Sic­c­ing ex-spies on rogue traders

Bank em­ploy­ees are ner­vous as their bosses step up mon­i­tor­ing “To­day’s sys­tems per­mit much more so­phis­ti­cated sur­veil­lance”

Bloomberg Businessweek (Asia) - - CONTENTS - −Gavin Finch, John Detrixhe, and Am­bereen Choud­hury

Bryon Lin­nehan spent more than two years in Iraq as a mil­i­tary in­tel­li­gence of­fi­cer. Since May he’s been us­ing skills he honed on the bat­tle­field to watch for trou­ble in­side Bar­clays.

In­vest­ment banks are hir­ing former in­tel­li­gence pro­fes­sion­als to keep an eye on the small­est de­tails of their em­ploy­ees’ work­ing lives, from which web­sites they fre­quent to how long they take for cig­a­rette breaks. Lin­nehan spends his days in his New York of­fice sift­ing through hun­dreds of e-mails. The goal is to de­ter the next mar­ket ma­nip­u­la­tor or rogue trader. “There’s not much use in clos­ing the barn door af­ter the horse has left,” says Lin­nehan dur­ing a break from Na­tional Guard ma­neu­vers in the Rocky Moun­tains. “We want to be able to iden­tify any po­ten­tial issues be­fore they turn into any­thing trou­bling.”

In the wake of the fi­nan­cial cri­sis and costly le­gal set­tle­ments, banks are un­der more pres­sure to spot, re­port, and stamp out po­ten­tial wrong­do­ing. The same month that Lin­nehan joined Bar­clays in 2015 the bank was fined £1.5 bil­lion ($2.1 bil­lion) for col­lud­ing with other banks to ma­nip­u­late the for­eign ex­change mar­ket.

Agents more used to track­ing ter­ror­ists and bust­ing or­ga­nized crime rings can ex­pect to at least dou­ble their pay af­ter com­ing to Wall Street. “Mil­i­tary in­tel­li­gence peo­ple are used to pars­ing par­tial bits of data from com­mu­ni­ca­tions, from be­hav­iors, and putting those to­gether in a way that would pre­dict the next ter­ror­ist at­tack or some other type of much more hor­ri­ble thing than we’re deal­ing with,” says Ben Bair, global head of whistle­blow­ing and in­ves­ti­ga­tions at Bar­clays in London. “And that’s what we need to take sur­veil­lance to the next level.”

In the past 18 months, banks have en­listed dozens of former in­tel­li­gence agents, ac­cord­ing to in­ter­views with re­cruiters, in­dus­try ex­ec­u­tives, and com­pli­ance of­fi­cers. The hires come from the U.S. and Bri­tish mil­i­taries, the CIA, and the top-se­cret U.K. Gov­ern­ment Com­mu­ni­ca­tions Head­quar­ters.

In ad­di­tion to Bar­clays, com­pa­nies that have taken on ex-agents in­clude Deutsche Bank, HSBC, and JPMor­gan Chase, the re­cruiters and ex­ec­u­tives say. Of­fi­cials at those banks de­clined to com­ment. Technology is part of the fight, too. JPMor­gan is rolling out a sur­veil­lance pro­gram that uses al­go­rithms to iden­tify po­ten­tial rogue em­ploy­ees.

What are the banks watch­ing

for? De­vi­a­tions from the norm. Traders might throw up red flags by con­sis­tently mak­ing more money than col­leagues, us­ing their work e-mail less of­ten than peers, tak­ing fewer hol­i­days, or ac­cess­ing back­of­fice sys­tems they don’t need to. Fre­quent vis­its to spread­bet­ting and gam­bling web­sites may also trig­ger alerts.

“The com­pli­ance func­tions at most big banks and cor­po­rates don’t re­sem­ble what ex­isted five years ago,” says David Fein, group gen­eral coun­sel at

Stan­dard Char­tered, which em­ploys former gov­ern­ment in­tel­li­gence agents. “Whether it’s in terms of ad­vances in data-min­ing or ar­ti­fi­cial in­tel­li­gence, to­day’s sys­tems per­mit much more so­phis­ti­cated sur­veil­lance.”

Skep­tics say the technology and former in­tel­li­gence op­er­a­tives serve more as win­dow-dress­ing than as an ef­fec­tive de­ter­rent. “It’s naive to as­sume that bank-hired spies would even have the ap­pro­pri­ate skill set needed for early de­tec­tion of fraud­u­lent trad­ing given the so­phis­ti­ca­tion and com­plex­ity of such schemes,” says Mark Wil­liams, a lec­turer at Bos­ton Univer­sity and au­thor of Un­con­trolled Risk, about the fall of Lehman Broth­ers. “Set­ting up dra­co­nian mea­sures such as Big Brother also sends the wrong mes­sage to hard­work­ing and law-abid­ing traders.”

Those sen­ti­ments haven’t slowed the race to hire for com­pli­ance, even as trad­ing op­er­a­tions are be­ing scaled back. UBS, the largest Swiss bank, an­nounced plans last year to add 350 com­pli­ance staff to keep tabs on em­ploy­ees and clients. One re­cruit in late 2014 was Emily Trageser, who spent years in “aus­tere tac­ti­cal en­vi­ron­ments” with the U.S. mil­i­tary as a sig­nals in­tel­li­gence spe­cial­ist and cryp­to­logic lin­guist, ac­cord­ing to her LinkedIn pro­file. A UBS of­fi­cial de­clined to com­ment or to make her avail­able.

All the sur­veil­lance is fo­ment­ing para­noia on trad­ing floors, say four deal­ers who asked for anonymity in dis­cussing their places of work. Fear­ful of be­ing fired for the slight­est in­frac­tion and banned from us­ing per­sonal mo­bile phones on the desk, some traders are tex­ting their spouses while hid­ing in the bath­room, they say. Oth­ers have left for hedge funds, where con­duct isn’t mon­i­tored as closely.

The bot­tom line Stung by fines, banks are out to show they can catch wrong­do­ing by their own em­ploy­ees. Odd be­hav­ior will draw more scru­tiny.

Low set the auction high for a Basquiatwh­en he paid $48.8 mil­lion forDust­heads in 2013. He still owns it.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.