FinCEN: Big penalties don't stop banks from moving dirty cash

Money streamed in from California, Peru, Bolivia, China and other places where low-income families were willing to sink their modest savings - US$2,000, US$5,000, US$10,000 (RM8,300, RM20,700, RM41,400) - into an investment they hoped would change their lives.

With the tap of a keyboard, money from investors were funnelled through the New York operations of global banking giant HSBC. Then it zipped across the world into accounts at HSBC’s sprawling Hong Kong offices.

Like others taken in by what became known as the World Capital Market (WCM) Ponzi scheme, Reynaldo Pacheco, a 44-year-old father in Santa Rosa, California, promoted the deal to family and acquaintances.

When the WCM scheme began to unravel, one of the unlucky investors Reynaldo had encouraged to put money into the deal decided to have him killed.

Three men kidnapped Reynaldo and beat his head with rocks, leaving him dead in a creekbed, his hands tied behind his back with tape and one of his shoelaces.

Thousands of victims lost an estimated US$80 million (RM331 million) in the scheme.

The FinCEN Files is an investigation by about 400 journalists across the globe, spearheaded by the International Centre for Investigative Journalism (ICIJ), involving bank filings leaked to BuzzFeed News.

The leaked documents were suspicious activity reports (SARs) filed to the US Treasury’s Financial Crimes Enforcement Network (FinCEN), a bureau tasked to collate and analyse transaction data to combat money laundering and other financial crimes.

The FinCEN Files show that HSBC continued shifting money for the WCM investment fund at a time when authorities in three countries were investigating the company and the bank’s internal watchdogs knew it was an alleged Ponzi scheme.

More than US$30 million (RM124 million) tied to WCM flowed through the bank in 2013 and 2014 — at a time when HSBC was under probation as part of its deferred prosecution deal with American authorities.

Even after US securities regulators won a restraining order freezing the company’s assets, WCM’s account at HSBC Hong Kong stayed active.

According to court documents later filed by attorneys seeking money for the scheme’s victims, WCM drained more than US$7 million (RM29 million) from the account during the following week, drawing its balance to zero.

WCM wasn’t the only company tied to criminal activities that moved money through HSBC during the five-year probation that came with the bank’s US$1.9 billion (RM7.87 billion) deferred prosecution deal.

An ICIJ analysis found that the bank’s Hong Kong office, for example, processed more than US$900 million (RM3.7 billion) in transactions involving shell companies. The companies were linked to alleged criminal networks in court records and media reports.

American prosecutors and other officials have praised deferred prosecution deals and other types of money laundering settlements as effective tools for making sure big banks follow the law and stop serving criminals.

A review of leaked documents showed dirty money flowed through HSBC’s Hong Kong offices - in one case, leading to a murder

When authorities announced Standard Chartered’s deferred-prosecution deal in 2012, an FBI official declared, “New York is a world financial capital and an international banking hub, and you have to play by the rules to conduct business here.”

ICIJ’s investigation shows that five of the banks that appear most often in the FinCEN Files — HSBC, JPMorgan, Deutsche Bank, Standard Chartered and Bank of New York Mellon — continued moving cash for suspect people and companies in the wake of deferred prosecution agreements and other big-money laundering enforcement actions.

Four of those banks signed non-prosecution or deferred prosecution deals in the past 15 years relating to money laundering. The only bank of the five that hasn’t been the subject of a non- or deferred prosecution agreement is Deutsche Bank.

Instead, Deutsche Bank reached a US$258 million (RM1.06 billion) civil settlement in 2015 in response to a probe by US and New York banking regulators that found that the bank had moved billions of dollars on behalf of Iranian, Libyan, Syrian, Burmese and Sudanese financial institutions and other entities sanctioned by the US.

Semion Mogilevich, the alleged Russian mafia “Boss of Bosses” is believed to be behind transactions that got Bank of New York Mellon in trouble

Bank of New York Mellon was among the first big banks to pay a large penalty to US authorities for anti-money-laundering failures. In 2005, two years before its merger with Mellon Financial, Bank of New York paid US$38 million (RM157 million) dollars and signed a non-prosecution agreement after a federal probe concluded that it had allowed US$7 billion (RM28.96 billion) in illicit Russian money to flow through its accounts.

Media reports said investigators believed that Semion Mogilevich, the alleged Russian mafia “Boss of Bosses”, was behind some of the transactions.

Even as it has avoided big money laundering enforcement actions in recent years, Bank of New York Mellon has continued doing business with suspect figures, the FinCEN Files show.

The leaked records show, for example, that Bank of New York Mellon moved more than US$1.3 billion (RM5.38 billion) in transactions, between 1997 and 2016, tied to Oleg Deripaska, a Russian billionaire and a longtime ally of Russian President Vladimir Putin.

Since 2008, Deripaska has been the subject of allegations in media reports tying him to organised crime. When US authorities announced sanctions against him in 2018, they said he was previously been accused of threatening the lives of corporate rivals, bribing a Russian government official and ordering the murder of a businessperson.

Deripaska denies laundering funds or committing financial crimes. In 2019 the Trump administration lifted sanctions on three companies linked to him. US sanctions on Deripaska himself remain and he’s suing in an effort to upend them.

“BNY Mellon takes its role in protecting the integrity of the global financial system seriously, including filing Suspicious Activity Reports,” the bank said in a statement.

“As a trusted member of the international banking community, we fully comply with all applicable laws and regulations, and assist authorities in the important work they do," it said.

One striking pattern revealed by ICIJ’s analysis of the leaked records is the willingness of multiple banks to process transactions for the same risky clients.

Deripaska, the Russian oligarch, didn’t just have Bank of New York Mellon helping him out. The secret records reveal Deutsche Bank shuffled more than US$11 billion (RM45.5 billion) in transactions between 2003 and 2017 for companies he controlled.

The records also indicate that Deutsche Bank and Standard Chartered helped Odebrecht SA — a Latin American construction firm behind what US prosecutors called the largest foreign bribery case in history — to move US$677 million (RM2.8 billion) from 2010 from 2016.

Deutsche Bank played a role in transactions involving more than US$560 million (RM2.3 billion) of that amount, the records show.

Then there’s Dmytro Firtash, a Ukrainian oligarch who is wanted on criminal charges in the US. In 2014, American prosecutors unsealed an indictment accusing him of bribing officials in India in an effort to secure a mining deal. Since late 2019, US news outlets have reported on claims that Firtash played a role in President Trump’s effort to dig up dirt in Ukraine on his 2020 re-election opponent, Joe Biden.

Firtash, who says he began his climb in business trading Ukrainian powdered milk for Uzbek cotton after the fall of the Soviet Union, lives in exile in a mansion in Vienna, protected so far from efforts to extradite him. His Art Nouveau villa has a home cinema and an infinity pool — a 2017 profile by Bloomberg Businessweek dubbed him “the Oligarch in the Gilded Cage.”

When it comes to banking, Firtash and companies tied to him found open doors among many of the industry’s big institutions.