Pay Your Bills Years in Advance, Negative Interest Rate

Posted on February 12, 2016February 12, 2016 by Denise Simon

Primer:

The Federal Reserve System‍—‌also known as the Federal Reserve or simply as the Fed‍—‌is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907. Over time, the roles and responsibilities of the Federal Reserve System have expanded, and its structure has evolved. Events such as the Great Depression in the 1930s were major factors leading to changes in the system.^[10]

The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximizing employment, stabilizing prices, and moderating long-term interest rates. The first two objectives are sometimes referred to as the Federal Reserve’s dual mandate. Its duties have expanded over the years, and as of 2009 also include supervising and regulating banks, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions. The Fed conducts research into the economy and releases numerous publications, such as the Beige Book.

Negative 0.5% Interest Rate: Why People Are Paying to Save

When you lend somebody money, they usually have to pay you for the privilege.

NYT’s: That has been a bedrock assumption across centuries of financial history. But it is an assumption that is increasingly being tossed aside by some of the world’s central banks and bond markets.

A decade ago, negative interest rates were a theoretical curiosity that economists would discuss almost as a parlor game. Two years ago, it began showing up as an unconventional step that a few small countries considered. Now, it is the stated policy of some of the most powerful global central banks, including the European Central Bank and the Bank of Japan.

On Thursday, Sweden’s central bank lowered its bank lending rate to a negative 0.5 percent from a negative 0.35 percent, and said it could cut further still; European bank stocks were hammered partly because investors feared what negative rates could do to bank profits. The Federal Reserve chairwoman, Janet Yellen, acknowledged in congressional testimony Wednesday and Thursday that the American central bank was taking a look at the strategy, though she emphasized no such move was envisioned.

But as negative rates — in which depositors pay to hold money in bank accounts — become a more common fixture, there are many unknowns about what these policies mean for finance, for the economy and even for the definition of money.

These are some of the key questions, and, where we have them, the answers.

So how do negative interest rates work?

It depends. In the cases of interest rate targets set by central banks like the E.C.B. and Swedish Riksbank, they set a negative target rate for banks, and banks in turn pass it along to their customers. The E.C.B., for example, currently has a negative 0.3 percent rate, meaning that when banks deposit money at the central bank overnight, they pay for the privilege.

Banks have different ways of passing the negative rates on to depositors, often framed as fees for keeping money in an account, which is basically negative interest rates by another name.

Bond markets reflect these negative rates, too, including for longer-term government debt. For example, if you bought a two-year Swiss government bond on Thursday, you would have needed to pay a price that resulted in a yield of negative 1.12 percent. Even 10-year Swiss bonds have a negative rate, a sign markets expect below-zero rates to persist in Switzerland for many years to come.

Generally companies that borrow money are viewed as riskier than governments, so they have to pay higher interest rates. Therefore negative-rate corporate debt is still rare. But it has happened, including with corporate bonds issued by the Swiss food giant Nestle.

But don’t people just withdraw cash rather than pay to deposit it at their bank or buy a government bond that will give them back less than they paid?

You’d think, right? This was exactly why economists had long thought that negative interest rates were impossible. It helps explain why central banks first turned to other tools, including quantitative easing, when they saw a need to ease monetary policy despite interest rates that were already near zero.

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But it looks as if the convenience of keeping money in a bank account is worth a small negative interest rate or fees for most consumers and businesses, at least at the only slightly negative rates currently in place. Storing and providing security for cash may be more expensive than a small bank charge.

When initial experiments in Switzerland and Sweden didn’t result in mass withdrawals from the banking system, larger central banks in need of easier money moved gingerly in the same direction. They’ll stop when either their economies start to grow or they see more concrete evidence that negative rates are doing more harm than good.

How is this supposed to help the economy?

Pretty much the same way it always is supposed to help the economy when a central bank cuts rates. Lower rates encourage business investment and consumer spending; increase the value of the stock market and other risky assets; lower the value of a country’s currency, making exporters more competitive; and create expectations of higher future inflation, which can induce people to spend now.

We have decades of experience with central banks trying to manage the economy by, for example, cutting bank rates to 2 percent from 3 percent when there is an economic downturn. The shift to negative rate policies is, hypothetically at least, the same, but with a starting point of rates already around zero.

So does it work?

It’s hard to say with any certainty yet. At a minimum, it seems to have an effect of lowering the value of a currency, which makes export industries very happy. It’s less clear whether it can help create sustained economic growth, particularly when the hard-to-calculate downsides are factored in.

What are those downsides?

The global financial system is built on an assumption of above-zero interest rates. Going below zero could cause damage to the very architecture by which money and credit zoom through the economy, and in turn inhibit growth.

Banks could cease to be viable businesses, eliminating a key way that money is channeled from savers to productive investments. Money market mutual funds, widely used in the United States, could well cease to exist. Insurance companies and pension funds could face their own major strains.

In a speech last year, Hervé Hannoun, then the deputy general manager of the Bank for International Settlements, even argued that this could “over time encourage the use of alternative virtual currencies, undermining the foundations of the financial system as we know it today.”

Is the Federal Reserve going to do this in the United States?

Janet Yellen doesn’t think so. But in two days of congressional testimony this week, she also didn’t rule it out.

For one thing, the United States economy, and particularly its labor market, looks to be in stronger shape than that of many others around the world. So the Fed expects to be in interest-rate raising mode this year (though exactly how fast is very much in question). But even if the economy does take a turn for the worse, there’s no certainty that negative rates are the path the Fed would take.

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There is a question of whether that would even be legal. It’s not clear if the language of the Federal Reserve Act allows negative bank rates (J.P. Koning, a financial commentator, runs through the legal issues here). Ms. Yellen said in testimony this week that the legality of negative rates “remains a question that we still would need to investigate more thoroughly.”

She also said that “it isn’t just a question of legal authority.”

“It’s also a question of could the plumbing of the payment system in the United States handle it?” she said. “Is our institutional structure of our money markets compatible with it? We’ve not determined that.”

Financial markets do not now price in meaningful odds of negative rates in the United States. Want one modest clue that negative rates can’t be ruled out, though? In its annual stress test of major banks, the Fed asked the firms to figure out what would happen to their finances in a “severely adverse” scenario that included a sharp rise in unemployment and a rate of negative 0.5 percent rate on short-term Treasury bills — in other words, what you’d expect to see if there were a recession and the Fed cut rates well below zero.

Ms. Yellen noted that the rates on Treasury bills could go negative even in the absence of a policy shift by the Fed, as has happened a few times in the past.

So what are some of the weird things that could happen in a world in which negative rates become routine?

The policies in Europe and Japan are still relatively new and involve rates only slightly below zero. But if the policies become long-lasting, or negative rates go much lower, there are a lot of mind-bending ways it could affect routine transactions.

For example, would people start prepaying years’ worth of cable bills to avoid having money tied up in a money-losing bank account? How about property taxes? Would companies and governments put in place new policies prohibiting people from paying their bills too early?

Or consider this: Many commercial transactions now take place with some short-term credit attached — for example, a company that gets a 60-day grace period to pay bills from its suppliers. Would that flip, and suddenly suppliers would prohibit upfront payment and insist that their customers wait 60 days to pay?

Might new businesses sprout up that allow people to securely store thousands of dollars in bundles of $100 bills, or could people buy physical objects as stores of value that the banks can’t charge a negative interest rate on?

“Negative interest rates in Japan is blowing my mind,” said Jose Canseco, the provocative retired baseball player not normally known for his economic musings, on Twitter. And the truth is, he’s not the only one.

Facts: Mexico to U.S. Immigration

Posted on February 12, 2016February 12, 2016 by Denise Simon

Unaccompanied Alien Children Charged in Execution-Style Murder, Media Calls Them “Baby-Faced Boys”

It appears that the recent execution-style murder of a Massachusetts man was committed by two Central American teens that came to the U.S. as Unaccompanied Alien Children (UAC) under President Obama’s open border free-for-all. Tens of thousands of illegal immigrant minors—mostly from El Salvador, Guatemala and Honduras—have entered the country through the Mexican border since the influx began in the summer of 2014 and the administration has relocated them nationwide.

News reports indicate that the 17-year-olds charged in the gruesome Massachusetts killing entered the U.S. recently as UAC’s and both have ties to MS-13, according to authorities cited by various outlets. They lived in Everett and one of the teens, Cristian Nunez-Flores, moved to Massachusetts from his native El Salvador a year and a half ago which is when the influx of Central American minors began. His parents remain in El Salvador, according to a local news article. The other gangbanger’s name is Jose Vasquez Ardon and he too is a recent arrival from Central America. Prosecutors say the teens, described in a local news article as “baby-faced boys,”shot a 19-year-old in the head. Both are being held without bail for obvious reasons. A must read summary here.

*** Meanwhile***

5 facts about Mexico and immigration to the U.S.

PewResearch: Pope Francis is expected to make immigration a major theme of his visit to Mexico. By traveling northward across Mexico, he intends to symbolically retrace the journey of Mexican and Central American migrants traveling to the United States. After the pope leaves Mexico City, his route will begin in the southern state of Chiapas, which shares a long border with Guatemala, and end in Ciudad Juárez, located across the U.S.-Mexico border from El Paso, Texas, a longtime entry point to the U.S.

U.S. immigration from Latin America has shifted over the past two decades. From 1965 to 2015, more than 16 million Mexicans migrated to the U.S. in one of the largest mass migrations in modern history. But over the past decade, Mexican migration to the U.S. has slowed dramatically. Today, Mexico increasingly serves as a land bridge for Central American immigrants traveling to the U.S.

Here are five facts about Mexico and trends in immigration to the U.S.

1Mexico is stopping more unauthorized Central American immigrants at its southern border. The Mexican government said in 2014 that it would increase enforcement at its southern border in response to an increased flow of Central Americans traveling through Mexico to reach the U.S. In 2015, the government there carried out about 150,000 deportations of unauthorized immigrants from El Salvador, Guatemala and Honduras, a 44% jump over the previous year. These three Central American countries alone accounted for nearly all (97%) of Mexico’s deportations in 2015.

2Despite increased enforcement by Mexico, many unauthorized Central Americans are still reaching the U.S. via Mexico. At the U.S.-Mexico border, the number of families and unaccompanied children apprehended by U.S. Customs and Border Protection officials is again rising, though it’s too early to tell how 2016 will compare with prior years. From Oct. 1, 2015, to Jan. 31, 2016, 24,616 families and 20,455 unaccompanied children – the vast majority of them from Central America – were apprehended at the southwestern U.S. border, double the total from the same time period the year before. Apprehensions of unaccompanied children rose to record levels in fiscal 2014, then decreased by 42% in fiscal 2015.

3More Cubans are also traveling through Mexico to reach the U.S. The number of Cubans migrating through Mexico to reach the U.S. spiked dramatically last year after President Barack Obama said the U.S. would renew ties with the island nation. In fiscal 2015, 43,159 Cubans entered the U.S. via ports of entry, a 78% increase over the previous year. Two-thirds of these Cubans arrived through the U.S. Border Patrol’s Laredo Sector in Texas. (Cubans who pass an inspection can enter the U.S. legally under the Cuban Adjustment Act of 1966.)

4Fewer Mexicans are migrating to the U.S. today than in the past. In fact, more Mexicans left than came to the U.S since the end of the Great Recession. Between 2009 and 2014, 870,000 Mexican nationals left Mexico to come to the U.S., down from the 2.9 million who left Mexico for the U.S. between 1995 and 2000. Of those moving back to Mexico, many cite family as the reason for their return. About 1 million Mexican immigrants and their U.S.-born children moved from the U.S. to Mexico between 2009 and 2014, and 61% said they had done so to reunite with family or to start a family, according to the 2014 Mexican National Survey of Demographic Dynamics.

5More Mexicans now say life is about the same in the U.S. and Mexico. In 2015, 33% of Mexican adults said life in the U.S. is neither better nor worse than life in Mexico, up from 23% who said this in 2007. Still, about half of Mexican adults believe life is better in the U.S. and 35% of Mexicans said they would move to the U.S. if they had the opportunity and means to do so, similar shares as in 2009.

China banks may lose 5 times US banks’ subprime losses

Posted on February 12, 2016February 12, 2016 by Denise Simon

Yellin’s testimony includes China as the big worry.

China is big concern

Yellen didn’t mince words about China: its economy is slowing down and uncertainty is rising about how much China will devalue its currency, the yuan.

A weak yuan has major implications for global trade. Yellen firmly blames the uncertainty of China’s currency for the rise in global growth fears.

“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth,” Yellen said.

Add in spooky dude, George Soros:

Bass: China banks may lose 5 times US banks’ subprime losses in credit crisis

CNBC: A Chinese credit crisis would see the country’s banks rack up losses 400 percent larger than the hit U.S. banks took during the subprime mortgage crisis, storied hedge fund manager Kyle Bass has warned in a letter to investors.

“Similar to the U.S. banking system in its approach to the Global Financial Crisis (GFC), China’s banking system has increasingly pursued excessive leverage, regulatory arbitrage, and irresponsible risk taking,” Bass, the founder of Dallas-based Hayman Capital, wrote in the letter dated Wednesday.

“Banking system losses – which could exceed 400 percent of the U.S. banking losses incurred during the subprime crisis – are starting to accelerate.”

China’s banking system has grown to $34.5 trillion in assets over the past 10 years, from a base of $3 trillion, wrote Bass, who is famed as one of the few major investors to correctly call the U.S. subprime housing collapse that kicked off the 2008 global financial crisis. That prescience earned him a mention in Michael Lewis’ book “Boomerang,” which was about the European credit crisis.

This expansion in the banking system’s asset base was fueled largely by rapid credit expansion, Bass wrote, that helped fund the huge, and often inefficient, infrastructure spending program that has propped up China’s growth.

“China’s [banking] system is even more precarious when we realize that, even at the biggest banks, loans are not made to borrowers based on their ability to repay,” he wrote. “Instead, load decisions are political decisions made by the state.”

Add to this the danger posed by China’s shadow banking system – made up of instruments Bass claimed the country’s banks used to subvert restrictions on lending – and the upshot was there were “ticking time bombs” in China’s banking system, the hedge fund manager explained.

“Chinese banks will lose approximately $3.5 trillion of equity if China’s banking system loses 10 percent of assets,” Bass wrote. “Historically, China has lost far in excess of 10 percent of assets during a non-performing loan cycle.”

He noted that U.S. banks lost about $650 billion of their equity throughout the global financial crisis.

The letter said that the Bank for International Settlements (BIS) estimated that Chinese banking system losses from the 1998-2001 non-performing loan cycle exceeded 30 percent of gross domestic product (GDP).

“We expect losses in this cycle to exceed prior cycles. Remember, 30 percent of Chinese GDP approaches $3.6 trillion today,” he warned.

Bass wrote that he expected the massive losses to force Beijing to recapitalize Chinese banks and sharply devalue the yuan.

“China will likely have to print in excess of $10 trillion worth of yuan to recapitalize its banking system,” he said. “By the time the loss cycle has peaked, we believe the renminbi will have depreciated in excess of 30 percent versus the U.S. dollar.”

The hedge fund manager didn’t return an email sent outside office hours requesting comment on the investor letter, which the Wall Street Journal reported was the first he had sent in two years.

Bass’ sentiments on the yuan aren’t new, with the Wall Street Journal reporting earlier this month that he was among the money managers making bearish bets on the currency.

The dollar has already fallen about 5.9 percent against the yuan since August, when a sharp devaluation by the People’s Bank of China (PBOC) roiled markets; the greenback was fetching around 6.5710 yuan on February 5, the last day of trade before China’s markets closed for a week-long Lunar New Year holiday.

The PBOC has introduced a slew of measures to arrest, or at least slow, declines in the currency in the hope of achieving an orderly depreciation.

The central bank has asked banks making yuan loans abroad to set aside more in reserves and has also hoovered up yuan in Hong Kong, a key market where the bearish bets have been made, effectively making it more expensive for traders to borrow the yuan to make these trades.

China’s state-owned publications have also chipped in with stinging editorials admonishing greedy speculators for betting against the currency. Prominent investor George Soros was recently likened to a “crocodile” that had declared “war” on China for suggesting while at the World Economic Forum in Davos, Switzerland, that China’s economy was headed for a hard landing.

In his letter, Bass casts the attacks on Soros as confirmation of his views.

“China’s public reaction in its state media to George Soros’ comments in Davos was in character for a country that is on the precipice of a large devaluation,” Bass said.

While many have pointed to China’s large – albeit shrinking – pile of $3.23 trillion in foreign-exchange reserves as a defensive wall against a crisis, Bass says that’s simply not enough.

He estimates China really only has around $2.1-2.2 trillion in reserves after adjusting for several factors including about $700 billion that could be tied up in China’s sovereign wealth fund CIC. That’s below his estimate of the $2.7 trillion minimum China would need to effect a banking sector bailout.

“China’s liquid reserve position is already below a critical level of minimum reserve adequacy,” he said.

Predictions of a Chinese economic disaster have been circulating for a long time; Gordon Chang’s book “The Coming Collapse of China” was published in 2001.

However, the mainland saw economic growth slow to a 25-year low of 6.9 percent in 2015 amid its transition toward a consumption-driven economy and away from its manufacturing roots.

When it comes to positioning for his expectations of a Chinese bank implosion, Bass wrote that he was thinking broad.

“What happens in China will not stay in China,” he said. “We decided to liquidate the majority of our risk assets.”

He did not appear likely to buy back in to the market any time soon.

“The next 18 months will be fraught with false-starts, risk rallies, and second-guessing,” he wrote.

To be sure, some of Bass’ other doomsday bets haven’t yet come to fruition.

For more than five years, he has called for a collapse in Japan government bonds (JGB) as part of a yet-to-materialize full-blown financial crisis there. That trade, dubbed a widow-maker, has so far backfired spectacularly.

Instead of a collapse in JGB prices, they’ve surged, with the benchmark 10-year seeing negative yields for the first time this week. Bond yields move inversely to prices.

Hayman Capital had returns of about 1.7 percent last year, according to a Bloomberg report.

***

TOKYO (AP) — Japan’s main stock index dived Friday, leading other Asian markets lower, after a sell-off in banking shares roiled investors in the U.S. and Europe.

Tokyo’s Nikkei 225 was down 4.8 percent to 14,952.61 after earlier sinking as much as 5.3 percent. Hong Kong’s Hang Seng fell 1.0 percent to 18,364.14. South Korea’s Kospi gave up 1.4 percent to 1,835.01 and Australia’s S&P/ASX 200 fell 1.2 percent to 4,765.30. Shares in New Zealand and Southeast Asia also fell. Markets in China and Taiwan are closed until Monday for Lunar New Year holidays.

Global stocks have been in a slump since the beginning of the year when China’s market, which had been propped up by government buying, plunged dramatically. Concerns about China, however, are now just one of several factors behind the bloodletting.

NYPD Covertly Tracked Cell Phones

Posted on February 11, 2016February 11, 2016 by Denise Simon

New York police have covertly tracked cell phones, group says

Reuters: New York City’s police have made extensive use of covert devices to track cell phones without obtaining warrants since 2008, a civil liberties group said on Thursday, revealing how frequently law enforcement in the largest U.S. city has employed the technology.

The New York Civil Liberties Union released files that showed the New York Police Department used “cell site simulators” to track nearby cell phones more than a 1,000 times over the past eight years.

The American Civil Liberties Union has identified 60 local, state and federal agencies that have adopted the devices in recent years, but the group has said there are likely far more. The extent of the devices has largely been shrouded in secrecy, as departments and private manufacturers such as Harris Corp have refused to disclose information about their use.

U.S. Representative Jason Chaffetz of Utah, a Republican, has introduced a bill to require warrants for the use of cell site simulators.

The documents released on Thursday were obtained by the NYCLU through a Freedom of Information Law request.

The NYPD does not have a written policy on using the surveillance devices and does not obtain warrants when doing so, according to the NYCLU.

Instead, the department seeks “pen register” orders, which have been used for decades to gather information on specific phone numbers. The orders are issued by judges but require a lower standard than the probable cause needed for warrants.

The NYPD’s practice is less stringent than the one adopted last year by the U.S. Department of Justice, which calls for warrants except in emergency situations.

“We still have concerns that this military equipment is being used in a civilian context,” said Mariko Hirose, an NYCLU attorney. “At the very least, they should be using warrants and with a strict privacy policy that is written.”

The NYPD did not immediately respond to a request for comment.

The devices mimic cell towers and intercept signals from nearby phones to gather information. That data can include locations of calls, numbers that are called or texted and even the content of communications, the NYCLU said.

The simulators can also sweep up information from nearby “bystander” phones.

The documents do not indicate what data police collected. The simulators were used to investigate a wide range of crimes, including murder, rape and drug trafficking.

No New York court has yet tackled the question of whether the warrantless use of such devices is constitutional, Hirose said.

She said the NYCLU could have difficulty establishing the legal standing to bring such a challenge, which would probably have to come from a criminal defendant specifically targeted by a simulator.

Yikes, there is more:

Intercept: The NYPD has used cell-site simulators, commonly known as Stingrays, more than 1,000 times since 2008, according to documents turned over to the New York Civil Liberties Union. The documents represent the first time the department has acknowledged using the devices.

The NYPD also disclosed that it does not get a warrant before using a Stingray, which sweeps up massive amounts of data. Instead, the police obtain a “pen register order” from a court, more typically used to collect call data for a specific phone. Those orders do not require the police to establish probable cause. Additionally, the NYPD has no written policy guidelines on the use of Stingrays.

Stingrays work by imitating cellphone towers. They force all nearby phones to connect to them, revealing the owners’ locations. That means they collect data on potentially hundreds of people. They are small enough to fit in a suitcase, or be mounted on a plane.

When they were originally developed in 2003, Stingrays were designed for military use. But in the past decade, they have increasingly been purchased by law enforcement agencies. According to the ACLU, Stingrays are used by at least 59 police departments in 23 states, and at least 13 federal agencies, including the DEA, FBI, and the IRS. Because most departments withhold information about Stingrays, these numbers likely underrepresent the total.

In December, The Intercept published a secret U.S. government catalogue of cellphone surveillance technology, including Stingrays and “dirt-boxes.” The advertisements boast that many of the items can spy on “up to 10,000 targets.”

Stingrays have long been a topic of concern for privacy activists. “Cell-site simulators are powerful surveillance devices that can track people, including in their homes, and collect information on innocent bystanders,” said Mariko Hirose, a senior staff attorney at the NYCLU. “If they are going to be used in communities the police should at minimum obtain a warrant and follow written policies.”

Instead, law enforcement agencies have fought to keep Stingrays secret, even dropping criminal cases to avoid disclosing anything about them. The FBI has forced local police agencies to sign Stingray-related non-disclosure agreements, claiming that criminals and terrorists who know about Stingrays could take countermeasures against them.

The increasing use of Stingrays, coupled with the lack of transparency, has alarmed civil liberties groups. “I think it’s critical to have transparency about the use of technology like Stingrays,” said Faiza Patel, an attorney with the Brennan Center for Justice. “That’s what allows courts, the public, and our elected officials to weigh in on the proper rules.”

In September, the Department of Justice issued guidelines requiring its officers to seek probable cause warrants before using a Stingray. But the guidelines only applied to federal law enforcement agencies, not to state and local police, who have fought such a change. In one ongoing court case, the state of Maryland has argued that anyone who turns on their phone consents to having his or her location tracked.

In November, Senator Ron Wyden, D-Ore., and Rep. Jason Chaffetz, R-Utah, introduced the GPS Act, a bill that would extend the Department of Justice’s guidelines to all law enforcement agencies. “Buying a smartphone shouldn’t be interpreted as giving the government a free pass to track your movements,” Wyden said.

See the government catalogue here:

Top photo: “nypd” by Nick Allen, used under CC BY 2.0/ cropped and color corrected from original.

Contact the author:

Subpoena: State Dept vs. Clinton Foundation

Posted on February 11, 2016February 11, 2016 by Denise Simon

How the Clinton Foundation is organized

What We Know About WJC, LLC, Bill Clinton’s Consulting Company

Financial disclosures show that the former president started a pass-through company to channel his consulting fees.

Clinton Foundation received subpoena from State Department investigators

Investigators with the State Department issued a subpoena to the Bill, Hillary and Chelsea Clinton Foundation last fall seeking documents about the charity’s projects that may have required approval from the federal government during Hillary Clinton’s term as secretary of state, according to people familiar with the subpoena and written correspondence about it.

The subpoena also asked for records related to Huma Abedin, a longtime Clinton aide who for six months in 2012 was employed simultaneously by the State Department, the foundation, Clinton’s personal office, and a private consulting firm with ties to the Clintons.

The full scope and status of the inquiry, conducted by the State Department’s inspector general, were not clear from the material correspondence reviewed by The Washington Post.

A foundation representative, who spoke on the condition of anonymity to discuss an ongoing inquiry, said the initial document request had been narrowed by investigators and that the foundation is not the focus of the probe.

A State IG spokesman declined to comment on that assessment or on the subpoena.

Representatives for Hillary Clinton’s presidential campaign and Abedin also declined comment.

[How Huma Abedin operated at the center of the Clinton universe]

There is no indication that the watchdog is looking at Clinton. But as she runs for president in part by promoting her leadership of the State Department, an inquiry involving a top aide and the relationship between her agency and her family’s charity could further complicate her campaign.

For months, Clinton has wrangled with controversy over her use of a private email server, which has sparked a separate investigation by the same State Department inspector general’s office. There is also an FBI investigation into whether her system compromised national security.

Bill Clinton used LLC as a pass through

Clinton was asked about the FBI investigation at a debate last week and said she was “100 percent confident” nothing would come of it. Last month, Clinton denied a Fox News report that the FBI had expanded its probe to include ties between the foundation and the State Department. She called that report “an unsourced, irresponsible” claim with “no basis.”

During the years Clinton served as secretary of state, the foundation was led by her husband, former president Bill Clinton. She joined its board after leaving office in February 2013 and helped run it until launching her White House bid in April.

Abedin served as deputy chief of staff at State starting in 2009. For the second half of 2012, she participated in the “special government employee” program that enabled her to work simultaneously in the State Department, the foundation, Hillary Clinton’s personal office and Teneo, a private consultancy with close ties to the Clintons.

Abedin has been a visible part of Hillary Clinton’s world since she served as an intern in the 1990s for the then-first lady while attending George Washington University. On the campaign trail, Clinton is rarely seen in public without Abedin somewhere nearby.

Republican lawmakers have alleged that foreign officials and other powerful interests with business before the U.S. government gave large donations to the Clinton Foundation to curry favor with a sitting secretary of state and a potential future president.

Both Clintons have dismissed those accusations, saying donors contributed to the $2 billion foundation to support its core missions: improving health care, education and environmental work around the world.

Sen. Bernie Sanders (Vt.), Clinton’s opponent in the Democratic primary, has largely avoided raising either issue in his campaign. Last spring, Sanders expressed concerns about the Clinton Foundation being part of a political system “dominated by money.”

Sanders has batted away questions about the email scandal, famously saying at a debate last fall that, “The American people are sick and tired of hearing about your damn emails.”

The potential consequences of the IG investigation are unclear. Unlike federal prosecutors, inspectors general have the authority to subpoena documents without seeking approval from a grand jury or a judge.

But their power is limited. They are able to obtain documents, but they cannot compel testimony. At times, IG inquiries result in criminal charges, but sometimes they lead to administrative review, civil penalties or reports that have no legal consequences.

The IG has investigated Abedin before. Last year, the watchdog concluded she was overpaid nearly $10,000 because of violations of sick leave and vacation policies, a finding that Abedin and her attorneys have contested.

Republican lawmakers, led by Senate Judiciary Committee Chairman Charles E. Grassley (R-Iowa), have alleged that Abedin’s role at the center of overlapping public and private Clinton worlds created the potential for conflicts of interest.

Examples of fees paid for speeches