Florida Regulators Aided and Abetted Stanford

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The Miami Herald published a long investigative piece about how Sir Allen Stanford, whose Antigua-based banking empire has been shut down as a massive fraud, was able to open a Miami branch in 1998 free from regulatory oversight, with the approval of Florida banking regulators.

Stanford got his regulatory-free branch—one of his most lucrative franchises—despite the vehement objections of the state’s top banking lawyer:

There was no lawful way that office should have been opened,” said Richard Donelan, the state’s chief banking counsel who opposed the deal.

Donelan said he argued that the Stanford plan violated state law, and that there were concerns about money laundering in the Caribbean and “whether Stanford’s bank was in conformance with the law.”

In this case, and so many other recent instances of financial corruption, the question is not how government regulators fell asleep on the watch, but rather how they aided and abetted fraud. Along these lines, I recommend the work of William K. Black, including his excellent book, The Best Way to Rob a Bank Is to Own One.

Two aspects of the Herald article are worth further consideration:

[1] Guess which law firm brokered the deal for Stanford? Miami-based Greenberg Traurig, of Jack Abramoff fame.

For more on Greenberg Traurig’s history of corruption, click here. And for the firm’s role in South Florida’s real estate crash, click here.

[2] Shortly after Florida Banking Director Art Simon signed off on the Stanford deal, the Conference of State Bank Supervisors (CSBS) renewed the accreditation of the Florida Division of Banking, according to a March 11, 1999 story by Business Wire.

What is CSBS? Quoting the Business Wire article (emphasis added) . . .

CSBS is the national association of state officials responsible for chartering, regulating and supervising the nation’s 6,951 state-chartered commercial and savings banks and 419 state-licensed branches and agencies of foreign banks.

Obviously CSBS bears some responsibility for this failure, and its 1999 accreditation deserves some scrutiny. Was the Stanford deal even mentioned? Even though it rendered the Stanford branch a “foreign trust representative office” (the only one in Florida, according to the Miami Herald) rather than a bank, the Florida Division of Banking was still responsible for monitoring the branch to make sure it followed the guidelines of the deal.

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