American spies use US Federal Reserve to monitor foreign banks

Federal Reserve Bank of New YorkAmerican intelligence services have made use of a little-known confidentiality exception to spy on the financial activities of foreign banks who have accounts with the United States Federal Reserve, according to Reuters. Established in 1913, the Federal Reserve System is the central banking structure of the US. It oversees and regulates the nation’s financial institutions, and is tasked with —among other things— maintaining the stability of the American financial system. Additionally, however, the Federal Reserve offers a host of financial services to official (government-owned or sanctioned) foreign institutions. Thus, over 250 foreign banks (typically central banks) from dozens of countries have deposited nearly $3.3 trillion in assets at the Federal Reserve Bank of New York, one of 12 Federal Reserve Banks in the US. Depositing assets at a US Federal Reserve Bank, allows these foreign ‘depository institutions’ to use the US Federal Reserve as a ‘custodial institution’. Through it, they get direct and immediate access to American debt markets, where they can trade directly in dollars — the reserve currency of the global economy.

As one would expect, the ‘custodial services’ provided to foreign state banks by the US Federal Reserve are subject to strict confidentiality rules. However, according to a report published yesterday by Reuters, US intelligence agencies have found ways to circumvent these rules and monitor the activities of foreign banks who use the US Federal Reserve’s services. The news agency said it interviewed “more than a dozen current and former senior [Federal Reserve] and [US] Treasury [Department] officials”, including executives and division heads. It concludes that the US Intelligence Community has “leveraged the [US Federal Reserve’s] position at the center of global finance” to gain insights into the financial activities of foreign governments.

Specifically, the report alleges that American spies have made regular use of a little-known “need to know” exception clause to the US Federal Reserve’s confidentiality rules, and have been able to monitor the financial…

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