![]() ![]() The need for policy-level disclosures remains relevant for a new set of anti-social transactions. Without knowledge of the controlling policies and practices at the account level, however, the chain of transactions is meaningless to outside auditors, then and now. Most service providers still don’t have all the information needed to identify antisocial transactions, even though such trades would surely get harsh ratings in today’s market from the ESG consultants. ![]() (In 1981, the SEC’s censure of Sebag forced the US branch of the firm into liquidation, citing violations of Section 15(c), e.g., undisclosed roguish activities.) It was an early version of the KYC rules that obligated my FNCB superiors to report the chain of transactions to regulators once we learned that the policies and practices of the private Sebag account in FNCB’s London subsidiary allowed for a) offshore settlement in unrestricted currencies and the b) acquisition of weapons stockpiles as alternative assets. (The global KYC process is not yet complete: inadequate databases and disclosure rules still hinder enforcement throughout the chain of cross-border transactions.) In the 1970s, “ Know Your Customer” (KYC) rules were just starting to insure trading legitimacy through the due diligence standards evolving in developed countries. In most cases, it was the insight into certain aspects of their policy tolerances and trading risk profiles (or stupidity) that tripped up the rogues. And a few rogues, like my gun-running client, have also cropped up along the way. A lot of services have sprung up to support those trades. The vast majority are legitimate arbitrage trades, exploiting differences in market intelligence, taxes, forex or other asymmetries. Over the years, I’ve seen a lot of interesting trades flow through the cross-border markets. The laws are gone, too, but many banks still have impenetrable barriers to sharing in their siloed information technology systems.) (At the time, internal data sharing at banks was limited by Glass-Steagall era rules that maintained “Chinese Walls” between departmental recordkeeping systems. Of course, I couldn’t know that until the account info was disclosed to me through the sheer carelessness of trader chutzpah and a third martini. My client, unbeknownst to me, was a gun runner. The transaction chain thus evaded the contemporaneous Anti-Apartheid weapons embargo of the U.S., as well as South Africa’s capital controls on Securities Rand and the UK’s currency restrictions for Sterling Area transfers. Sebag issued a draft to the arms dealer's account who then arranged delivery of his products to Sebag’s customers in Rhodesia and South Africa. My trader client told me that the private account was owned by an arms dealer in yet another African country. After settlement, funds were wired to a Sebag private banking account in London. Their banque wires directed our issuance of ADRs for the benefit of an American broker’s account in DTC, the new central securities depository in New York. He went on to explain how his customers bought stocks for deposit in our local FNCB Johannesburg sub-custodian. We only learned their motives by accident. “Most of my clients are plantation owners,” he answered, “who are funding the purchase of weapons to protect their farms and families after the end of Apartheid.” After all, as the ADR global operations head in FNCB’s 111 Wall Street back office, I was in the best position to see their issuance volumes. “How is it that you are so active?”, I remember asking, naturally enough (I thought). Most of the trades were for the issuance of ADRs in South African mining stocks, such as Anglo-American Gold. The firm was far more active than Merrill Lynch, Goldman Sachs, or any other cross-border trading outfit. The firm and the restaurant have long since vanished, but at the time Sebag was the most active account for First National City Bank’s (FNCB) American Depositary Receipt (ADR) business. Sebag & Co., a London firm more than 100 years old when he and I met in 1975 at the upscale bar, Michael II. ![]() The client was a trader from the South African branch of Jos. My most memorable time was at the very beginning of my career on Wall Street. ![]() We’ve all been there, having drinks after work with an important client visiting from overseas. ![]()
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