S. sanctions enforced by the U.S. Treasury's Office of Foreign Assets Control (OFAC).

"Twenty four years of U.S. sanctions and OFAC listing and Iran continues to sell oil and gas in USD. And it imports and pays in USD as well. All of this is clearly done through accounts in Europe and elsewhere," the executive allegedly wrote. "There is a very good case to be made for getting an overall acceptance that when issues are purely US we should not be a part of it. In fact, we should see it as an opportunity."

The WSJ notes that in 2005 ABN Amro agreed to pay U.S. bank regulators $80 million "to settle charges that it improperly disguised billions of dollars in transfers through New York for both Iran and Libya in order to avoid U.S. regulations restricting such transactions."

As the lawsuits by victims of terrorism against European banks have demonstrated, and as these memos confirm, large European banks view the war on Islamist terrorist organizations and the states that fund and otherwise support them as a U.S. problem. Bombs that rip apart Spanish and British passenger trains, the illegal seizure of British soldiers and holding them hostage, riots in the streets over cartoons, death threats and actual murders of artists and politicians who criticize militant Islam, none of it seems to impede taking your enemy's cash for services rendered, even if that enemy has clearly and unabashedly announced that it intends to breed you out of existence, if you won't simply capitulate of your own deracinated decrepitude in advance of the inevitability of dhimmitude.

It's not their problem. "In fact, we should see it as an opportunity."

With "friends" like these....

Double Jointed Smackdown

In addition to attracting the largest ego in casino development this side of Donald Trump (which appears to be a "Wynn-Win" for all concerned), Macau (at least a large bank based there) has attracted the attention of the U.S. Treasury Department. In a "more than meets the eye" action against Banco Delta Asia, the Treasury Department today formally barred U.S. banks from dealing with BDA. Apparently, the action has the result of potentially freeing up North Korean funds that have been frozen since 2005, which appears to be an unspoken motivation for taking it.

Though Treasury made no mention of it, its long-awaited action against Banco Delta Asia, or BDA, is linked to negotiated efforts to persuade North Korea to back away from building up its nuclear program. North Korea had demanded the release of funds frozen at BDA as a condition of negotiations on its nuclear program that had taken place between it and the United States, China, South Korea, Japan and Russia.

[...]

...the U.S. move will make it possible for Macau authorities to decide whether to release an estimated $8 million to $12 million in frozen accounts, which North Korea has been demanding as a condition of negotiations on its nuclear program, U.S. officials who had anticipated Treasury's action said previously.

As we've noted from time to time, the U.S. Treasury Department has been pressuring banks around the world to stop dealing with renegade nations like North Korea and that Persian country run by the guy in the Members-Only jacket and the Don Johnson-like three-day growth of beard. Apparently, it's been working. North Korea, at least, has started to make the right noises lately. This latest Treasury Department action appears to (A) once again send a message to foreign banks that the price of dealing with nuclear bandit nations can be high, yet (B) tells the bandits that if you play ball, we'll play ball.

I guess that it's hard being a lonely guy. 

"When it takes effect in 30 days, this action will prohibit all U.S. financial institutions from maintaining correspondent accounts for BDA (Banco Delta Asia) and prevents BDA from accessing the U.S. financial system, either directly or indirectly," Treasury said.

Treasury said BDA had been under investigation because of charges it accepted proceeds from North Korea's counterfeiting, drug-smuggling and money-laundering operations. It said it would report its findings to Macau and said Macanese authorities has tightened their anti-money laundering regime.

I wonder if in Macau, the term "tightening our anti-money laundering regime" is synonymous with the term "increase the amount of bribes necessary to keep that dirty money scrubbed spotless."

At least the U.S. made it clear that while they hate the player, they don't hate the game.

"Today's regulatory action is targeted at BDA as an institution, not Macau as a jurisdiction," [Treasury's under secretary for terrorism and financial intelligence Stuart] Levey emphasized.

And to prove it, Levey left the press conference, took a pedi-cab to Wynn's casino, walked to the nearest roulette wheel, and laid 10 G's down on red 27, won, bought five hookers , three grams of blow and a limited partnership interest in a member of Macau's Legislative Assembly.

Hitting Them Where It Hurts

Last month, the U.S. government banned U.S. businesses from doing business with Iranian Bank Sepah after concluding that the bank transfered money to North Korea in return for missle technology. With some success, the U.S. tried to persuade Eurpopean governments to do the same. As noted by The New York Times, it was the first move by the U.S. against an Iranian bank following the adoption of typically tepid UN sanctions against Iran in December. However, prior to those sanctions being imposed, the U.S. had taken similar action against another Iranian bank, Bank Saderat, Iran's largest commercial bank. Both banks are government owned and controlled.

Though the two banks have few direct links to American banks, Treasury officials say the American directive can bar Americans working at European banks from involvement in any transaction with Bank Sepah.

In addition, the action by the Treasury Department means that no American bank can help facilitate – by transferring dollars, for example – any transaction between a European bank and Bank Sepah. These steps thus extend the reach of American laws to other countries, though only to a limited degree.

It appears that only a few months after first applying the regulatory squeeze, the sanctions are beginning to work.

Iran's weekend offer to resume nuclear negotiations, coupled with new flexibility over how and where future uranium enrichment trials may be conducted, represents the first clear evidence that domestic and international pressure on Tehran's hardliners is beginning to bear fruit.

But the US military build-up in the Gulf, UN sanctions, or even Washington's latest Iraq "dossier", are not primarily responsible for this apparent shift: American meddling with the mullahs' money has been much more effective.

Since imposing penalties last autumn on Iran's largest commercial bank, Bank Saderat, for allegedly transferring funds to Hizbullah and other "terrorist organisations", the US treasury and associated agencies have been spinning an expanding, entangling web of unilateral sanctions and other punitive measures around Iran's financial institutions and commercial enterprises.

[...]

Despite legal worries and concerns about "extra-territoriality" - attempts to apply US laws beyond US shores - European governments are being urged to curtail all types of business with Iran, including commodities and manufacturing. This goes far beyond the measures agreed in December by the UN security council and approved by EU foreign ministers yesterday [February 12, 2006].

[...]

Latest figures suggest the strategy is working. Exports from Germany, which with Italy is Iran's leading European trade partner, dropped by an estimated 20% last year. "Business dealings are going backwards, de facto," a Berlin official said. "A lot of German companies do business with the US. We don't have to say anything. They've got the message."

Private western banks are also under pressure to comply with what is rapidly becoming a "Cuba-plus" US-led international embargo, by withholding letters of credit, loans, loan insurance and transfer facilities. Barclays plc and HSBC holdings are among those that have curbed their Iranian dealings.

Iran's oil industry, providing 70% of state revenues and crucial funding for an extensive welfare state, is a particular US target. The industry has suffered years of underinvestment and has never entirely recovered from the Iran-Iraq war. US pressure on western oil companies and energy-hungry governments such as Japan not to put money and technology into a country with the world's third largest oil reserves is intense.

As a result, some estimates suggest Iran's oil exports are falling by 10% annually. All this hardly helps plans by President Mahmoud Ahmadinejad for a 20% increase in budget spending to quell growing public anger over rising prices and unemployment while maintaining domestic energy subsidies amounting to a massive 15% of GDP.

Some experts claim that all this financial pressure is unnecessary. Apparently, theocracy really IS a bad form of government, at least as far as rendering unto Caesar what is Caesar's is concerned.

"The mullahs are doing a good job of destroying Iran's economy. They should be left alone to complete their work," [Johns Hopkins Professor Roger Stern] wrote recently. "Attacking Iran would allow the regime to escape responsibility for the economic disaster it created. Worse, an attack could unite Iran behind the clerical terror sponsors whose grasp on power may be slipping. For these reasons, the best policy towards Iran may be to do nothing at all."

I guess Iran's economy is functioning as well as ours would with Pat Robertson in charge. Then again, at least Pat can leg press 2000 pounds after drinking one of his personally concocted "age-defying protein shakes," so I'd best not sell him short or he'll kick me straight to hell and back. Or, perhaps not back.

But back to the Islamist wing-nuts: I doubt that a military attack against Iran is in the offing, at least not by the U.S. We seem to have our hands full at the moment, notwithstanding much saber rattling. However, with a bush-jacketed jackal like "Boy" Ahmadinejad at the controls of a renegade government that is trying to develop nuclear weapons in order to wipe certain infidel countries off the mapdefend itself from hostile neighbors, you can't be too careful. As long as the financial pressure appears to be working as well as it has, not only against Iran but against the loons from North Korea, it's hard to argue that the U.S. should back off using that strategy. Waiting for the mullahs to implode from their own incompetence could be a long and ultimately risky process. Then again, the sudden fall of an enemy in that region of the world hasn't exactly had rosy results for the West recently, so it's hard to have confidence in any strategy.

Stare Decisis: The Brief As Binding Precedent

Professor Ann Graham of Banking Law Prof Blog is a wee bit put out by the Department of Homeland Security "borrowing" preemption arguments used by the OCC and Wachovia Bank in Watters v. Wachovia and then citing to the briefs. Says Professor Graham:

Anybody could see it coming:  The OCC's federal preemption arguments in Watters v. Wachovia are not limited to the banking arena.  All federal agencies can use these same arguments for judicial deference to an agency's analysis enlarging its jurisdiction through its own preemption ruling -- and here's a good example:

In this excerpt from the Federal Register Advance Notice of Rulemaking and Request for Comments regarding the Department of Homeland Security's preemption of certain state laws, this federal agency relies on and cites to Briefs in the Watters case -- not even waiting until the Supreme Court has its say about the position taken in the brief: 

"Note that the Department [of Homeland Security] has the authority to make preemption determinations as it administers the chemical security program under Section 550. See Brief of the United States as Amicus Curiae at 26, Watters v. Wachovia Bank, N.A., 2006 WL
3203255, 126 S.Ct. 2900 (2006) (No. 05-1342) (filed Nov. 3, 2006) ("When an agency concludes, in an exercise of delegated policymaking authority, that displacement of state law is warranted in furtherance of a federal statute that it is entrusted to administer, the agency is
acting within the core of its expertise.'')"

So, no role for the states, no role for the courts, not even any need for a Supreme Court opinion -- filing a brief makes it so.

Link to Federal Register: http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/06-9903.htm

Thanks to Ed Mierzwinski for bringing this to my attention!

As Professor Graham's disgust reveals, there lurks in the nooks and crannies of academia (and even in some corners of Washington, D.C.) the curious notion that the 10th Amendment to the U.S. Constitution still has meaning. How odd!

I'd have to agree, however, that it might appear to be at least "premature" to cite, as authority, the arguments contained in a brief of one party in a pending case that might go the "wrong way" when the court gets around to rendering its decision. Imagine the embarrassment of the Department of Homeland Security if the SCOTUS decision favors Watters! Oh, I forgot: it's the Department of Homeland Security. It's shameless. I suppose the feds would have to fall back on the foolproof backup argument of "rooting out the evil-doers," which is a broad brush argument that the OCC would find less appealing, inasmuch as on the issue of federal preemption as applied by the OCC, there's a healthy debate as to who, exactly, might be an evil-doer who needs to be rooted out.

Personally, we don't believe that the OCC needs all these silly legal arguments to support its claims of unbridled power to expand in whatever directions its whims might direct it.  As we've previously intimated, those who stand before the onward rush of the OCC to satisfy its innate need for lebensraum constitute nothing more than canon fodder awaiting their sorry fate. 

"All political power comes from the barrel of a gun."
--Mao Zedong

"Resistance is futile."
--The Borg