Entries in Money Laundering (10)


Senators: 'Prosecution-Free Zone' for Big Banks?

Sion Touhig/Getty Images(WASHINGTON) -- Members of a U.S. Senate banking committee blasted federal regulators Thursday for allowing Europe's largest bank to dodge a potentially crippling criminal prosecution after it had allegedly laundered millions of dollars for terrorist financiers, rogue states, and Mexican drug cartels.

The U.S. Department of Justice's recent decision not to prosecute London-based HSBC, despite what officials said was a mountain of evidence against the bank, signaled that there is, "a prosecution-free zone for large banks in America," said Sen. Jeff Merkley, an Oregon Democrat.

"If you're caught with an ounce of cocaine, the chances are good you're going to jail," said Sen. Elizabeth Warren, D-Mass. "Evidently, if you launder nearly $1 billion for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night."

What appeared to distress the senators the most were statements from the Justice Department indicating that the decision not to prosecute HSBC was made in part out of fears that a prosecution could destabilize the world economy.

Attorney General Eric Holder confirmed that reasoning in comments before a different Senate panel Wednesday when he said, "It does become difficult for us to prosecute when we are hit with indications that if we do... it will have a negative impact on the national economy, perhaps even the world economy."

On the receiving end of Thursday's tongue lashing from senators at the Banking, Housing and Urban Affairs Committee hearing were officials from the U.S. Treasury Department, the Federal Reserve and the Comptroller of the Currency -- three of the nation's most powerful financial regulators -- but no representatives from the Justice Department.

All three of the regulators said the decision forgo a prosecution of HSBC in favor of a record $1.92 billion settlement was reached with minimal input from them -- and instead was the domain of Justice Department lawyers. Sen. Mark Warner, D-Va., accused the men of playing "pass the potato."

Warner said the regulators had plenty of tools in their arsenal to go after HSBC, but failed to use them.

There was little question that a criminal prosecution was the most aggressive approach the government could have taken in response to HSBC's actions. A conviction would have automatically launched a process that could have led to the government revoking the bank's license to do business in the United States, which in turn could have put HSBC out of business.

But the senators were incredulous that a bank of HSBC's size and reach around the globe could avoid prosecution for that reason – that they were, in Merkley's words, "too big to prosecute."

Warren grilled the regulators on this point, asking if they could identify a case of money laundering egregious enough to trigger a prosecution.

"What I'd like is your opinion," she pressed. "How many billions of dollars of drug money do you have to launder before someone will consider shutting down a bank?"

David Cohen, the Treasury's under secretary for terrorism and financial intelligence, seemed to equivocate in his first attempt at a reply. Warren came right back at him.

"I'm not hearing your opinion on this," she said. "What I'm asking is, what does it take even to say: 'Here is where the line is and if you cross that line you're at risk of having your bank shut down?'"

Cohen did not provide an answer. He said only that Justice officials sought guidance from the Treasury Department about the broader economic impact a prosecution of HSBC could have, but that his office declined to provide an answer.

"We informed the Justice Department that...we were not in a position to offer any meaningful guidance to department in that matter," he said.

The response seemed only to further perturb Warren, who was elected to the Senate last fall on a promise to crack down on Wall Street, and who found in Thursday's hearing an opportunity to show she is pursuing that mandate.

"So you just said to the Justice Department, 'You're on your own in figuring this out,'" she said, not waiting for a reply.

Sen. Heidi Heidkamp, a North Dakota Democrat, asked the three witnesses to give the Senate their word that they would to push harder for a prosecution in the future.

"If we leave here without a commitment from all of you that you will vigorously encourage, and suggest, and recommend, that the Justice Department prosecute cases that must be prosecuted in order to insure equal justice under the law in this country, then we failed," she said.

None of the men offered that pledge.

As the dressing down continued, members of the committee said they wanted to see Justice Department officials brought before them to offer their explanation for why the HSBC case ended with a settlement. Whether that will occur remains to be seen. Advocates who have pushed for the U.S. to take a tougher posture against banks that launder money said they hope the committee continues to push.

"What is clear is that the system isn't working," said Stefanie Ostfeld, a policy advisor with Global Witness, an international advocacy organization that works to root out financial crimes and corruption. "There is no incentive for bankers to comply with the law when there are no personal consequences for getting it wrong. Until senior bankers are held legally responsible for the bank's compliance, the U.S. financial system will remain vulnerable to terrorist finance and the proceeds of corruption and drug trafficking."

Only one Republican from the banking committee attended Thursday's hearing. Sen. Mark Kirk of Illinois stopped short of grilling the regulators, but joked with Warren that the two should consider opening their own bank for terrorists and drug lords.

"I think we can make a killing that way, and face no danger of prosecution," he said, smiling.

Copyright 2013 ABC News Radio


HSBC to Pay Almost $2B for Money Laundering

Simon Dawson/Bloomberg via Getty Images(NEW YORK) -- HSBC, one of the world's biggest banks, has agreed to pay $1.921 billion for moving money on behalf of Middle East terrorists, Mexican drug cartels and other unscrupulous clients through the American financial system.

In a statement Tuesday, HSBC Group Chief Executive Stuart Gulliver said, "We accept responsibility for our past mistakes.  We have said we are profoundly sorry for them, and we do so again."

"The HSBC of today is a fundamentally different organisation from the one that made those mistakes," Gulliver continued.  "Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters."

The bank said it will continue to cooperate fully with authorities and take further steps to "strengthen its compliance policies and procedures."

Earlier this year, the Senate released its findings from a year-long investigation into the bank's practices.  The nearly 400-page report described in exhaustive detail how HSBC executives repeatedly ignored warning signs from their own compliance officers, and from outside regulators, all of whom watched what they believed to be billions of dollars in suspicious transactions passing through the bank without adequate scrutiny.

The report described how HSBC's Mexican affiliate moved $7 billion in physical U.S. dollars through the bank in a two-year stretch, "raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States."  

It laid out how HSBC's executives ignored warnings that it was providing currency to a Saudi bank alleged by some U.S. officials to be involved in financing al Qaeda.  

It found that two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion through their bank accounts over seven years without disclosing that the transactions had links to Iran.

And it determined that HSBC altogether failed to monitor some $60 trillion in wire transfer and account activities and amassed a backlog of 17,000 unreviewed account alerts regarding potentially suspicious activity.

Copyright 2012 ABC News Radio


Miami Businessman Arrested for Allegedly Stealing Millions from Investors

Adam Gault/Thinkstock(MIAMI) -- A Miami businessman whom Ernst & Young once named "Entrepreneur of the Year" has been accused of swindling $40 million from investors, including some NBA stars, to support a lavish lifestyle.

Venezuelan-born Claudio Osorio, 54, was arrested on Friday and charged with 23 counts of fraud and money laundering for exaggerating the success of his company, InnoVida, between March 2007 and March 2011, according to a Securities and Exchange Commission's complaint.

Craig Toll, 64, InnoVida's chief financial officer, was also charged along with his former boss.

Toll's attorney Richard Klugh released a statement to ABC News saying his client was "an honorable employee of the company and should not have been charged with anything."

Neither Osorio nor his attorney has responded to requests for comment.  It's unclear whether the two men are still in custody.

Osorio allegedly took money from about 10 investors, telling them that InnoVida produced building panels used to construct houses and other structures resistant to fires and hurricanes.  Authorities say the high-flying businessman lured potential investors with false financial statements and high-profile connections, including a blue-chip board of directors that included former Florida Gov. Jeb Bush, who has not responded to a request for comment.

Osorio used the money to finance a lifestyle that included a $12 million mansion on Miami Beach's exclusive Star Island, which boasts nine bedrooms and a swimming pool with a gazebo.  Osorio also illegally used investor money to buy a Maserati, a Colorado mountain retreat home and country club dues, according to the SEC complaint.

"From his lap of luxury, Osorio concocted a compelling story about InnoVida by recruiting an impressive board of directors and boasting a bogus financial condition to lure investors into funding his scheme of lies," Eric Bustillo, director of the SEC's Miami Regional Office, said in a news release.

Osorio allegedly even duped the likes of current and former basketball stars Dwight Howard, Alonzo Mourning and Carlos Boozer.

The SEC says that Osorio told one investor that InnoVida was valued at $250 million, and then a week later told a different investor that the company was worth $50 million.

Another one of Osorio's alleged victims was Miami businessman and lawyer Chris Korge, who says he met Osorio in 2008.  The two men became close and Korge eventually invested $4 million in InnoVida, he says.

"Everything about the company added up," Korge told ABC News.  "Once he got everything he could get from me, I started to notice the interaction I had with him started to slow down."

Korge and others eventually filed lawsuits against Osorio, forcing InnoVida into bankruptcy in 2011 and his Star Island mansion was auctioned off.

"He convinced me that this was the opportunity of a lifetime," Korge said.  "He was a fraudster and a sociopath."

Copyright 2012 ABC News Radio


USA Harvest Founder Charged with Looting Charity

Nick M Do/Getty Images(NEW YORK) -- The founder of charity group USA Harvest, which has ties to celebrities Scarlett Johansson, Hillary Duff, the Goo Goo Dolls and Green Day, has been charged by the Justice Department with stealing more than $553,000 from the organization.

Hugh “Stan” Curtis, the founder of USA Harvest, has been charged by the U.S. Attorney’s Office in Kentucky with mail fraud, money laundering and filing false income tax returns with the Internal Revenue Service.

Curtis allegedly stole over $180,000 between September 2005 and September 2007 of donations that he solicited on behalf of the organization -- a tax-exempt charity. The theft included some large donations meant for USA Harvest.  

According to the criminal charges, Curtis allegedly deposited checks into his bank account for the charity that included a $20,000 and a $25,000 check from donors.

The charity provides food and meals for individuals in need by partnering with restaurants and hospitals to get leftover food to soup kitchens and food banks. According to the USA Harvest website, which highlights their ties with celebrities such as Johansson, the charity works with 5,400 agencies to provide food and notes that they have provided over 437 billion pounds of food to organizations since their founding in 1989.

The criminal charges filed by the Justice Department allege that Curtis failed to pay taxes on approximately $553,891.67 in personal income which included $183,000 in donations and over $370,000 in personal travel expenses that he billed to the charity.

According to a press release from the U.S. Attorney’s Office in Western Kentucky, “None of the charities Curtis has been associated with -- USA Harvest, Kentucky Harvest, and Blessings In A Backpack -- have been accused of any wrongdoing or impropriety.  The only charitable organization to have suffered any loss as a result of the conduct charged in the information was USA Harvest.”

A request for comment from USA Harvest by ABC News has not been returned.  A review of the court docket did not reveal a defense attorney for Curtis.  

If convicted of the charges, Curtis could face a maximum of 52 years in prison.

Copyright 2012 ABC News Radio


PokerStars in $731M Money-Laundering Settlement

iStockphoto/Thinkstock(WASHINGTON) -- PokerStars has agreed to a $731 million money-laundering settlement with the U.S. government that includes reimbursement for some customers whose funds were frozen when the feds cracked down on the gambling sites.

PokerStars also will acquire the assets of its former competitor, Full Tilt Poker, as part of the agreement, the companies said today.

On April 15, 2011, the Department of Justice shut down PokerStars, Full Tilt and Absolute Poker, the three largest online poker companies operating in the U.S., alleging illegal gambling and money laundering, and cutting off a source of income for online professional gamblers across the country.

Under the settlement, PokerStars will pay $547 million over three years to the U.S. and must make available to foreign players all balances, about $184 million, that were held in the Full Tilt accounts within 90 days, according to the U.S. Attorney’s Office. U.S. players at Full Tilt must apply to the Department of Justice for reimbursement.

“Acquiring certain assets of Full Tilt Poker strengthens PokerStars, brings welcome relief to Full Tilt Poker players who have been waiting over 12 months for repayment of their money, and benefits the entire poker community,” Mark Scheinberg, chairman of PokerStars, said in a statement.

PokerStars has remained open for players outside the U.S. players and repaid its U.S. customers after operations were halted.

Earlier this month, Full Tilt Poker CEO Raymond Bitar was charged with promising players that their funds would be protected in “segregated” accounts when the company used the money to pay for Full Tilt operations and to pay Bitar and other owners over $430 million. When Bitar willingly came to the U.S. from the company’s headquarters in Ireland, he said he would cooperate with authorities to return players’ money.

“We are pleased to announce these settlements by Full Tilt Poker and PokerStars, which allow us to quickly get significant compensation into the victim players’ hands,” said Manhattan U.S. Attorney Preet Bharara in a statement.

The $547 million will be payable over three years.

PokerStars plans to re-launch Full Tilt Poker in most markets as a separate brand, following the appointment of a new, independent management team.

Copyright 2012 ABC News Radio


Senate Probe Finds HSBC Allowed Terrorists, Criminals to Launder Billions

Simon Dawson/Bloomberg via Getty Images(WASHINGTON) -- One of the world's largest banks, HSBC Holdings Plc., for years ignored warning signs that violent drug gangs in Mexico, suspected terrorist financiers in the Middle East, and other rogue characters and enemy states may have been moving billions of dollars into and out of their vaults, according to a year-long U.S. Senate investigation.

"In an age of international terrorism, drug violence in our streets and on our borders, and organized crime, stopping illicit money flows that support those atrocities is a national security imperative," said Sen. Carl Levin, D.-Michigan, who chairs the U.S. Senate's Permanent Subcommittee on Investigations, which undertook the investigation.

The result of the Senate's work, a nearly 400-page report, describes in exhaustive detail how HSBC executives repeatedly ignored warning signs from their own compliance officers, and from outside regulators, all of whom watched what they believed to be billions of dollars in suspicious transactions passing through the bank without adequate scrutiny.

The report describes how HSBC's Mexican affiliate moved $7 billion in physical U.S. dollars through the bank in a two-year stretch, "raising red flags that the volume of dollars included proceeds from illegal drug sales in the United States."  It lays out how HSBC's executives ignored warnings that it was providing currency to a Saudi bank alleged by some U.S. officials to be involved in financing al Qaeda.  It found that two HSBC affiliates sent nearly 25,000 transactions involving $19.4 billion through their bank accounts over seven years without disclosing that the transactions had links to Iran.

And it determined that HSBC altogether failed to monitor some $60 trillion in wire transfer and account activities and amassed a backlog of 17,000 unreviewed account alerts regarding potentially suspicious activity.

Jack Blum, a Washington attorney and longtime expert on money laundering, said he has never seen such an extreme case of failure, both by the bank and by regulators.

"This is an across the board, spectacular, total failure," Blum said.  "These are not minor, they are gross violations.  You have to ask, what kind of management is this?  What you come away with is that they cared about the bottom line.  They did not care about obeying the law."

HSBC has reported in its public filings that it is the subject of multiple federal and state investigations and that it could be subject to significant fines and criminal penalties.  Several of the bank's top executives are scheduled to appear before the Senate subcommittee on Tuesday to face questions about the investigation and its findings.

"We will acknowledge that, in the past, we have sometimes failed to meet the standards that regulators and customers expect," said a statement released by the bank in response to the Senate's report.  "We will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong."  The bank said it has put new leadership in place to try and change its culture and its performance in monitoring transactions.

Advocates with several watchdog groups said that, as egregious as they believe the HSBC case is, numerous banks have failed to police themselves and monitor transactions they handle to make sure they are not helping criminals, terrorists and rogue states launder money.

"We have seen U.S. bank after U.S. bank involved in facilitating or turning a blind eye to criminal money coming in their doors, including the proceeds of corruption, terrorist financing and drug money," said Heather Lowe, Legal Counsel and Director of Government Affairs at Global Financial Integrity.

She and other advocates said the failure is not just inside the banks.

"This hearing is as much about regulatory oversight of the banking sector as a whole as it is about HSBC's alleged facilitation of criminal activity," said Stefanie Ostfeld, a policy advisor with Global Witness.  "Hopefully, this hearing will prompt a proper law enforcement response, including appropriate jail time, for banks and individuals who are proved to be involved in this type of criminal activity."

Copyright 2012 ABC News Radio


Report: HSBC Could Face $1B in Fines over Money Laundering

Simon Dawson/Bloomberg via Getty Images(NEW YORK) -- Sparks could fly at a Senate hearing on Tuesday when HSBC is set to apologize to members of a Senate investigative panel "for failing to have appropriate controls in place" to prevent money laundering and financing of terrorism, reports The Financial Times.

According to the newspaper, analysts estimate the wrongdoing may cost the bank up to $1 billion in fines.

HSBC's apology comes a week after the CEO of Barclays was forced to resign after the bank was hit by a huge fine by U.S. and British regulators for trying to influence the London Interbank Offered Rate (LIBOR) -- the worldwide benchmark for interest rates -- for a period of years dating back at least until 2005.

The LIBOR rate is supposed to reflect the rate at which top banks in London lend to each other.  It is used in the U.S. and other nations to set rates for student loans, mortgage rates, credit cards and car loans.

Copyright 2012 ABC News Radio


2011 Was Worst Year for Suspected Financial Crimes on Record

iStockphoto/Thinkstock(WASHINGTON) -- A tidal wave of fraud reports fed by an ingenious array of scams borne out of the mortgage crisis have swamped federal offices, which are investigating and prosecuting only a small percentage of the allegations.

In 2011, suspected instances of money laundering, consumer loan fraud, debit card fraud, mortgage loan fraud, casino fraud and other scams hit all-time highs, according to suspicious activity reports known as SARs submitted to the Treasury Department's Financial Crime Enforcement Network (FinCEN).

The SAR numbers have been fluctuating between 1.2 million and 1.3 million totals since 2007, but in 2011 they jumped up to more than 1.5 million.

"The financial meltdown that took place from 2007 to 2009 uncovered all the skeletons, what was taking place in the marketplace, from mortgage financing to Ponzi schemes," said Curt Novy, a mortgage and real estate analyst based in San Diego, Calif.

While providing a fertile ground for criminals, the financial crisis also lured those who might not have ever thought to commit a crime, according to Harry Cendrowski, a fraud and forensics consultant based in Chicago.  He said having a respected person with a financial portfolio suddenly faced with financial ruin creates a "perfect storm."

Between 2007 and 2011 there was a 74 percent increase in fraud cases where people working within a financial institution exploited internal controls for their own gain, according to a study by KPMG.

"I don't hesitate to tie this into the economy," said Tim Gallagher, chief of the financial crimes section of the FBI.  "There has been a lag time from the meltdown to now."

Gallagher attributed the steep increase in money laundering and mortgage loan fraud specifically to hucksters who scammed distressed homeowners.  Mortgage loan fraud has had the most dramatic surge over the past decade, going from 9,539 in 2001 to 93,564 in 2011, according to FinCEN figures.

As the fraud peaked in 2011, however, the FBI scaled back its fraud investigations, with just 2,691 cases -- or three percent -- of the more than 90,000 suspected mortgage loan fraud cases "under investigation," according to the FBI.

"About 70 percent of our cases are more than a million dollars.  We are going after big fish as far as putting cases together, and we're going after people on the inside because of fiduciary responsibility and the element of trust that they're violating and doing the most damage," Gallagher said.

The small number of federal investigations is somewhat bolstered by state and local authorities, who can also investigate and prosecute the crimes.´╗┐

Copyright 2012 ABC News Radio


Internet Poker Companies Indicted for Fraud, Money Laundering

Comstock Images/Thinkstock(WASHINGTON) -– The owners and founders of the three largest online gambling sites in the United States have been indicted and charged with bank fraud, money laundering and illegal gambling offenses.

Eleven individuals were charged over their involvement running PokerStars, Full Tilt Poker and Absolute Poker for violating the 2006 Unlawful Internet Gambling Enforcement Act.

According to a federal indictment, the owners of the companies sought ways to get around restrictions placed on U.S. banks that prohibited them from handling financial transactions connected to online gambling.

Isai Scheinber and Paul Tate of PokerStars, Scott Tom and Brent Beckley of Absolute Poker, and Raymond Bitar and Nelson Burtnick of Full Tilt Poker, the indictment claims, engaged in a scheme "to deceive United States banks and financial institutions into processing billions of dollars in payments for the poker companies, by, among other things, arranging for the money received from United States gamblers to be disguised as payments to hundreds of non-existent online merchants and other non-gambling businesses." The indictment alleges the poker-company owners "relied on highly compensated third party payment processors ... who lied to United States banks about the nature of the financial transactions they were processing and covered up those lies through the creation of phony corporations and websites to disguise payments to the poker companies."

The indictment identifies four individuals as the payment processors -- Ryan Lang, Ira Rubin, Bradley Franzen and Chad Elie.

The allegedly phony websites included on-line flower delivery shops and pet supply stores that would handle credit card payments to get funds from U.S. customers.

The 52-page indictment also alleges that conspirators used electronic checks to try and disguise their payments.

Copyright 2011 ABC News Radio´╗┐


Feds: Hezbollah Gets Into the Used Car Business

Photo Courtesy - Getty Images(WASHINGTON) -- The DEA and the Treasury Department announced Thursday that under provisions of the Patriot Act, the U.S. is barring American financial institutions from doing business with the Lebanese Canadian Bank (LCB). Treasury officials allege that the bank has been laundering narcotics proceeds -- as much as $200 million per month -- on behalf of an international drug ring run by a Lebanese trafficker named Ayman Joumaa. According to officials, a big slice of the drug profits were then funneled back to Hezbollah in Lebanon by Joumaa and nine coconspirators through an African affiliate of LCB.

According to the Treasury, cash from drug sales in Europe, Latin America and the Middle East was first laundered through money exchanges in Lebanon, then wired to U.S. car dealers via LCB. The dealers then shipped cars to West Africa, and the proceeds from the sales of the cars in Africa were sent via an LCB affiliate in The Gambia to Hezbollah in Lebanon. None of the American used car dealers allegedly involved in the transactions were identified.

Treasury officials also said that wire transfers from LCB were sent to U.S. correspondents to pay Asian suppliers of consumer goods. The goods were then shipped to Latin America and sold for local currency.

Under the Patriot Act, LCB has now been labeled a "financial institution of primary money-laundering concern." The U.S. government has designated Hezbollah a "Foreign Terrorist Organization."

"This action seeks to protect the U.S. financial system from the illicit proceeds flowing through LCB and to deprive this international narcotics trafficking and money laundering network of its preferred access point into the formal financial system," said Stuart Levey, the Treasury Department's under secretary for terrorism and financial Intelligence. "Any financial institution that collaborates in illicit conduct on this scale risks losing its access to the United States."

LCB is based in Beirut and maintains a network of 35 branches in Lebanon and a representative office in Montreal, Canada.

Ayman Joumaa and his alleged drug-trafficking and money laundering network have been on Drug Enforcement Administration's radar for some time. On Jan. 26, Treasury designated Joumaa and 19 other associated individuals and entities as Specially Designated Narcotics Traffickers under the Foreign Narcotics Kingpin Designation Act.

Joumaa is believed to be in Lebanon, and no criminal charges have been filed in the U.S. against him or his alleged co-conspirators.

Copyright 2011 ABC News Radio

ABC News Radio