Siccing ex-spies on rogue traders
Bank employees are nervous as their bosses step up monitoring “Today’s systems permit much more sophisticated surveillance”
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.
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