Swiss banker to Venezuelan kleptocrats becomes star witness
Matthias Krull pulls up his pant leg and slides a gardening shear on the ankle monitor that for two years has been a constant reminder of his crimes.
With a court order in hand, and a child’s voice echoing from
the next room, the former Swiss banker snips the hard plastic — releasing a
torrent of emotion as he contemplates his past mistakes and hopes for
rebuilding what, until his arrest, had been a charmed life.
“Physically, I got used to it, but psychologically it’s
liberating,” Krull said from the living room of his rented home in a leafy
Miami suburb. “To be able to wear shorts again is a big thing. I was at my
son’s soccer games and everybody was in shorts in 100 degrees. I was in long
pants.”
Krull’s troubles stem from his time as a banker in Venezuela,
a nation that has been plagued by epic corruption in two decades of socialist
rule, first under the populist President Hugo Chávez, then his handpicked
successor, Nicolás Maduro. During that time, Krull, who worked for the Julius
Baer Group, played a singular role as the go-to private banker for the
so-called Bolichicos — the privileged offspring of Venezuela’s Bolivarian
revolution — as they looked to shuttle their overnight fortunes offshore. Among
his would-be clients: Maduro’s stepsons.
But then in 2018, the blond, bespectacled banker was
arrested on money laundering charges at Miami’s international airport while
vacationing with his family. Thrust into a spotlight he never sought, the
normally discreet European began his second act as the all-star witness to a
U.S. federal criminal investigation known as Operation Money Flight, which
seeks to untangle how Venezuelan kleptocrats stole billions in oil wealth from
their country.
By all accounts, Krull’s assistance mapping the shell
companies and straw men strung across secretive jurisdictions like Antigua,
Malta and Hong Kong where Venezuelans have hidden their ill-gotten wealth has
proven decisive. Since pleading guilty in 2018, he has helped prosecutors
enlist other Swiss bankers as witnesses, pressed Venezuelan money launderers to
surrender and assisted numerous European investigations.
In recognition of those efforts, a judge in September
slashed his original 10-year prison sentence by 65%, according to recently
unsealed court filings — one of the largest reductions ever in Miami federal
court. The judge also relaxed Krull’s probation conditions, allowing him to
remove the ankle monitor that kept him confined to his home from 7:30 p.m. to
7:30 a.m. He is scheduled to start his 42-month prison sentence this summer.
Hovering over his ordeal is a more vexing question: whether
anyone else was responsible in the corruption. To date, Krull is the only
banker to have been prosecuted in the U.S. in connection with the corruption
even though numerous other white-shoe firms for years competed for a piece of
what had been one of the world’s hottest markets for wealth management. And
while Julius Baer has dismissed his actions as those of a rogue employee, Swiss
regulators last year found that the august money house, in its drive for
profits, overlooked red flags and incentivized bad behavior, much as it did
during an earlier financial scandal involving soccer governing body FIFA.
“The goal was to bring in new money,” said Krull, who drifts
midsentence between fluent Venezuelan Spanish and thick German-accented
English. “They really didn’t care about the portfolio’s profitability.” He
added: “If I didn’t take a client, someone else surely would have.”
In a series of interviews with The Associated Press over the
past 10 months, Krull recounted his remarkable journey from the German-born son
of a Lutheran pastor to banker of choice to Venezuela’s ruling elite.
Julius Baer, based in Zurich, declined to answer detailed
questions about any oversight responsibility in Krull’s criminal activities, so
this story reflects Krull’s own perspective. Many of the details, however, are
backed up by court documents and U.S. officials who’ve spent years
investigating corruption in Venezuela.
‘ONBOARDING STAR’
To Krull’s rivals in Venezuela, it was his unique upbringing
that gave him an edge. His father moved the family from the German city of
Munster to Venezuela when Krull was just 7. His parents later divorced, but he
stayed in Caracas as his mother remarried another member of the church.
Shuttling between a private German school and the poverty-stricken downtown parish
where his stepfather lived and worked, Krull built a network of contacts among
Caracas’ elites while soaking in the playful slang of the hillside slums.
“It’s never been difficult for me to adapt to the people
around me,” said the 47-year-old. “I can be as formal as required to comply
with the standards in Europe or explain complex financial terms in a way
regular people understand. It’s one of my strengths.”
He went to high school in Mexico City and college in
Switzerland before returning to Caracas in 2004.
His early years at Julius Baer were something of a
bonanza-fueled blur for the then single, 30-something expat. Chávez was at the
peak of his power, oil prices surged to a record and rich Venezuelans were
scrambling to stash their money abroad before it was seized by the government
or vanished by hyperinflation.
“The joke among bankers was that the money was lying on the
streets, you just had to pick it up,” he said.
Krull said Julius Baer assigned 15 bankers to hunt for new
clients in Venezuela compared with just three in neighboring Colombia, whose
economy has traditionally been similarly sized. Other banks were hungry, too.
But Krull outshined them all.
He estimates that over the course of his career he hauled in
over $1 billion in deposits for Julius Baer — earning him a vaunted spot year
after year in the bank’s “President’s Club,” the only Latin American adviser to
consistently earn the distinction reserved for its top 10% performers.
With a salary, bonus and benefits that sometimes topped $1.5
million a year, Krull says, he was dubbed internally as Julius Baer’s
“onboarding star.” He owned two trendy restaurants in Caracas, a condo in Miami
and pricey artwork by Venezuela’s modernist maestros.
There was a riskier side, however. Bankers were routinely
targeted for kidnapping or extorted by government officials. Krull says he was
once confronted by an angry client who placed a gun on a table to demand the
return of millions of dollars he had lost through another investment adviser.
After that, Krull hired an armed bodyguard.
The final straw was a shooting outside his apartment in a
tony Caracas neighborhood near the U.S. Embassy.
Krull and his girlfriend were heading to Europe to get
married and had arranged an all-night soiree with friends. But at the last
minute, his fiance fell ill with appendicitis and they canceled. During the
night, police accosted a car parked outside his bottom-floor apartment. Gunfire
erupted, three officers were killed and a chase ensued. One of the men
eventually captured said he was waiting for a foreigner — presumably Krull —
whom the gunman was expecting would arrive home before dawn.
“We took the decision that Venezuela is not the country to
raise a family,” said Krull.
In 2012, he relocated to Panama, but he still traveled to
Venezuela and other countries every two weeks.
MEETING MADURO’S ‘KIDS’
A high-risk currency deal gone awry led to Krull’s arrest.
But contrary to early media reports that he was the conspiracy’s mastermind,
Krull’s role in the scheme was small and came late in the game, according to
U.S. investigators. In the end, the suspicious transaction that landed him in
hot water wasn’t even carried out.
The dirty deal started in 2014, when one of his clients
together with others made a loan to Venezuela’s state-owned oil monopoly,
PDVSA, in bolivars. Krull had no part in the deal. The oil company repaid the
loan two months later in dollars at an official, windfall exchange rate. That
allowed the conspirators to make off with 510 million euros, or almost 15 times
what they had originally lent, according to the criminal complaint against
Krull. Along the way, bribes were paid to top oil officials, the complaint
said.
Two years later, Krull’s client, who is identified in court
documents as “Conspirator 7,” asked him to move $200 million in proceeds from
the fake loan into a foreign bank account for two friends, according to
investigators.
In court papers, “Conspirator 7” is identified only as the
billionaire owner of a TV network in Venezuela. But two U.S. officials familiar
with the case have identified him as Raul Gorrín, who in 2013 purchased the
popular network Globovision and softened its anti-government coverage. The
officials spoke on the condition of anonymity because of the sensitive nature
of the allegations.
Krull was under orders from his employer to avoid any
transactions involving the oil company, which was already on the radar of U.S.
law enforcement. So he says he offered to connect the longtime client to a
money manager in Panama. Unbeknownst to the two, the money manager in Panama
was a U.S. government informant who had secretly recorded hundreds of meetings,
phone conversations and text messages.
At a January 2017 meeting in Gorrín’s office, Krull was
introduced to the true beneficiaries of the $200 million take. Opening the door
to an adjoining conference room, he came face to face with three men clad in
heavy gold chains and baseball caps who were introduced as “Los Chamos” —
Venezuelan slang for “the kids.” They were the rarely seen sons of Maduro’s
wife, “First Combatant” Cilia Flores.
“That was the moment when I realized I was over my head,”
said Krull, who squirmed his way out of lunch with the men and headed to the
airport, his heart racing. “I didn’t want to confront them, or tell them I
didn’t agree with their parents’ politics. ... But when I was on the elevator
going down, I said to myself, ‘Why me? Why at this moment?’”
Krull says Gorrín persisted, eventually persuading him to
make the introduction to the government informant. That was enough to get Krull
charged as a member of a conspiracy to drain $1.2 billion from PDVSA. Maduro’s
stepsons have not been charged.
Gorrín was charged in 2018 in a separate case for allegedly
paying an array of lavish expenses — three jets, a yacht and champion
show-jumping horses — on behalf of Venezuela’s national treasurer as part of a
scheme to pilfer more than $1 billion from the government. Much of the proceeds
were plowed into luxury Miami real estate, federal prosecutors allege. Gorrín
remains a fugitive.
Howard Srebnick, a Miami-based attorney who has represented
Gorrín in the past, did not respond to a request for comment but previously has
said the Venezuelan businessman denies any wrongdoing.
TURNING A BLIND EYE
Krull insists he is being made the fall guy for a private
banking system built on secrecy that facilitated the looting of Venezuela’s
state coffers.
While the bulk of the money flowing into Julius Baer’s
vaults from Venezuela was the byproduct of the country’s own instability —
hapless leadership, worthless currency and triple-digit inflation — Krull says
he believes a good chunk represented the proceeds of corruption to which many
banks turned a blind eye. Julius Baer was not the worst offender, he says, and
indeed several other Swiss banks including HSBC Private Bank, UBS, Credit
Suisse and Geneva-based Compagnie Bancaire Helvetique SA have turned up in U.S.
or European criminal investigations.
“There was such an appetite to make money and to grow that
many transactions didn’t get the proper review,” he says.
Krull cited the example of a Julius Baer office in Europe
that he claims opened an account for a Venezuelan client even after he alerted
his colleagues the businessman was under intense media scrutiny for possibly
corrupt ties to Maduro. On another occasion, Krull said, a manager signed up a
former oil official despite having closed an account belonging to the same man
years earlier when both bankers were at Credit Suisse.
Krull filed a $34 million wrongful termination lawsuit
against Julius Baer in Venezuela in which he described a meeting at the start
of 2017 where he, a manager and a senior compliance officer discussed what to do
with several clients whose account information had been handed over to the U.S.
Justice Department as part of a money laundering probe.
Instead of dropping the clients, Krull alleges, he was
instructed by the compliance team to close only the corporate accounts while
allowing the clients to keep their personal accounts, where the majority of
their wealth was deposited.
“The only purpose was to keep generating income for the bank
and not take any real and concrete action to avoid money laundering or any
other suspicious criminal activity,” Krull alleges in the complaint.
Krull said that in his 14 years on the job, no compliance
managers ever visited Venezuela even though they made the rounds of other
offices in the region. He said two executives were hired in 2016 and 2017
despite having been fired from another bank due to Venezuela compliance
problems.
Swiss regulators last year found many transactions over
nearly a decade that point to “systemic failures” by Julius Baer in its
obligations to combat money laundering. Specifically, the audit found that
Julius Baer fell “significantly short” in investigating the identities of its
Latin American clients and compensated bankers for attracting new wealth while
paying scant regard to compliance and risk management goals.
Julius Baer didn’t respond to a request for an interview or
provide answers to detailed questions about Krull’s allegations, citing ongoing
litigation.
However, the bank pointed out in a statement that the
criminal activity to which Krull pleaded guilty occurred outside of his work
duties. The bank said it has cooperated with Swiss authorities, closed its
offices in Panama and Venezuela and has tried to claw back the bonuses of
employees in its Latin American group whose actions triggered the regulatory
probe.
Krull’s actions are “not compatible with the risk culture
that we are seeking to achieve,” Romeo Lacher, chairman of the Julius Baer
Group, said of the Swiss regulator’s findings last year. “Julius Baer has
invested substantially over the past few years in strengthening our compliance
and risk management processes to make them fit for the challenges of the
future.”
Mark Pieth, a money-laundering expert, said Swiss banks have
been involved in several scandals in recent years so there is no excuse for
them not knowing the source of the huge sums of money being raked in by their
associates in Venezuela.
That’s especially true for Julius Baer, he said, because it
was one of a few Swiss banks criminally charged in a U.S. tax dodging case for
helping Americans hide billions in offshore accounts. In 2016, it agreed to pay
a $547 million fine.
“With Venezuela, all sorts of alarm bells should’ve gone
off,” said Pieth, who recently retired from the University of Basel law school.
Pieth said he is surprised more Swiss financial institutions
and their senior executives haven’t been charged in the U.S. In Switzerland,
financial markets supervisor FINMA, as part of its investigation of Julius
Baer, sent written reprimands to two high-ranking managers — a punishment Pieth
likened to “a slap on the knuckles.”
“It’s like asking casinos to identify gambling addicts,” he
said. “The bankers’ job is to make money — not regulate themselves.”
FINMA declined to identify the two bankers but noted that
proceedings against a third banker were dropped after he pledged not to work in
finance management ever again, while an investigation into a fourth person
continues.
One of the four is former CEO Boris Collardi, who quit
Julius Baer in 2017 to join another Swiss private bank, Pictet, as a partner.
“We took note of FINMA’s decision early this year,” Pictet
said in a statement standing by Collardi, whose reprimand has no legal effect.
“We have full confidence in his work.”
For his part, Krull is hoping to get his life back on track.
He’s scheduled to start his 42-month prison sentence in July. In the meantime,
he spends his days shuttling his kids to soccer games, connecting with old
friends and lunching with his attorney.
“My main regret is that when I got dragged into this
situation, I did not have the strength to blow the whistle and take a step
forward by talking to the correct people,” Krull said. “That will stay with me
for the rest of my life.”
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