TARP datapoint of the day

By Felix Salmon
April 21, 2009

The SIGTARP’s quarterly report to Congress (that’s Neil Barofsky, for those keeping track at home) runs to 250 densely-written pages. The news coverage is concentrating, rightly, on the fact that Barofsky is already investigating no fewer than 20 fraud cases associated with TARP funds, and also the rather alarming fact that PPIP fund managers might actually be forced to accept compensation caps after all. (If that does happen, you can be sure that Pimco, BlackRock, and the rest will immediately pull out of the scheme, leaving it doomed to failure.)

But there’s lots more where that came from. Not only is Barofsky worried about PPIP participants gaming the system, he’s also worried that the whole thing could easily become a front for money launderers:

Because of the significant leveraging available and the inherent imprimatur of legitimacy associated with PPIP and TALF, these programs present an ideal opportunity to money-laundering organizations. If a criminal organization can successfully invest $10 million of illicit proceeds into a PPIF, not only does the organiza- tion enjoy the possibility of profi ting through the Government-backed leverage, but any eventual distributions from the PPIF are successfully laundered because they appear to be PPIF investment gains rather than drug, prostitution, or illegal gambling proceeds.

The good news is that Congress has people like Barofsky and Elizabeth Warren’s Congressional Oversight Panel staffed up and keeping a close eye on Treasury’s bright ideas. The bad news is that it’s far from clear that Treasury has either the staffing or the inclination to pay much attention, let alone to implement their recommendations. Maybe once Treasury’s political appointeees are in place it will be a bit more helpfully responsive to (and grateful for) these extremely good reports.

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