ZeroZeroZero (27 page)

A recent study by Alejandro Gaviria and Daniel Mejía, two economists at the University of Bogotá, revealed that 97.4 percent of the revenue from narco-trafficking in Colombia is regularly laundered through banking circuits in the United States and Europe by means of a complex series of financial operations. Hundreds of billions of dollars. The laundering occurs through a shareholding system, like Chinese nesting boxes, in which cash is transformed into electronic stocks and transferred from one country to another. When it arrives on another continent the money’s practically clean and—best of all—untraceable. So interbank loans have been systematically financed with funds from drug trafficking and other illicit activities. Some banks survived only
because of this money. A huge portion of the estimated 352 billion narco-dollars was absorbed by the legal economic system, successfully recycled.

Three hundred and fifty-two billion dollars: narco-trafficking profits equal more than a third of the entire banking system’s losses in 2009, according to the International Monetary Fund, and that’s only the deducible tip of the iceberg we’re sailing toward. The banks, which now own many people’s existences and are capable of influencing the governments of even the richest and most democratic states, now find that they too risk being held ransom. Once again, the problem is no longer far away, in wretched countries such as Mexico and Colombia, or down in Sicily, Campania, and Calabria, a southern Italy that is both accomplice and victim of its ruin. I want to scream this loud enough so that people will know, so that they prepare themselves for the consequences.

As Martin, the Wachovia whistle-blower, did, even though the praise he earned from the American authorities did not simplify his life in the financial world. He had to go into business for himself, opening two consulting companies specializing in anti-money laundering: Woods M5 Associates, and then Hermes Forensic Solutions. But he wanted to work for an important credit institution again. He contacted the Royal Bank of Scotland, one of the ten largest banks in the world and the second in the UK—until the financial crisis of 2008, that is, when it became one of those banks to be saved at any cost. The British government temporarily held almost 70 percent, so the Scottish bank needed to do everything possible to regain investor confidence. Even, one might think, hiring a man like Martin Woods to show their intention to rigorously respect all the rules of fair play. And yet in July 2012 the Royal Bank of Scotland suddenly broke the contract they had entered into with him. No explanation. Had they learned of Martin’s accusations against Wachovia? And just a few days later the LIBOR scandal broke, revealing that some leading banks, including the Royal Bank of Scotland, had for years been manipulating the London Interbank Offered Rate, the European reference rate for interbank loans.

Martin refused to give up; he sued them. He lost. The British judge agreed with the bank that an employer-employee relationship had not yet been established, and therefore Woods had no right to demand redress to an employment tribunal. In the meantime Martin began consulting about financial crime for the information giant Thomson Reuters. As of yet, no bank has been willing to hire him.

Today New York and London are the world’s largest laundries for dirty money. No longer those fiscal paradises of the Cayman Islands or the Isle of Man, now it’s Wall Street and the City of London. In the words of Jennifer Shasky Calvery, at that time chief of the Asset Forfeiture and Money Laundering Section of the Department of Justice, during a testimony before the American Congress on February 8, 2012: “Disguised in the trillions of dollars that is transferred between banks each day, banks in the U.S. are used to funnel massive amounts of illicit funds.” The centers of world financial power have stayed afloat thanks to cocaine money. Calvery also noted, “As evidence of transnational organized crime’s (TOC) global economic might, one need only consider the most recent estimates of the amount of money laundered in the global financial system—$1.6 trillion, of which an estimated $580 billion is related to drug trafficking and other TOC activities, according to the United Nations Office on Drugs and Crime’s Research Report published in 2011. These staggering amounts of money in the hands of the worst criminal elements create a terrifyingly vicious cycle—money enables TOC to corrupt the economic and political systems in which they operate, thereby allowing them to consolidate and expand their power and influence, which gives rise to more opportunity to commit crime and generate revenue.”

 • • • 

Lucy Edwards is a brilliant career woman. She is vice president of London’s Bank of New York and is married to Peter Berlin, director of the British company Benex Worldwide. Lucy is invited to a two-day
conference on financial services for Scandinavian, Eastern European, and Russian clients. She’s perfect, because she, like her husband, was born in the former Soviet Union before becoming a naturalized Brit. She has no doubts about her speech, which she calls “Money Laundering: Latest Developments and Regulations
.”
While Lucy is speaking to a rapt audience, the English authorities, who have been investigating Russian crime organizations for years, are informing their American cohorts that Benex is using a Bank of New York account to channel enormous sums of money. And Benex is linked to YBM Magnex, a front company belonging to one of the most powerful Russian mafia bosses, Semën Mogilevic.

The FBI discovers that Mogilevic washes billions of dirty dollars through the Bank of New York. A constant, quick flow of money in and out. This doesn’t seem to trouble the bank much; it merely files a suspicious activity report. A river of money that also comes in handy to water some political campaigns in Russia. The New York district attorney’s office realizes that the money-laundering operation involved the illicit transfer of $7 billion from Russia to American bank accounts and then to other accounts around the globe, through a series of cover companies.

In the Bank of New York case the only person who ends up in jail—for two weeks—is Svetlana Kudriavceva, a bank employee who lied to an FBI agent about being paid five hundred dollars a month by Peter Berlin and his wife. The bank gets off with a $38 million fine and a promise to respect money-laundering laws in the future.

The technique Mogilevic and his associates use is easily replicated in other contexts: Italy, for example. It’s 1999, and the public prosecutor’s office in Rimini is monitoring the accounts of two Ukrainians and a Russian who were, as the investigation records state, at the head of “a criminal organization that works to guarantee its control of the Emilia Romagna and Marche territories.” Benex International—Bank of New York—Banca di Roma—Banca di credito cooperativo di
Ospedaletto in Emilia Romagna. More than a million dollars pass through these accounts. A million crisp dollar bills, ready to be used by the Russian mafia in Italy.

Lucy Edwards knows how to make even a boring topic like anti–money-laundering techniques fascinating. She’s an excellent speaker, conveying just the right combination of confidence and seriousness. She even gets a laugh from her audience on more than one occasion. Lucy has just finished speaking. After the applause, lots of people, including the Bank of New York’s most important clients, wait for her to step off the stage. They want to shake her hand and compliment her. She’d given a great talk.

Lucy Edwards had two months left before her bank has to fire her. She and her husband, Peter Berlin, helped recycle tons of money. She too would get off with a simple fine of $20,000 and six months of house arrest after being found guilty of money laundering, fraud, and other grave federal crimes. The woman who traveled the world explaining how to thwart money laundering had been doing it herself. I’ve often asked myself how she must have felt at the end of every speech she gave, and, once she’d been found out, if she tried to justify herself, to find some sense to her double game.

Who knows if Lucy still lectures on how to prevent money laundering, because she’d have lots of stories to tell. The control systems are leaking all over the place. In the distracted summer of 2012, when the Bank of Scotland slammed its doors in Martin’s face, several leading American and European banks in the United States were being targeted, and one in particular, Bank of America, which, according to the FBI, the Zetas were using to launder their narco-dollars. On June 12, 2012, federal agents arrest seven people, including the big shot José Treviño Morales, the brother of Miguel, at that time the most prominent boss of Mexico’s fiercest cartel. But in the United States he’s known as a businessman devoted to an activity dear to the American South: He breeds winning racehorses. That’s how he hides and reinvests dirty money. In order to arrive at such a remunerative and
gratifying form of recycling, estimated to have been at a level of around $1 million a month, he first needs to get the money into an American bank account. Bank of America is willing to cooperate with the investigators and is not accused of any illegal activity. Up until now nothing has happened to it.

It’s extremely difficult to expose money-laundering cases, or even to ascertain the scale and the degree of negligence. It’s almost always like trying to squeeze sand in your fist: The grains just slip through your fingers. And if a few stay in your hand, it’s more chance than will. Which is how it went for one shortsighted swindler, Barton Adams, officially a West Virginia doctor who specialized in pain therapy. He is found out while shifting hundreds of thousands of dollars—from systematic health-care fraud and tax evasion—between HSBC accounts in the United States and its branches in Canada, Hong Kong, and the Philippines. HSBC is a colossus: the fifth largest bank in the world in terms of market value, with branches in every village in the UK, and present in eighty-five foreign countries. Like Martin in the Wachovia affair, Barton rolls a stone downhill. But he does it unintentionally. On July 16, 2012, the U.S. Senate’s Permanent Subcommittee on Investigations confirms rumors that had been circulating for months: HSBC and its American branch, HBUS, have exposed the American financial system to a wide range of risks of money laundering, drug trade financing, and terrorism. According to the subcommittee’s report, HSBC used HBUS to link its branches around the world to the United States, thereby providing its clients services in dollars, movement of capital, currency exchange, and other monetary tools without fully respecting U.S. banking laws. Because of insufficient controls, HBUS allegedly allowed terrorist and Mexican drug money into American territory. Considering that HBUS provides twelve hundred accounts to other banks, including more than eighty HSBC branches, it’s easy to see that without adequate anti–money-laundering policies, these services can become a superhighway for illegal capital to enter the United States.

The Senate subcommittee’s investigation revealed that HBUS had
offered correspondent banking services to HSBC Mexico, treating it as a low-risk client despite its being in a country with huge money-laundering and drug-trafficking problems. Between 2007 and 2008 the Mexican branch transferred $7 billion in cash to HBUS, exceeding all other Mexican banks and sparking suspicions that part of this money might be from drug sales in the United States. At the end of 2012, HBUS declared that it was very sorry for what had happened and agreed to pay a fine of almost $2 billion—less than a third of what they’d taken in from Mexico alone.

It’s not just the banks on Wall Street or in the City of London that maintain privileged relations with drug lords. Banks that launder money are scattered all across the globe, sometimes in rather disquieting places. Lebanon, for example, through which, according to the Catanzaro magistrates, the Australian Nicola Ciconte allegedly transferred Vibo Valentia clan money. One of the biggest banks is the Lebanese Canadian Bank of Beirut: branches spread throughout Lebanon; a liaison office in Montreal; more than six hundred employees. It offers a wide range of financial services and correspondent accounts in banks all over the world. On February 17, 2011, the U.S. Treasury Department declared that it had valid reason to consider the Lebanese Canadian Bank involved in money-laundering activities on behalf of the Shiite group Hezbollah, and therefore subject to restrictive measures prescribed by the PATRIOT Act. According to the Treasury Department the Lebanese bank, through insufficient controls and institutional complicity, allegedly facilitated the money laundering of a criminal network trafficking drugs from South America through West Africa to Europe and the Middle East, recycling $200 million a month through Lebanese Canadian Bank accounts. Several conniving managers who carried out the operations were identified. According to the Manhattan district attorney’s office and the DEA, the Lebanese Canadian Bank allegedly took part in a scheme that transferred at least $248 million to the United States between January 2007 and the beginning of 2011. The money came from the drug trafficking and other criminal activities
of the Lebanon-based group led by the drug kingpin Ayman Joumaa and was used to purchase used cars in America. The cars were subsequently sold in western Africa, the declared revenue from which was greatly inflated so as to mask the amount of dirty money from Colombian and Mexican cartels that was added to the proceeds from the car sales. All this money was channeled toward exchange offices in Beirut, and from there to Lebanese Canadian Bank accounts, and also in part to accounts belonging to Hezbollah, which the United States considers a terrorist organization, one with increasing involvement in the drug trade.

 • • • 

Income from drugs and money laundering has not only sealed increasingly close alliances between terrorist and criminal organizations; it represents a more complex, pervasive, and even more dangerous connection to widespread corruption, making it one of the most elusive links to track. One case in particular illustrates quite sensationally the difficulties that beset financial investigations; the fact that it’s dragged on for more than a decade only makes the point more clearly. On November 15, 1995, an elegant Mexican lady, Paulina Castañon, requests access to her safety deposit box at one of the oldest private banks in Geneva, Pictet Cie. Unfortunately there’s a problem with the vault’s security system, the highly presentable employees tell her. It’s a way to gain time so that the Swiss police, tipped off by the DEA, can arrive with an arrest warrant. The client is the wife of Raúl Salinas de Gortari, brother of the former Mexican president, whose false passport is in her safety-deposit box. There are persistent rumors in Mexico that Raúl has maintained his contacts with all the leading figures of the Mexican and Colombian drug trade. First the DEA and then the Swiss attorney general, Carla Del Ponte, launch inquiries. Years earlier Del Ponte risked being killed along with Giovanni Falcone, with whom she was collaborating on the famous Pizza Connection investigation. Raúl Salinas is accused of having pocketed heavy transit taxes on cocaine
shipments from just about everyone: the Medellín and Cali cartels; the Mexican cartels that emerged out of the territorial divisions decided on by El Padrino; and perhaps the Gulf cartel in particular. It’s estimated that a total of $300 million ended up in overseas accounts, with about $90 million to $100 million going to Swiss accounts between 1992 and 1994. More specifically, funds were transferred through Citibank Mexico to private bank accounts in their London and Zurich branches, as well as the most prestigious Swiss banks, such as SBC, UBS, Banque Privée Edmond de Rothschild, Credit Suisse, and Julius Baer. The American giant allegedly helped Salinas with these transactions by making the money hard to trace. How? First of all by setting up an account in Salinas’s name at its New York branch. Through Cititrust, an affiliate of Citicorp registered in the Cayman Islands, Citibank set up Trocca, an investment company also based in that fiscal paradise, where Salinas’s patrimony could be kept. To further conceal Salinas’s name, Citibank established another company, Tyler, which became Trocca’s principal shareholder. Then it opened two investment accounts in Trocca’s name, one at Citibank London and the other at Citibank Switzerland. What’s more, Citibank not only allegedly neglected to obtain the client’s bank references and compile a “know your customer
”
profile, it even let Raúl Salinas use another name when making transfers. No U.S. document names him as an owner or beneficiary of Trocca, nor does anything link him with the Trocca money that moved from Mexico to New York and on to London and Switzerland.