U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

69–919

" ! COMMITTEE PRINT 107th Congress

1st Session

S. PRT.

2000

107–1

CORRESPONDENT BANKING:

A GATEWAY FOR MONEY LAUNDERING

R E P O R T

PREPARED BY THE

MINORITY STAFF

OF THE

PERMANENT SUBCOMMITTEE ON

INVESTIGATIONS

OF THE

COMMITTEE ON GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

FEBRUARY 5, 2001

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

FRED THOMPSON, Tennessee, Chairman

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

JUDD GREGG, New Hampshire

ROBERT F. BENNETT, Utah

JOSEPH I. LIEBERMAN, Connecticut

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

HANNAH S. SISTARE, Staff Director and Counsel

JOYCE A. RECHTSCHAFFEN, Democratic Staff Director and Counsel

DARLA D. CASSELL, Chief Clerk

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

SUSAN M. COLLINS, Maine, Chairman

TED STEVENS, Alaska

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

MAX CLELAND, Georgia

CHRISTOPHER A. FORD, Chief Counsel and Staff Director

LINDA J. GUSTITUS, Minority Chief Counsel and Staff Director

ELISE J. BEAN, Minority Deputy Chief Counsel

ROBERT L. ROACH, Minority Counsel and Chief Investigator

MARY D. ROBERTSON, Chief Clerk

(III)

C O N T E N T S

Page

I. Executive Summary ......................................................................................... 1

II. Minority Staff Investigation Into Correspondent Banking ................. 8

III. Anti-Money Laundering Obligations ........................................................ 9

IV. Correspondent Banking Industry in the United States ...................... 11

A. Correspondent Banking Products and Services ........................................ 12

B. Three Categories of High Risk Banks ........................................................ 14

Shell Banks ................................................................................................ 14

Offshore Banks .......................................................................................... 15

Banks in Non-Cooperating Jurisdictions ................................................. 17

C. Survey on Correspondent Banking ............................................................ 18

D. Internet Gambling ....................................................................................... 23

V. Why Correspondent Banking is Vulnerable to Money Laundering ... 26

A. Culture of Lax Due Diligence ..................................................................... 27

B. Role of Correspondent Bankers .................................................................. 33

C. Nested Correspondents ............................................................................... 35

D. Foreign Jurisdictions with Weak Banking or Accounting Practices ....... 36

E. Bank Secrecy ................................................................................................ 40

F. Cross Border Difficulties ............................................................................. 41

G. U.S. Legal Barriers to Seizing Funds in U.S. Correspondent Accounts . 42

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

VII. Conclusions and Recommendations ........................................................ 57

VIII. Ten Case Histories ..................................................................................... 60

No. 1: American International Bank .............................................................. 60

No. 2: Caribbean American Bank ................................................................... 60

No. 3: Overseas Development Bank and Trust Company .............................. 60

A. 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 Trust

Company .................................................................................................. 97

B. THE ISSUES ................................................................................................ 107

No. 4: British Trade and Commerce Bank ..................................................... 118

A. 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

Page

IV

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 ................................................................................................ 166

No. 5: Hanover Bank ........................................................................................ 175

A. 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 ................................................................................................ 206

No. 6: British Bank of Latin America ............................................................. 210

A. 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 ................................................................................................ 226

No. 7: European Bank ...................................................................................... 231

A. 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 ................................................................................................ 250

Nos. 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 Gendreau, Scott Brett, Global/Vector Medical Technologies ..................... 284

(7) Taves Fraud and the Benford Account .................................................. 288

(8) IPC Fraud ................................................................................................ 299

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