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* * * * * * THURSDAY, MARCH 12, 2015 ~ VOL. CCLXV NO. 58 WSJ.com HHHH $3 .00

Security agency riddled with Russian sympathizers and turncoats

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CONTENTSAhead of the Tape.. C1Arts in Review...... D4,5Business News B2,3,5-8Heard on the Street C8In the Markets........... C4Markets Dashboard C5

Opinion................... A11-13Small Business......... B4Sports.............................. D6Style & Travel......... D2,3U.S. News................. A2-6Weather Watch........ B8World News... A7-10,14

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What’sNews

Clinton faces new ques-tions over her use of a pri-vate email account as secre-tary of state, as chairmen oftwo GOP-led House panelssaid they plan to broadentheir investigations. A1, A4 Iraqi forces and Iran-backed Shiite militiaschipped away at IslamicState’s grip on Tikrit. A7 Netanyahu’s chief rival isgaining momentum days be-fore Israeli elections. A7 China’s anticorruptiondrive is exposing rampantbuying and selling of ranksin the nation’s military. A8 The main suspect in thekilling of Russian oppositionleader Nemtsov said he con-fessed under duress. A10 The police chief of Fergu-son, Mo., agreed to step downin the wake of a report on biasagainst minorities there. A3 Federal agents raided anetwork of Los Angeles-areaschools as part of an immi-gration-fraud probe. A6 A strain of avian flu highlycontagious among birds hasinfected turkey farms in Ar-kansas and Missouri. B1 Ultrasound treatmenthelped mice that were engi-neered to develop symptomsof Alzheimer’s disease. A3 Eleven service memberswere believed killed in aFlorida helicopter crash dur-ing a training exercise. A6 Pakistani forces raidedthe offices of a Karachi polit-ical party, seizing weaponsand arresting activists. A8

Four of Wall Street’s big-gest names struggled to

pass the Fed’s stress testsand the U.S. units of two for-eign banks fell short. A1, C1, C3 China’s leaders are pre-paring to radically consoli-date the country’s bloatedstate-owned sector. A1 General Electric is con-sidering making deeper cutsin the company’s massivebanking business. B1 Endo launched a surprisebid for Salix, looking tobreak up Valeant’s $10 bil-lion deal to acquire Salix. B1 The euro’s slide contin-ued, while bond yields hit re-cord lows in Germany andother European countries. C1 The Dow slipped 27.55points to 17635.39 as investorsremained focused on the pathof U.S. monetary policy. C4 United Technologies saidit would explore strategic al-ternatives for Sikorsky, in-cluding a potential spinoff. B3Alibaba is investing in Snap-chat in a deal that values themessaging firm at $15 billion.B5 Four big banks providedaccess to the U.S. financialsystem to an Andorran lenderaccused of money laundering,according to U.S. officials. C1 Nasdaq is launching a newenergy-futures market withsupport from major banks. C2Wall Street bonuses grew3% in 2014, falling short of theprior year’s growth as manyfirms saw lower profits. C2 Canada unveiled tougherstandards for railcars carry-ing dangerous goods. B2

Business&Finance

World-Wide

Before Hillary Clinton becamesecretary of state in 2009, one ofher most trusted confidantes ap-proached Bill Clinton’s aideswith a plan. Mrs. Clinton wantedto run her private email accountthrough the server her husbandset up in the family’s Chap-paqua, N.Y., home, people famil-iar with the matter said.

A private server had obviousadvantages. It would give Mrs.Clinton more control over heremail, people familiar with herteam’s reasoning said. Privately,aides of the former presidentworried that adding her accountwould make the system a targetfor hackers. They also weren’taware she would use it for allher official correspondence.

That decision has now invitedthe kind of relentless publicscrutiny it was designed toavoid, while also maximizingMrs. Clinton’s control over sensi-tive email correspondence thatshe might not want to get out.

In addition, though Mrs. Clin-ton plans to run a 2016 presi-dential campaign focused on thefuture, the email furor hasevoked bitter controversies fromher past, in particular the notionthat she is overly secretive inher dealings.

Mrs. Clinton didn’t appear toviolate any laws in choosing touse private email, but she didrun afoul of long-standing guide-lines over the use of privateemail and likely prevented offi-cial records from being enteredinto the public record in a timelyfashion.

In her first news conferencesince leaving the State Depart-ment more than two years ago,Mrs. Clinton said on Tuesday shehas turned over to the State De-partment 55,000 pages of corre-spondence and urged they be re-

Please see EMAIL page A4

BY PETER NICHOLASAND LAURA MECKLER

ClintonPlanDrewConcernsEarly On

WASHINGTON—Four of thebiggest names on Wall Streetstruggled to pass the Federal Re-

serve’s 2015 “stress tests,” and theU.S. units of two foreign banks fellshort, underscoring the constraintthe annual exercise imposes onthe largest banks more than sixyears after the 2008 crisis.

Goldman Sachs Group Inc.,J.P. Morgan Chase & Co. andMorgan Stanley received thegreen light to return income toinvestors only after adjustingtheir initial requests to ensurecapital buffers stayed above the

minimums required by the Fed.Bank of America Corp. got

conditional approval to returncapital to shareholders after theFed found “certain weaknesses”in its ability to measure lossesand revenue and in other internalcontrols. The bank can temporar-ily reward investors by boostingdividends or share buybacks, butit must submit a revised plan ad-dressing its shortcomings bySept. 30. If the Fed isn’t satisfied

with the bank’s progress, it canfreeze the capital distributions.

The Charlotte, N.C., bank said itwould increase stock buybacks buthold dividends steady. It was theonly lender among the six biggestU.S. banks to not raise that pay-out. Bank of America Chief Execu-tive Brian Moynihan said thelender was “committed” to sub-mitting a revised plan “in the timeframe the Fed has established.”

Bank regulators have steadily

raised capital requirements forthe largest banks since the crisisin an effort to make banks—andthe financial system—more resil-ient and better able to absorblosses. The changes have forcedbanks to fund themselves withless borrowed money and more

Please see STRESS page A2BY VICTORIA MCGRANEAND RYAN TRACY

Big Banks Struggle to Clear Fed TestsU.S. lenders pass latest‘stress’ exams, but notwithout some exertion;foreign firms fall short

Iraqi Forces—With Help From Iran—Reclaim Parts of Key City

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genceFrance-Presse/Getty

Images

China OrdersBloated FirmsTo Combine,Go Public

BEIJING—China’s leadershipis preparing to radically consoli-date the country’s bloated state-owned sector, telling thousandsof enterprises they need to relyless on state life support and getready to list on public markets.

The economic slump hasheightened the imperative to ekeout better returns from the statefirms that tower over China’seconomy, from the giants thatdominate oil, banking and otherstrategic sectors, to smaller onesthat run hotels and make tooth-paste.

On Wednesday, China showedfresh signs of economic weak-ness, reporting that industrialproduction for the year’s firsttwo months grew at the slowestpace since the global financial

Please see FIRMS page A8

BY LINGLING WEI

PORTLAND, Ore.—When itcomes to the mellow mantra “re-duce, reuse, recycle,” the laid-back West Coast is hard core.

Garden-variety plastic bag andbottle bans or now-ubiquitouselectronics andpharmaceuticalsrecycling effortsare old news. InPortland’s suburbs,a plan is brewingto craft boutiquebeer from purifiedsewage water.

In San Fran-cisco, thirsty resi-dents are beingasked to BYOB to a growing net-work of “hydration stations”where they can fill water bottles.And in Seattle, garbage haulersalso serve as compost cops, slap-ping red tags on bins containingtoo much compostable material—

banana peels, soggy salads, coffeegrounds—a scarlet letter for sus-tainability sinners.

Then there is perhaps the mostextreme recycling notion yet: TheUrban Death Project. Proposed byKatrina Spade, a Seattle designerand “climate fellow” with the

nonprofit EchoingGreen, it would al-low the deceasedto go to their eter-nal rest as compostthemselves.

Creative stabsat sustainabilitypop up regularlyacross the U.S.,from cigarette-buttrecycling bins in

New Orleans to a Gilbert, Ariz.,company that recycles bras. Citiesincreasingly pick through ways todivert trash from landfills.

Since Jan. 1, new restrictions onhow Seattleites must sort their

Please see TRASH page A6

BY KATY MULDOON

Communities Talk Trash as TheyFind More Extreme Ways to Recycle

i i i

New ideas include trying to brew beer frompurified sewage water, composting bodies

Recycle bin

Summer Cocktail:PowderedBooze?

Palcoh

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NOTCHING A WIN: Iraq’s military, aided by Iran-backed militias, chipped away at Islamic State’s once-firm grip on Tikrit, northwest of Baghdad. A7

SHAKEN AND STIRRED: Apowdered alcohol, called Palcohol,got the green light by a U.S.agency. The controversialsubstance could be sold in the U.S.as early as this summer. B1

KIEV, Ukraine—When Moscow-backed separat-ists were starting their war in east Ukraine lastspring, the country’s main security agency sent acovert team to capture a rebel leader.

But word of the classified mission leaked out,and three Ukrainian operatives were themselvescaptured and thrown into a separatist jail. Rebelsstripped them to their underwear, bound theirwrists and blindfolded them, then paraded themin front of Russian journalists.

Ukrainian counterintelligence officials now be-lieve their capture was an inside job, the result ofa betrayal by a high-ranking employee of the Se-curity Service of Ukraine.

The agency, roughly equivalent to the U.S. Fed-eral Bureau of Investigation and known by itsUkrainian acronym SBU, has battled corruption,internal intrigue and treason for years. Ukrainianofficials said in interviews that by the time thewar began last year, the SBU was riddled with

Russian spies, sympathizers and turncoats, andmany of its files had been stolen and taken to Rus-sia.

The SBU’s troubles come amid broader tensionin Ukraine about whether the country should allyitself with Moscow or the West. As Russian andWestern powers drift toward a new Cold War overthe crisis, U.S. officials have grown concernedabout special operations, spycraft, propagandaand other actions they claim Moscow has under-taken in Ukraine and could attempt elsewhere.

The Kremlin, for its part, has disavowed anyrole in the war. “We do not interfere in Ukraine’sinternal affairs,” Russian Foreign Minister SergeiLavrov said last year. “There are no Russianagents there.”

The U.S. is careful about sharing intelligencewith the Ukrainians, in part out of concern that itcould fall into Russian hands, American officials

Please see SPIES page A10

BY PHILIP SHISHKIN

You’re GroundedHow airlines decide who gets canceled firstPERSONAL JOURNAL | D1

Jason Gay

Mayweather-PacquiaoFight Needs No HypeSPORTS | D6

iStock

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to)

House panels widen probes... A4 Appetite grows for Democratic

primary challenger......................... A4 Nemtsov suspect says confession was forced... A10

Antigraft drive roils military... A8

BofA must submit new plan.. C1 Citi dividend boost cleared...... C3 Heard on the Street.................... C8

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