correspondent banking - International Money Laundering

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON :

69–919

COMMITTEE PRINT" !107th Congress1st Session

S. PRT.

107–1

CORRESPONDENT BANKING:A GATEWAY FOR MONEY LAUNDERING

R E P O R T

PREPARED BY THE

MINORITY STAFF

OF THE

PERMANENT SUBCOMMITTEE ONINVESTIGATIONS

OF THE

COMMITTEE ON GOVERNMENTAL AFFAIRSUNITED STATES SENATE

FEBRUARY 5, 2001

VerDate 11-MAY-2000 13:34 Feb 09, 2001 Jkt 000000 PO 00000 Frm 00001 Fmt 5012 Sfmt 5012 69919.TXT SAFFAIRS PsN: SAFFAIRS

COMMITTEE ON GOVERNMENTAL AFFAIRS

FRED THOMPSON, Tennessee, ChairmanTED STEVENS, AlaskaSUSAN M. COLLINS, MaineGEORGE V. VOINOVICH, OhioPETE V. DOMENICI, New MexicoTHAD COCHRAN, MississippiJUDD GREGG, New HampshireROBERT F. BENNETT, Utah

JOSEPH I. LIEBERMAN, ConnecticutCARL LEVIN, MichiganDANIEL K. AKAKA, HawaiiRICHARD J. DURBIN, IllinoisROBERT G. TORRICELLI, New JerseyMAX CLELAND, GeorgiaTHOMAS R. CARPER, DelawareJEAN CARNAHAN, Missouri

HANNAH S. SISTARE, Staff Director and CounselJOYCE A. RECHTSCHAFFEN, Democratic Staff Director and Counsel

DARLA D. CASSELL, Chief Clerk

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

SUSAN M. COLLINS, Maine, ChairmanTED STEVENS, AlaskaGEORGE V. VOINOVICH, OhioPETE V. DOMENICI, New MexicoTHAD COCHRAN, Mississippi

CARL LEVIN, MichiganDANIEL K. AKAKA, HawaiiRICHARD J. DURBIN, IllinoisMAX CLELAND, Georgia

CHRISTOPHER A. FORD, Chief Counsel and Staff DirectorLINDA J. GUSTITUS, Minority Chief Counsel and Staff Director

ELISE J. BEAN, Minority Deputy Chief CounselROBERT L. ROACH, Minority Counsel and Chief Investigator

MARY D. ROBERTSON, Chief Clerk

C O N T E N T S

I. Executive Summary ......................................................................................... 1II. Minority Staff Investigation Into Correspondent Banking ................. 8III. Anti-Money Laundering Obligations ........................................................ 9IV. Correspondent Banking Industry in the United States ...................... 11

A. Correspondent Banking Products and Services ........................................ 12B. Three Categories of High Risk Banks ........................................................ 14

Shell Banks ................................................................................................ 14Offshore Banks .......................................................................................... 15Banks in Non-Cooperating Jurisdictions ................................................. 17

C. Survey on Correspondent Banking ............................................................ 18D. Internet Gambling ....................................................................................... 23

V. Why Correspondent Banking is Vulnerable to Money Laundering ... 26A. Culture of Lax Due Diligence ..................................................................... 27B. Role of Correspondent Bankers .................................................................. 33C. Nested Correspondents ............................................................................... 35D. Foreign Jurisdictions with Weak Banking or Accounting Practices ....... 36E. Bank Secrecy ................................................................................................ 40F. Cross Border Difficulties ............................................................................. 41G. U.S. Legal Barriers to Seizing Funds in U.S. Correspondent Accounts . 42

VI. How an Offshore Bank Launders Money Through a U.S. Cor-respondent Account: The Lessons of Guardian Bank ......................... 44

VII. Conclusions and Recommendations ........................................................ 57VIII. Ten Case Histories ..................................................................................... 60

No. 1: American International Bank .............................................................. 60No. 2: Caribbean American Bank ................................................................... 60No. 3: Overseas Development Bank and Trust Company .............................. 60A. THE FACTS ................................................................................................. 61

(1) American International Bank Ownership and Management .............. 61(2) Financial Information and Primary Activities ...................................... 61(3) AIB Correspondents ................................................................................ 63(4) AIB Operations and Anti-Money Laundering Controls ....................... 64(5) Regulatory Oversight .............................................................................. 64(6) Money Laundering and Fraud Involving AIB ....................................... 64(7) Correspondent Accounts at U.S. Banks ................................................. 82

(a) Bank of America .................................................................................. 83(b) Toronto Dominion Bank (New York Branch) .................................... 87(c) Chase Manhattan Bank ....................................................................... 88(d) Popular Bank of Florida (now BAC Florida Bank) ........................... 92(e) Barnett Bank ........................................................................................ 95

(8) AIB’s Relationship with Overseas Development Bank and TrustCompany .................................................................................................. 97

B. THE ISSUES ................................................................................................ 107No. 4: British Trade and Commerce Bank ..................................................... 118A. THE FACTS ................................................................................................. 118

(1) BTCB Ownership and Management ...................................................... 118(2) BTCB Financial Information .................................................................. 123(3) BTCB Correspondents ............................................................................. 126(4) BTCB Anti-Money Laundering Controls ............................................... 127

PageIV

VIII. Ten Case Histories—Continued(5) BTCB Affiliates ........................................................................................ 129(6) BTCB Major Lines of Business .............................................................. 131(7) Money Laundering and Fraud Involving BTCB ................................... 138(8) Correspondent Accounts at U.S. Banks ................................................. 142

(a) Banco Industrial de Venezuela (Miami Office) ................................. 142(b) Security Bank N.A. .............................................................................. 150(c) First Union National Bank ................................................................. 158(d) Other U.S. Banks ................................................................................. 166

B. THE ISSUES ................................................................................................ 166No. 5: Hanover Bank ........................................................................................ 175A. THE FACTS ................................................................................................. 175

(1)Hanover Bank Ownership and Management ......................................... 175(2) Hanover Bank Financial Information .................................................... 179(3) Hanover Bank Correspondents .............................................................. 181(4) Hanover Bank Operations and Anti-Money Laundering Controls ...... 183(5) Regulatory Oversight of Hanover Bank ................................................ 189(6) Money Laundering and Fraud Involving Hanover Bank ..................... 191(7) Correspondent Account at Harris Bank International ......................... 203

B. THE ISSUES ................................................................................................ 206No. 6: British Bank of Latin America ............................................................. 210A. THE FACTS ................................................................................................. 210

(1) BBLA Ownership ..................................................................................... 210(2) BBLA Principal Lines of Business ......................................................... 211(3) BBLA Correspondents ............................................................................. 213(4) BBLA Management and Operations ...................................................... 213(5) Money Laundering Involving BBLA ...................................................... 218(6) Closure of BBLA ...................................................................................... 223(7) Correspondent Account at Bank of New York ...................................... 223

B. THE ISSUES ................................................................................................ 226No. 7: European Bank ...................................................................................... 231A. THE FACTS ................................................................................................. 231

(1) European Bank Ownership and Management ...................................... 231(2) European Bank Financial Information and Primary Activities .......... 232(3) European Bank Correspondents ............................................................ 234(4) European Bank Operations and Anti-Money Laundering Controls .... 235(5) Regulatory Oversight of European Bank .............................................. 237(6) Money Laundering and Fraud Involving European Bank ................... 240(7) Correspondent Account at Citibank ....................................................... 245

B. THE ISSUES ................................................................................................ 250Nos. 8–10: Three Additional Case Studies on Correspondent Banking ....... 256

APPENDIX

(1) Bank of New York Scandal ..................................................................... 257(2) Koop Fraud .............................................................................................. 259(3) Cook Fraud .............................................................................................. 267(4) Gold Chance Fraud ................................................................................. 272(5) $10 Million CD Interpleader .................................................................. 278(6) Other Suspect Transactions At BTCB: KPJ Trust, Michael Gen-

dreau, Scott Brett, Global/Vector Medical Technologies ..................... 284(7) Taves Fraud and the Benford Account .................................................. 288(8) IPC Fraud ................................................................................................ 299

correspondent banking - International Money Laundering

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