(I promise this is purely curiosity, I do NOT need an answer fast.)
So I was listening to a podcast, and it mentioned that before the Libyan revolution, there were lots of Libyan assets in western banks, such as $270 million held by HSBC (or whatever).
That got me wondering… when there’s an account of that size, belonging to a country, how does that actually work? If I snuck into some Libyan governmental building, could I find a 10-digit account number, 20-digit passcode, and then just call up the bank and say “hi, I’m from the Libyan government, please transfer $100 million over the wire”? Alternatively, if the actual Libyan finance minister knew that he was about to get sacked, could he just call up the bank, wire $200 million to some other account, and flee the country? (I mean, obviously he might not be able to flee the country, but could he just call up and say, “Hi, this is Mr. Aziz, here is my passcode, here are my wiring instructions”, and they would just do it?)
Or is it some more sophisticated thing where no one EVER actually takes all the money out of an account that size, rather it’s held as investments, with small(ish) amounts liquidated and shifted around as needed?
States in the US have commercial checking accounts, and very large checks are routinely written and cleared. I would image it is the same for foreign countries, that the accounts are meant to facilitate their government business locally, and that expenses are monitored by routine audits.
Right, but my question is… how does an account like that actually work? With my checking account, I can get money out by writing a check, taking my debit card to an ATM and knowing the code, or going in in person and providing some amount of ID.
What if IBM has an account at Bank of America with $300 million dollars in it. If IBM wants to legitimately withdraw $100 million, how does that work? Is there some single guy at IBM who knows some guy at BofA, and calls him up and provides a routing number? Or is there some amount of withdrawal-time back and forth, with multiple ways to verify multiple trusted people within IBM, before money can actually be transferred? Or is it all based on knowing very long secret passcodes which IBM presumably takes very very very good care of?
(And is the situation different for governments vs corporations? If Libya’s government is overthrown, and a new government is installed, how does a bank decide whether the new government is the legitimate owner of the account that belonged to the old government?)
This may not be entirely pertinent, but I used to be acquainted with someone who was an underwriter at Lloyds. I was talking to him one day about insuring the big ticket items like large jets, or bridges, and he told me that it is simpler than insuring your car. Basically, they all know (and trust) each other; so when Fred calls Joe, and says “I have this £100 million bridge to cover”, Joe would say, “OK, put me down for 10%.” That would be a contract from that point - the paperwork would follow, but the bargain was already struck.
Another guy I knew, worked at Hatton Garden. He would often hand over valuable packets of diamonds to someone where the only record would be an entry in a ledger.
My take is that in BIG business, there is a lot more taken on trust than we might think.
When the accounts of this type are opened, the financial institution requires a documentation of the persons and the posts that have an authority of signature on the account. The entity must provide a documentation of the appointments and that the appointments follow the rules of the organisation. It can be the company or the ministry. This can include giving the banks copies of the statutes and rules of the organisation to give the bank the confidence.
The actual transactions are often by the electornic exchange or the wire order, which is very common although it seems not to be so used in the US where the cheque is still common. But it does not matter, the signatures on the orders must be from the persons the bank has as authorised. Sometimes it has different rules for levels of orders.
But if its electronic signatures, is it just the same as your account number, password and secure ID token ?
yes, seems like that,but the bank may be able to offer the account that has a preset list of accounts to transfer to. eg To the various accounts, one for each government department…
My point is that there is no direct safeguard keeping the money in the bank. Entities within the government have access to a checkbook, and simply write/print checks or otherwise access the account. The government will have procedures to document the expense, through purchase orders, etc, but errant or unauthorized spending would be dealt with following routine auditing and monitoring of the accounts.
I have occasionally heard of states printing errant checks for hundreds of thousands of dollars. Such an errant check will easily clear due to the account’s size, although it is usually quickly detected and corrected, usually by voluntarily assent, sometimes by court order.
IBM does NOT leave $300 million sitting in a bank account, earning little or no interest. IBM invests that money somewhere to earn income from it, even if it’s very short-term (like even just overnight, or for a couple of days).
I’ve worked for big companies like IBM, in payroll, for example – every time we ran the payroll processing system, it also produced a file that went to the finance department, giving info on all the paychecks written, the check amount & date cashable. They used this to calculate how much cash had to be put into that account each day to cover the checks that might be cashed. they deposited only that amount into the account – often even slightly less than that; because their records showed that not all the paychecks would be deposited/cashed that same day.
And IBM actually serves as a ‘bank’ themself – they have a division that offers financing to customers who place big orders. (Some quarters, that would be one of the most profitable divisions in the company.)