Al Capone, one of the best know American mobsters, was at the forefront of the beginning of modern money-laundering schemes. American law enforcement estimated that Capone laundered $1 billion through various businesses. His first business was in fact laundromats. While the subject is still open to debate, many feel that Capone — and his laundromats — was the origin for the phrase “money laundering.” In the wake of Credit Suisse sentencing, nationally recognized white collar crime lawyer Arkady Bukh mentions the most notable money laundering cases that involved a major financial institution.
Money laundering in America is fought by law enforcement two ways: preventive, or regulatory, measures and criminal sanctions.
To try to prevent dirty money from coming into the country, through the US financial system, the American Congress passed laws beginning in 1970 known as the Bank Secrecy Act. The laws cover a wide-range of entities, including banks, credit card companies, life insurers, money service businesses and broker-dealers. These businesses are required to report some transactions to the Treasury Department and cash transactions over $10,000 are among those that are to be recorded.
The Money Laundering Control Act of 1986 criminalized money laundering. The Anti-Drug Abuse Act of 1988 expanded the types of financial institutions to include car dealers and real estate closing personnel.
Credit Suisse AG was sentenced for conspiring to aid and help US taxpayers file false income tax returns and other documents with the American agency which oversees income tax, the Internal Revenue Service (IRS). On May 19, Credit Suisse entered a guilty plea, bringing an end to a years-long investigation led by American law enforcement officials. Also indicted were seven Credit Suisse employees and the owner of a trust company.
US District Chief Judge Rebecca Beach Smith entered the judgment and conviction and ordered Credit Suisse to pay roughly $1.8 billion to the United States by Thanksgiving, November 28. Credit Suisse will also pay the Justice Department’s Crime Victims Fund approximately $1.14 billion and $666.5 million to the IRS in restitution. Credit Suisse agreed not to challenge the restitution amount which will also provide the base for an IRS civil tax assessment.
The agreement, along with agreements made with state and federal agencies, means that Credit Suisse will hand over a total of approximately $2.6 billion. In keeping with the guidelines of the plea agreement, Credit Suisse confirmed that for decades it ran an illegal cross-border banking operation that “knowingly and willfully” aided and assisted thousands of clients in the US to open and maintain undeclared accounts. The bank also acknowledged that it helped conceal the offshore assets and income from the IRS.
According to the documentation filed with the plea agreement, Credit Suisse used a menu of means to assist the clients in concealing their undeclared accounts. The methods utilized in the scheme included:
• Assisting clients in using sham entities to hide undeclared accounts;
• Soliciting IRS forms that falsely stated, under penalties of perjury, that the sham entities were the beneficial owners of the assets in the accounts;
• Failing to maintain records in the United States related to the accounts;
• Destroying account records sent to the United States for client review;
• Using Credit Suisse managers and employees as unregistered investment advisors on undeclared accounts;
• Facilitating withdrawals of funds from the undeclared accounts by either providing hand-delivered cash in the United States or using Credit Suisse’s correspondent bank accounts in the United States;
• Structuring transfers of funds to evade currency transaction reporting requirements; and
• Providing offshore credit and debit cards to repatriate funds in the undeclared accounts.
Two former employees of a Credit Suisse subsidiary will be sentenced on December 5 for their part in helping clients evade taxes. On March 12, Andreas Bachmann, pled guilty to an indictment connected to his work as a banker at Credit Suisse Fides. On April 30, 2014, Josef Dorig, a former Credit Suisse Fides employee and owner of a trust company, pled guilty to conspiracy to defraud the IRS. Both men face a maximum sentence of five years in federal prison.
Standard Chartered, based in London traced much of its problem to the bank’s Hong Kong subsidiary and its branches in the United Arab Emirates.
A settlement announced in August 2014, by New York State’s financial regulator, the bank will pay a $300 million fine and suspect business activity due to its failure to weed out transactions that were open to money-laundering.
That’s on top of a $667 million fine that the bank paid in 2012 for money laundering charges and a promise to “play nice” and not engage in activities conducive to money-laundering. So, for not playing nice and keeping its promises, Standard Chartered has had to turn over $967 million to regulators.
Even though it’s still working its way through the American court system, Liberty Reserve may end up having to pay the largest penalty ever levied against a bank for money-laundering related activities.
Arthur Budovsky, the Costa Rican founder of the currency transfer and payment processing company, recently appeared in Manhattan after being extradited from Spain to the US.
US officials have accused Budovsky of using Liberty Reserve as an underground bank of sorts which handled over $6 billion woth of transactions. When US Attorney Preet Bharara announced the money laundering charges in May, 2013, he called Liberty Reserve “…the bank of choice for the criminal underworld.”
“…the case might represent the largest international money laundering case ever brought by the US,” Bharara said.
During the investigation, law enforcement officials raided locations in Panama, Switzerland, America, Sweden and Costa Rica. In Costa Rica, the investigators recovered five luxury cars, including three Rolls-Royces.
In August, 2014, the New York Department of Financial Services levied Pricewaterhouse Coopers, one of the biggest names in financial consulting with a $25 million fine and two year suspension for massaging a report on the money laundering failures at the Bank of Tokyo.
In 2013, the department started investigating the firm’s review of overseas transactions processed by the bank of Tokyo between 2002 until 2007. About that time, the Japanese bank agreed to pay $250 million to sttle New York charges that it had cleared over 27,000 transactions totalling $100 billion for countries facing US sanctions, including Iran, Sudan and Burma.
In 2007, the bank hired PwC to review transactions the bank had processed. The consultant’s first draft of a report detailed how the banking giant redacted names of clients to avoid detection. PwC also told investigators that its review was limited because bank executives had put a jpolicy in place to remove information that would have triggerd alerts.
When the final report was issued two weeks later, PwC had given in to bank demands and turned in a watered down report that help hide illegal transactions the bank had made or had helped to make.
HSBC was hit with a $1.9 billion fine over allegations about money laundering. The fallout has had unintended results in some of the poorest countries on the planet.
If you followed the story carefully, you’ll know that no one in the government every did prove that HSBC moved money around for drug cartels and all the rest. Instead, the global banker was fined because its internal documentation processes were not sufficient to show that it had not been laundering the cartels’ money.
It wasn’t a $1.9 billion fine for laundering money. It was a $1.9 billion fine for not follow the regulations about how to prevent money laundering.
Because of the fine, other large banks, such as Barclays, have decided to sever links with hundreds of international money transfer companies. The banks have pulled back on operations in profitable emerging markets as international anti-money laundering rules tighten.
Barclays, and other banks, don’t appear to be so worried about money laundering. They’re worried about being fine $1.9 billion for not following the rules against money laundering. The rules cost a basic per unit cost every time a bank makes a transfer. Smaller bank transfers cannot cover the costs and the decision was made to sever ties with much of the banking world.
$1.9 billion still stands among the highest in penalties paid by a bank — even if it wasn’t directly for money laundering.
About the Author
Arkady Bukh, Esq. is a veteran New York criminal attorney who focuses on high profile white collar crime and Federal cases. Arkady is also an author published in Law360, NJ Law Journal, Daily Journal, Enrepreneur, Nolo, and many other legal media. Arkady can be reach at Bukh Law Firm, 14 Wall St, New York NY 10005, (212) 729-1632, or visit his website at www.nyccriminallawyer.com.