Corruption Profiles: Prosecution of Financial Intermediaries that Facilitate Corruption Steven...
-
Upload
katrina-evans -
Category
Documents
-
view
217 -
download
0
Transcript of Corruption Profiles: Prosecution of Financial Intermediaries that Facilitate Corruption Steven...
Corruption Profiles: Prosecution of Financial Intermediaries that
Facilitate Corruption
Steven Durham, Deputy ChiefFraud and Public Corruption Section
U.S. Attorney for the District of ColumbiaU.S. Department of Justice
2
Bank Secrecy Act
• Primary anti-money laundering law for financial institutions;
• Why does it exist?
• Requires financial institutions to engage in certain activity to prevent the laundering of money;
• Civil and administrative enforcement by bank regulators and FinCEN, the US FIU;
• Criminal penalties for willful violations.
3
What Must a Financial Institution Do?(What Did Riggs Fail to Do?)
• Have a comprehensive AML program;
• Engage in reasonable due diligence of customers and transactions;
• Report certain activity;• Not aid and abet the
laundering of money.
4
Comprehensive AML Program(What Riggs Didn’t Have)
• Implement internal policies, procedures and controls;
• Appoint a compliance officer who is responsible; USSG Sec 8B2.1(b)(2)(B) & (C);
• Conduct training of bank personnel;
• Conduct internal or external audits to determine effectiveness;
• USSG Sec. 8B2.1(b) (Promotion of an organizational culture)
5
Engage in reasonable due diligence
• Know your customer and likely transactions;– Customer identification– Understanding specific
transactions• Level of risk will determine
reasonableness of due diligence;
• Talk is Cheap; Actions speak louder than words
6
Special and Enhanced Due Diligence
• Calls for special due diligence for correspondent and private banking accounts involving foreign persons.
• Enhanced due diligence for correspondent accounts maintained for offshore banks or those in high risk ML locations.
• Enhanced scrutiny of private banking accounts maintained by senior foreign political leaders.
• Learning from past mistakes – USSG Sec. 8B2.1, Application Note 2(D).
7
Report Specific Activity
• CTR: in excess of $10,000 cash transactions
• SAR: suspicious activity reports
– Knows, suspects or has reason to suspect
– Illegal source
– Not consistent with customer’s financial profile
– Duty to investigate
– Judgment call
8
Criminal Enforcement
• 31 USC 5322: Willful failure to report suspicious transactions; Willful failure to have effective AML compliance program
• Systemic Failure/Pervasiveness
9
Proving Willfulness
• Individual knowledge;• Corporate or collective
knowledge;• Willful blindness --
“flagrant institutional indifference”
• Evaluated against the institution’s duty to know as a result of the BSA
10
Riggs Bank
• Founded 1837 in Washington, D.C.;
• “The most important bank in the most important city”
– Banked 8 U.S. Presidents including Abraham Lincoln
– 95% of all Embassy business
– International Private Banking/Embassy Banking Division.
11
Augusto Pinochet
• Leader or president of Chile 1973-90; Commander-in-Chief of armed forces 1990-98;
• Allegations of significant human rights abuses, including murder, torture and kidnapping;
• By 1998, was in significant legal trouble; October 1998 Spanish arrest warrant and worldwide freeze of all assets;
• Arrested in UK in 98; released and re-arrested in Chile in January 2001.
12
Account Opening Procedures
• Federal banking regulators require banks to understand and document source of money;
• Pinochet deposited US $8 million into Riggs accounts, despite declaring less than US $1/2 million on Chilean tax returns;
• No investigation or documentation of source of money by Riggs;
• No attempt to reconcile declared wealth with actual deposits.
13
Account Names and Nominees
• After Pinochet’s legal troubles became apparent, Riggs allowed Pinochet accounts to be changed to wife’s maiden name to prevent their discovery;
• Riggs maintained accounts for military attaches, knowing that they were actually for Pinochet;
• Internal Riggs documents consciously avoided referring to Pinochet by name.
14
Offshore Accounts
• Riggs created two offshore shell corporations in the Bahamas for Pinochet in 1996 and 1998;
• Riggs accounts were in the name of the shell corporations rather than Pinochet;
• At the time, the Bahamas had been designated as a FATF blacklist country;
• Bank regulators advised caution in dealing with both FATF blacklist countries and with shell corporations.
15
Moving Money
• Riggs allowed the early termination of a CD held in London, and then transferred it to the US at a time where the money could have been seized by the UK;
• Riggs vice president broke apart US $1 million into 40 cashiers checks, then physically transported them to Chile;
• Money had been transferred into Riggs clearing account before converting it to cashiers checks; no legitimate reason to do so other than to disguise origin of money.
16
Equatorial Guinea
• Significant issues of corruption and mismanagement by current government; numerous public documents put Riggs on notice that corruption was an issue;
• Billions of dollars of oil reserves found in EG territorial waters;
• Riggs held accounts worth US$700 million for EG in 64 different accounts.
17
Offshore Corporations
• Riggs opened offshore corporation, named Otong in Bahamas for Teodoro Obiang Nguema, the EG President;
• Otong was a “Private Investment Company” (PIC); bank regulators cautioned banks that such PICs were often used as money laundering vehicles;
• Again, Bahamas was on FATF blacklist at time.
18
Cash Deposits
• EG first family deposited US $11 million in currency, often wrapped in plastic bundles, into Otong offshore account;
• No due diligence as to the source of the cash or purpose of the transactions;
• CTRs filed, falsely stating that Otong was a timber exporter, rather than a PIC;
• No SARs filed, although clearly should have been.
19
Mysterious Wire Transfers
• Approximately US $26 million, in 16 wire transfers, moved from oil revenue account to Spanish account of EG corporation;
• Money likely embezzled from country’s revenues;
• No due diligence conducted as to nature of EG corporation or purpose of the transaction; no letters of credit or bills of lading on file to justify it.
20
Regulatory efforts
• Bank regulators issued 30 different written findings between 1997-2004;
• Bank generally refused or was unable to correct deficiencies;
• Regulators did not monitor deficiencies from year to year and insist on correction; always gave bank a passing mark;
• “Clean bill of health” from regulators does not necessarily end the inquiry
21
Systemic Deficiencies
• Poor information systems could not link multiple accounts, could not identify risky accounts;
• Poor “know your customer” procedures, particularly with high-risk accounts;
• Failing to monitor wire transactions;• No effective procedure for filing SARs
(Riggs policy);• Poor audit function;• Poor training of employees.
22
The End of the Bank
• Riggs pled guilty to BSA violation and paid a total combined civil and criminal penalty of US $41 million;
• Fine was greater than last 5 years’ profits, combined;
• Riggs was immediately sold to larger bank, who stripped the Riggs names off the buildings; Riggs no longer exists as an institution.