The Ouya console is no longer vaporware. The company announced on its blog on Friday that 1,200 Ouya console developer kits are boxed up and ready to be shipped out to awaiting programmers. Each kit includes a frosted translucent Ouya console that is about the size of a coffee mug, two frosted translucent controllers with batteries, an HDMI cable, a power cable and a Micro USB cable. As Ouya CEO Julie Uhrman explains in the unboxing video below, the console’s design might still be tweaked and the feel of the controller will undergo a few minor changes before it ships to consumers in March.
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10 Tech-Industry Predictions for 2013
Label: WorldIf you have followed our Big Picture column for the past year, you will know that as industry analysts and observers, we study this industry and the markets that compose it on a daily basis. Because of that, we often get asked about our thoughts concerning trends in the coming year. So we thought we would do a joint column sharing our predictions for the tech industry in 2013.
Tim’s Predictions
Each year about this time, I put out a list of predictions for the coming year. I have been doing this for 23 years, and over that time I have had a reasonable level of success with these predictions. I have had some spectacular failed ones too, like the year I said Microsoft would buy RIM.
Because of our work and research, we get to see a lot of technologies in the works behind the scenes. Looking at the data, we can make some educated deductions about tech trends for the new year.
With that in mind, here are my top predictions for 2013.
(MORE: The Top 5 Tech Biz Stories of 2012)
1. Augmented reality will go mainstream.
Companies like Zappar and Aurasma have some great technology that adds an AR touch to published content, posters and physical places. AR technology has been in the works for many years, but the demos I have seen from these two companies have me believing that 2013 is the year that AR becomes very important to the mobile world. More important, many of these AR companies have created great relationships with movie studios, gamemakers, publishers and more, and their technology is already showing up in many of their products. I wrote about these two companies recently, so check out some of the examples I have at the end of this column to get a visual sense of why I think AR will be big in 2013.
2. Google’s Chromebooks will get more consumer attention, gaining traction in 2013.
Google Chromebooks built by Acer and Samsung are priced around $250 and have become an attractive alternative for consumers, as price continues to be a real issue with this market segment. I know that these machines only work while online, but the proliferation of public wi-fi makes this less of an issue going forward. We all know that a Web browser as an operating system will someday happen, and these Chromebooks are a good first step. Buyers of these laptops will also serve as an important test bed for industry watchers in 2013, giving us important hints about how this market will develop over the next five years.
3. Hybrids and convertibles will see high interest from IT departments.
In our discussions with IT directors recently, we have heard that they are quite interested in hybrids or convertibles — also known as laptop-tablet combo devices. Today, with tablets part of the BYOD (bring your own device) trend, as well as the purchases of tablets for their own specific internal use, these IT managers are now forced to support three types of devices: PCs, tablets and smart phones.
The idea of just having to support a convertible or hybrid, instead of a separate laptop and tablet, is quite attractive to them. The first generation of these products, such as Lenovo’s Yoga, HP’s Elitebook convertible and Dell’s XPS DUO, are being bought in good numbers from IT types who are starting to test them inside their organizations, and newer models that are even more powerful will be out by Q3. All this points to the potential growth of hybrids and convertibles within IT beginning in 2013.
(MORE: This Dumb Year: The 57 Lamest Moments in Tech 2012)
4. 7-in. tablets will dominate tablet sales.
Given the prices of 7-in. tablets — which can be as low as $79 but mostly hover around $199 — it’s not a stretch to believe that this form factor will dominate the market in 2013. But what’s not obvious is how they’ll impact the PC market. The problem for consumers with 10-in. tablets is that with a cheap Bluetooth keyboard, these tablets almost become mini-laptops. Also, since many consumers can do about 80% of what they do on a PC by using a tablet instead, many consumers are either extending the life of their current PC, or if they buy a new one, they purchase a cheaper model since they see it sitting idle most of the time. The traditional PC won’t go away because it’s still needed for heavier computing tasks like managing media, creating digital movies and other tasks.
However, if consumers begin to adopt 7-in. tablets in big numbers, they may go back to buying new laptops since 7-in. tablets are mainly for consumption. They are not good at all for traditional productivity tasks. Many industry execs hope this theory is right because it could actually help laptop sales grow in 2013 instead of shrink, as many have suggested it will. I believe that in 2013, consumers will sort out which tablets are best for them, and in doing so will finally determine the role the PC will play in the future.
5. Apple will create a hybrid tablet-laptop.
I am going out on a limb with this last prediction, but one of the more interesting developments with 10-in. tablets is that if you add Bluetooth keyboards, they become like mini-laptops. The Android and Windows sides of the tech market are moving quickly to create tablet-laptop combo devices, and business and consumers alike are showing interest in them. If these types of products gain serious traction, I believe Apple may need to respond to this growth threat in the same way it entered the 7-in.-tablet market — despite the fact that Steve Jobs told everyone that Apple would never make a 7-in. tablet.
But imagine a sleekly designed hybrid that perhaps has the design lines of the MacBook Air, but with an iPad screen that detaches from its ultra-thin keyboard. For lack of a better term, I call it the MacBook AirPad or iPad Air. I know Tim Cook has denounced this type of design, suggesting it is like attaching a “toaster to a refrigerator,” but a sleek and elegant iPad-keyboard device designed by Apple would appeal to a lot of people, myself included.
Ben’s Predictions
The theme for my 2013 predictions is “going vertical.” The writing on the wall has been seen for some time now, and I believe 2013 is the year we will see it officially come to fruition: there is absolutely no denying the success of Apple’s vertical model.
In a mature consumer market — and if executed properly — being vertical is simply the most sustainable model by way of differentiation, competitive advantage and a host of other long-term strategic reasons. Many parallel industries and the vertical nature of their businesses illuminate the way for this reality.
(LIST: Best Inventions of the Year 2012)
1. Samsung will invest in its own future.
Right now, Samsung is the most dominant Android smart-phone manufacturer. However, the company does not fully control or dictate the directions or agenda of Google as it relates to Android. Because of this, Samsung is dependent, to a degree, upon Google for future success. In a quickly verticalizing industry, this is a point of concern for Samsung. Samsung once invested in its own Bada operating system, but I believe it will further invest in owning its own software platform in order to fully unify its screen strategy. The most logical candidate is the Tizen operating system Samsung has been working on but has yet to release.
2. Microsoft will get into smart-phone hardware.
Microsoft signaled its intent to be a PC hardware company when it launched the Surface tablet. By doing so, Microsoft strained relationships with its existing hardware partners and went down a path that is hard to turn back from at this point. The next logical step is for Microsoft to get into the smart-phone hardware business — or acquire a company like Nokia or HTC — and begin controlling the hardware for the Windows Phone platform. I believe Microsoft will officially get into the smart-phone hardware game in 2013.
3. Apple will make a large investment in its supply chain.
In the personal-computing landscape, Apple is more vertical than any company right now. Others have some of the parts but have yet to go fully vertical and show that they can execute as vertical companies. Apple has already proved it is a well-oiled vertical machine, and I believe the company will further invest in that strategy by using its massive stockpile of cash to purchase key parts of its supply chain. The main reason for this will be not only to maintain its hardware margins but also to relieve many of the supply-chain bottlenecks that Apple deals with on a yearly basis. These investments could be things like owning a key display manufacturer, owning hardware-machining factories and even investing or co-investing in a foundry to manufacture its own semiconductors for all its computers.
4. Google will go fully vertical with Motorola.
Samsung is Google’s largest partner, and in many of the same ways that Samsung depends on Google, so too does Google depend on Samsung. The reality is that Android would not have the market share it does today without Samsung. So by Samsung investing more in its own future with a software platform, Android will be weakened. The only logical response is for Google to also officially go vertical with its Motorola purchase, taking its hardware future into its own hands. Google can do this by focusing Motorola on the high end with a Nexus-like strategy, or it can focus on the lower end by going for more volume than margins. I can see either scenario playing out.
(MORE: Today in TIME Tech History: Piston-Less Power (1959), IBM’s Decline (1992), TiVo (1998) and More)
5. RIM will make a modest rebound but will eventually be acquired.
To be entirely honest, I have some hope for RIM. I do think the company will make a modest rebound in 2013 with the release of its BlackBerry 10 devices. But to take back a significant share of the handheld market, RIM will need help from someone else. It makes the most sense in my mind for RIM to consolidate with a company that has the right marketing and a solid hardware vision. Perhaps Samsung could acquire RIM and make BlackBerry 10 its proprietary operating system if Tizen doesn’t work out. Any number of the growing Asian OEMs that could use better business platforms may show interest in RIM as well.
This should be a most interesting year in the world of technology. Aside from new innovations, changes in the PC landscape and mobile technology transforming the way people work, learn, communicate and play, it will also be a year of transition for many of the PC companies that have dominated the digital landscape for the past 30 years. Without strong mobile plays, their ability to compete will be diminished by the strong competitive positions of Apple, Google and Amazon. If they are to survive and thrive, they’ll need to fully embrace social media and find ways to partner with the Facebooks and Twitters of the world that are driving the next generation of social media and mobile advertising.
Indeed, 2013 will bring a lot of changes to the world of technology, along with some solid innovations that are bound to ingrain the digital lifestyle deeper into the fabric of our society.
Tim Bajarin is the president of, and Ben Bajarin is a principal at, Creative Strategies Inc., a technology-industry analysis and market-intelligence firm in Silicon Valley. They contribute to Big Picture, an opinion column that appears every Monday on TIME Tech.
Read More..
Tim’s Predictions
Each year about this time, I put out a list of predictions for the coming year. I have been doing this for 23 years, and over that time I have had a reasonable level of success with these predictions. I have had some spectacular failed ones too, like the year I said Microsoft would buy RIM.
Because of our work and research, we get to see a lot of technologies in the works behind the scenes. Looking at the data, we can make some educated deductions about tech trends for the new year.
With that in mind, here are my top predictions for 2013.
(MORE: The Top 5 Tech Biz Stories of 2012)
1. Augmented reality will go mainstream.
Companies like Zappar and Aurasma have some great technology that adds an AR touch to published content, posters and physical places. AR technology has been in the works for many years, but the demos I have seen from these two companies have me believing that 2013 is the year that AR becomes very important to the mobile world. More important, many of these AR companies have created great relationships with movie studios, gamemakers, publishers and more, and their technology is already showing up in many of their products. I wrote about these two companies recently, so check out some of the examples I have at the end of this column to get a visual sense of why I think AR will be big in 2013.
2. Google’s Chromebooks will get more consumer attention, gaining traction in 2013.
Google Chromebooks built by Acer and Samsung are priced around $250 and have become an attractive alternative for consumers, as price continues to be a real issue with this market segment. I know that these machines only work while online, but the proliferation of public wi-fi makes this less of an issue going forward. We all know that a Web browser as an operating system will someday happen, and these Chromebooks are a good first step. Buyers of these laptops will also serve as an important test bed for industry watchers in 2013, giving us important hints about how this market will develop over the next five years.
3. Hybrids and convertibles will see high interest from IT departments.
In our discussions with IT directors recently, we have heard that they are quite interested in hybrids or convertibles — also known as laptop-tablet combo devices. Today, with tablets part of the BYOD (bring your own device) trend, as well as the purchases of tablets for their own specific internal use, these IT managers are now forced to support three types of devices: PCs, tablets and smart phones.
The idea of just having to support a convertible or hybrid, instead of a separate laptop and tablet, is quite attractive to them. The first generation of these products, such as Lenovo’s Yoga, HP’s Elitebook convertible and Dell’s XPS DUO, are being bought in good numbers from IT types who are starting to test them inside their organizations, and newer models that are even more powerful will be out by Q3. All this points to the potential growth of hybrids and convertibles within IT beginning in 2013.
(MORE: This Dumb Year: The 57 Lamest Moments in Tech 2012)
4. 7-in. tablets will dominate tablet sales.
Given the prices of 7-in. tablets — which can be as low as $79 but mostly hover around $199 — it’s not a stretch to believe that this form factor will dominate the market in 2013. But what’s not obvious is how they’ll impact the PC market. The problem for consumers with 10-in. tablets is that with a cheap Bluetooth keyboard, these tablets almost become mini-laptops. Also, since many consumers can do about 80% of what they do on a PC by using a tablet instead, many consumers are either extending the life of their current PC, or if they buy a new one, they purchase a cheaper model since they see it sitting idle most of the time. The traditional PC won’t go away because it’s still needed for heavier computing tasks like managing media, creating digital movies and other tasks.
However, if consumers begin to adopt 7-in. tablets in big numbers, they may go back to buying new laptops since 7-in. tablets are mainly for consumption. They are not good at all for traditional productivity tasks. Many industry execs hope this theory is right because it could actually help laptop sales grow in 2013 instead of shrink, as many have suggested it will. I believe that in 2013, consumers will sort out which tablets are best for them, and in doing so will finally determine the role the PC will play in the future.
5. Apple will create a hybrid tablet-laptop.
I am going out on a limb with this last prediction, but one of the more interesting developments with 10-in. tablets is that if you add Bluetooth keyboards, they become like mini-laptops. The Android and Windows sides of the tech market are moving quickly to create tablet-laptop combo devices, and business and consumers alike are showing interest in them. If these types of products gain serious traction, I believe Apple may need to respond to this growth threat in the same way it entered the 7-in.-tablet market — despite the fact that Steve Jobs told everyone that Apple would never make a 7-in. tablet.
But imagine a sleekly designed hybrid that perhaps has the design lines of the MacBook Air, but with an iPad screen that detaches from its ultra-thin keyboard. For lack of a better term, I call it the MacBook AirPad or iPad Air. I know Tim Cook has denounced this type of design, suggesting it is like attaching a “toaster to a refrigerator,” but a sleek and elegant iPad-keyboard device designed by Apple would appeal to a lot of people, myself included.
Ben’s Predictions
The theme for my 2013 predictions is “going vertical.” The writing on the wall has been seen for some time now, and I believe 2013 is the year we will see it officially come to fruition: there is absolutely no denying the success of Apple’s vertical model.
In a mature consumer market — and if executed properly — being vertical is simply the most sustainable model by way of differentiation, competitive advantage and a host of other long-term strategic reasons. Many parallel industries and the vertical nature of their businesses illuminate the way for this reality.
(LIST: Best Inventions of the Year 2012)
1. Samsung will invest in its own future.
Right now, Samsung is the most dominant Android smart-phone manufacturer. However, the company does not fully control or dictate the directions or agenda of Google as it relates to Android. Because of this, Samsung is dependent, to a degree, upon Google for future success. In a quickly verticalizing industry, this is a point of concern for Samsung. Samsung once invested in its own Bada operating system, but I believe it will further invest in owning its own software platform in order to fully unify its screen strategy. The most logical candidate is the Tizen operating system Samsung has been working on but has yet to release.
2. Microsoft will get into smart-phone hardware.
Microsoft signaled its intent to be a PC hardware company when it launched the Surface tablet. By doing so, Microsoft strained relationships with its existing hardware partners and went down a path that is hard to turn back from at this point. The next logical step is for Microsoft to get into the smart-phone hardware business — or acquire a company like Nokia or HTC — and begin controlling the hardware for the Windows Phone platform. I believe Microsoft will officially get into the smart-phone hardware game in 2013.
3. Apple will make a large investment in its supply chain.
In the personal-computing landscape, Apple is more vertical than any company right now. Others have some of the parts but have yet to go fully vertical and show that they can execute as vertical companies. Apple has already proved it is a well-oiled vertical machine, and I believe the company will further invest in that strategy by using its massive stockpile of cash to purchase key parts of its supply chain. The main reason for this will be not only to maintain its hardware margins but also to relieve many of the supply-chain bottlenecks that Apple deals with on a yearly basis. These investments could be things like owning a key display manufacturer, owning hardware-machining factories and even investing or co-investing in a foundry to manufacture its own semiconductors for all its computers.
4. Google will go fully vertical with Motorola.
Samsung is Google’s largest partner, and in many of the same ways that Samsung depends on Google, so too does Google depend on Samsung. The reality is that Android would not have the market share it does today without Samsung. So by Samsung investing more in its own future with a software platform, Android will be weakened. The only logical response is for Google to also officially go vertical with its Motorola purchase, taking its hardware future into its own hands. Google can do this by focusing Motorola on the high end with a Nexus-like strategy, or it can focus on the lower end by going for more volume than margins. I can see either scenario playing out.
(MORE: Today in TIME Tech History: Piston-Less Power (1959), IBM’s Decline (1992), TiVo (1998) and More)
5. RIM will make a modest rebound but will eventually be acquired.
To be entirely honest, I have some hope for RIM. I do think the company will make a modest rebound in 2013 with the release of its BlackBerry 10 devices. But to take back a significant share of the handheld market, RIM will need help from someone else. It makes the most sense in my mind for RIM to consolidate with a company that has the right marketing and a solid hardware vision. Perhaps Samsung could acquire RIM and make BlackBerry 10 its proprietary operating system if Tizen doesn’t work out. Any number of the growing Asian OEMs that could use better business platforms may show interest in RIM as well.
This should be a most interesting year in the world of technology. Aside from new innovations, changes in the PC landscape and mobile technology transforming the way people work, learn, communicate and play, it will also be a year of transition for many of the PC companies that have dominated the digital landscape for the past 30 years. Without strong mobile plays, their ability to compete will be diminished by the strong competitive positions of Apple, Google and Amazon. If they are to survive and thrive, they’ll need to fully embrace social media and find ways to partner with the Facebooks and Twitters of the world that are driving the next generation of social media and mobile advertising.
Indeed, 2013 will bring a lot of changes to the world of technology, along with some solid innovations that are bound to ingrain the digital lifestyle deeper into the fabric of our society.
Tim Bajarin is the president of, and Ben Bajarin is a principal at, Creative Strategies Inc., a technology-industry analysis and market-intelligence firm in Silicon Valley. They contribute to Big Picture, an opinion column that appears every Monday on TIME Tech.
Unreleased ‘BlackBerry X10′ QWERTY phone appears again in new photos
Label: WorldAs Research In Motion’s (RIMM) January 30th BlackBerry 10 unveiling draws closer, nearly every last detail surrounding RIM’s first two BlackBerry 10-powered smartphones will likely soon emerge. The vendor has a long history of leaks leading up to its new device announcements, and this time around RIM reps toured the world showing the phones to every carrier that would meet with them. Pictured once again over the weekend by N4BB is RIM’s first new QWERTY phone, which is code-named “N-Seriers” and expected to bear the name “BlackBerry X10” at launch. No fresh details accompany the newly leaked photos, but rumored specs from earlier reports include a 720 x 720-pixel display with a pixel density of 330 ppi and integrated NFC. Additional images of the BlackBerry X10 follow below.
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Can Samsung survive without Android?
Label: WorldSamsung (005930) is the world’s top Android smartphone vendor by a staggering margin. Aside from LG (066570), which managed a small $20 million profit from its mobile division last quarter, no other global Android vendor can figure out how to make money selling Android phones. Meanwhile, Samsung posted a $6 billion profit on $47.6 billion in sales in the third quarter, thanks largely to record smartphone shipments and a massive marketing budget. Even as industry watchers turn sour on Apple, Samsung is seen steamrolling into 2013 and its stock is up nearly 50% on the year while Apple (AAPL) shares continue to fall from a record high hit in September. As unstoppable as Samsung appears right now, one key question remains: Is Samsung driving Android’s success or is Android driving Samsung’s success? Starting in 2013, we may finally begin to find out.
[More from BGR: Unreleased ‘BlackBerry X10′ QWERTY phone appears again in new photos]
Earlier this year, BGR wrote about Samsung’s effort to look beyond Android. Even with its own UI and application suite — and even with its own content services — Samsung will always rely on Google (GOOG) if it continues to base its devices on Google’s latest Android builds.
[More from BGR: RIM teases BlackBerry 10 launch with image of first BB10 smartphone]
This isn’t necessarily a bad thing, but it means Samsung will never truly control the end-to-end experience on its products. It also means Samsung will never truly own its smartphones and tablets. Instead, Samsung’s devices will deliver an experience that is an amalgamation of Google’s vision and its own.
But there are alternative options. One example is the path Amazon (AMZN) has taken. Amazon let Google do the grunt work and then took its open-source Android OS and built its own software and service layer on top. Kindle Fire users don’t sit around waiting for Android updates — many of them don’t even know they’re using an Android-powered tablet.
Samsung could do the same thing, but there is a great deal of prep work that would need to be done first. Amazon’s efforts were so successful (depending on your measure of success) because the company already had a massive ecosystem in place before it even launched its first device. Streaming movies and TV shows, eBooks, retail shopping and a stocked application store were all available on the Kindle Fire from day one.
Samsung doesn’t have this luxury. Yet.
Samsung could also take ownership of a new OS, and Tizen may or may not end up being that OS. Samsung is co-developing the new Linux-based mobile platform with Intel (INTC) and others, and a new rumor from Japan’s The Daily Yomiuri suggests Samsung plans to launch its first Tizen phone in 2013. “Samsung will probably begin selling the [Tizen] smartphones next year and they are likely to be released in Japan and other countries at around the same time,” the site’s sources claim.
This will be a slow process. If Samsung follows the same path it took with Bada, Samsung’s earlier Linux-based OS that was folded into the Tizen project, things will start out slow as Samsung launches regional devices that are restricted to a few Eastern markets. Testing the waters before dumping serious marketing dollars into the project isn’t a bad idea, especially considering the battle at the bottom of the smartphone OS food chain that will already be taking place in 2013.
But one thing is clear: Samsung is looking to broaden its strategy and move beyond a point where it relies entirely on another company for its smartphone software.
Read More..
[More from BGR: Unreleased ‘BlackBerry X10′ QWERTY phone appears again in new photos]
Earlier this year, BGR wrote about Samsung’s effort to look beyond Android. Even with its own UI and application suite — and even with its own content services — Samsung will always rely on Google (GOOG) if it continues to base its devices on Google’s latest Android builds.
[More from BGR: RIM teases BlackBerry 10 launch with image of first BB10 smartphone]
This isn’t necessarily a bad thing, but it means Samsung will never truly control the end-to-end experience on its products. It also means Samsung will never truly own its smartphones and tablets. Instead, Samsung’s devices will deliver an experience that is an amalgamation of Google’s vision and its own.
But there are alternative options. One example is the path Amazon (AMZN) has taken. Amazon let Google do the grunt work and then took its open-source Android OS and built its own software and service layer on top. Kindle Fire users don’t sit around waiting for Android updates — many of them don’t even know they’re using an Android-powered tablet.
Samsung could do the same thing, but there is a great deal of prep work that would need to be done first. Amazon’s efforts were so successful (depending on your measure of success) because the company already had a massive ecosystem in place before it even launched its first device. Streaming movies and TV shows, eBooks, retail shopping and a stocked application store were all available on the Kindle Fire from day one.
Samsung doesn’t have this luxury. Yet.
Samsung could also take ownership of a new OS, and Tizen may or may not end up being that OS. Samsung is co-developing the new Linux-based mobile platform with Intel (INTC) and others, and a new rumor from Japan’s The Daily Yomiuri suggests Samsung plans to launch its first Tizen phone in 2013. “Samsung will probably begin selling the [Tizen] smartphones next year and they are likely to be released in Japan and other countries at around the same time,” the site’s sources claim.
This will be a slow process. If Samsung follows the same path it took with Bada, Samsung’s earlier Linux-based OS that was folded into the Tizen project, things will start out slow as Samsung launches regional devices that are restricted to a few Eastern markets. Testing the waters before dumping serious marketing dollars into the project isn’t a bad idea, especially considering the battle at the bottom of the smartphone OS food chain that will already be taking place in 2013.
But one thing is clear: Samsung is looking to broaden its strategy and move beyond a point where it relies entirely on another company for its smartphone software.
BlackBerry Z10 with AT&T-compatible LTE uncovered ahead of January unveiling
Label: WorldHang in there, American BlackBerry fans — your wait for a new device is nearly over. Engadget reports that the Federal Communications Commission has granted approval to what looks like RIM’s (RIMM) BlackBerry Z10 smartphone for use on AT&T’s (T) LTE and HSPA networks. The Z10, which will be the first device released with the new BlackBerry 10 operating system, is rumored to include a Qualcomm Snapdragon MSM8960 1.5GHz dual core processor, a 4.2-inch display with a resolution of 1,280 x 768 pixels, 2GB of RAM, up to 32GB expandable of storage and an 8-megapixel camera. RIM plans to unveil the BlackBerry Z10 along with the finished version of the BlackBerry 10 OS on January 30th.
Read More..
China official factory PMI points to steady growth revival
Label: Business China's official manufacturing purchasing managers' index held steady in December at 50.6, matching November's seven-month high, as growth in new orders was unchanged and the pace of output softened marginally.
With the main index above 50 for three straight months, the survey indicates that China's vast factory sector is expanding. The official PMI was released a day after a similar survey by HSBC suggested manufacturing activity at its strongest since May 2011.
Together the surveys support a growing consensus that economic activity in China revved up during October to December, after GDP growth had slowed for seven consecutive quarters to 7.4 percent in the third quarter. That provides a welcome sign for a global economy where both the euro area and Japan are in recession and the United States is struggling for significant growth.
"Output has stayed above the 50-mark, showing that the manufacturing industry appears to maintain growth expectations, but the rate of growth has weakened," the National Bureau of Statistics, which released the data, said in a note.
The official PMI reading was slightly below expectations in a poll of economists by Reuters last week that predicted a rise in the PMI to 51.0.
The survey showed output in oil processing, quarrying and tobacco industries slipped while food processing, auto manufacturing, textiles, steel and electronics all expanded, the bureau said.
A new export orders sub-index fell to 50 from 50.2 in November. A PMI reading below 50 suggests growth slowed, while a number above 50 indicates accelerating growth.
HSBC said its China PMI, which gathers more data from smaller, privately held firms with a strong export focus, rose in December to 51.5, its highest since May 2011.
The HSBC survey showed strong output despite a retreat in a sub-index tracking new export orders. China's export sector, a major source of growth for the economy, must combat slowing demand in its biggest markets and rising wages and costs at home.
China's official PMI generally paints a rosier picture of the factory sector than the HSBC PMI because it focuses on big, state-owned firms. The HSBC PMI targets smaller, private firms. There are also differing approaches to seasonal adjustment between the two surveys.
INVESTMENT
Some analysts caution that the pickup in economic activity in recent months may reflect renewed investment spending, rather than the consumer activity that policymakers acknowledge is needed to rebalance the economy.
"It's pretty clear that it's more driven by infrastructure and increasingly housing, that's driving heavy industry," said Zhang Zhiwei of Nomura International, speaking on Monday.
Rising land prices have prompted widespread expectations that the real estate market will be revived by an investment-driven recovery that would offset weak export markets, even though the central government had pledged to maintain investment and purchasing restrictions to try to control prices.
Railway spending delayed from earlier in 2012 was being rushed out before the end of the year, and rising prices for land purchased by state-owned developers could point to a relaxation in property market curbs that has yet to be made official, Zhang argued.
Steel futures recently hit a five-month high, after a dismal year in which lackluster demand contributed to overcapacity at debt-ridden mills and traders.
China was expected to achieve economic growth of 7.7 percent in 2012, forecasts in a benchmark Reuters poll show. That would mark the slowest full-year expansion since 1999.
While that is way above the world's other major economies, it is below the roughly 10 percent annual growth in China seen for most of the last 30 years.
The government has relied on fine-tuning its policy settings to try to combat the worst downturn China has faced since the 2008-2009 global financial crisis, studiously avoiding any hint of repeating a 4 trillion yuan ($640 billion) stimulus package it launched back then, which led to a debt-fuelled spending binge by local governments.
Measures to boost growth included reducing bank reserve levels and interest rates. More lately, they included injecting liquidity into the financial system through money market operations and accelerating approval of infrastructure projects.
The head of the influential Development Research Centre called for appropriate base money growth in 2013, including more cuts in banks' reserve requirement ratios (RRR), and a wider floating range for the yuan to make it more flexible, in comments published on Monday.
The central bank reiterated on Monday that China would stick with a prudent monetary policy in 2013, the latest sign that Beijing will not change policy direction when the new government takes over this year.
Read More..
With the main index above 50 for three straight months, the survey indicates that China's vast factory sector is expanding. The official PMI was released a day after a similar survey by HSBC suggested manufacturing activity at its strongest since May 2011.
Together the surveys support a growing consensus that economic activity in China revved up during October to December, after GDP growth had slowed for seven consecutive quarters to 7.4 percent in the third quarter. That provides a welcome sign for a global economy where both the euro area and Japan are in recession and the United States is struggling for significant growth.
"Output has stayed above the 50-mark, showing that the manufacturing industry appears to maintain growth expectations, but the rate of growth has weakened," the National Bureau of Statistics, which released the data, said in a note.
The official PMI reading was slightly below expectations in a poll of economists by Reuters last week that predicted a rise in the PMI to 51.0.
The survey showed output in oil processing, quarrying and tobacco industries slipped while food processing, auto manufacturing, textiles, steel and electronics all expanded, the bureau said.
A new export orders sub-index fell to 50 from 50.2 in November. A PMI reading below 50 suggests growth slowed, while a number above 50 indicates accelerating growth.
HSBC said its China PMI, which gathers more data from smaller, privately held firms with a strong export focus, rose in December to 51.5, its highest since May 2011.
The HSBC survey showed strong output despite a retreat in a sub-index tracking new export orders. China's export sector, a major source of growth for the economy, must combat slowing demand in its biggest markets and rising wages and costs at home.
China's official PMI generally paints a rosier picture of the factory sector than the HSBC PMI because it focuses on big, state-owned firms. The HSBC PMI targets smaller, private firms. There are also differing approaches to seasonal adjustment between the two surveys.
INVESTMENT
Some analysts caution that the pickup in economic activity in recent months may reflect renewed investment spending, rather than the consumer activity that policymakers acknowledge is needed to rebalance the economy.
"It's pretty clear that it's more driven by infrastructure and increasingly housing, that's driving heavy industry," said Zhang Zhiwei of Nomura International, speaking on Monday.
Rising land prices have prompted widespread expectations that the real estate market will be revived by an investment-driven recovery that would offset weak export markets, even though the central government had pledged to maintain investment and purchasing restrictions to try to control prices.
Railway spending delayed from earlier in 2012 was being rushed out before the end of the year, and rising prices for land purchased by state-owned developers could point to a relaxation in property market curbs that has yet to be made official, Zhang argued.
Steel futures recently hit a five-month high, after a dismal year in which lackluster demand contributed to overcapacity at debt-ridden mills and traders.
China was expected to achieve economic growth of 7.7 percent in 2012, forecasts in a benchmark Reuters poll show. That would mark the slowest full-year expansion since 1999.
While that is way above the world's other major economies, it is below the roughly 10 percent annual growth in China seen for most of the last 30 years.
The government has relied on fine-tuning its policy settings to try to combat the worst downturn China has faced since the 2008-2009 global financial crisis, studiously avoiding any hint of repeating a 4 trillion yuan ($640 billion) stimulus package it launched back then, which led to a debt-fuelled spending binge by local governments.
Measures to boost growth included reducing bank reserve levels and interest rates. More lately, they included injecting liquidity into the financial system through money market operations and accelerating approval of infrastructure projects.
The head of the influential Development Research Centre called for appropriate base money growth in 2013, including more cuts in banks' reserve requirement ratios (RRR), and a wider floating range for the yuan to make it more flexible, in comments published on Monday.
The central bank reiterated on Monday that China would stick with a prudent monetary policy in 2013, the latest sign that Beijing will not change policy direction when the new government takes over this year.
FDA approves 1st new tuberculosis drug in 40 years
Label: BusinessThe Food and Drug Administration on Monday approved a Johnson & Johnson tuberculosis drug that is the first new medicine to fight the deadly infection in more than four decades.
The agency approved J&J's pill, Sirturo, for use with older drugs to fight a hard-to-treat strain of tuberculosis that has not responded to other medications. However, the agency cautioned that the drug carries risks of potentially deadly heart problems and should be prescribed carefully by doctors.
Roughly one-third of the world's population is estimated to be infected with the bacteria causing tuberculosis. The disease is rare in the U.S., but kills about 1.4 million people a year worldwide. Of those, about 150,000 succumb to the increasingly common drug-resistant forms of the disease. About 60 percent of all cases are concentrated in China, India, Russia and Eastern Europe.
Sirturo, known chemically as bedaquiline, is the first medicine specifically designed for treating multidrug-resistant tuberculosis. That's a form of the disease that cannot be treated with at least two of the four primary antibiotics used for tuberculosis.
The standard drugs used to fight the disease were developed in the 1950s and 1960s.
"The antibiotics used to treat it have been around for at least 40 years and so the bacterium has become more and more resistant to what we have," said Chrispin Kambili, global medical affairs leader for J&J's Janssen division.
The drug carries a boxed warning indicating that it can interfere with the heart's electrical activity, potentially leading to fatal heart rhythms.
"Sirturo provides much-needed treatment for patients who have don't have other therapeutic options available," said Edward Cox, director of the FDA's antibacterial drugs office. "However, because the drug also carries some significant risks, doctors should make sure they use it appropriately and only in patients who don't have other treatment options."
Nine patients taking Sirturo died in company testing compared with two patients taking a placebo. Five of the deaths in the Sirturo group seemed to be related to tuberculosis, but no explanation was apparent for the remaining four.
Despite the deaths, the FDA approved the drug under its accelerated approval program, which allows the agency to clear innovative drugs based on promising preliminary results.
Last week, the consumer advocacy group Public Citizen criticized that approach, noting the drug's outstanding safety issues.
"The fact that bedaquiline is part of a new class of drug means that an increased level of scrutiny should be required for its approval," the group states. "But the FDA had not yet answered concerns related to unexplained increases in toxicity and death in patients getting the drug."
The FDA said it approved the drug based on two mid-stage studies enrolling 440 patients taking Sirturo. Both studies were designed to measure how long it takes patients to be free of tuberculosis.
Results from the first trial showed most patients taking Sirturo plus older drugs were cured after 83 days, compared with 125 days for those taking a placebo plus older drugs. The second study showed most Sirturo patients were cured after 57 days.
Read More..
The agency approved J&J's pill, Sirturo, for use with older drugs to fight a hard-to-treat strain of tuberculosis that has not responded to other medications. However, the agency cautioned that the drug carries risks of potentially deadly heart problems and should be prescribed carefully by doctors.
Roughly one-third of the world's population is estimated to be infected with the bacteria causing tuberculosis. The disease is rare in the U.S., but kills about 1.4 million people a year worldwide. Of those, about 150,000 succumb to the increasingly common drug-resistant forms of the disease. About 60 percent of all cases are concentrated in China, India, Russia and Eastern Europe.
Sirturo, known chemically as bedaquiline, is the first medicine specifically designed for treating multidrug-resistant tuberculosis. That's a form of the disease that cannot be treated with at least two of the four primary antibiotics used for tuberculosis.
The standard drugs used to fight the disease were developed in the 1950s and 1960s.
"The antibiotics used to treat it have been around for at least 40 years and so the bacterium has become more and more resistant to what we have," said Chrispin Kambili, global medical affairs leader for J&J's Janssen division.
The drug carries a boxed warning indicating that it can interfere with the heart's electrical activity, potentially leading to fatal heart rhythms.
"Sirturo provides much-needed treatment for patients who have don't have other therapeutic options available," said Edward Cox, director of the FDA's antibacterial drugs office. "However, because the drug also carries some significant risks, doctors should make sure they use it appropriately and only in patients who don't have other treatment options."
Nine patients taking Sirturo died in company testing compared with two patients taking a placebo. Five of the deaths in the Sirturo group seemed to be related to tuberculosis, but no explanation was apparent for the remaining four.
Despite the deaths, the FDA approved the drug under its accelerated approval program, which allows the agency to clear innovative drugs based on promising preliminary results.
Last week, the consumer advocacy group Public Citizen criticized that approach, noting the drug's outstanding safety issues.
"The fact that bedaquiline is part of a new class of drug means that an increased level of scrutiny should be required for its approval," the group states. "But the FDA had not yet answered concerns related to unexplained increases in toxicity and death in patients getting the drug."
The FDA said it approved the drug based on two mid-stage studies enrolling 440 patients taking Sirturo. Both studies were designed to measure how long it takes patients to be free of tuberculosis.
Results from the first trial showed most patients taking Sirturo plus older drugs were cured after 83 days, compared with 125 days for those taking a placebo plus older drugs. The second study showed most Sirturo patients were cured after 57 days.
US hits borrowing limit, moves to avoid default
Label: BusinessThe U.S. government is running up against its $16.4 trillion borrowing limit and is taking steps to avoid default.
Reaching the limit Monday sets up another dispute between the White House and Congress over taxes and spending in the new year.
Treasury Secretary Timothy Geithner says the government will take a series of accounting measures to avoid defaulting on its debt. On Monday, it suspended the issuance of new debt for two government retirement funds. That step won't impact current retirees.
Last week, Geithner said the measures would save about $200 billion. That would typically avoid default for about two months. But Geithner said it is difficult to predict how long default can be avoided this time because of ongoing budget talks.
Read More..
Reaching the limit Monday sets up another dispute between the White House and Congress over taxes and spending in the new year.
Treasury Secretary Timothy Geithner says the government will take a series of accounting measures to avoid defaulting on its debt. On Monday, it suspended the issuance of new debt for two government retirement funds. That step won't impact current retirees.
Last week, Geithner said the measures would save about $200 billion. That would typically avoid default for about two months. But Geithner said it is difficult to predict how long default can be avoided this time because of ongoing budget talks.
Deal will prevent spike in milk prices
Label: BusinessA potential doubling of milk prices will be averted as part of the compromise that White House and congressional bargainers reached on wide-ranging legislation to avert the "fiscal cliff," a leading senator said late Monday.
Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., told reporters that negotiators had agreed to extend portions of the expired 2008 farm bill through September. She said that includes language keeping milk prices from rising, but excludes other provisions like energy and disaster aid for farmers.
Stabenow said she considers the slimmed-down extension to be "Mitch McConnell's version of a farm bill." She was referring to the Senate Republican leader from Kentucky, who she said forced bargainers to accept the version of the farm bill that appeared in the deal.
McConnell spokesman Michael Brumas responded: "Sen. McConnell put forward a bipartisan, responsible solution that averted the dairy cliff and provided certainty to farmers for the next year without costing taxpayers a dime."
Just a day earlier, Stabenow said leaders from both parties on the House and Senate agriculture committees had agreed to extend the entire farm bill.
Stabenow and House Agriculture Chairman Frank Lucas, R-Okla., announced Sunday that they had agreed on a last-minute move that would extend the entire farm bill and replace dairy programs that expire at midnight Tuesday. Expiration of those dairy programs could mean higher milk prices at the grocery store within just a few weeks.
But the House GOP had not endorsed the committees' extension agreement.
The nonpartisan Congressional Budget Office estimated Sunday that extending the entire bill through September, including disaster assistance for farmers affected by drought, could cost more than $1 billion this budget year.
House Speaker John Boehner, R-Ohio, has pushed back on passage of a new five-year farm bill for months, saying there were not enough votes to bring it to the House floor after the House Agriculture Committee approved it in July. The Senate passed its version of a farm bill in June. The bill, generally passed every five years, includes food stamps, farm subsidies and other help for rural areas.
But the prospect of higher milk prices prompted some action. Agriculture Secretary Tom Vilsack has said Americans face the prospect of paying $7 for a gallon of milk if the current dairy program lapsed and the government returned to a 1948 formula for calculating milk price supports.
Extending the entire agriculture bill would have included an overhaul of dairy programs that was included in both the Senate and House committee bills. The new dairy programs include a voluntary insurance program for dairy producers, and those who choose that new program also would have to participate in a market stabilization program that could dictate production cuts when oversupply drives down prices — an idea that hasn't gone over well with Boehner.
In July, he called the current dairy program "Soviet-style" and said the new program would make it even worse. Large food companies that process and use dairy products have backed Boehner, saying the program could limit milk supplies and increase their costs.
One of the reasons Boehner has balked at bringing up a farm bill is disagreement among House Republicans over how much money should be cut from food stamps, which make up roughly 80 percent of the half-trillion-dollar bill's cost over five years. Lucas has unsuccessfully pushed his leadership for months to move on the legislation despite the disagreement over food aid.
Read More..
Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., told reporters that negotiators had agreed to extend portions of the expired 2008 farm bill through September. She said that includes language keeping milk prices from rising, but excludes other provisions like energy and disaster aid for farmers.
Stabenow said she considers the slimmed-down extension to be "Mitch McConnell's version of a farm bill." She was referring to the Senate Republican leader from Kentucky, who she said forced bargainers to accept the version of the farm bill that appeared in the deal.
McConnell spokesman Michael Brumas responded: "Sen. McConnell put forward a bipartisan, responsible solution that averted the dairy cliff and provided certainty to farmers for the next year without costing taxpayers a dime."
Just a day earlier, Stabenow said leaders from both parties on the House and Senate agriculture committees had agreed to extend the entire farm bill.
Stabenow and House Agriculture Chairman Frank Lucas, R-Okla., announced Sunday that they had agreed on a last-minute move that would extend the entire farm bill and replace dairy programs that expire at midnight Tuesday. Expiration of those dairy programs could mean higher milk prices at the grocery store within just a few weeks.
But the House GOP had not endorsed the committees' extension agreement.
The nonpartisan Congressional Budget Office estimated Sunday that extending the entire bill through September, including disaster assistance for farmers affected by drought, could cost more than $1 billion this budget year.
House Speaker John Boehner, R-Ohio, has pushed back on passage of a new five-year farm bill for months, saying there were not enough votes to bring it to the House floor after the House Agriculture Committee approved it in July. The Senate passed its version of a farm bill in June. The bill, generally passed every five years, includes food stamps, farm subsidies and other help for rural areas.
But the prospect of higher milk prices prompted some action. Agriculture Secretary Tom Vilsack has said Americans face the prospect of paying $7 for a gallon of milk if the current dairy program lapsed and the government returned to a 1948 formula for calculating milk price supports.
Extending the entire agriculture bill would have included an overhaul of dairy programs that was included in both the Senate and House committee bills. The new dairy programs include a voluntary insurance program for dairy producers, and those who choose that new program also would have to participate in a market stabilization program that could dictate production cuts when oversupply drives down prices — an idea that hasn't gone over well with Boehner.
In July, he called the current dairy program "Soviet-style" and said the new program would make it even worse. Large food companies that process and use dairy products have backed Boehner, saying the program could limit milk supplies and increase their costs.
One of the reasons Boehner has balked at bringing up a farm bill is disagreement among House Republicans over how much money should be cut from food stamps, which make up roughly 80 percent of the half-trillion-dollar bill's cost over five years. Lucas has unsuccessfully pushed his leadership for months to move on the legislation despite the disagreement over food aid.
Insight: How Colombian drug traffickers used HSBC to launder money
Label: Business When several Colombian men were indicted in January 2010 on money-laundering charges, the case in Brooklyn federal court drew little attention.
It looked like a bust of another nexus of drug traffickers and money launderers, with mainly small-time operatives paying the price for their crimes.
One of the men was Julio Chaparro, a 48-year-old father of four who owned three factories that made children's clothing in Colombia.
But to U.S. authorities the case was anything but ordinary. Chaparro, prosecutors alleged, helped run a money-laundering ring for drug traffickers that took advantage of lax controls at UK-based international banking group HSBC Holdings Plc. It was one of the most important leads for U.S. investigators pursuing a case against the bank that eventually led to a $1.9 billion settlement on December 11.
Chaparro was "basically putting the orchestra together" and investigators saw "him as a major player in terms of cleaning a lot of money," said James Hayes, special agent in charge of Homeland Security Investigations at U.S. Immigration and Customs Enforcement in New York. Known as ICE, the agency and its task force led the probe.
The Colombian's lawyer, Ephraim Savitt, said Chaparro was a middleman in the operation, but disputed the extent of his client's role, saying he was the "page turner of sheet music for the conductor."
Chaparro, who was arrested in Colombia in 2010 and extradited to the United States in 2011, pleaded guilty to a money-laundering conspiracy count in May and is awaiting sentencing in 2013.
An HSBC spokesman declined comment.
Much about the trail that drug traffickers used to move U.S. dollars - the proceeds from drug sales - through HSBC and other banks remains unclear. By design, the process is layered to evade detection.
But a review of confidential investigative records that originate from two U.S. Attorney office probes and federal court filings in New York and California, as well as interviews with senior law-enforcement officials, shows how investigators tracing the activities of people who allegedly worked with Chaparro were able to expose large-scale money laundering at one of the world's biggest banks.
The federal law-enforcement task force - named after El Dorado, the mythical city of gold in South America - used wire taps, email and computer searches, information from at least one inside source, and old-fashioned surveillance, to piece together the ring's operations.
SMUGGLED ACROSS BORDER
Drug cartels sold narcotics in the United States and routed the cash to Mexico, often using couriers to smuggle it across the border. That cash would then be put into bank accounts at HSBC's Mexico unit, where large deposits could be made without arousing suspicion, according to U.S. Department of Justice documents.
In one filing, U.S. prosecutors said, Chaparro and others allegedly utilized accounts at HSBC Mexico to deposit "drug dollars and then wire those funds to ... businesses located in the United States and elsewhere. The funds were then used to purchase consumer goods, which were exported to South America and resold to generate ‘clean' cash."
In a typical transaction, a middleman in a drug cartel would offer to deliver consumer goods, such as computers or washing machines, to Colombian businesses on favorable terms. Another person in the United States would buy the goods from firms using funds from drug trafficking, and fulfill those orders.
Money launderers exploited the laxness of HSBC in policing shadowy money flows, the Department of Justice said earlier this month. Failures included not conducting due diligence on customers, not adequately monitoring wire transfers or cash shipments and not having enough employees to run anti-money laundering systems. U.S. Assistant Attorney General Lanny Breuer called the lapses "stunning failures of oversight."
The situation was so bad, according to the Department of Justice, that in 2008, the head of HSBC's Mexican operations was told by Mexican regulators that a local drug lord described the bank as "the place to launder money."
The Chaparro probe, led by ICE and the Justice Department, converged over the past two years with two other investigations - led by federal prosecutors and investigators in West Virginia and by the Manhattan district attorney - resulting in this month's settlement with HSBC.
HSBC and its employees avoided criminal indictments, as the bank agreed instead to a deferred-prosecution deal that forces it to strengthen controls and accept a compliance monitor.
Today, Chaparro sits in a federal detention center in Brooklyn, reading the Bible and awaiting sentencing, said Savitt, a former U.S. prosecutor in Brooklyn, who submitted a list of questions to Chaparro for Reuters.
"He is contrite, regretful and ashamed about his crimes," Savitt said. "He wants to serve his time and rejoin his family. He understands that a prison term could prevent that from happening for many years."
Under federal guidelines, he could face 15 to 18 years in prison.
ON CHAPARRO'S TRAIL
The El Dorado federal task force, based in a building on the west side of Manhattan near Chelsea Piers, serves as an umbrella organization for some 250 law-enforcement officials from state, local and federal agencies.
One of the task-force supervisors is Lieutenant Frank DiGregorio, a former New York detective who spent years tracking the so-called Black Market Peso Exchange, which is used to convert dollars to Colombian pesos through trading in goods. DiGregorio along with two younger investigators - Graham Klein and Carmelo Lana - led the HSBC case.
The overall probe began in 2007 when investigators analyzed how courier companies ferried cash through airports in Miami and Houston, a person familiar with the case said. They ultimately tracked that to HSBC's operations in Mexico and then connected it to funds moving through New York.
A tipping point in the investigation came in 2009 when El Dorado agents arrested a man named Fernando Sanclemente. Two sources familiar with the case say Sanclemente was an operative in Chaparro's network.
Sanclemente, who was charged with allegedly conducting financial transactions tied to narcotics trafficking, is free on bail with a $200,000 bond, according to the latest court docket entry, which dates to January 2012. His lawyer, James Neville, declined to discuss the status of the case.
According to a criminal complaint filed against him by Lana, the El Dorado agent, on June 30, 2009, task force agents followed Sanclemente for more than two hours as he drove around Queens in New York to ferry cash from drug sales.
Sanclemente first met with a person for about "30 seconds" on one street corner, and left with a yellow plastic bag. Later that night, he drove to a Dunkin' Donuts near LaGuardia Airport, where a black livery cab pulled up and the driver handed him a black bag.
The El Dorado team followed Sanclemente to Laurel Hollow, New York, some 40 minutes away, where the investigators stopped and searched him, finding about $153,000 in the two bags. At Sanclemente's apartment, investigators said they found ledgers and documents consistent with money laundering.
With the arrest, investigators gained insight into Chaparro's alleged transactions. At one point, investigators set up undercover bank accounts where they were able to get Chaparro's network to wire proceeds that could be traced back to HSBC's Mexico operations, according to people familiar with the situation and a Department of Justice filing in the HSBC case.
Federal agents would ultimately home in on $500 million that had moved from HSBC Mexico to HSBC's operations in the United States, according to the confidential investigative records.
Between October 6, 2008 and April 13, 2009, Chaparro and others conducted money laundering transactions totaling $1.1 million tied to narcotics trafficking, the indictment against Chaparro alleged.
Read More..
It looked like a bust of another nexus of drug traffickers and money launderers, with mainly small-time operatives paying the price for their crimes.
One of the men was Julio Chaparro, a 48-year-old father of four who owned three factories that made children's clothing in Colombia.
But to U.S. authorities the case was anything but ordinary. Chaparro, prosecutors alleged, helped run a money-laundering ring for drug traffickers that took advantage of lax controls at UK-based international banking group HSBC Holdings Plc. It was one of the most important leads for U.S. investigators pursuing a case against the bank that eventually led to a $1.9 billion settlement on December 11.
Chaparro was "basically putting the orchestra together" and investigators saw "him as a major player in terms of cleaning a lot of money," said James Hayes, special agent in charge of Homeland Security Investigations at U.S. Immigration and Customs Enforcement in New York. Known as ICE, the agency and its task force led the probe.
The Colombian's lawyer, Ephraim Savitt, said Chaparro was a middleman in the operation, but disputed the extent of his client's role, saying he was the "page turner of sheet music for the conductor."
Chaparro, who was arrested in Colombia in 2010 and extradited to the United States in 2011, pleaded guilty to a money-laundering conspiracy count in May and is awaiting sentencing in 2013.
An HSBC spokesman declined comment.
Much about the trail that drug traffickers used to move U.S. dollars - the proceeds from drug sales - through HSBC and other banks remains unclear. By design, the process is layered to evade detection.
But a review of confidential investigative records that originate from two U.S. Attorney office probes and federal court filings in New York and California, as well as interviews with senior law-enforcement officials, shows how investigators tracing the activities of people who allegedly worked with Chaparro were able to expose large-scale money laundering at one of the world's biggest banks.
The federal law-enforcement task force - named after El Dorado, the mythical city of gold in South America - used wire taps, email and computer searches, information from at least one inside source, and old-fashioned surveillance, to piece together the ring's operations.
SMUGGLED ACROSS BORDER
Drug cartels sold narcotics in the United States and routed the cash to Mexico, often using couriers to smuggle it across the border. That cash would then be put into bank accounts at HSBC's Mexico unit, where large deposits could be made without arousing suspicion, according to U.S. Department of Justice documents.
In one filing, U.S. prosecutors said, Chaparro and others allegedly utilized accounts at HSBC Mexico to deposit "drug dollars and then wire those funds to ... businesses located in the United States and elsewhere. The funds were then used to purchase consumer goods, which were exported to South America and resold to generate ‘clean' cash."
In a typical transaction, a middleman in a drug cartel would offer to deliver consumer goods, such as computers or washing machines, to Colombian businesses on favorable terms. Another person in the United States would buy the goods from firms using funds from drug trafficking, and fulfill those orders.
Money launderers exploited the laxness of HSBC in policing shadowy money flows, the Department of Justice said earlier this month. Failures included not conducting due diligence on customers, not adequately monitoring wire transfers or cash shipments and not having enough employees to run anti-money laundering systems. U.S. Assistant Attorney General Lanny Breuer called the lapses "stunning failures of oversight."
The situation was so bad, according to the Department of Justice, that in 2008, the head of HSBC's Mexican operations was told by Mexican regulators that a local drug lord described the bank as "the place to launder money."
The Chaparro probe, led by ICE and the Justice Department, converged over the past two years with two other investigations - led by federal prosecutors and investigators in West Virginia and by the Manhattan district attorney - resulting in this month's settlement with HSBC.
HSBC and its employees avoided criminal indictments, as the bank agreed instead to a deferred-prosecution deal that forces it to strengthen controls and accept a compliance monitor.
Today, Chaparro sits in a federal detention center in Brooklyn, reading the Bible and awaiting sentencing, said Savitt, a former U.S. prosecutor in Brooklyn, who submitted a list of questions to Chaparro for Reuters.
"He is contrite, regretful and ashamed about his crimes," Savitt said. "He wants to serve his time and rejoin his family. He understands that a prison term could prevent that from happening for many years."
Under federal guidelines, he could face 15 to 18 years in prison.
ON CHAPARRO'S TRAIL
The El Dorado federal task force, based in a building on the west side of Manhattan near Chelsea Piers, serves as an umbrella organization for some 250 law-enforcement officials from state, local and federal agencies.
One of the task-force supervisors is Lieutenant Frank DiGregorio, a former New York detective who spent years tracking the so-called Black Market Peso Exchange, which is used to convert dollars to Colombian pesos through trading in goods. DiGregorio along with two younger investigators - Graham Klein and Carmelo Lana - led the HSBC case.
The overall probe began in 2007 when investigators analyzed how courier companies ferried cash through airports in Miami and Houston, a person familiar with the case said. They ultimately tracked that to HSBC's operations in Mexico and then connected it to funds moving through New York.
A tipping point in the investigation came in 2009 when El Dorado agents arrested a man named Fernando Sanclemente. Two sources familiar with the case say Sanclemente was an operative in Chaparro's network.
Sanclemente, who was charged with allegedly conducting financial transactions tied to narcotics trafficking, is free on bail with a $200,000 bond, according to the latest court docket entry, which dates to January 2012. His lawyer, James Neville, declined to discuss the status of the case.
According to a criminal complaint filed against him by Lana, the El Dorado agent, on June 30, 2009, task force agents followed Sanclemente for more than two hours as he drove around Queens in New York to ferry cash from drug sales.
Sanclemente first met with a person for about "30 seconds" on one street corner, and left with a yellow plastic bag. Later that night, he drove to a Dunkin' Donuts near LaGuardia Airport, where a black livery cab pulled up and the driver handed him a black bag.
The El Dorado team followed Sanclemente to Laurel Hollow, New York, some 40 minutes away, where the investigators stopped and searched him, finding about $153,000 in the two bags. At Sanclemente's apartment, investigators said they found ledgers and documents consistent with money laundering.
With the arrest, investigators gained insight into Chaparro's alleged transactions. At one point, investigators set up undercover bank accounts where they were able to get Chaparro's network to wire proceeds that could be traced back to HSBC's Mexico operations, according to people familiar with the situation and a Department of Justice filing in the HSBC case.
Federal agents would ultimately home in on $500 million that had moved from HSBC Mexico to HSBC's operations in the United States, according to the confidential investigative records.
Between October 6, 2008 and April 13, 2009, Chaparro and others conducted money laundering transactions totaling $1.1 million tied to narcotics trafficking, the indictment against Chaparro alleged.
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