“US payroll data to determine further direction in gold”

Gold could come under severe selling pressure if Friday’s US job reports point at further improvement in the labour sector, said Anand Rathi in its report

Monthly payrolls data from the US offer good insight into the health of the world’s largest economy. As such, they are closely monitored by bullion traders and investors. Gold has been very sensitive to the outcome of these reports. This has been the case in the past few months, ever since the Fed stated that the continuation of its asset purchases would depend on the progress in the labour market, according to Anand Rathi Commodity Research in its report “Gold-Caution Ahead”. One of the key reasons that have kept gold under pressure this year has been signs of improvement in the labour sector. [Since the introduction of QE3 last September, the jobless rate in the US has declined from around 8% to a four-and-half -year low, while the payrolls data releases have indicated a steady pace of hiring by employers.]


If the labour report on Friday points to further improvement, speculation will intensify that the Fed could start tapering its QE from after the September meeting. This would benefit the dollar and lift Treasury yields to fresh multi-week highs. This combination would reduce the appeal for gold and push prices back the year-to-date low ($1,180), and possibly further lower in the coming sessions.


However, if the data hints that progress in the labour market might be slowing down, speculation of an imminent tapering off of QE is likely to abate. This would benefit gold and lift it towards $1,300, said the Anand Rathi report.



From the above table, it may be observed that most of the national employment reports which have come out from the US (for June) have indicated further progress in the labour sector. The ISM manufacturing employment index was the only dark spot, as it unexpectedly contracted in June for the first time since September 2009. However, the effect of this is likely to be restricted as the ISM non-manufacturing employment index last month rose handsomely to a four-month high. (In the US, the non-manufacturing sector constitutes nearly 90% of the economy). Considering all this, there is a good possibility that the non-farm payrolls report for June, due later on Friday, could top market estimates of 165,000.


The outcome of the payrolls data would be very crucial to gauge the further direction in gold, as it would offer clues surrounding the timing of the tapering off of the QE. Recent labour reports from the US have shown a steady pace of jobs addition in the world’s largest economy. “If the latest labour data are supportive while the unemployment rate slides, speculation that the Fed at the September meeting would decide to roll back its stimulus would gain further momentum. This would reduce the appetite for gold.


“However, if the data falls short of market expectations and prints below 150,000, speculation about a decision at the September meet regarding the QE being tapered down would certainly ease”, said the Anand Rathi report. This could lead to considerable short covering in gold and boost prices.


“Meanwhile, we expect gold to be modestly squeezed even if the data prints in line with market expectations as this would indicate the steady progress being made in the labour sector” Anand Rathi concluded.


Coal blocks allocated to public sector power companies. What is in store?

Based on the past experience and performances, with respect to new coal block allocations, it is said that at least three years would be the time-frame required before one can start the mining operation

The coal ministry’s announcement allocating 14 coal blocks, estimated to hold some 8,311 million tonnes (MT) of coal and capable of yielding 159 MT per year, if mined successfully, to 19 public sector power companies is a welcome step in the right direction.


It may recalled that after the report of Comptroller and Auditor General of India (CAG) in August 2012, after the government realized that the allottees had failed to develop the coal blocks, these blocks were cancelled, and the bank guarantees were encashed. Unfortunately, the country lost time and opportunity because the allottees failed to perform.


The major grievance of these unsuccessful allottees was that they were unable to make any progress due to various impediments in form of land acquisitions, state and environmental clearances, etc. Most had hardly started any work on the given mines.


The country’s biggest power producer, NTPC, has received four blocks whose potential reserves are estimated at 1,995 MT and in the case of coal blocks in West Bengal, for example, these have been allocated to power companies from six different states.


What is important and urgent is the actual state of affairs of each of these blocks. Though, in the next few weeks, hopefully not months, each of the allottee will have to draw up an action plan in order to get the best benefit.


We take this issue as whole and make a few suggestions that may become part of the individual check-list for the allottee, many of which may already be in their own list:


a) What are the clearances and approvals that are basics and essential before any work can commence?


b) What was the last known, recorded status of the block, as advised by the erstwhile allottee; whether the approvals and clearances that are on record, are they still valid, or do they need to be done all over again?  If so, why, and whether any of these, or all of these can be waived in order to expedite work?


c)  Is the land acquisition complete?  Or not started at all? Were there any organized political moves locally that had derailed the process?


d)  What is the status of the geological report? What are the types of coal that has been found in the area in terms of caloric values?


e)  Which is the nearest railway connection to the mining site? Do the soil conditions permit private sidelines to be laid to connect the main line, without difficulty?


f)  Condition of labour supply; relocation and rehabilitation issues involving those whose lands may have to be acquired to facilitate the work?


g)  Is the allottee willing to or seriously considering importing equipment and senior personnel from a joint venture partner to mine the area?


h)  Both state and environmental ministries must give the present status of the mines, in terms of clearances/approvals to be given; and what needs to be done where there are discrepancies or short-comings and how long will these take to be given?


Based on the past experience and performances, it is said that at least three years would be the time-frame required before one can start the mining operation. Each of the allottees must make a comprehensive study and announce the time frame for each of the jobs on hand to be completed, so that the public get to know when this allotment will help bring power to the country.


 (AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


Why financial institutions should comply with anti-money laundering laws
Money laundering and crime are interconnected; it is the crime that thrives on money laundering—if money laundering is blocked or detected it will lead to discouragement of crime
To answer this question, we need to first understand what money laundering is and how it can rip through the socio-economic fabric.
Money laundering is like the sting of a cobra that injects poison into the socio-economic structure making it numb and thereafter leading it to a slow and agonizing death. Like a cannibalistic creature, it feeds on the foundations of the organization weakening it to such an extent that its downfall is the only eventuality. BCCI is a glaring example. Like fertilizer nourishing the soil, it nourishes criminal activities. Criminal activities generate a lot of illegitimate funds (proceeds of crime) that cannot straightway mingle with the legitimate money in circulation in the country. It provides criminals with the financial strength to fund and expand their illicit activities.
So to reduce the generation of illicit money the supply of this fertilizer has to be stopped and blocked—stop the flow of money laundering and criminals will be devoid of a very effective channel to launder dirty money. Money laundering and crime are interconnected; it is the crime that thrives on money laundering—if money laundering is blocked or detected it will lead to discouragement of crime. It is the illegally sourced cash that needs to be legitimized by mixing it with legitimately earned money. Crime generates dirty money and money laundering washes that dirt to make it look clean. It is a service that criminals use to move funds from the place of origin to a distant place, where it may be rather difficult, though not impossible to trace its origin. So if dirty money is not there money laundering will not be there and if money laundering service is not available then it will discourage criminals and will lead to lesser crime.

To help prevent this, various nations have established anti-money laundering (AML) laws that regulate how certain types of businesses interact with their clients. We are now at a stage where financial institutions are committing criminal offences and assisting their clients in the process of money laundering on a regular basis. The regulators and law enforcement agencies do not appear to have the will or resources to prosecute those involved criminally. Many financial institutions either turn a blind eye or positively collude with clients to place suspect finance in offshore jurisdictions through shell companies, with nominee directors making it very difficult to discover the true beneficial owner.

The Cayman Islands Monetary Authority (CIMA) has officially revoked the banking license of one of the largest multinational banks (Cayman Islands Branch). This follows recent reports that the bank has handed million-pound pay packages to more than 200 staff in a year that saw it fined 1.2 billion pounds for money laundering. In an exclusive disclosure to Cayman Net News last September, CIMA concluded that the bank  was conducting business in a manner detrimental to the public interest, the interest of depositors or of the beneficiaries of any trust or other creditors, and that the direction and management of its businesses has not been conducted in a fit and proper manner. 

According to the British press, the UK Bank’s chief executive, picked up 7.4 million pounds in pay and perks as a reward for bumper profits. Similar seven-figure payouts went to 78 of his British-based staff. Such massive sums indicate that “culture of entitlement” was alive, and kicking, in the Bank. Lamentably compliance culture did not exist.
Compliance culture needs to be created: If the senior management says—and it was widely reported in newspapers—that compliance people tell us how not to do business, but one has to take one's own call for business growth, this implies an encouragement to the employees not to bother about compliance but concentrate on promoting business and business growth. Unfortunately, this is a mindset that seems to focus on business growth at the cost of violating the regulatory and compliance requirements. Moreover, if for such digressions penalty paid is a fraction of huge profits made (Cayman Islands Branch of this bank made profits of 13.7 billion pounds for 2012, while the US financial regulators fined it 1.2 billion pounds), then why bother about implementation and ethical conduct. This is indeed a sad state of affairs!
If financial institutions complied fully with FATF recommendations especially in relation to PEPs and reported their suspicions/knowledge then the recovery of a large part of the world’s dirty money would have been possible and the beneficial owners behind them identified. 
Banking industry that accepts business from high risk customers must have systems, controls and practices to manage that risk. Despite occasional aberrations, India has consistently maintained a robust Anti Money Laundering (AML) system. Historically, the country’s strict foreign exchange laws and transaction reporting requirements, together with the RBI’s Know Your Customer (KYC) policy guidelines make it difficult, though not entirely impossible for criminals to use banks or other financial institutions to launder money. Large portions of illegal proceeds are usually laundered through the alternative remittance system called ‘hawala’ or ‘hundi’.
Banks are in the first line of defence to make sure that proceeds of crime do not get entry into the country. Purpose of RBI directives, IBA guidance notes and the Prevention of Money Laundering Act is to put in place systems that help ensure the realization of that objective. However while these policies and directives look good on paper, in practice as is revealed by many cases of violations recently reported, it has apparently failed to ensure that AML risks are addressed appropriately. Poor implementation of the prescribed policies and procedures exposes banks to risk of handling the proceeds of crime. These failures attract a strong penalty from the Reserve Bank of India.
One of the objectives of PML Act, RBI and IBA guidelines are to protect the financial soundness and   integrity of the Indian financial system. This includes ensuring that criminals do not get access to financial system and that money circulating in the Indian economy is clean.
But we should understand that it is not only a sound system that can take care of all these ills. Ethics is an integral part and in my opinion it is something that cannot be taught but can certainly be shown and if the organization is really serious about it, then it has to percolate down from top management. They have to behave in a way which is demonstrably ethical and such ethical practice over time becomes culture. So a robust control system coupled with a culture of zero tolerance for flouting norms can ensure that a Financial Institution stays firm like the mighty oak during the most turbulent times.   
(Saiyid (SSA) Zaidi is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.)




3 years ago

Union leaders of both supervising and operating staff, the teaching staff at training centres of the same staff and the Auditors both external and internal used to stress the need of implementation of the KYC, AML guidelines issued by the Management from time to time, as directed by its regulators.

But, then who are flouting the rules and at whose interests?

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