Business World

Wednesday 22 January 2020

Federal Reserve flows let US spooks monitor foreign nations

The Fed acknowledged the practice of disclosing account intelligence, but declined to comment on individual clients. Stock image
The Fed acknowledged the practice of disclosing account intelligence, but declined to comment on individual clients. Stock image

Jonathan Spicer

The US Federal Reserve's little-known role housing the assets of other central banks comes with a unique benefit to the United States: It serves as a source of foreign intelligence for Washington.

Senior officials from the US Treasury and other government departments have turned to these otherwise confidential accounts several times a year to analyse the asset holdings of the central banks of Russia, China, Iraq, Turkey, Yemen, Libya and others, according to more than a dozen current and former senior Fed and Treasury officials.

The US central bank keeps a tight lid on information contained in these accounts. But according to the officials interviewed by Reuters, US authorities regularly use a "need to know" confidentiality exception in the Fed's service contracts with foreign central banks.

The exception has allowed Treasury, State and Fed officials without regular access to glean information about the movement of funds in and out of the accounts, those people said. That's helped Washington monitor economic sanctions, fight terror financing and money laundering, or get a fuller picture of market hot spots around the world. Some 250 foreign central banks and governments keep $3.3 trillion of assets at the Federal Reserve Bank of New York.

In all, the people interviewed by Reuters identified seven instances in the last 15 years in which the accounts gave US authorities insights into the actions of foreign counterparts or market movements, at times leading to a specific US response. In one case, data from the accounts offered US authorities a sense of the mood in Moscow in March 2014, after Russia's invasion of Crimea prompted economic sanctions.

When foreign holdings at the New York Fed plunged about $115bn, US officials confirmed what others could only suspect, according to two former Fed officials: Russia's central bank had pulled its funds.

While the Kremlin's public response was defiant, Fed and Treasury officials concluded Moscow feared the United States would freeze Russia's assets, according to one former official.

The Bank of Russia declined to comment. The Russian Embassy in Washington did not respond to an emailed query.

The Fed acknowledged the practice of disclosing account intelligence, but declined to comment on individual clients. The former head of Ireland's central bank said US officials ability to see what's happening with funds is not a surprise.

"The kinds of powerful central banks that can offer these services ... will want to use that power in ways that benefit their public remit," Patrick Honohan, governor of the Central Bank of Ireland from 2009 to 2015, told Reuters.

Edwin Truman, who headed the Fed Board of Governors' international finance division for more than two decades before joining the Treasury in 1998, said the Fed's clients should not expect absolute secrecy.

"There is no promise to clients that the information in their accounts will not be shared with US official circles," Mr Truman, now a fellow at the Peterson Institute for International Economics, said in an interview.

"While our account agreement does provide for the sharing of information with the US government in limited circumstances, we require a clearly demonstrated need for the information and a commitment that the information will be treated confidentially," said a New York Fed spokeswoman.

The insights into the Fed operation come at a time when US President Donald Trump threatens new economic sanctions on countries that could again be monitored through the foreign accounts.

It also comes as US intelligence-gathering has come under intense public scrutiny, with agencies investigating Russian meddling in last year's election and possible collusion with Trump's campaign.

The Senate this month backed new sanctions on Russia in part to punish it for the meddling, while the Treasury added individuals and entities to those sanctioned over Moscow's actions in Ukraine. (Reuters)

Irish Independent

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