2011 Canadian Election Fraud – Federal Court Ruling

On May 23rd, 2013, the Federal Court of Canada filed a ruling concluding that election fraud had occurred during the 2011 Canadian election.

The goal of this post is to breakdown the court’s findings and callout the key evidence and conclusions included therein.  With the exception of my analysis at the end of this post, all information presented is pulled directly with minimal interpretation from Justice Mosley’s ruling on the matter which you can read for yourself here.

To briefly set the context for the federal case, it involves six applicants alleging voter manipulation in their respective ridings.  Parallel to this federal case, there is an ongoing Elections Canada investigation from which much of the evidence for the federal case was obtained.  The Elections Canada investigation is of a much broader scope and, at this point, has received complaints of voter manipulation from 247 of the 308 ridings in Canada.

Overview of the Complaint

In a nutshell, the complaint is as follows:

[149] The affidavit evidence of each of the applicants themselves is similar. In most cases, the applicants or their spouses received a telephone call prior to the election from someone purporting to be calling from the Conservative Party of Canada. They were asked whether the Conservative Party could rely on their support in the election. The applicants or their spouses told the callers that they would not be voting for the Conservative Party. Just before or on the election day, all but one of the applicants received a second telephone call, either live or recorded, purporting to be from Elections Canada, in which they were advised that their polling station had changed.

[150] The calls identified an incorrect polling station location…

The result of this misleading information was to prevent some voters, identified as not supporting the Conservative Party of Canada (CPC), from being able to vote.

The audio recording of one of these calls was filed by the Guelph applicant:

This is an automated message from Elections Canada. Due to a projected increase in poll turnout your voting location has been changed. Your new voting location is at the Old Quebec Street mall at 55 Wyndham Street North. Once again, your new poll location is at the Old Quebec Street mall at 55 Wyndham Street North. If you have any questions please call our hotline at 1-800-434-4456. We apologize for any inconvenience that this may cause.

Overview of Relevant Legislation

The specific legislation relevant to this case and used by Justice Mosley is the Canada Elections Act.  Section 524 of this Act lays out the grounds on which an election can be contested, and section 531 lays out the remedy the court may provide:

524. (1) Any elector who was eligible to vote in an electoral district, and any candidate in an electoral district, may, by application to a competent court, contest the election in that electoral district on the grounds that
(a) under section 65 the selected candidate was not eligible to be a candidate; or
(b) there were irregularities, fraud or corrupt or illegal practices that affected the result of the election.

531. (2) After hearing the application, the court may dismiss it if the grounds referred to in paragraph 524(1)(a) or (b), as the case may be, are not established and, where they are established, shall declare the election null and void or may annul the election, respectively.

In 531(2) the use of the word ‘respectively’ is key.  Justice Mosley interprets this as follows in paragraph 54 of his ruling:

  • Where 524(1)(a) applies (selected candidate not eligible) a court must annul the election.
  • Where 524(1)(b) applies (fraud etc.) a court may annul the election at the discretion of the judge.

The definition and standard of fraud used in this case is important given the extreme difficulty in establishing guilt on a specific individual.  This inability to establish the guilt of an individual precludes the criminal law standard of fraud being applied.  However, Mosley concludes, in agreement with the interpretation of the Chief Electoral Officer, that the civil standard (which requires only that fraud occurred) is the standard required by the Canada Elections Act:

[66] …Authorship of the fraud and the guilt of any person or persons are not material. What is relevant is the fact of the fraud and the effect it had on the outcome.

[67] …In particular, the fact that a breach of the statute might result in the invalidity of an election did not require the application of the criminal standard of proof.

[69] I agree with the submission of the Chief Electoral Officer that any action or instance meeting the dictionary definition of fraud would constitute electoral fraud where it was done in contravention of a provision of the Canada Elections Act or where it served to defeat a process provided for in that Act. It seems to me to be clear that deliberately misinforming electors about their polling location would thus be fraud within the meaning of s 524 and is provable on the civil standard.

Once fraud under section 524 of the Canada Elections Act has been established, whether to annul the election is at the sole discretion of the judge:

[79] The assessment of whether the impact of fraud affecting the result of the election is sufficient to warrant annulling the election result falls within the application of the judge’s discretion under s 531. If the number of suppressed votes is sufficient to cast doubt on the true winner, the Court has an easier task. Absent a clear finding to that effect, the more difficult question is whether the fraud, corrupt or illegal practice, if proven, was sufficiently serious to call the integrity of the election process into question.

Justice Mosley lays out a summary of his interpretation of the relevant legislation, as follows:

[83] In summary, there are three steps required to annul under the Act in the context of the vote suppression allegations before the Court. The applicants must first demonstrate one of the four circumstances in s 524(1)(b): irregularities, fraud, corrupt practices, or illegal practices.  Once the first step has been achieved, if even a single vote is shown to not have been cast due to one of the four above circumstances in a subject riding, the Court acquires the discretionary power to annul the results in that district under 531(2). The third step is for the Court to consider either the “magic number” test (explained in Opitz at paras 71-72) or another appropriate test (envisaged by Opitz at para 73) and decide whether to exercise its discretionary power.

The “magic number” test mentioned in the above paragraph is important to understand since it’s the key criteria Mosley proposes to use in determining whether the fraud affected the outcome of the elections in the given ridings.  This test assumes that every vote that was affected by the fraud would have been cast for the second place candidate had the fraud not occurred.  While this would not necessarily have been the case (since some of the affected votes would have been for the NDP, some for the Liberals, etc.) it is nonetheless the measure used by the court and, in my mind, an apt measure of the real impact of the fraud.

EKOS Survey

The main evidence presented to the court to quantify the extent and effect of the misleading phone calls was provided in the form of a survey conducted by leading independent survey firm EKOS Research Associates.  This survey was performed against a random sampling of residents in each of the six ridings covered under the complaint.  Respondents were asked whether they had received a telephone call asking them how they intended to vote and subsequently received a call informing them, incorrectly, that their polling station had changed.

The results of this survey (with a margin of error of +/-1.8%, 19 times out of 20) are as follows:

[216] …
Winnipeg South Centre:
There were no polling station changes in this riding. The margin of victory for the Conservative respondent was 722 votes (out of 40,093 cast for all candidates). The survey contacted 606 people in the riding. Of those, 5.3% said that they had been called and told that their polling station had been changed. Of those receiving such calls, 5.7% (i.e. 1.0 percent of the 606 or 6 persons) said that they then did not vote. Extrapolating that 1 % to the total 40,093 votes indicates that the reverse magic number (more votes presumed to oppose the winner than the margin of victory) would not have been reached.

No polling station changes. The margin of victory was 538 votes out of 30,220 cast. The survey contacted 303 people. Of those, 4.0% (or 12 people) said that they had been called and told that their station had been changed. Of those, 8.1% (2% of the 303 or 6 people) said that they did not vote. Extrapolated to the total number of votes cast, 2% would exceed the reverse magic number required.

No polling station changes. A margin of victory of 300 votes of 33,085 total cast. The survey contacted 487 people in the riding. Of those, 4.9%, or 24 people, said that they had been contacted about a change in their polling station. Eight people (or 1.6% of the 487) said that they then did not vote. Calculated as a percentage of the total (1.6% of 33,085), this would indicate that 529 voters did not vote, well in excess of the magic number.

No polling station changes. Margin of victory for the Conservative candidate was just 18 votes out of 42,496 cast. The survey contacted 487 people in this riding. Of those, 1.8% (or 9 people) said that they had been called with the misleading information. 12.1% (i.e.,1.8% of the 487, 7 people) of those said they then did not vote. Extrapolated to the total votes cast, this would indicate that 595 voters did not vote, well in excess of the magic number.

Vancouver Island North:
One polling station location was changed in this riding. The margin of victory was 1,827 out of 59,190 votes cast. 523 people were contacted by the survey. Of those, 2.7 % said that they had been called and told that their polling station had been changed. Of those 14 people, 5.7% or 4 people (i.e., 0.8% of the 523) said that they then did not vote – this would translate to 473 votes. The magic number would not have been reached in this riding.

No polling station changes. The margin of victory was 132 votes out of 16,124 total cast.  The survey contacted 466 people, of whom 36% said that they had been called and told that their polling station had changed or 168 people. Of those, 10.7%, approximately 8 people or 1.7 % of the 466, said they then did not vote. As 1.7% of 16,124 is 274 voters, the magic number would have been reached.

As the above details, in all these ridings the margin of victory for the Conservatives was razor thin.  And, in four of the six ridings the magic number test concludes that the fraud did affect the outcome of the election.  In the Elmwood-Transcona and Nipissing-Timiskaming ridings the number of affected votes are such that, even assuming some vote splitting between the Liberals and NDP, the outcome was clearly affected.

EKOS themselves summarized the results as follows:

[208] …
a.   The evidence strongly suggests that there was a targeted program of voter suppression in place in the subject ridings. Based on the survey samples, it appears that tens of thousands of voters were targeted.

b.   These activities were clearly targeted at non-CPC voters in a manner that is highly improbable to have happened by chance. They included false reports of polling station changes and faux calls claiming to be from Elections Canada. In fact, Elections Canada made no such calls and there were virtually no voting station changes, yet many thousands of voters in the six ridings claim to have received these calls.

c.   Exposure to these calls clearly had a dampening effect on propensity for non-CPCsupporters to vote. EKOS estimated the effect in the range of 1.0%. Applying a margin of error to those estimates would produce a band of 0.8% to 1.8%. Inother words if these actions had not been in place, the CPC advantage would havebeen reduced by this amount on average in these six ridings.

Findings of the Court

Did Fraud Occur?

In a word, yes.  Justice Mosley summarizes his finding that fraud occurred during the 2011 Canadian federal election as follows:

[244] I am satisfied that is has been established that misleading calls about the locations of polling stations were made to electors in ridings across the country, including the subject ridings, and that the purpose of those calls was to suppress the votes of electors who had indicated their voting preference in response to earlier voter identification calls.

[245] In reaching this conclusion, I make no finding that the CPC, any CPC candidates, or RMG and RackNine Inc., were directly involved in the campaign to mislead voters. To require the applicants to identify the perpetrators of the misleading calls would impose an impossibly high standard of proof. I am satisfied, however, that the most likely source of the information used to make the misleading calls was the CIMS database maintained and controlled by the CPC, accessed for that purpose by a person or persons currently unknown to this Court. There is no evidence to indicate that the use of the CIMS database in this manner was approved or condoned by the CPC. Rather the evidence points to elaborate efforts to conceal the identity of those accessing the database and arranging for the calls to be made.

[246] I find that the threshold to establish that fraud occurred has been met by the applicants…

Did the Fraud Affect the Election Outcome?

Justice Mosley does not accept the survey evidence as sufficient to conclude that the fraud affected the election outcome:

[249] Apart from the survey, there is no evidence that the election results in the six ridings would have turned out differently. This is not a case of disappearing ballots or tampering with voting machines as in some of the American cases in which survey evidence has been accepted. Here, the survey is offered to establish that some voters, a sufficient number in each riding to overcome the margin of victory, would have voted but for the effect of a telephone call directing them to the wrong polling location. None of those voters have come forward to confirm the results. The survey evidence, in this case, does not provide firm ground on which the Court could have confidence in finding that the fraud affected the results in any of the six ridings. I am, therefore, not satisfied that the survey is a reliable evidentiary basis upon which to cast doubt on the winner in each contest even where the margin of victory was close.

Did the Fraud Call into Question the Integrity of the Election?

Justice Morsley concludes that the fraud did not have a major impact of the integrity of the election:

[253] … I don’t doubt that the confidence rightfully held by Canadians has been shaken by the disclosures of widespread fraudulent activities that have resulted from the Commissioner’s investigations and the complaints to Elections Canada.
[254] Had I found that any of the successful electoral candidates or their agents were implicated in any way in the fraudulent activity, I would not have hesitated to exercise my discretion to annul the result even if the reverse magic number had not been shown to have been reached in the riding in question. No such evidence was led.

[256] While they appear to have been targetted towards voters who had previously expressed a preference for an opposition party (or anyone other than the government party), the evidence in this proceeding does not support the conclusion that the voter suppression efforts had a major impact on the credibility of the vote.

Should the Election Be Annulled in Any of the Ridings?

Given his reluctance to rely on the survey data as conclusive, together with his conclusion that no major impact on the credibility of the election occurred, Mosley declines to exercise his discretion to annul:

[258] Having considered the matter very carefully and with a full appreciation for the concerns about the integrity of the electoral process that have motivated these applications, I am unable to conclude that I should exercise my discretion to annul the 2011 election results in any of the subject ridings because of the fraud that occurred.


Before I get into my analysis of the court’s findings, let me make one thing clear: I don’t have a dog in this fight.  I do not support any of the major political parties in Canada and believe them all to be, roughly speaking, equally corrupt and inept.

When the electoral process is compromised in such a fundamental way as occurred in the 2011 election, all appearance of fair, just and representational government is lost.  Such corruption has a way of breeding and expanding amongst the ruling class.  If MPs are willing to commit fraud in elections do you really think they will act in the best interests of the people once they secure their election?

Staying atop my soapbox, I continue by disagreeing in the strongest possible terms with Mosley’s conclusion that the fraud did not affect the election outcome.  The Nipissing-Timiskaming was won by a margin of 18 votes.  The survey results for that riding indicated 595 affected votes.  How can one possibly conclude that the outcome of the election was not affected in this case?  Even if the survey data is not trusted clearly some votes were affected and, with a margin of victory of 18 votes, any number of votes calls into serious question the validity of the election in this riding.

And yet, Justice Mosley is somehow able to conclude that, not only has the outcome of the election not been affected, but also that the integrity of the election has also not been affected.  This conclusion does not follow the basic principals of logic or even common sense.  There was widespread fraud – how could the integrity not be affected?

As for the argument that the EKOS survey can not be trusted because none of the callers came forward to confirm the results, this is a completely ridiculous argument.  Respondents to the survey weren’t asked to come forward to confirm the survey results.  And, if they had been, in Mosley’s own words “call-backs to verify the information received would run counter to the concern expressed by the Supreme Court that efforts to establish causal effects must not breach ballot secrecy” ([223]).  Thus, we can see that Justice Mosley endeavours to have his cake, and eat it too.  The survey is unreliable because its results were not confirmed.  But, the survey can’t be confirmed because this would breach ballot secrecy.  Nice.

Mosley uses the lack of direct evidence of involvement by the Conservative Party as a reason he doesn’t feel obligated to annul the election of their MPs.  In his wordsHad I found that any of the successful electoral candidates or their agents were implicated in any way in the fraudulent activity, I would not have hesitated to exercise my discretion to annul the result…“.

And yet who had the motive to commit the fraud?  The Liberals?  The NDP?  Even if someone outside the CPC hacked into their database to commit the crime it was still the Conservatives who directly benefited from the fraud.  Thus, the obvious remedy is to remove the illicit gains.

And this punitive measure is important.  Fraud was committed.  It’s simply not good enough to merely recognize the fraud – it must be remedied.  For if it is not, if there is no punishment for the act, why would one not engage in it?

The election should have been annulled in at least some of these ridings.  Mosley amazingly argues that “annulling an election would disenfranchise every elector who voted in the riding“.  Guess what Mosley – you failing to annul in the face of clearly established election fraud is what disenfranchises me.  Voting in a by-election called in response to election fraud would have, if anything, given me faith that the system worked.

The CIA: Undermining Freedom and Democracy Since 1953

Throughout its history, if there’s one thing that’s been consistent about the CIA, it’s the manner in which it has undermined democratically elected governments.  This will be the first of many posts that will delve into the history of coups and false-flag operations brought to us courtesy of the CIA.

For today’s post let’s look at Operation AJAX (aka TPAJAX) in 1953 Iran.

What follows isn’t conspiracy theory.  All the information presented comes from the CIA’s own declassified report on the operation titled: ‘Overthrow of Premier Mossadeq of Iran’ covering November 1952 until August 1953.  I have linked up the entire report in Appendix I for those of you interested in reading the original source material in full.


Before getting into the details of the declassified report, here’s a quick primer on Iran in 1953.

In 1941 Iran established a constitutional monarchy as its form of government.  Under this arrangement, much like in England, there was a democratically elected parliament (the Majlis) responsible for legislation which was overseen by a largely ceremonial monarch (the Shah).  This replaced the previous autocratic system whereby the Shah had ruled as a dictator.  The newly established constitutional monarchy was, however, short lived and ended with the CIA run coup against Mossadeq in 1953.

Back in 1901, when Iran was still run as a dictatorship under Shah Muzzaffar al-Din, an unbelievably stupid deal was made by the Shah with the British.  In this deal the oil and mineral rights to a large section of Iran were sold for £20,000 plus 16% of net profits.  This sowed the seeds for decades of rising discontent as the Iranian people watched the British reap enormous profits off Iranian oil while the Iranians themselves lived in poverty.

There are many interesting sidebars that highlight how the British further took advantage of an already extremely lucrative arrangement.  Iranian workers at refineries were treated as second class citizens to the extent that they were housed in separate accommodations (fabricated largely from used oil drums that had been pounded flat) and not permitted to use the white man’s water fountains or pools.  The British also refused to allow the Iranians any access to the financial records for the British run Anglo-Iranian Oil Company (AIOC) and used this lack of transparency to short-change the Iranians on their part of the profits from the oil industry.

In short, British colonialism/imperialism at its best was being used in Iran to suppress the people and rob the nation of its natural resources.  Throughout the early to mid 1900’s this lead to growing nationalism in Iran.  The British response was an outright refusal to renegotiate the 16% profit sharing deal or improve overall working conditions.

A leading voice for nationalization of the AIOC was the highly popular Mohammed Mossadeq.  On April 28th,1951 Mossadeq became the Prime Minister of Iran.  He immediately did exactly what he had promised the people: He nationalized the AIOC.

The Brits retaliated by imposing a crushing embargo on Iran and freezing all Iranian funds in British banks.  Then, using their intricate Secret Intelligence Service (SIS) network, the British sowed chaos in Iran running false-flag operations and organizing staged protests.  Next, they targeted Mossadeq directly by issuing brides to members of the Majlis in an attempt to undermine Mossadeq.  In 1952 Mossadeq kicked all British nationals out of Iran to stop the foreign manipulation.

Unable to effectively undermine Mossadeq after their expulsion, the British turned to the CIA for assistance.  The deal was simple: The British would hand their entire intelligence network in Iran over to the CIA on a silver platter if the CIA would help them stage a coup against Mossadeq and reinstate the Shah as autocratic ruler.

For the newly formed CIA under Allen Dulles (with his brother John Dulles serving as Secretary of State) this offer was too good to pass up.  Though the plan was rejected by President Truman repeatedly, the election of Eisenhower in late 1952 presented another opportunity for the Dulles brothers to get the plan approved.

Eisenhower, like Truman, initially rejected the proposal believing that the British were imposing their will unjustly on the Iranians.  But, a few months of the Dulles brothers passing incomplete intelligence and foreign service assessments to Eisenhower, coupled with some staged false-flag operations and protests, caused Eisenhower to relent and give the green light.  Operation AJAX was a go.

The remainder of this post will pull directly from the declassified CIA documents to provide an overview of AJAX and look at some of the key operational elements of the plan.


Here’s the summary of the Operation AJAX:

Summary - Pages iii and iv.

Summary – Pages iii and iv.

Manipulation of the Press

A cornerstone of AJAX (like most CIA operations) was the propaganda and psychological warfare aspects of the plan.  AJAX relied heavily both on bribery of the press and seeding agency assets directly into the Iranian media establishment.  Also leveraged was the already established CIA relationships with American, British, and international publications.  Specifically mentioned in the CIA field report are the Associated Press (AP), BBC, Newsweek, and a myriad of Iranian publications.

Here’s a sampling:


Summary – Page x

Appendix B - Pages 15 and 16.

Appendix B – Pages 15 and 16.

Overthrow of Premier Mossadeq of Iran - Pages 26 and 27.

Overthrow of Premier Mossadeq of Iran – Pages 26 and 27.

Overthrow of Premier Mossadeq of Iran - Page 29.

Overthrow of Premier Mossadeq of Iran – Page 29.

Overthrow of Premier Mossadeq of Iran - Page 36.

Overthrow of Premier Mossadeq of Iran – Page 36.

Overthrow of Premier Mossadeq of Iran - Page 45.

Overthrow of Premier Mossadeq of Iran – Page 45.

Overthrow of Premier Mossadeq of Iran - Page 86 and 87.

Overthrow of Premier Mossadeq of Iran – Page 86 and 87.

Overthrow of Premier Mossadeq of Iran - Page 91 and 92.

Overthrow of Premier Mossadeq of Iran – Pages 91 and 92.

That’s a summary of just some of the manipulation of the press that occurred in Operation AJAX.  It is important to note the manipulation of the Western press in addition to the Iranian press.  Further, it’s interesting to note the recommendation that further investment be made by the CIA in cultivating domestic (U.S.) media for use in future propaganda operations (see the second to last quote).

Bribery and Intimidation of the Majlis (Elected Parliament)

But, why even bother with public opinion if you can simply buy off the elected representatives to undermine the current government?

That’s exactly what another key aspect of AJAX’s operation plan did.  The goal was the systematic bribery of members of the Majlis to enable the government to be legally voted down.  Here’s an except from the CIA operational plan detailing this area of operations:

Appendix B - Pages 18 and 19.

Appendix B – Pages 18 and 19.

But, what about those pesky parliamentarians who can’t be bought?  Simple, you have one of the terrorist groups on your payroll threaten them:

Appendix B - Page 21.

Appendix B – Page 21.

 False-Flag Operations

Manipulation of the press?  Check.  Bribery and threats to elected officials?  Check.  Let’s see, what else is key to the CIA’s modus operadus for coups?

Ah yes, false-flag operations.  A true favorite of intelligence services the world over.  Do something really horrible and blame it on your adversaries to further your own agenda:

Appendix B - Page 23.

Appendix B – Page 23.

Overthrow of Premier Mossadeq of Iran - Page 37.

Overthrow of Premier Mossadeq of Iran – Page 37.


Operation AJAX is one of many operations in which the CIA has undermined a legitimately elected democracy in order to install a dictator willing to do the bidding of the Americans.  In the case of AJAX and Mossadeq, shameful methods of manipulation of the press, bribery of elected officials and false-flag terror were used to oust the populate leader and plunge Iran back into autocratic rule.

Imagine what might have been if this, the first real democracy in the Middle-East, had been allowed to flourish.  The road might not have been a smooth one but it’s entirely possible that the world would be a very different place than the mess we have today.  At the very least, the vehement anti-Americanism would not have become so prevalent in Iran and the 1979 Iranian revolution with all its consequences (which we’re still feeling to this day) would never have occurred.  This much was admitted by then Secretary of State Madeleine Albright in a March 2000 speech:

In 1953, the United States played a significant role in orchestrating the overthrow of Iran’s popular prime minister, Mohammed Mossadegh. The Eisenhower administration believed its actions were justified for strategic reasons, but the coup was clearly a setback for Iran’s political development and it is easy to see now why many Iranians continue to resent this intervention by America in their internal affairs.

Moreover, during the next quarter century, the United States and the West gave sustained backing to the shah’s regime. Although it did much to develop the country economically, the shah’s government also brutally repressed political dissent …

Even in more recent years, aspects of US policy toward Iraq during its conflict with Iran appear now to have been regrettably shortsighted, especially in light of our subsequent experiences with Saddam Hussein.

If you are interested in doing some more detailed reading on the coup in Iran I can’t recommend highly enough Stephen Kinzer’s book on the topic: ‘All the Shah’s Men – An American Coup and the Roots of Middle East Terror’.

Appendix I – Declassified CIA Report

The originally declassified CIA report on Operation Ajax is broken into parts.  Here’s the link to each part from that report:

The Cyprus Bail-In: Part Four – A Template for Canada

If you’ve been following this series, so far I’ve covered:

  • Part One.  The timeline of events as they unfolded in Cyprus to the present day.
  • Part Two.  The impact on the Cypriot people and decimation of the small/medium business segment.  This also looked at the corruption that got Cyprus into such a mess in the first place and the loopholes in the system that allowed the elites to withdraw their assets even as ordinary Cypriots were under oppressive capital controls.
  • Part Three.  The fact that bail-ins, as they occurred in Cyprus, will happen in other countries as the global financial crisis picks up steam.

In this final post of the series I want to focus on why Canadians should take the lessons of Cyprus to heart.  The reality is that the 2013 Canadian budget specifically called out how the bail-in model will be used if any Canadian banks get into trouble.

So What’s in the 2013 Canadian Budget?

I have linked to the entire 2013 Canadian budget here but the section that is relevant for our discussion today can be found on pages 144 and 145 in the section titled ‘Establishing a Risk Management Framework for Domestically Systemically Important Banks‘.  The entire section reads as follows:

Canada’s large banks are a source of strength for the Canadian economy.  Our large banks have become increasingly successful in international markets, creating jobs at home.

The Government also recognizes the need to manage the risks associated with systemically important banks—those banks whose distress or failure could cause a disruption to the financial system and, in turn, negative impacts on the economy. This requires strong prudential oversight and a robust set of options for resolving these institutions without the use of taxpayer funds, in the unlikely event that one becomes non-viable.

The Government intends to implement a comprehensive risk management framework for Canada’s systemically important banks. This framework will be consistent with reforms in other countries and key international standards, such as the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions, and will work alongside the existing Canadian regulatory capital regime. The risk management framework will include the following elements:

    • Systemically important banks will face a higher capital requirement, as determined by the Superintendent of Financial Institutions.
    • The Government proposes to implement a ―bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada.  Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants.
    • Systemically important banks will continue to be subject to existing risk management requirements, including enhanced supervision and recovery and resolution plans.

This risk management framework will limit the unfair advantage that could be gained by Canada’s systemically important banks through the mistaken belief by investors and other market participants that these institutions are “too big to fail”.

To their credit, even the mainstream media reported on this with concern since, in bank parlance, deposits are considered liabilities.  Thus, the statement ‘rapid conversion of certain bank liabilities into regulatory capital‘ certainly could imply deposits would be used as part of this recapitalization – exactly what we saw take place in Cyprus.

Move Along.  Nothing to See Here

Immediately following this controversial section of the budget going viral, Finance Minister Jim Flaherty’s press secretary Kathleen Perchaluk issued the following statement to clarify:

The bail-in scenario described in the Budget has nothing to do with depositors’ accounts and they will in no way be used here.  Those accounts will continue to remain insured through the Canada Deposit Insurance Corporation, as always.

The [Canadian] bail-in regime is to protect both taxpayers from having to bail out banks and depositors from having to take a financial hit like we’ve seen in Cyprus.  If a bank is having severe difficulties, the bail-in regime would force certain debt instruments to be converted into equity to recapitalize the bank.

This clarification was immediately used to chastise all those who had reported with alarm on the language in the budget around the bail-in regime.  The mainstream media was satisfied with this clarification and essentially reported in unison: False alarm, nothing to see here, move along.

A Clarification Not Worth the Paper It’s Not Written On

The first thing to point out is that it is the budget that is read before, and passed by, parliament.  Once passed, these budgets form the basis for legislation.  Conversely, random statements by MP’s press secretaries don’t in any way shape the laws that ultimately go onto the books.  Such statements are, practically speaking, completely irrelevant.

That said, let’s analyze Kathleen Perchaluk’s statement.  The thrust of her statement is: “Those accounts will continue to remain insured through the Canada Deposit Insurance Corporation, as always.“.  Ok, two big problems with this:

  1. The Canada Deposit Insurance Corporation (CDIC) is woefully underfunded (like all national deposit insurance schemes).  In the event of a true crisis at one of the big six systemically important Canadian banks the CDIC is going to fold like a cheap lawn chair.  This is a topic I’ll be exploring further in a future post.
  2. Only funds below $100,000 are insured by the CDIC.  Thus, Kathleen’s statement does not in any way give comfort to those with accounts holding more than $100,000.  Since those deposits are, by definition, uninsured, they are specifically excluded from Kathleen’s reassuring statement.  This, to me, is more worrying than if no clarification had been made at all.  Recall that in Cyprus it was an identical situation where only uninsured deposits over €100,000 got hit.

So, I must respectfully disagree with the conclusion of the mainstream media.  Kathleen Perchaluk’s statement simply does not address the risk of a Cyprus-style confiscation of uninsured deposits at Canadian banks during a bank failure.

The Key to It All

So, the language in the budget is pretty concerning.  It seems to specifically say that the same mechanism that occurred in Cyprus could be applied here.  But where is this methodology of stealing deposits coming from?   Why does it seem to be coordinated between countries?

The answer is in the above quoted section of the budget where it says:

This framework will be consistent with reforms in other countries and key international standards, such as the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions…

It would seem that this document from the Financial Stability Board (FSB) is key to understanding the true intent of the language in the Canadian budget.

You can get the entire document for yourself here.  I provide my analysis of the document below.  I can’t begin to stress how important it is for Canadians to understand this.  Adoption of this framework by the Canadian government guarantees that what happened in Cyprus will happen here in the event of a failure at one of our major banks.

What is the Financial Stability Board (FSB)?

So just what is the Financial Stability Board?  You can hit their website here but essentially the FSB is an international working group of central bankers whose goal is to propose and promote methods for consistent regulation of the financial sector.  Virtually every country’s central bank belongs to the FSB.

Canada is particularly well represented on the FSB with our Central Bank, Department and Finance and the Office of the Superintendent of Financial Institutions all being members.  In addition, the outgoing Governor of the Bank of Canada, Mark Carney, has chaired the FSB since 2011.

What is the Key Attributes of Effective Resolution Regimes for Financial Institutions?

This 2011 FSB document presents a framework for how to address failures at systemically important banks.  This document has been ratified by all members of the G20 (including Canada) meaning that these countries all agree that the principals laid out in this document are the correct way of handling future bank failures.  Canada has re-affirmed its commitment to abide by this framework by stating explicitly in the 2013 budget that this is the model it will use moving forward to deal with any banking crises.

Understand this FSB document and you understand Canada’s official policy on bank failures and whether Canadian depositors are at risk.

The document itself is very clearly laid out.  There are over a dozen sections that specifically talk about imposing loses on unsecured creditors.  Rather than iterate through these ad nauseam, let me simply show you the smoking gun that ties everything together:

Bail-in within resolution
3.5 Powers to carry out bail-in within resolution should enable resolution authorities to:
(i) write down in a manner that respects the hierarchy of claims in liquidation (see Key Attribute 5.1) equity or other instruments of ownership of the firm, unsecured and uninsured creditor claims to the extent necessary to absorb the losses; and to
(ii) convert into equity or other instruments of ownership of the firm under resolution (or any successor in resolution or the parent company within the same jurisdiction), all or parts of unsecured and uninsured creditor claims in a manner that respects the hierarchy of claims in liquidation;

I’m not sure how this could be any more clear.  3.5(i) clearly states that uninsured creditors (i.e. deposits not covered by CDIC) are to absorb losses.  3.5(ii) grants the ability to convert  these same uninsured deposits into shares in the bank.

These two things are EXACTLY what happened in Cyrus.  Uninsured deposits were made to absorb losses both directly and through conversion to worthless shares in the Bank of Cyprus.


People who insist that the Canadian budget does not sanction Cyprus style uninsured deposit confiscations are just plain wrong.  Both the language in the budget and the referenced FSB document clearly indicate that bail-in by imposing losses on uninsured deposits is the preferred approach to resolving failures of systemically important banks.

And, the FSB’s document is not just some pie-in-the-sky proposal – the G20 has already agreed that this is the model to use moving forward.  It clearly lays out the blueprint for exactly what happened in Cyprus.  Cyprus wasn’t a one off – it was following the new global formula for dealing with bank failures.  That same policy is now Canada’s model for resolving bank failures.

As the international crisis continues to unfold we now know exactly what to expect.  If you have uninsured deposits in a Canadian bank those funds are at risk and will be confiscated in the event that bank fails.  There is no gray area here.  It isn’t a maybe.  Your uninsured deposits will be made to absorb the losses in the event your bank fails.

Protect yourself.  Get you money out and into hard assets or, at the very least, open accounts at separate financial institutions.  CDIC will insure up to $100,000 per financial institution.  So, while opening two accounts at RBC and putting $100,000 in each will result in only $100,000 insured, opening one RBC and one BMO account and putting $100,000 in each will result in the full $200,000 being insured.

The Cyprus Bail-In: Part Three – A Template for the EU and Beyond

In part one of this series I laid out in detail the timeline of events leading up to, and through, the recent crisis in Cyprus.  Part two delved into both the impact on regular depositors and small businesses as well as the unbelievable corruption that got Cyprus into this mess in the first place and the loopholes that allowed the elites to escape the financial carnage (even as ordinary Cypriots faced draconian capital controls).

I now want to focus on what comes next: The application of the Cyprus bail-in template to other EU countries as their banks fail.  But first, let’s take a quick look at the state of the periphery of the EU and why more collapses are inevitable.

Are Things Really That Bad In the EU?

Yes, things really are that bad in the EU.  Let’s forget about countries that have already completely capitulated (Ireland, Greece, Cyprus) and look briefly at just one of the prime candidates for collapse:


First, a couple of shocking charts about what’s happening in Spain.  Let’s start with the official unemployment readings:

spain-unemployment-rateYes, you’re reading that correctly: 27.2% official unemployment. This doesn’t even include the millions of Spaniards who long since gave up trying to find work (only people actively seeking employment are included in the official measure).  And, it’s clear that unemployment is still trending up – it will get worse.

Think it couldn’t possible get scarier than that?  Wrong.  Check out what youth unemployment looks like:

spain_youth_unemploymentIn Spain over 55% of those 15-24 who are in the labour force and looking for work can’t find it.  Note that students are not included in the measure.

And what about Spanish debt to GDP ratio?  Surely all the austerity has gotten that under control, right?


Ouch!  I don’t know about you, but that looks completely out of control to me.  Even the politicians have revised the GDP estimate for 2013 to -1.3% and indicated that they expect unemployment well above 25% through 2014.  I suspect the reality is much worse.  Spain has been caught in the vicious austerity cycle I’ve talked about before: Austerity leading to increased unemployment which reduces tax revenue causing an increase in the debt to GDP ratio requiring more austerity.

And what about the banks?  While true bank risk tends to be highly obfuscated, some data is known.  Bad loans (those loans behind or delinquent on payment and subject to loss) is one key metric used to assess the health of a banking system.  But ‘healthy’ is not a word I’d use to describe the picture of Spanish bad loans:


But I hear some of my readers asking the legitimate question: But, if things are really so bad, why have Spanish bond yields (which breached 7% in the summer of 2012) been so tame lately and trading under 4.5%?

An excellent question.  The answer to this is that, in the crisis of last summer, two actions were taken to drive down the run-away Spanish bond yields:

  1. The first was the announcement of the OMT (Outright Monetary Transactions) program by the ECB.  This program, obfuscated with complexity, is really just the ECB buying distressed bonds to push down yields.  This is the definition of monetization of debt.
  2. The second was the astonishing use of the Spanish national social security pension fund to purchase Spanish bonds.  At this point, the pension funds has been completely raided with 97% of the fund used to buy domestic bonds.  Any increase in bond yield (which would drive down the price of those bonds) will devastate the pension fund.

Note that both of these bond buying programs were aimed at circumventing the market price by creating artificial demand.  It’s not that things in Spain have improved – as I showed above, the situation there is clearly continuing to deteriorate.  Thus, the fall in Spanish bond yields is simply an exercise in can-kicking that has ensured that the pending disaster will be that much bigger.

And It’s Not Just Spain

No, it’s not just Spain.  Far from it.  I could run through a similar exercise showing how Slovenia, Italy, Luxemburg, Malta and several other peripheral countries are every bit as vulnerable to collapse as Spain.  Heck, with the most recent numbers from France I could even put together a compelling argument that Hollande will very soon sufficiently destroy the French economy so as to put it at serious risk.

There are clearly many more dominos in the EU waiting to fall just like Greece and Cyprus.  Will it be bail-in or bailout?

Cyprus IS the Template For Future Bank Crises

But don’t take my word for it.  Here’s what Jeroen Dijsselbloem (Dutch Finance Minister, President of the Eurogroup and President of the Board of Governors for the European Stability Fund aka the EU bailout fund) had to say on March 25th as the final deal with Cyprus was announced:

If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders…

Bear in mind, Dijsselbloem was the lead negotiator for the EU during the Cyprus bailout talks.  He does represent the opinion of the EU and would likely lead negotiations for future bailouts.

And, he further justified the Cyprus bailout as follows:

I’m pretty confident that the markets will see this as a sensible, very concentrated and direct approach instead of a more general approach…It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them.

You can find the whole transcript of the enlightening interview here.  It’s worth a read.  But, the main take-away is yes, the EU will use the Cyprus model as a template moving forward.

Of course, Dijsselbloem quickly found himself at the center of a firestorm once people started to react to that fact that their uninsured deposits were considered investments and would be confiscated in any future crisis.  That same day (March 25th) he issued a clarifying written statement.  Here’s that statement in its entirety:

Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday.  Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.

Amazingly people seemed to simmer down after this two-line clarification was issued.  First of all, this was clearly issued to prevent a massive uproar and even bank runs.  Second, read the statement; It doesn’t say bail-ins would not be used moving forward, just that there is no template.

Not Confined to the EU

Think this risk is confined to the EU?  Think again.  In December of 2012 a report was released by the FDIC (Federal Deposit Insurance Corporation in the U.S.) and Bank of England titled ‘Resolving Globally Active, Systemically Important, Financial Institutions’.  This paper discusses the plans for dealing with the too-big-to-fail banks when they become insolvent.  Read the full report for yourself here if you’re interested but the main proposal is presented in paragraph 12:

12 Under the strategies currently being developed by the U.S. and the U.K., the resolution authority could intervene at the top of the group. Culpable senior management of the parent and operating businesses would be removed, and losses would be apportioned to shareholders and unsecured creditors. In all likelihood, shareholders would lose all value and unsecured creditors should thus expect that their claims would be written down to reflect any losses that shareholders did not cover. Under both the U.S. and U.K. approaches, legal safeguards ensure that creditors recover no less than they would under insolvency.

Thus, it all comes down to what an ‘unsecured creditor’ is since it is they that will be eating any losses after the shareholders are wiped out:

34 …But insofar as a bail-in provides for continuity in operations and preserves value, losses to a deposit guarantee scheme in a bail-in should be much lower than in liquidation. Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.

So, clearly today’s planning for bank failures in the U.S. and UK have uninsured deposits subject to the same type of bail-in that happened Cyprus.  It doesn’t matter which side of the pond you’re on – if you’ve got uninsured deposits in a bank you need to read this report and think long and hard about your risk tolerance.

And, there are similar documents and legislation springing up around the globe as the Cyprus style bail-in is acknowledged to be the model moving forward.  New Zealand, as one example, currently has legislation before parliament to adopt a bail-in strategy.  For Canadians this model is already law having been include in the recently passed 2013 Canadian budget (which will be the focus of my next post).

Not Confined to Bank Failures

And, it’s not just bank failures that carry the risk of deposit confiscation.  Check out what Joerg Kraemer, the chief economist at Commerzbank, recently had to say about how to get Italy out of its sovereign debt crisis:

So it would make sense in Italy to raise a one-time wealth tax.  A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product.

Think this could never happen?  The fact is these types of ‘capital levies’ have been used extensively in the past by many different countries.  After both World War I and World War II levies were imposed through Europe and Asia as high as 50%.  Even as recently as 1992 there was a small (0.6%) levy imposed in Italy with deposits withdrawn overnight.  For a primer on the history of capital levies, check out this article.

So, there is a precedent for unilateral wealth confiscation by governments to combat financial crises.  The worse the crisis, the higher the levies used to combat it.  I would argue that the world today stands on the precipice of an unprecedented global financial meltdown.  People should be losing sleep over the very real possibility of capital levies.

Get Your Money Out!

It should be obvious to anyone with a modicum of common sense that the precedent has been set.  Certainly uninsured deposits are at risk of from bail-ins or capital levies.  At a certain point I would suspect that even insured deposits will be at risk.

It amazes me that the events in Cyprus and subsequent statements out of the EU did not cause a full scale bank run in countries like Spain and Italy.  What the heck are these people waiting for?  Cyprus showed clearly that when the system fails it does so suddenly and with capital controls imposed.  Further, there is clear historical precedent for capital levies to be imposed by these governments in times of crisis.  Now is the time for these people to get their money out while they still can.  The writing is on the wall – it doesn’t get more obvious.  Learn from the suffering of the Cypriots – protect your assets!

Your Privacy Died Over a Decade Ago

This is a follow-up post to my last on the topic of privacy and government surveillance.  In this post we’ll look at some government programs and technologies to prove that privacy has long been dead.  We’ll unfortunately only scratch the surface of what the total surveillance state is capable of (more posts on this topic will follow).  My aim for now is to educate those that are not yet aware of their privacy’s death.  That is, those whose minds are still in the matrix.

A good starting point

If you think it’s not possible for the government to intercept, query and rank ALL electronic communications, then let’s look at some recent admissions by public servants (aka. “government officials”) that claim this is exactly what they are doing.  (With some quick research you’ll find more whistleblowers on this.)

Just this past week, a former FBI counterterrorism agent was twice on CNN admitting that all phone calls are essentially archived and can be called up and listened to as needed. You can watch the clips of him saying this here.

Corroborating this, NSA whistleblower William Binney made headline news last year over his resignation from the NSA in 2001 because of their unconstitutional practices.  Binney was reportedly one of the best mathematicians and code breakers the NSA ever had and he worked for DoD’s foreign signals intel agency for over 30 years.  He resigned because the U.S. government began violating the U.S. Constitution and Bill of Rights (remember the PATRIOT Act?) by deploying foreign intelligence gathering equipment for domestic operation against the entire population.  I highly recommend viewing this 12-minute interview he did in December 2012.  Here is an incredible admission from Binney, suggesting that the government is building dossiers on each person:

Domestically, they’re pulling together all the data about virtually every U.S. citizen in the country and assembling that information, building communities that you have relationships with, and knowledge about you; what your activities are; what you’re doing.

Before going further, I want to say that in my opinion it is a criminal government that breaks the very laws it is designed to uphold.  Maintaining dossiers on law-abiding citizens is the behaviour of a fascistic, totalitarian regime.  We have a duty to resist and throw off such tyranny.

Known government programs

Let’s now look at some interesting government surveillance programs that have been made public over the years.

ECHELON – This is a massive, worldwide collection system capable of intercepting and inspecting content of telephone calls, faxes, e-mails and other data traffic globally.  It was first launched in the 1960’s and is run by the Anglo-American Establishment: Australia (Defence Signals Directorate), New Zealand (Government Communications Security Bureau), Canada (Communications Security Establishment), the United States (National Security Agency), and the United Kingdom (Government Communications Headquarters).  In the intelligence community they are referred to as the “Five Eyes”.  In 2000, the European Parliament conducted an investigation into ECHELON with a concluding report. A contact on the inside confirmed to me that the U.S. runs the satellites, the data is pulled down to the U.K., Canada does analysis of and dissemination of pertinent intelligence.  The system uses lexicons to prioritize data onto various lists and actual human analysts are required to look at certain lists (in the future we’ll look at evidence of what gets you on a list – I’m sure this blog post is flagged on some escalated list).  One final thing on ECHELON and that is the April 2012 issue of WIRED magazine had an exclusive report on the massive $2 billion NSA facility in Utah.  Could this be part of ECHELON?  I believe so.  The cover of the issue had the following to say:

Deep in the Utah desert, the National Security Agency is building the country’s biggest spy centre.  It’s the final piece of a secret surveillance network that will intercept and store your phone calls, emails, Google searches…  (Watch what you say.)


Total Information Awareness – In 2002 in the U.S., the Defense Advanced Research Projects Agency (DARPA) launched the Information Awareness Office to work on surveillance for identifying and tracking “terrorists”.  It was lead by a former NSA guy (surprise, surprise).  They had a few name changes (Total/Terrorism Information Awareness (TIA)) and were supposedly shut down in 2003 after Congress cut funding.  Clearly they morphed.  The office called for intelligence gathering and analysis “among people, organizations, places, and things.”  Kind of sounds like Facebook and your smart phone doesn’t it?  It also called for biometric programs and cameras with multiple means of identity extraction (facial recognition, for example).  We certainly do see the cameras going up, and we’ll get into biometrics in a later post.  In case you’re thinking that the public servants behind this were well intentioned, here’s a picture of TIA’s loving logo:

Total Information Awareness Logo

Information Sharing & Analysis Centers (ISACs) – ISACs are not so much of a mass surveillance program, but they do indeed fit into this Orwellian surveillance scheme.  It is interesting to look at the relationship between government and private companies on this issue.  I shouldn’t exclusively focus on government because there is great evidence of corporations getting in on the fun too.  For instance, there’s a thriving secret new industry of an estimated 160 intelligence contractors that are in the so-called mass surveillance industry.  Furthermore, we know that big companies hold plenty of our personal data.  Industry analysts are now reporting that the vast majority of the Fortune 100 want to begin this year “monetizing their data”.  What does this mean you ask?  It means selling data they hold on their customers to other companies, possibly ones in foreign countries, and also to the government of course.  The government has long been in the business of working with private companies for data collection.  ISACs are just one example of this.  I’m not asserting that ISACs have anything to do with selling data to the government (we’ll get into that issue in another post), but these are great examples of the popular so-called “public-private partnerships” (read: Fascist teaming of central government with elite businesses).  From what I can tell, they operate as round tables essentially and they provide no real transparency.  I believe the FBI runs the ISACs, but it could be DHS.  There are ISACs for a dozen or so industries (health, transportation, water, etc.).  Cybersecurity threats is an obvious topic for them, but I wonder what else they discuss under the banner of “sharing and analysis”.  To show you where these folks have loyalties, here is the old logo (a new one was released in the last year) of the Financial Services ISAC (which is meeting in Toronto in late June):

Financial Services Industry Sharing & Analysis CenterAh, that loving, all-seeing eye again.  How comforting.

Analysis capabilities

We’ve established now that data collection is happening on a massive scale, and that government and corporations are in on the fun.  But just what can they do with that data?  We won’t spend much time in this post examining the correlation and analysis capabilities (referred to in the industry as “Big Data”… makes sense: Big Brother -> Big Data), but we’ll look at two quick examples so you get the idea:

GeoTime – This is an analysis software used by folks in law enforcement, intelligence and even insurance to investigate individuals and events.  It has powerful pattern detection for analyzing “patterns of life” (in Newspeak, behavior detection).  These are behavioural traits such as one’s movement and speed of travel over time, communications and transactions, interactions and meetings with others, regularities and exceptions.  You can see a few demonstrations of the software on short videos here.

Recorded Future – This is a software company financially backed by Google and the CIA that provides insights and analysis of relationships between people, places and organizations using publicly sourced data (meaning data that it obtains from scouring the World Wide Wiretap… uh, I mean Web).  In one of its many applications, it is used to predict stocks.  It is also used to track entities or movements, as you can see with this example where it was used to track and analyze the Occupy Wall Street protests of 2011, which you can view a quick demo of here.  One of the interesting but creepy things about it is its predictive analytics (it can actually generate predictions based on your history).


We are just scratching the surface in this post.  We didn’t talk much about remote listening, Facebook, Google, “location services”, biometrics and how the latest generation of consumer tech has face and voice recognition embedded.  Yes, from flat screen TVs in your living room or bedroom, to your digital cameras, gaming consoles and smart phones, all these cute and convenient gadgets that bring you so much entertainment and joy (and distraction) are good for harvesting data and determining what you do, what and who you know and what you believe.


Big Brother has incredibly powerful tools.  Big Brother is indeed using these tools.  Big Brother is however, for the time being, still wearing that velvet glove over his iron fist.

This post is not intended to chill your speech.  I believe we must hold true to our inalienable, inherent rights to privacy and freedom of expression and speech.  Knowing that they are listening, I like to frequently talk to them and remind them that what they’re doing is criminal.

There’s still lots to uncover here and future posts will get deeper into the technology so that we can truly understand the world we’re now living in.

The Cyprus Bail-in: Part Two – Impact and Corruption

In part one of this series I laid out a complete timeline for the recent bailout\bail-in that occurred in Cyprus.

In this post I want to look at the real-world impact of these events on regular depositors and small businesses in Cyprus.  I will then dig into the loopholes that were intentionally left open to allow the large investors and economic elite to quietly remove their exposed deposits at the same time Cypriots were faced with draconian capital controls.

Finally I’ll dig into a leaked report from the firm commissioned by the Cypriot Central Bank in the summer of 2012 to investigate how the Bank of Cyprus wound up holding such a high percentage of risky Greek bonds.  This document is unbelievably damning to senior officials at the Bank of Cyprus.  I’ll show sections from the document detailing how:

  1. The Bank of Cyprus intentionally mislead regulators with respect to its Greek bond exposure.
  2. Senior officials (including the former CEO) destroyed emails and other electronic information after a preservation notice was issued by the investigative team.
  3. These same senior officials, and the Bank of Cyprus in general, did not cooperate with the investigation and actively covered-up various aspects of their activities regarding the Greek bond purchases.

Impact on Regular Depositors

As my previous post detailed, as it stands today, depositors with more than €100,000 in deposits stand to lose a total of about 70% of the value of those deposits.  It could wind up being as high as 80% or even more depending on what happens to the Bank of Cyprus share price (since most of these confiscated funds get converted to shares in the Bank of Cyprus).  But, a good estimate right now is probably 70% gone.

But let’s put this into a real world example.  Imagine that you’re in your 60’s and have just retired or are about to retire.  You worked hard for 40+ years putting money away when you could and managed to build a nest-egg of €500,000.  A modest sum, but enough to support you in retirement.  Being risk adverse you have all that money in a savings account at a large bank – what could be safer?

Now imagine that you wake up one morning and discover that of your €500,000, only €220,000 remains (€100,000 + (€400,000 * 30%)).  This is exactly what happened to an entire middle class in Cyprus.  Apart from the obvious rage you would feel, one thing would be clear – you can’t live another 20 years on €220,000.  Assuming you were able, you need to get back into the workforce ASAP or you’ll live out your twilight years in abject poverty.

But can you even find work?  Before the crisis hit Cyprus already had over 14% official unemployment (and this doesn’t include the workers who have gotten discouraged and simply stopped trying to find work).  There was already a glut of young, able-bodied workers looking for any work they could get.

Impact on Small and Medium Size Businesses

But the situation gets much worse for our hypothetical retiree.

I would expect shockingly higher unemployment numbers out of Cyprus over the next few months.  The reality is that many of the impacted accounts were corporate accounts holding payroll, accounts payable, and other business assets.  As a result, many of these businesses will clearly be forced into bankruptcy or, at the least, massive layoffs.

This genocide of the entire small\medium business segment in Cyprus and its horrifying implications has been largely unreported.  Think about the consequences of this.  Not only is there the immediate implication of higher unemployment but with all these layoffs and business closures, total GDP will plummet and this will cause a corresponding drop in tax revenue.  Thus, like Ireland, Portugal, and Spain before it, Cyprus gets caught in the vicious cycle of austerity leading to economic contraction leading to lower tax revenue requiring more austerity.  And all the while our hypothetical retiree is left without enough savings to live out his retirement and is unable to find work as unemployment explodes.

Here’s a great example of the real impact on a small business in Cyprus.  This was originally posted in the Bitcoin forums and went viral:

My bank account’s got robbed by European Commission. Over 700k is lost.


The most of circulating assets on our business Current Account are blocked. Over 700k of expropriated money will be used to repay country’s debt. Probably we will get back about 20% of this amount in 6-7 years. I’m not Russian oligarch, but just European medium size IT business. Thousands of other companies around Cyprus have the same situation. The business is definitely ruined, all Cypriot workers to be fired. We are moving to small Caribbean country where authorities have more respect to people’s assets. Also we are thinking about using Bitcoin to pay wages and for payments between our partners. Special thanks to: – Jeroen Dijsselbloem – Angela Merkel – Manuel Barroso – the rest of officials of “European Commission”.
Original Post: https://bitcointalk.org/index.php?topic=160292.

 It Pays to Known People in High Places

Of course, while most people knew a bailout was coming, no one expected a bail-in and confiscation of depositor funds right?

Well, not so fast.

Leaked bank documents show that a business belonging to family members of Cyprus President Nicos Anastasiades moved upwards of €21 million out of Laiki bank in the week leading up to the bailout. The President and his family are claiming these to be standard business transactions.  For now these are just allegations so we need to be cautious about jumping to conclusions.  But these transactions are highly suspicious to put it mildly.  A national investigation headed by two retired Supreme Court justices has been started to look into the matter.  It will be interesting to see if anything turns up or this simply becomes a whitewash.

International Banking Anyone?

But there’s more than one way to skin a cat.  In a simply unbelievable act of corruption, international branches of Laiki and Bank of Cyprus remained upon throughout the crisis and imposition of capital controls.  That’s right.  At the height of the crisis, with Cypriots unable to cash cheques or withdraw more than €100, you could walk into the London branch office of Laiki and withdraw without restriction.  Same goes for Bank of Cyprus which conveniently had a subsidiary bank in Russia (in addition to it’s London branch) and which also did not impose any withdraw limits.

So, international investors swarmed through this loophole pulling out all their exposed funds and leaving the ordinary Cypriots to face the music.  That’s why the percentage of funds to be confiscated kept on rising as the crisis progressed – all the big players were pulling their money out through the backdoor which was conveniently left wide open for them.  Remaining depositors then had to make up the shortfall to raise the €4 billion required by the Troika for the bailout deal to go through.

The question becomes: Was this done intentional or by incompetence.  I find it simply impossible to conclude that this was a mistake given:

  1. This would have been completely obvious to those running the banks.  Would the president of Laiki really be so stupid as to forget that he had an international branch in London?
  2. This vulnerability was left in place for more than a week.  Clearly these banks, under tremendous pressure and scrutiny would have noticed the daily outflow of supposedly frozen bank deposits – yet they did nothing to stop it.

So, one in forced to conclude that this was done intentionally to allow large investors, and specifically the Russian oligarchs/mafia, who were some of the largest depositors in Laiki bank, to get their money out.  After all, if you’re the president of Laiki would you rather have to explain your actions to the Cypriot people or to pissed off Russian mobsters?

Some Depositors are More Equal Than Others

But the corruption gets even more in-your-face.  Shortly after the bailout terms of March 25th, 2013 were agreed to, the Bank Of Cyprus issued a press release to clarify some of the terms of the agreement.  In that statement was the following nugget:

Moreover, the following points are clarified:

· All insured deposits (individuals and legal entities) up to €100.000 have, as of 26 March 2013, been transferred from Laiki Bank to the Bank of Cyprus. In addition, the entire amount of deposits belonging to financial institutions, the Government, municipalities, municipal councils and other public entities, insurance companies, charities, schools, educational institutions, and deposits belonging to JCC Payment Systems Ltd have been transferred to the Bank of Cyprus.

Read that carefully.  Deposits belonging to financial institutions (banks), governments, etc. got exempted.  This of course includes the bandits at the ECB (who also famously exempted themselves from taking any losses during the Greek bondholder ‘haircuts’).  What the heck makes them so special?  Why do they keep getting prioritized ahead of other depositors?

Since that statement was released, the Central Bank of Cyprus has decided to strike insurance companies, private schools and charities from the list of the exempted “so as to lighten the burden on affected (large) depositors in the Bank of Cyprus“.  Great sentiment – but why just remove all the exemptions if they are really so concerned about reducing the burden?

Records?  What Records?

Even before the crisis blew sky high in March, there was an investigation launched last August (2012) by the Cypriot Central Bank to determine exactly how the two banks wound up holding such a large amount of risky Greek bonds.  There are very specific rules for how much of a bank’s capitalization can be allocated in risky assets.  Bank holdings are supposed to be disclosed to regulators periodically so the regulators can ensure banks are sufficiently capitalized.  The mandate for the investigation was to determine whether the Bank of Cyprus was properly reporting its holdings to regulators.  Or, was the Bank of Cyprus playing fast and loose with the rules to squeeze out extra profits from the high yield Greek bonds (which would lead to larger bonuses for the bank executives).

To complete the investigation an independent firm (Alvarez and Marsal) was hired.  As it turns out, a copy of their final report to the Cypriot Central bank got leaked and boy, is it a doozy.  This report is unbelievably damning to the Bank of Cyprus and documents a pattern of market manipulation, misreporting of Greek bond holdings (including outright lying to their own board of directors about Greek bond exposure), and, most damning of all, evidence of key data being systematically deleted to prevent it from falling into the hands of investigators.  The full report can be found here – I would encourage everyone interested in a detailed look at exactly what went on inside the Bank of Cyprus to read it.

By way of summary, here is a smattering of some of the more shocking revelations included in the document:

1.3 Co-operation provided by the Bank of Cyprus

1.3.1 Although BOC has generally complied with the documentation requests provided to them,

there have been a number of unnecessary delays and general frustrations during the course of the investigation of the Bank. These have resulted from the slow documentary responses of the Bank, the constant need to double check the information that has been provided and the need to chase the Bank for key missing documentation.

1.3.2 By way of example, the way that BOC acted in respect of the provision of electronic data to the investigation team not only resulted in unnecessary delays of over one month, but there is also evidence to demonstrate that during these delays people within the Bank were able to delete data and have attempted to ensure the deleted data could not be retrieved by the Investigation team. This is demonstrated in the chronology set out in Appendix A to this report.

A read of the above-referenced Appendix A outlines an almost comical sequence of stalling tactics and ham-handed attempts by the Bank of Cyprus to bamboozle investigators into thinking that all requested documents and emails had been produced when, to the contrary, there were blatantly obvious gaps in the data provided.  If anyone wants a tutorial on how not to run a cover-up, read Appendix A.

3.2 Deletion of data

3.2.1 On 21 August 2012, the CBC issued a letter to each of CPB and BOC advising that an Investigation had commenced and that all books, records and documents, physical and electronic, were to be preserved and that all routine document destruction and deletion was to be suspended. On 24 August 2012, the CBC transmitted a similar letter to the employees of the CBC. Copies of each of these letters are attached hereto (Exhibit 2).

3.2.2 The e-mail data provided by the BOC to the Investigation team appears to be incomplete, with certain key custodians having little or no e-mail data during the period of 2009 and 2010. It was only possible in limited instances to determine the reasons for gaps in the electronic data collected. Potential explanations include deliberate deletion of data, poor archiving or inadequate data management by certain individuals. Furthermore, we are unable to confirm whether or not some or all of the absent critical data exists elsewhere.

3.2.3 The Investigation team received written approval from the CBC to obtain and analyse forensic images of the computers of the BOC employees on 8 November 2012. Based on an initial review of this data, our computer forensic technologists have found that the computers of two employees, Mr Andreas Eliades (“Mr Eliades”) and Christakis Patsalides, have had wiping software loaded which is not part of the standard software installations at the BOC. Mass deletion of data appears to have been undertaken on the Patsalides computer on 18 October 2012. It appears that some deletion was undertaken after a data preservation notice was issued to BOC by the CBC on 21 August 2012.

3.2.4 There are no e-mail files, mailboxes or user documents on Mr Eliades’ desktop computer. We have been unable to recover or identify any such documents from the hard drive of this computer, which would suggest that either:
-the computer was not used by Mr. Eliades; or
-the hard drive was formatted and/or wiped by BOC IT after Mr.Eliades left the bank; or
-the hard drive was wiped using data removal / wiping software such as CCleaner installed on the desktop.

And later in the document:

7.7.7 As part of the investigation, Mr Eliades’ computers were requested. A desktop apparently used by Mr Eliades in Greece was imaged in Greece on 15 November 2012 [after the duty to preserve had been issued]. Our computer forensic technologists have confirmed that wiping software installed on the computer had been accessed. No data was found on the laptop, which would suggest that the wiping software was used to delete files or that the laptop was not used by Mr Eliades to store data. Recovery techniques have been used to establish whether any deleted data can be retrieved; however, no user data (emails, documents, etc.) was recovered.

7.7.17 As part of the investigation, the emails for Dr Patsalides were provided to the investigation team. On review of these emails it was noted that the period of fate 2009 and most of 2010 contained significantly fewer emails than other periods, as can be seen from the chart below. We are advised that no back-up was maintained.

7.7.19 Following approval to obtain forensic images of BOC computers, it was found that on 18 October 2012 over 28,000 files (including almost 1,300 documents) were deleted from Dr Patsalides’ desktop using wiping software installed and executed from a portable device (e.g. a memory stick).

Key to this is the identity of the two individuals explicitly named for having wiping software loaded which is not part of the standard software installations“:

  • Christakis Patsalides is the former senior executive in the bank’s treasury department.  He is named in the report as the key figure pushing for the Greek bond purchases.
  • Andreas Eliades is the former CEO of the bank during the period in question.

So, here we have the CEO and another senior bank official caught deleting their email to cover their butts.  And guess what the happened when investigators questioned these guys about their missing records? The former BOC CEO, Mr Eliades, did not participate or assist in the Investigation. This was despite significant effort, including the assistance of the BOC and its external counsel to contact and request a meeting with Mr Eliades. Mr Eliades did not respond to our email requests and calls until the end of the Investigation, on 26 February 2013…

6.1 Disclosure of GGB Portfolio

6.1.1 Based on our findings it would appear that, in some instances, the executive management of the Bank did not keep the Board of Directors adequately informed of significant investment strategies and actions.

6.1.2 On 10 December 2009, Mr Kypri informed the market that BOC had sold €1.7 billion of GGBs; stating

that from the beginning of the year, the Bank had decreased its exposure of GGBs from €1.8 billion to €0.1 billion. Yet on the same day as that announcement, Mr Eliades instructed the Treasury department to purchase GGBs amounting to €400 million, of which €150 million was immediately acquired, without informing the market of this decision.

6.1.3 On 11 December 2009, during the Board meeting Mr Karydas informed the Board that the Bank no longer had any significant exposure to GGBs. At this date, the Bank had started to repurchase GGBs and held €231 million worth of GGBs.

So, the executives at the Bank of Cyprus were even lying to their own Board of Directors (as well as the regulators) about the amount of exposure to the toxic Greek bonds.  Presumably this was done to safeguard the performance bonuses for the execs.

Bottom Line

The entire middle class of Cyprus has been decimated.  Retirees, or those nearing retirement, will not be able to recover from this unprecedented wealth confiscation.  The Cypriot economy has been ruined.  Expect to see an even worse depression than the hell that is currently unfolding in Greece.

The bankers took huge risks in order to maximize profit and, more to the point, their bonuses.  Then, when things went south, those same bankers walked away leaving the ordinary depositors to foot the bill for their greed.  When people tried to look into what happened the bankers lied and otherwise attempted to cover-up the truth.

As the crisis unfolded, and with ordinary Cypriots under complete financial lock-down, intentional loopholes were left open in the system to allow the uber-rich to get their cash out increasing the burden to be ultimately borne by the little guy.  Then this inequality was further thrown in the face of Cypriots by outright exemptions being granted to special interests including other bankers.

I continue to be amazed that these events unfolded without wide-spread civil disobedience.  What unfolded was nothing less than government sanctioned theft and the wholesale rape of a nation.  At some point, as more and more countries come into the cross-hair’s of these thieves, people are going to need to say enough.  Until people stand-up en-mass and refuse to be victimized, the bandits at the EU, IMF, and central banks around the world are going to continue to rob we, the people, blind.

Secure Beneath the Watchful Eye


With facial recognition and license plate reading cameras on every street corner, London, England is probably the most Orwellian city on the planet.  The above picture is a banner advertisement from off the streets of London, letting commuters know that Big Brother is keeping a loving, watchful eye over them.  Comforting or creepy?  Unfortunately, many people today find this comforting – a position that is completely ignorant of the dangers of government tyranny and oppression.

Canadian cities will not be outdone in efforts to misuse tax payer money for building of a pervasive surveillance grid for their host population.  A recent example is the City of Ottawa’s plan to put video cameras on every city bus.  A move that could cost up to $10 million initially, with a $1M to $3M annual maintenance cost.  The system of choice may include features to allow police to remote view from their cars; however, this is the more expensive option so it will likely not be in the initial specification.  Keep in mind though, the reality with these systems is that the government need only to run a public relations campaign for the initial implementation of the system.  In the future, various upgrades may be added; things such as, facial recognition, remote access, long-term archiving, without there being any way to know (unless learned through Access To Information).

Like with most losses of civil liberty, as well as blatant attacks on privacy, the government can only implement advances to their increases in power if the public is willing and/or ignorant.  With a complicit media that works hard to balance the demands of government against the critique of a small portion of citizens that might take notice, a little propaganda is all that’s required prior to implementing the change that further erodes basic liberty and privacy.  With a small public relations investment, government is then able to move forward without much, if any, opposition.  We’re talking about scientific methods of opinion manipulation perfected over a century ago.

Not that this statement on its own is of any particular sophistication, but here’s an example of the local media in Ottawa selling bus cameras to the citizenry:

“The sad reality is there is a need to surrender some of our privacy rights for a limited greater good that involves the safety of passengers and employees.

That is the world we live in.”

So it’s a foregone conclusion (it’s the world we live in) and the collectivist model (the greater good) trumps any individual rights and freedoms.  Never mind how governments historically have become totalitarian police states when they incrementally take liberties.  We’re supposed to chip in for the greater good and be positive about the loss of privacy because it means better security for all.  Would it surprise you if in the near future a concern about privacy could equate to a guilty conviction (of whatever) – what’s the problem if you have nothing to hide?  Isn’t that the trendy meme for such issues?

I ask you to consider the world in a generation or two.  You can bet facial recognition and other creepy technologies will be behind these cameras, with the Big Data ability to correlate your health, shopping, cell phone, social networks and other personal details near instantaneously in some government “fusion center”, courtesy of your tax dollars.

In future posts on the topic of privacy and public surveillance, we’ll get into the behind-the-scenes technologies that show what kind of power we’re allowing our governments to accumulate.  At what point do we draw the line with governments and corporations moving us deeper and deeper into a total surveillance state?

The Cyprus Bail-In: Part One – Timeline

This is the first of a four part series that will deal with the recent bail-in that occurred in Cyprus.  This pivotal, watershed event is absolutely vital for everyone to understand.  There are huge systemic risks built into the banking system that too few people comprehend.  Cyprus is simply the first domino to fall.  It is the proverbial canary in the coal mine.

This post will focus on documenting exactly what happened in Cyprus and laying out the timeline of events.  Future posts will then analyze the impact of the crisis, how the system made sure the burden was borne by ordinary depositors (and not the very wealthy or large corporations) and how this bail-in sets a dangerous precedent for future bank failures in Europe and elsewhere (including Canada).

The Timeline

Although most people only learned of the financial crisis in Cyprus when it blew sky high in March 2013, the reality is that, as with most peripheral countries in the Eurozone, things had been deteriorating in Cyprus for some time before that.  Starting from 2009 here’s how events unfolded in Cyprus:

  • Like most countries, Cyprus’ economy was hit hard by the recession in 2009 and experience a strong contraction of over 1.5% GDP.
  • During 2010 and 2011 Cyprus’ economy experienced tepid growth and failed to recover to the pre-2009 levels.  During this same period the large Cypriot banks amassed a huge amount of high-yield Greek bonds.  While the GDP of Cyprus was under €20 billion, the banks had accumulated over €22 billion in Greek bonds.  For a while this worked out great: The Greek bonds had long since been downgraded to junk status meaning that they paid high interest to the banks.
  • But with such high returns came risk.  And, in October 2011 Greek bond holders got burned – big time.  As part of Greece’s second bailout, Greece agreed to impose a 53.5% haircut on bond holders (except for the European Central Bank which was exempted from taking any loses; coincidentally the ECB was part of the so-called Troika that drafted the terms of that bail-out).  In an instant, the Cypriot banks had just shy of €12 billion wiped off their balance sheets.  These banks were instantly insufficiently capitalized and in dire straits.
  • By January 2012 Cyprus was relying on a €2.5 billion emergency loan it had secured from the Russians to cover the growing deficit and refinance existing bonds as they rolled over.
  • By March 2012 Moody’s (one of the major rating agencies) had downgraded Cypriot bonds to junk and then in June Fitch followed suit.  These rating downgrades disqualified Cypriot bonds from being accepted as collateral by the ECB.  It also meant that many mutual funds, pension funds, ETFs, etc., which have rules about the rating of the bonds they purchase, could no longer purchase or hold Cypriot bonds.  This instantly and severely reduced demand for Cypriot bonds.
  • On June 25, 2012, the same day as the Fitch ratings downgrade, Cyprus formally requested a bailout from the EU.
  • Throughout the rest of 2012 and into March 2013 negotiations between the so-called Troika (ECB, IMF, European Commission) and Cyprus continued.  The glimpses the public saw of proposals all centered around conditions similar to previous EU bailouts – namely tax hikes and austerity.
  • On Saturday March 16, 2013 the final terms of the bombshell deal were announced.  Rather than a pure bailout (in which funds from the outside are used), these terms required a partial bail-in where assets (i.e. deposits) from inside the failing banks would also be used.  In exchange for the €10 billion in bailout funds, Cyprus would raise an additional €6 billion by imposing a one time bank levy of 9.9% for uninsured deposits (i.e. those over €100,000) and 6.75% for insured deposits (i.e. those under €100,000).  ATM withdraw limits of €400 were imposed as Cypriots flocked to ATMs trying to withdraw money.  Many ATMs in the country simply run out of cash even with the €400 limit.
  • Sunday March 17th starts to see the vehement reaction of Cypriot people to this unprecedented seizure of deposits.  As the deep unpopularity of the levy becomes clear, the Cypriot government postpones the emergency session of parliament that had been scheduled to vote on the bailout terms from Sunday to Monday.  A bank holiday is declared for Monday meaning that, aside from limited ATM withdraws, Cypriots will be unable to remove their exposed funds from the banks,
  • On Monday March 18th the Cypriot government is in panic as the rage of both the people and Russian government (many of whose wealthy citizens have large holdings in the Cyprus banks) reaches a crescendo.  The decision is made to again delay the parliamentary vote until Tuesday and it is announced that the bank ‘holiday’ is being extended until Thursday, March 21st.  The run on ATMs continues and banks start to unilaterally reduce the maximum withdraw below the government imposed €400.
  • Tuesday March 18th sees the Cyprus politicians bow to the overwhelming public pressure and reject the bailout terms from the Troika.  Cyprus desperately seeks alternative investment from the Russians and wealthy Middle Eastern investors.  On Wednesday it announces another extension of the bank holiday until at least Tuesday, March 26th.  The prospect of Cyprus exiting the Euro starts to be openly discussed amongst Troika officials.
  • For the remainder of the week (March 19th until the 24th) ATM withdraw limits remain in place eventually dropping to €100.  Bailout terms gradually start to turn away from applying a levy against insured deposits and towards applying a larger levy against uninsured deposits.
  • On March 25th bailout terms are agreed upon by the Cypriot government and the Troika.  The deal essentially separates the two largest banks at the center of the crisis (the Bank of Cyprus and Laiki Bank) into a ‘good’ bank and ‘bad’ bank.  Under the deal, Laiki becomes the bad bank that will be wound down.  Its bond holders are to be completely wiped out (i.e their bonds are worth €0).  All good assets and insured deposits are to be transferred to the Bank of Cyprus.  Uninsured deposits at both banks (those greater than €100,000) are to remain completely frozen until it is determined how much must be confiscated for Cyprus to raise the €4 billion required under the deal.  Capital controls are also imposed including a €300  daily withdraw limit from banks and ATMs, a €2000 per month limit on transfers out of country and an outright ban on cashing cheques or opening new accounts.  It is announced that these capital controls will be in place for a limited time (2 weeks) while the terms are finalized and Laiki wound down.  Banks are reopened under the new capital controls March 28th having been closed since March 16th.
  • Throughout the rest of March and April 2013 the capital controls are repeatedly extended and the estimated hit against the frozen uninsured deposits creeps from 20% up to more than 80%.
  • On April 30th the final bailout terms are approved by Cyprus and the exact terms of the bail-in announced (see below).

The Current Situation

With the final approval of the bailout and bail-in on April 30th, here’s where things stand today for the uninsured deposits:

  • 37.5% has been converted to shares in the Bank of Cyprus (at a nominal value of €1).  
  • 22.5% will remain frozen pending an updated audit of the Bank of Cyprus expected at the end of June.  This 22.5% may then also be converted to shares in the Bank of Cyprus depending on the result of the audit.
  • 30% will remain temporarily frozen.  These funds may also be converted into shares at a later time or otherwise confiscated by the Bank of Cyprus.

It is important to understand the game that is being played with converting cash into shares in the Bank of Cyprus.  The shares are converted at a nominal value of €1.  That’s great except the Bank of Cyprus share price is only around €0.20 these days.  So, if you had €10,000 converted to shares under these terms and then sold your shares you’d only get €2000 – thus you’d realize an 80% loss.  In other words, the ‘converted’ funds are almost entirely written off due to the nominal value chosen for the conversion.

So, uninsured depositors have already effectively lost 30% (37.5% * .8) and have an additional 52.5% frozen for the foreseeable future and subject to loss.  Assuming the share price doesn’t drop further (not something I’d bet on) another 42% (52.5% * .8) will be stolen.  This gives us a grand total 72% loss imposed on uninsured deposits.

In the meantime there continues to be draconian capital controls imposed on Cypriots – an indication the worst may not yet be over.  Here’s a summary of those capital controls still in effect today:

  • €300 per day withdraw limit (at ATM or bank teller).
  • €5000 per month in transfers outside the country.
  • €3000 per month can be taken out of the country by travellers.
  • Cashing of cheques not permitted (but depositing of cheques is).

Expectations are starting to be unofficially set that these capital controls will likely remain in place through the summer.

Next Up

The next post in this series will look at some of the impacts from these events.  I’ll look at both the impact on the ordinary Cypriot as well as the impact on the wealthy foreign depositors and institutions with funds in Cypriot banks.  As you might expect, there is a large discrepancy between how these two groups were treated.  I’ll try to expose some of the ways in which the banksters and uber-rich were allowed to circumvent the system and ultimately ensure that the ordinary Cypriot depositor would be the one left holding the bag.

Stay tuned…


Syria and the Chemical Weapon Hype

In any conversation about the civil war raging in Syria, it’s hard to avoid the temptation to veer off into the fact that the West is actively arming and funding the Free Syrian Army (FSA) which comprised primarily of Sunni and Wahhabi extremists (aka Al-Qaeda).  It’s equally difficult to restrain from discussing the many documented atrocities that have been committed by the so-called freedom fighters of the FSA.  But, rather than go down that road I want to focus on the specific topic of chemical weapons in Syria.

Recent days have seen a firestorm in the mainstream media.  We’re told that Syria has ‘crossed the red line’ and used chemical weapons against civilians.  Specifically, the Syrian army is alleged to have used some nerve agent (supposedly sarin) in two incidents towards the end of March in Damascus and Aleppo.  The originating source of these allegations is a report from the British Ministry of Defense indicating that is has received soil samples that tested positive for some unspecified chemical weapon.  In addition there are reports from the ‘Syrian American Medical Society’ that it has evidence of chemical weapons use that was delivered to the U.S. embassy in Turkey.

Here’s what U.S. Secretary of Defense Chuck Hagel had to say from Abu Dahbi on April 25th:

This morning, the White House delivered — delivered a letter to several members of Congress on the topic of chemical weapons used in Syria. The letter, which will be made available to you here shortly … states that the U.S. intelligence community assesses with some degree of varying confidence that the Syrian regime has used chemical weapons on a small scale in Syria, specifically the chemical agent sarin.

As I’ve said, the intelligence community has been assessing information for some time on this issue, and the decision to reach this conclusion was made within the past 24 hours.  And I’ve been in contact with senior officials in Washington today and most recently the last couple of hours, on this issue.

We cannot confirm the origin of these weapons, but we do believe that any use of chemical weapons in Syria would very likely have been originated with the Assad regime. As the letter states, the president has made it clear that the use of chemical weapons or the transfer of such weapons to terrorist groups would be unacceptable. The United States has an obligation to fully investigate, including with all key partners and allies and through the United Nations, evidence of chemical weapons use in Syria.

And here’s what the British Foreign Office had to say in a statement also on April 25th:

We have limited but persuasive information from various sources showing chemical weapon use in Syria, including sarin. This is extremely concerning. Use of chemical weapons is a war crime.

Not to be left behind Canada’s Foreign Affairs Minister John Baird set the stage on April 7th in a written statement:

Assad has plunged his country into chaos and is ultimately responsible for any use of chemical weapons that occurs on Syrian territory.  We continue to warn the Syrian regime, and all parties in the Syrian conflict, against any use of chemical agents.

Baird then joined the bandwagon on April 26th stating:

There is no reason to doubt reports of chemical weapons being used in Syria… there’s no reason to discount or doubt what Israel and the U.S. are reporting… We suspect it’s the government, we don’t know it’s the government

These are very dangerous allegations – the kind that have been known to start, or at least provide justification for, wars.  Let’s break these allegations down.

Ambiguous Language

Notice the language in the above quotes.  There are lots of goodies to make sensational headlines with – indeed that’s exactly what we saw happen in the mainstream media.  But, in both cases there are lots of qualifiers: ‘limited but pervasive’, ‘assesses with some degree of varying confidence’, ‘cannot confirm the origin’, etc.

All I see here are wishy-washy allegations with nothing to back them up.  Yet, look at any major news source and you will see the allegations and fear-mongering being parroted over and over again.

Inconclusive Evidence

The evidence all this fear mongering is based on are the soil samples delivered to the British and the unspecified evidence delivered to the U.S. embassy in Turkey.  Let’s assume that everything is on the up-and-up, that these samples do exist and do contain evidence of chemical weapons.  We’ll make this assumption despite the fact that no hard evidence of any kind is being released to the public.

We still have a huge chain of custody issue here.  Neither the British nor the U.S. authorities collected the samples the allegations are based on.  It is clearly a possibility that these samples could have been tampered with or outright doctored prior to hand-off to the Americans and British.

But even if these are legitimate samples taken in the aftermath of chemical weapon attacks, all we can say is that somebody used chemical weapons.  It is one heck of a leap to then assign blame to the Syrian government.  There has been no evidence provided to justify making this kind of a leap of logic.

We’ve Seen This Before

The fact of the matter is, we’ve seen this before.  Remember Colin Powell’s address to the U.N. Security Council back in 2003 to provide the moral justification needed to start the Iraq war?  You should.  Because, in the end, it turned out to be complete bullshit – all part of a grand show to garner public support for invasion.

So, there is direct and recent historical precedent to using fear-mongering over WMDs as a justification for desired military action.  We need to be cautious and not simply accept at face value what the officials and their puppets in the mainstream media shove down our throats.

Who Has Motive?

Let’s do a little role playing.  You’re Assad.  You’ve got NATO and the West just itching to take you down.  You know what they’re capable of having seen what happened in Libya.  You’re fighting a civil war against a decentralized enemy who relies primarily on guerrilla warfare.  You know that any use of chemical weapons will cause massive backlash and justification for further intervention by NATO forces.  Further, use of such munitions would make it untenable for your one key geopolitical supporter, Russia, to continue intervene diplomatically (and with military aid) on your behalf.

Given this context, if you’re Assad, would you really use chemical weapons?  And, if you did make the completely insane decision to use chemical weapons, would you deploy them in small, non-strategic attacks on civilians?  Why would you possibly take all the negatives that go along with using chemical weapons for no strategic or even tactical gain?  It doesn’t make sense.

Now let’s look at things from the other side.  Let’s say you’re high up in the FSA.  You’ve got NATO and specifically the U.S. feeding you large quantities of cash and weapons but are still having a tough slog against determined government forces.  Your army is largely decentralized and it’s difficult to coordinate among the various factions for large scale coordinated attacks.  What you need most is air support or, at the least, some way to prevent the opposition from being able to use its air support.

You know that if Assad ever uses chemical weapons (or you can make people believe he did) the likely response will be a NATO imposed no-fly zone at the least.  Heck, it is even possible the U.S. might execute targeted air strikes or put some limited boots on the ground.  You know that Western politicians and media are deeply bias to your cause and have not widely reported on many of the atrocities your forces have committed.

Given this context, wouldn’t you deploy chemical weapons to achieve your strategic objective of a NATO enforced no-fly zone and increased military support?  Do you not have a clear motive for carrying out small scale chemical weapon attacks and attributing them to Assad?

Does the FSA Possess Chemical Weapons?

This is a pretty big statement: The FSA itself may be responsible for chemical weapon use in Syria.  Is this possible?  Does the FSA possess chemical weapons?

There is indeed some circumstantial evidence to suggest that the FSA does possess and has been preparing to deploy chemical weapons in a false flag operation against the Assad regime.  This evidence is by no means certain but, given the other well documented atrocities committed by the FSA, it is in the realm of possibility and worth at least being aware of.

Specifically, this evidence includes audio recordings between alleged FSA members discussing use of chemical weapons, video supposedly showing rebels testing chemical weapons against lab rabbits, and other reports of gas masks being distributed to FSA members (which could simply be a defensive measure against possible deployment by Assad forces).

All this evidence, like the allegations of chemical weapons use by Assad’s forces, is highly questionable and not to be considered conclusive.

One thing that is interesting on this topic is that back in December of 2012, the Syrian Foreign Ministry penned a letter to U.N. Secretary General Ban Ki-moon expressing its concern for exactly the false flag scenario I just described:

The U.S. administration has consistently worked over the past year to launch a campaign of allegations on the possibility that Syria could use chemical weapons during the current crisis…What raises concerns about this news circulated by the media is our serious fear that some of the countries backing terrorism and terrorists might provide the armed terrorist groups with chemical weapons and claim that it was the Syrian government that used the weapons.



So what can we conclude from this?  Well, despite the propaganda from the mainstream media over the last few days, we certainly we can’t conclude that Assad’s forces used chemical weapons.  Equally, we can’t conclude that it was a false flag staged by the FSA.  About all we can definitively say is that, of the two groups, the FSA has every motivation for staging a false flag chemical weapon attack whereas Assad has every reason not to use his chemical weapons.

At the very least reasonable citizens should demand iron clad proof that chemical weapons have been deployed by Assad before allowing their governments to enter into yet another foreign entanglement.  The government has lied to and manipulated us before under these exact circumstances.  We have a duty to not allow ourselves be deceived again.

Finally, as Canadians we should be disgusted by John Baird’s shameful blind acceptance of U.S. and British allegations.  We expect more from our leaders than parroting whatever the U.S. and U.K. say.