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CORRUPTION: U.S. Banks Abetting Corrupt Regimes, Probe Finds

NEW YORK, Feb 3 2010 (IPS) - The global bank HSBC may be running offshore accounts for central banks. According to a U.S. Senate investigation, an HSBC subsidiary in London called HSBC Equator Bank had a sister bank in the Bahamas.

According to an internal e-mail, the bank told HSBC USA it had been providing offshore accounts to central banks for 20 years, because the banks wanted to avoid “Mareva” injunctions, legally enforceable orders to freeze funds.

This was revealed by a report to be released Thursday by the Senate Subcommittee on Investigations. A subcommittee staff member who worked on the investigation said, “You have a central bank saying to their banker, I don’t want to have to comply with a legally enforceable order so put me offshore. So they did.”

HSBC declined to confirm or deny the charge. HSBC told IPS, “HSBC takes compliance matters very seriously. HSBC’s record demonstrates a commitment to vigorous enforcement and continuous enhancement of anti-money laundering policies and practices.” It would not comment further.

The committee’s 350-page report of an investigation that lasted two years focuses on how U.S. banks, lawyers, real estate and escrow agents hide the origins of funds belonging to foreign government officials and other “politically exposed persons” (PEPS) who might be moving illicit cash.

Only banks are required under U.S. law to know their customers and reject dirty money. Subcommittee head Sen. Carl Levin will chair a hearing Thursday on how U.S. agents help launder funds into the U.S. banking system.

In the HSBC case, the committee was looking into money transfers from the National Bank of Angola. Other case studies in the report involve Equatorial Guinea, Nigeria and Gabon.

From 2004 to 2008, Teodoro Nguema Obiang Mangue, son of the president of Equatorial Guinea, employed two lawyers, Michael Berger and George Nagler, to set up U.S. shell companies – Beautiful Vision Inc., Unlimited Horizon, Inc., Sweetwater Malibu LLC, Sweetwater Management Inc., and Sweet Pink Inc. – with no employees or places of business, to open bank accounts and move money. Berger and Nagler will testify at the hearing.

The lawyers used their attorney client and law office accounts to hide the origin of the money and transfer it to an account in Citibank, which would never see a wire transfer from Equatorial Guinea. At this time Obiang was the subject of criminal investigations and complaints in the U.S. and France.

The lawyers moved nearly 30 million dollars in wire transfers to buy a 30-million-dollar residence in Malibu, on the coast of California. An escrow agent, the Sidley Austin law firm, sent 900,000 dollars to help purchase the Malibu mansion.

When the law firm inquired of the Justice Department if it was okay to accept the funds, part of a 21-million-dollar transfer that initially was to buy a Gulfstream jet, the department replied it had no basis for seizing the funds, the report said.

Money moved from Obiang’s bank in Equatorial Guinea to a correspondent account at Wachovia Bank which then transferred the funds to Bank of America in Oklahoma City. In a six-month period, about 73 million dollars went through the Wachovia account. Another 37 million dollars went through Citibank.

Committee staff discussed this with the banks. The aide said, “Wachovia said they’ve decided to add Mr. Obiang’s name to the interdiction software just because they don’t want to handle his funds. Citibank has declined to take the same step, because they said they’re afraid they would get so many hits from Obiang that it would require their staff to take an awful lot of time to research those wire transfers.”

A Citibank spokesperson told IPS, “Were not commenting. We were only mentioned a couple of times, so we’ll leave it to the report and decline.”

In the case of BAI, Banco Africano de Investimentos, a seven-billion-dollar private bank whose largest stockholder is Sonangol, the state oil company, the report shows how HSBC ignored basic anti-money laundering rules.

Aside from Sonangol, the banks’ major shareholders are the oil company’s top executives, and the bank’s clients are people in the oil and diamond industry. “We have a PEP bank,” the committee aide said.

BAI opened a correspondent account with HSBC in New York. HSBC tried to find out who owned the bank, which is required by the 2002 U.S. Patriot Act. But 19 percent of the stock was owned by shell companies. And they were being “held” by the bank’s president until purchasers could be found.

After it could not determine the true owners, HSBC dropped the matter, said the report. BAI used HSBC to gain access to its wire transfer system so clients could send and receive U.S. dollar transfers across U.S. borders.

In a Nigeria case, the report described how Jennifer Douglas, the fourth wife of Atiku Abubakar, who was vice-president of that country, helped him bring 40 million dollars in suspect funds into the U.S. Some of it was bribe payments made by Siemens, the German electronics company that paid some two billion dollars in global bribes.

Edward Weidenfeld, Douglas’s lawyer, received funds from offshore accounts and told the committee that he assumed that it was Abubakar’s money. Under the law, he was not required to inquire further.

The late president of Gabon, Omar Bongo, hired a U.S. lobbyist, Jeffrey Birrell, to arrange to buy an armoured car from a Utah company and to purchase a U.S.-made C130 transport aircraft from Saudi Arabia.

He got U.S. permission for the aircraft deal – required because U.S. military sales require permission for resales – and had no trouble moving money from shell companies for the deal. Along the way Birrell was sending out wire transfers directed by Bongo and his advisors, some to accounts in Brussels, Paris and Malta.

The committee aide said after the plane deal fell through, “President Bongo asked him to send 9.2 million dollars to an account in his name not in Gabon but in Malta. The lobbyist says okay. That was money from Ayira in Gabon and he sent 9.2 million dollars to the president in Malta. If that isn’t a suspicious transaction, I don’t know what is.”

Birrell, who used his own accounts as conduits for the funds and would not tell the committee what Ayira was, will testify before the committee.

Sen. Levin, who has been investigating and holding hearings on offshore corruption for at least a dozen years, said at a press briefing Tuesday that corruption “corrodes the rule of law, undermines economic development, it eats away at the fabric of civil society, it destabilises communities, it helps lead to failed states.”

He said that even though banks have become more vigilant, “Foreign officials still get access to our financial system at times because U.S. professionals aid and abet their actions.”

He said the U.S. Treasury Department should revoke exceptions granted in the Patriot Act in that exempted escrow agents and real estate from knowing their customers and turning away suspect clients.

He noted that the American Bar Association had promised eight years ago that it would take action to require attorneys to adhere to anti-money laundering standards. He said, “It’s time they did.”

He endorsed World Bank proposals for controls on accepting funds from politically exposed and powerful persons.

*Lucy Komisar is an investigative journalist who writes about the offshore bank and corporate secrecy system. Her articles are posted at www. thekomisarscoop.com.