This morning WorkCompCentral reported that the state treasurer of Ohio has asked the state’s attorney general to investigate whether beneficiaries of the state’s pension funds and the Bureau of Workers’ Compensation have been “exploited by custodial banks” when conducting foreign currency exchanges.
At least three other states have instituted investigations and lawsuits: Virginia, Florida and California.
Foreign exchange (or “forex”) can provide a rich source of revenue for American banks, particularly custodial banks, which can profit not only from buying international stocks and bonds for pension funds and other investors, but also on trading dollars into other currencies. Overall, foreign exchange generates an average daily volume of $4 trillion.
At issue is the alleged practice of banks charging close to the highest or lowest prices of the day, depending on what was advantageous to them, not their client, rather than charging the market rate at the time of the order. This practice may be in violation of either the law or contract, or both.
Ohio and other state treasurers allege that this has resulted in tens of millions of dollars of untoward profits for the banks at the expense of the Ohio Bureau of Workers' Compensation Fund, and other state pension funds. The result would be an inflation of rates and premiums for Ohio employers.
The banks being investigated have denied wrong doing.
I have opined in the past about the complexity of workers' compensation, but my editorials have always focused on the claims process.
The financial underpinnings of the workers' compensation industry are just as complex, if not more so, than the claims process and these investigations demonstrate how an international web of financing not only allows these systems to exist, but also perhaps be open to exploitation.