AML Talk Show Hosted by Stephen Platt
Good afternoon, folks. And welcome to this KYC360 anti-money laundering talk show with me, Stephen Platt. I hope that you are all safe and feeling well. After a summer hiatus, we're back in the saddle, refreshed and raring to go with a schedule of really, really interesting AML talk show guests planned for the next six months.We spend a lot of time prophesising about the way in which AML risk might evolve, and perhaps not enough time reflecting upon lessons from the past. And that's one of the many reasons that I'm particularly excited to welcome and to talk to my guest today, Elise Bean. The interview with Elise has clearly elicited a very significant interest, because we have listeners registered for this live podcast from over 67 countries. ....
Good afternoon, folks. And welcome to this KYC360 anti-money laundering talk show with me, Stephen Platt. I hope that you are all safe and feeling well. After a summer hiatus, we’re back in the saddle, refreshed and raring to go with a schedule of really, really interesting AML talk show guests planned for the next six months.
We spend a lot of time prophesising about the way in which AML risk might evolve, and perhaps not enough time reflecting upon lessons from the past. And that’s one of the many reasons that I’m particularly excited to welcome and to talk to my guest today, Elise Bean. The interview with Elise has clearly elicited a very significant interest, because we have listeners registered for this live podcast from over 67 countries.
For 30 years, Elise Bean worked, first, as legal counsel to the legendary crime fighter, Senator Carl Levin, on the U.S. Senate Homeland Security and Governmental Affairs Committee. Latterly, he appointed Elise as staff director and chief counsel on the committee’s Permanent Subcommittee on Investigations.
Elise has run most of the seminal investigations into corporate scandal and money laundering of the past 30 years, including the 2008 financial crisis, HSBC and money laundering. The London Whale trades at JP Morgan Chase, the collapse of Enron. The investigation into the role of private banking in the facilitation of corruption and money laundering. Tax dodging by large corporates, including Apple.
The Permanent Subcommittee on Investigations really did strike terror into the hearts of corporate executives inside and outside of America, because of the depth and fearlessness of its analysis, and the incisiveness of its questioning. All of the committee’s investigations, certainly those that I am familiar with, from the past 20 odd years, have a highly contemporary relevance today.
Now, since retiring from the Senate in 2015, Elise set up the Levin Centre at Wayne Law, in Detroit. And in 2018, she authored a brilliant book titled Financial Exposure, in which she documented Senator Levin’s Senate investigations into finance and tax abuse. It really is a very good read indeed, and I highly recommend it to all anti-money laundering professionals.
I’ve had the pleasure of knowing Elise for the best part of about 15 years, and I’ve never met anybody, in my professional life, who has done more on the front line to hold big corporations and senior level executives to account. By bearing witness to the facts, she and her colleagues sparked really, really meaningful change. And I am delighted to have the chance to talk to Elise, about some of those experiences today. Elise, welcome. Thanks so much for joining us. How are you bearing up over on the other side of the pond?
Well, first, let me thank you for those very kind words, and for welcoming me today. We’re all surviving as best we can, and we will persevere. Things will get better.
Well, let’s hope so, Elise. And we’re rooting for you over there in America. And as I’m sure you’ve probably seen, things are, I’m afraid, now getting worse rather than them bettering in Europe. But I guess we will predict that anyway, until we have a vaccine. So, fingers crossed we can get one as soon as possible.
Now, what I’d like to do, Elise, if I may, is really give our listeners the benefit of understanding a little bit about your background, so that we can contextualise some of what we’re going to talk about. So, if you don’t mind, I’d like really just to go back to the beginning, how did you get into the world of examining corporate misfeasance?
Well, I started off working on Capitol Hill for a year, and then went off to law school. When I got out of law school, I clerked for a year, for a judge, and then went to the Department of Justice, Civil Fraud section, and got very interested in corporate misfeasance, as you say. After that, though, I started looking for a job again on Capitol Hill.
Back then, this was a long time ago, you applied blind to a system, Midwestern Senator looking for a staff. And so, I applied for this job, not really knowing what it was. And I was hired as an investigator, something I had never considered in my career. And then spent the next 30 with Senator Levin, working on one fascinating investigation after another.
In 1999, he became the ranking Democrat on the Permanent Subcommittee on Investigations, which is the premier investigative body in the Senate. And for the next 15 years, we did just a whole set of amazing investigations that he led. And did it with Republican partners as well. So, they were all fact-based bipartisan investigations.
And tell us a little bit more about the role of the PSI, the Permanent Subcommittee on Investigations. It’s there, obviously, to investigate, and to crack the facts and get to the truth. But am I right when I say that it can’t impose sanctions other than, for example, non-appearance, or non observance with its subpoenas? But whatever its findings, it can’t then issue penalties for the wrongdoing that it uncovers. That’s right, isn’t it?
Yes, that is right. Congress, when they do their investigations, they can’t throw anybody in jail, or fine them, or impose a penalty. Instead, their investigations all have to be policy based. They have to have a legislative objective. PSI was created in World War II, when Harry Truman was asked to look at war profiteering and misconduct in how that war was being pursued in the United States.
He travelled across the country and covered a lot of scandals. And dealt with the whole thing in such a constructive bipartisan way that they decided to make his subcommittee permanent. And that’s why we had that strange name. Back then subcommittees were created to do an investigation and then disappeared, but they decided they should make this subcommittee permanent so that they would develop a cadre of staffers who actually knew how to do complex investigations.
Well, they certainly achieved that objective. Its objective, then, is ultimately to influence policy. And I guess, as a by-product of its work, it also loads the gun for prosecutors or regulators, where it does uncover criminal wrongdoing. Am I right in saying that?
Well, yes. I mean, what the objective is, is to find out the facts, what happened. And provide a factual foundation for legislation. But along the way, we often… in almost every investigation, we uncovered serious wrongdoing. And that often led to regulators or even prosecutors taking action against the people or the entities that we investigated. But the purpose of it was to really pass the legislation. In fact, PSI did lead to some pretty amazing pieces of legislation over the years.
Yes, indeed. Hopefully, we’re going to be able to cover some of those. Now, what I’d like to do now is to come on and really take you back to all the way back to 1999, one of the first investigations into private banking. Now, you’ll recall, obviously, Elise, that this was a seminal investigation in which the PSI looked at Citibank private bank. And its relationship with a number of, I guess we can describe them all as PEPs.
Principally, Raul Salinas, the brother of a former Mexican president, who the bank helped to secretly funnel about $100 million, in alleged drug money, out of Mexico, into Swiss banks, through accounts, through companies set up in the Caribbean. That’s my sketchy recollection of that investigation into private banking.
And I recollect that it really did send shock waves, not only through the private banking world, but also actually through the offshore world. Because it intersected between private banking and the abuse of offshore structures. Can you tell us a little bit more about the importance of that investigation?
Well, your description was spot on. The reason we got into it is, it was a scandal, at the time. Raul Salinas had been arrested for murdering his brother-in-law. And a few months later, his wife was caught in Switzerland, withdrawing money from a secret bank account with $84 million in it. That alerted a lot of banks, that we got a lot of press. And Citibank, among other banks, said, “Oh my goodness, we also have an account.”
We actually had recordings of telephone conversations that had taken place. Because in the UK, bankers are required to record most of their conversations. And we actually listened to a transcript of a call in which Citibank was discussing whether they should move all of the money that they had in London to Switzerland, because of their greater secrecy laws. But somebody else said, “Well, there’ll be a paper record of that money moving. So there’s no use doing it.”
But Citibank did not tell law enforcement about the bank accounts it had. They were not in the name of Mr. Salinas, they were in the name of a Cayman company called Trocca, which Citibank had assigned to him, when he first opened his account, and used it to hide his money. They set up this very elaborate system where Salinas’ girlfriend would come into Citibank’s flagship bank in Mexico city, bringing cashiers checks, large cashier’s checks with millions of dollars.
They would deposit it into the Citibank’s own account. Because it was a cashier’s check, there was no client name attached to it. They send it to the attention of their private banker, Amy Elliott, in New York. She would then transfer the money to accounts in London and Switzerland, that were opened in the name of this shell company, Trocca. The bankers in London and Switzerland did not know who was behind Trocca, but they took the money.
Eventually, they moved nearly $100 million dollars, as you said, spirited out of Mexico. All of this came to light. Law enforcement were able to find out about these accounts, even though the bank had not reported them. Eventually, they froze that money. It was forfeited. And along the way, we learned about how banks were setting up shell companies for their clients, and moving suspect funds for them.
I’ll just say one more thing about it. Is that Citibank, when they set up that company and they started moving all the money into the company’s accounts, Mr. Salinas got very nervous, because his name was not associated with that company in any way, with Trocca. Eventually, to calm him down, the bank gave him a letter that said, “Yes, you’re associated with Trocca, and we’ll do what you ask us to do with the Trocca accounts.” But it was a very revealing picture of how a bank was not a victim, but was actually helping move dirty money.
Yeah. I mean, it’s fascinating, what you say about the provision of corporate services, essentially, by private banks. Because if you say to a crook, “Look, the proceeds of your illicit activity will ultimately be owned by a corporation which you don’t need to be a director of. The registered office of it doesn’t need to be at your home address. You don’t need to be the company secretary of it. Hey, and guess what? You don’t even need to be the registered owner of this company, because we’ll essentially act as the nominee owners of it on your behalf.”
These criminals must think that they’ve arrived in Disneyland. I mean, it seems, at first blush, to be a charter for criminal exploitation. Now, you and I both know that all of those types of corporate service can actually be used for legitimate purposes as well, but their vulnerability to exploitation for illicit purposes is enormous. And this private banking investigation, back in ’99, I think was really the first time that the U.S. authorities began to see what the vulnerability of these structures really was.
The reason that I want you to just stick on this, at the moment, with you, Elise, is that it seems to me that, fundamentally, what that investigation was about was not only as it were the willingness of private banks to engage in that kind of facilitative activity, but ultimately, it’s about ownership transparency, right? And ownership transparency, 30 years on, is still a big issue. You’ve got two million new corporations a year being formed in the United States. And the U.S. is lagging Europe on the issue of transparency. My question is, do you think that corporate transparency is ever really going to be cracked?
Well, you never solve crimes altogether, but there is a worldwide movement towards more transparency. Now, we still know shell entities are being created all the time, in the United States, and elsewhere, and they’re were being misused for the worst of the worst. For corruption, terrorism, trafficking, even weapons of mass destruction.
Recently, there was a case that came out where the U.S. sanctioned a Chinese company called Xinjiang Production, associated with the Chinese Military. And discovered that they had 800,000 holdings worldwide, including 2,100 in the U.S., with layers of secret ownership. Making it very difficult to find out about the wide use that this Chinese military paramilitary group had, for transacting business.
The problem is very much alive. But on the other hand, I have to say the UK has really led the way by creating a public registry for corporations that include identifying the beneficial owners. Meaning the real people behind these corporations formed in the UK, and just really has changed the whole conversation.
People predicted the world would end if we had public information about who owns corporate entities, but the world didn’t end. In fact, corporations, under the law, were created to shield people from personal liability when they were doing business. They were never intended to conceal the identity of the owner. That really started to happen in the 1970s, in the Caribbean. And we’re all suffering from it ever since.
But I think we can turn the tide. It’s going to take a long time, but private banks no longer have those same situations. We used to have a bank called HSBC, which had lots of accounts opened for shell entities, and they didn’t even know who was behind them. The U.S. had a lot of accounts, they didn’t know who’s behind them. 20 years ago, when we would ask a bank, often, they didn’t know who’s behind an account opened by legal entity, but that’s changed.
The banks have climbed that mountain, and today they know, in 99% of the cases, who’s behind an account. Now, there’ll still be a shady person, that happens all of the time, but it’s not a situation where they were opening up accounts for legal entities and had no idea who’s behind them. And now, the UK has led the way with this public information. The U.S. is far behind, but we’re working on it.
In 2008, Senator Levin introduced a bill, with Senator Coleman, and with then Senator Obama, to require the United States to find out who the beneficial owners were behind the companies they were forming. As you said, it’s estimated at two million a year. And here we are, 12 years later, we still haven’t enacted it. But for the first time ever, it passed the house. And there is hope we might enact that law before the end of the year.
Yeah. I mean, just following up on that, Elise, where does the resistance come from? When we talk about corporate tax reform, right? And tax dodging, we all know where the resistance comes from. The resistance comes from, amongst other places, the world’s most valuable tech businesses that want to keep their profits offshore. And the power that they’re able to influence on policy makers, through their DC lobbyists. But where does the resistance to corporate transparency come from in the United States?
Well, it’s been rather mysterious. We have built a massive coalition in support of the legislation. Not just law enforcement and national security experts, but the banks all now support enactment of the law. We have large companies that are sick of counterfeit goods, and piracy, and being surprised by corrupt individuals and their supply chains. They want the law passed. Small businesses are sick of competing with companies with hidden owners, they want it. Even the national association of realtors, and even the Delaware Secretary of State now support enactment.
Now, along the way, some of them had opposed it. The Delaware had been a leading opponent, but they’ve changed their mind. The Chamber of Commerce used to be a leading opponent, but all of their large business members now want it. So, they’ve turned around, and they support the legislation. Our two biggest opponents, at the moment, is the American Bar Association. And that’s because there were some lawyers who were involved with setting up these structures, and they want to be able to do it without having transparency.
But there are other elements within the Bar Association that say, “Wait a minute, we care about human rights. We care about banking.” And there’s a fight going on. But right now, the American Bar Association is still a leading opponent. And then we had this thing called the National Federation of Independent Businesses, NFIB. Strange group of supposedly small businesses that has never been active in the fight, but six months ago, became extremely active. And they’re now a leading opponent, and nobody really understands why.
The opposition, as you say, this should be a no brainer, why would we want companies with hidden owners, especially when they’re being misused? But the opposition is there. The Trump administration actually supports the law. There’s a lot of bipartisan support. We have a whole variety of senators supporting this effort, including some surprises like Senator Tom Cotton, who is worried about China and Russia misusing these companies. We’re hopeful that we’re going to get there.
The fight right now is there are efforts to exempt some exotic types of companies. The one that makes me crazy is pooled investment vehicles. What’s a pooled investment vehicle? It’s any corporate entity that has more than one person, and they’re pooling their cash for investment purposes. Why would you want to exempt them? I don’t know if you saw that recent FBI bulletin that was leaked back in May, but they express high confidence that pooled investment vehicles were being used to launder substantial amounts of cash. And they had several examples. So, the fight goes on, but I am hopeful that we’re going to get this done.
Now, let’s hope that’s right. I mean, sticking with offshore, if we can, for a moment, you also ran the investigation into offshore banks, back in, I think it was 2008. And that investigation focused principally on the role of UBS and the Liechtenstein Bank, LGT, in facilitating tax evasion by U.S. citizens. That investigation revealed that dozens of so-called client advisors would travel to the U.S. to meet and assist U.S. residents to hide their assets offshore and evade U.S. taxes.
And much of that intel came from whistle-blowers. Birkenfeld, obviously, is the best-known name, I suppose, as a whistle-blower. And the consequences of that investigation were various and clearly massively impactful. There were huge fines that resulted, there was a change of business strategy by UBS, that I think was actually announced at the PSI hearing for the first time. You recovered billions of dollars in lost taxes. And, of course, that investigation led, ultimately, to the enactment of FATCA. Do you think, on reflection, Elise, that it was the PSI’s finest hour?
It sure was a lot of fun. That hearing, where we looked at UBS, that then had 52,000 accounts with nearly $20 billion of assets from U.S. persons, who had never disclosed those assets to the IRS. And we had the Liechtenstein LGT bank, that had U.S. citizens. We had one guy with $49 million in secret, the Liechtenstein Foundations, that had never been reported to the IRS.
Those facts were fascinating. But as you said, the really remarkable moment was when UBS came in and they brought in somebody from Switzerland, which we had no jurisdiction to compel them to come in, but they came in. And they said, “We want to apologise for what we’ve been doing, for helping U.S. clients hide their money from the IRS, and we’re not going to do it anymore.”
It was an earthquake moment. I remember passing Senator Levin a little piece of paper that just said, “Wow, we had no idea UBS was going to do that.” And Senator Levin, who had had a lot of really tough questions to pose to UBS, just put them aside and said, “Okay, tell me exactly what it is you’re apologising for, and exactly what it is you’re never going to do again.”
We really went through it, and UBS ended up turning over 4,500 names of clients to the IRS. Something that was a… Swiss secrecy had its first cracks, and the whole offshore world reacted in shock and amazement. So, that was, really, a fantastic moment. As you said, the result of that was enactment of a law called the Foreign Account Tax Compliance Act. I think of it as fat cat without the teeth, FATCA.
And what it said was, foreign financial institutions, if you open up an account for U.S. person, and you don’t tell the IRS, and we find out about it, we’re going to slap you with a 30% excise tax on your earnings in the United States. And since most foreign financial institutions have U.S. stocks and bonds, and U.S. treasuries, that was not an idle threat. It was a very real threat.
And as a result, we now have the hundreds of thousands of foreign financial institutions around the world that have, on an annual basis, they disclose large accounts opened by U.S. persons to the IRS. And even more remarkable, the world reacted and said, “Well, hey, U.S., your national banks have accounts for our citizens, that we don’t know about, where they’re hiding money from us. We want to know about those accounts.”
The U.S. said, “You know what? You’re right.” And the U.S. passed a regulation to enable it to report to other countries, large dollar accounts for their nationals. And then the world took a step even further, and they said, “Forget the U.S., what about Germans with accounts in Switzerland, or Italians with accounts in Liechtenstein? Let’s all get together under common reporting standards.” And now, over 100 countries are exchanging information on an annual basis.
So, for the first time, we have an enormous amount of transparency that didn’t exist before, for large bank accounts opened around the world. They now get reported back to the authorities of the countries where those people are domiciled, or where they’re citizens. So, we have this pretty remarkable result, that I think was an outgrowth of the PSI investigation.
Yeah, it really is fascinating just to remind oneself of the genesis of CRS. I mean, as you say, it started with the PSI investigation into offshore banks, which revealed the widespread wrongdoing. And then you get FATCA, and then you get CRS, and the world that we’re living in today. You see-
In finishing it, one other thing, it’s just, it’s still going on. Just this year, a bank, Hapoalim, from Israel, pled guilty to helping over 5,500 U.S. clients conceal assets, around $7.6 billion, think about that, that we never reported to the IRS. And they paid a fine of over $874 million. That was this year. So, this problem, which we first exposed in 2008, has not been fully resolved. But there are now mechanisms to find out about these accounts. And law enforcement continues to go after banks that help people cheat on their taxes.
I’m interested to know, Elise, even before the PSI investigation into offshore, whether there was an agenda to introduce FATCA type legislation? In much the same way that some commentators say that prior to 9/11, there was an agenda to introduce provisions similar to that which 9/11 laid the foundations for, if you like, in terms of the Patriot Act. Do you believe that’s the case?
Oh, Levin introduced bills to try to deal with the problem he uncovered at UBS, but his bills were all focused on tax havens or secrecy jurisdictions. And saying, “If you had accounts at financial institutions in those countries, you would have certain more burdensome reporting requirements.”
But the problem with his legislation is that every country came into the United States Congress and said, “Well, we’re not a secrecy jurisdiction, and we’re not a tax haven.” And fiercely lobbied everybody and made them all crazy.
And so it was the leadership of the finance committee and ways and means in the house, that was Charlie Rangel and Max Baucus back then, they came up with this FATCA legislation. Nobody had thought of it before.
Oh, I see.
I had never thought of it, but it’s worldwide. That’s not any particular country, it’s every country, they introduced that bill. They had a hearing on it, and five months later, they enacted it into law. I mean, to me, it’s like, “What happened to our dysfunctional Congress? How did we enact the law that was dreamed up, introduced, and passed, in five months?”
And we found out part of the answer was that the U.S. banking industry was secretly sick and tired of their best clients, their wealthiest clients, leaving the U.S. bank and going to a foreign bank where they could open up a secret account. And the U.S. banks said, “We have to report all our accounts to the IRS. We think these other banks should have to do the same thing.” And so, all of a sudden, five months later, we have this rather remarkable law.
Yes, indeed. Now, I’m particularly interested in the private bank and offshore investigations. Because they, to my mind, are both clear-cut examples, not just, if you like, of money laundering by banks, but the facilitation of predicate criminality by banks.
In my experience, Elise, way too much emphasis seems, to me, to be placed on laundering, or the prevention of laundering by financial institutions. When, in fact, what they should be just as focused on is the way in which, through the provision of their products and services, they can actually be assisting their customers to commit the predicate crimes, the proceeds of which they then also go on to launder. Do you agree with me, on that?
Yes. The people who are facilitating the misconduct should be as big, or even more of a focus than the criminals themselves. Because, the criminals, if you’re really stealing a lot of money, if you’re really corrupt, if you’re a big drug trafficker, or organised crime, you’re not going to take your cash and put it under your bed, or bury it in a hole.
You want to put it in a financial institution. You want to invest it. You want to increase your money. You want to be able to move it around without people knowing about it. And to do that, you really need Western institutions and Western currencies, which keep their value. And they have wire transfer systems that reach every part of the globe.
And they’re institutions that don’t steal your money. So, the whole point of these people engaged in misconduct is to get into financial institutions in the West. And if the financial institutions prevent them from doing so, they don’t facilitate it, that’s the way to close those gates. They’re the gatekeepers.
And then we have people like lawyers, and accountants, and financial investment advisors, that are also facilitators. And haven’t gotten the same attention that you’re speaking about. That they should also be a focus of law enforcement to shut down that small percentage of the industries that are facilitating crime.
Yeah, absolutely. Now, in your opinion, Elise, have we come a long way? I mean, I don’t, in asking that question, seek, in any way, to belittle the enormous reforms that came about as a consequence of all of the PSI investigations. But we know that banks are spending a huge amount of money on AML compliance, and on financial crime prevention, generally.
One could make a really strong argument to say that they don’t seem to be getting a very good return on that investment. Their fine levels are at record highs. We continue to see scandal after scandal. And when you dig into the causal factors of many of these scandals, they’re remarkably similar to the sorts of scandals that you were looking at 20 or 30 years ago. So, in your opinion, how far has the industry really come?
Well, I think that there’s been significant progress. When I started off, we looked at one bank called Riggs Bank, in Washington, D.C., and we saw corrupt dictators, like Mr. Obiang, from Equatorial Guinea, he was sending in duffle bags of cash, or suitcases of cash, and shrink wrapped in plastic, to that bank, $3 million at a clip.
And with no questions asked, the bank was depositing that money more often in the account opened in the name of a shell entity that they had created for Mr. Obiang. As I recall, the name of that was Otom, was the name of the corporation. That really doesn’t seem to happen anymore. Mr. Obiang finds it extremely difficult to open up any account in the U.S.. In fact, has resorted back, in 2010, to using shell entities, to try to disguise himself.
I think that the banks are miles ahead of where they were 20 years ago. But at the same time, there’s still massive problems. I mean, you can see it in every direction. You see Citibank, just this week, there’s talk about it’s AML controls are so poor that they’re about to get dinged by the regulators. We’ve seen Danske Bank, a respected bank that had offices in Estonia, that ended up being a conduit for $230 billion, with a B, in suspect funds from Russia.
The problems are far from over, but I think of it in terms of the murder rate, okay? There’s still murder, and is probably always going to be murder, but the murder rate, when you look worldwide, is dramatically lower than it was 100 years ago. Doesn’t seem like that to us, but that actually is true. And with the money laundering, there’s still tons of misconduct going on, but it’s actually, I think, better than it was 20 years ago.
Just like murder is still a problem, so is money laundering, and I expect that to be true for some time to come. And I think the primary solution… there are lots of different kinds of solutions, but the main thing is, you need oversight. Right now, we have a lot of good laws, but we need to enforce them better.
Yeah. I mean, let’s explore that. You’ve said that there’s still tons of misconduct. I don’t think anybody would really disagree with that. You only need to read the front page of the FT, or the Wall Street Journal on a daily basis, to know that that statement’s right. Before we examine the oversight question, though, I’d like to just pick your brains around what you think the causal factors are.
I mean, what is it that causes a financial institution that’s fully aware of what it’s doing, okay? To continue to take these kinds of risk? Is it moral hazard? Is it, this scandal will never be revealed in our backyard? Is it hubris? What is it that causes institutions and the senior executives of those institutions to continue to take these risks and engage in this conduct?
Well, I think it’s a complicated question. I don’t think there’s one simple answer, but let’s think of the investigation we did. Looking at HSBC, their branch in Mexico. So, in Mexico, they were paying private bankers bonuses related to how many accounts they opened, and how much money they brought in. Well, that’s true, it doesn’t make you anxious to ask questions about the people who want to open up accounts with a lot of cash.
We also saw that HSBC, their London headquarters really tried quite hard to clean up the next cooperation. I mean, for years, they actually send people over. They closed down. They had what they call the shotgun all campaign, where they closed down profitable branches, because they were just disregarding anti-money laundering controls. They would order accounts closed in Mexico, and the Mexican banking personnel just refuse to close them. Three years later, the same accounts are still open.
They had Cayman Island Dollar Accounts, they called them, for tens of thousands of people, with over $2 billion in them, and just would not close them. And even when they decided, later on, under pressure, from headquarters, to close them, they couldn’t always do it, because they didn’t even know who owned the accounts. So, it was very hard to close them. Part of it is the banker compensation systems.
Nobody gets compensated for closing accounts, or for denying accounts. That’s hard when you don’t get compensated for doing the right thing. In addition, from what we understand, there were some pretty scary drug cartel people that were putting tremendous pressure on some bankers to allow them to deposit funds. That can be another element. In Danske Bank, in Estonia, they did outrageous transactions that, on their face, were clearly suspect, but they continued it. Why? Well, they were making a lot of money in Estonia. They were making money for their parent corporation, which made them look good.
Greed is involved, and sometimes, threats from criminal elements. And sometimes, the banks themselves, banks are hugely profitable, but they just don’t feel like making the investments necessary for the artificial intelligence and technology solutions that are important when you have so many transactions going on every day with so much money. So, there’s an investment problem as well, that financial institutions are a problem, then, as the banks get tougher.
Just last year, there was a conviction of a U.S. lawyer. His name was Mark Scott, who set up private equity funds, fake funds. Took in $400 million from a virtual currency scam, known as Onecoin, and then turned around and pretended that money were investments. So, it was cleaned up, and sent it back out. You have lawyers. That one guy, $400 million, and hard to catch. That’s another complexity, is sometimes these schemes are very difficult to identify in staff.
Yeah. I mean, obviously, I agree that the causal factors are various and multifaceted. I wonder, though, Elise, whether this sense of impunity, particularly on the part of senior executives, is also quite a powerful contributing factor. I was fascinated when reading your book, the section on the investigation into the London Whale scandal at JP Morgan, your committee requested an interview with the Chief Executive, Jamie Dimon. I’ll just read out, if I may, the section of your book on this.
It says, “The bank wasn’t pleased with the interview request, but after lengthy discussions agreed to a date. The week before, Allison received a call from one of the bank’s outside lawyers who said a larger room would be needed, since the bank planned to bring an entourage of about 20 persons to accompany Mr. Dimon.
“After checking with our Republican colleagues to make sure they agreed, Allison called back to say the interview would take place in the same conference room as all other interviews, which meant the bank could bring eight to 10 persons, but no more.
“Another lawyer called Zack. That lawyer explained that, because Mr. Dimon was so well known, the bank needed to set up special arrangements to ensure his safe passage to the PSI conference room. It was the first security request we’d received in 13 years. After checking with me and the Senate Sergeant at Arms, Zack called back the lawyer.
“Explained that for the Sergeant of Arms to provide a special escort or other special security arrangement for Mr. Dimon, Senator Levin would have to make a written request. Zack noted that Senator Levin drove himself to work every day, walked to and from his office unescorted, and had never had any trouble.
Zack asked whether the bank really wanted him to ask Senator Levin to send a written request to the Sergeant of Arms for special security arrangements for Mr. Dimon. A day later, the lawyer withdrew the request.”
Now, that passage really, really amused me, because I guess my immediate reaction is, who the hell do these people think they are? But the more serious question is, these bank senior executives are sort of demi-god type figures.
And despite all of the brilliant work done by the PSI in revealing wrongdoing on a massive scale, it’s pretty difficult to identify any senior bank executive that has been held to account in a meaningful sense. By which I mean, they’ve been the subject of criminal prosecution or regulatory censure.
I want to really understand, from you, Elise, whether or not you agree with that? And whether you agree that that is perhaps a key reason that we continue to see the same failures over and over again?
Well, I think it’s a fact that just about no leading banker has ever gone to jail, or been personally fined for this kind of misconduct. The one I think of is Amy Elliott, at Citibank, who set up the scheme herself, and was the key player in it, to move $100 million out of Mexico, to London and Switzerland. And nothing ever happened to her. And nothing happened to Citibank, as a result of that.
Mr. Dimon, he came in, by the way, he came into our conference room without anyone accompanying him. He brought two body guards. Nobody even noticed him. And when he left, nobody noticed him. There was nothing written up in the press. Nobody knew about that meeting. But there’s this, as you say, demigods. I think that is part of the problem. There isn’t the same sort of accountability for senior executives at banks, for lawyers, for accountants. Accounting firms have a lot to answer for. Yeah, it’s a problem. We can’t go this far.
When we contrast the treatment by the law, of some of the poorest members of society, particularly in the United States, with the way in which senior executives of organisations that have been responsible for enormous damage to people’s lives, it’s… 600 years after Magna Carta, we’re all supposed to be equal before the law. It seems that we’re as far away from that fundamental principle as we’ve ever been.
Well, I don’t want to go that far. I think that law enforcement in the United States is very vigorous, and does a lot of amazing work. And does hold a lot of people accountable. I don’t want to go… I don’t want to say we’re as bad as we were 1,000 years ago. However, you’re still absolutely right, that when it comes to financial crime, white collar executives often pay no price at all.
And is it also, in your view, Elise… You mentioned oversight earlier, and I’d like to come back to that. Is it partly a failure of oversight and supervision? I’m mindful here of, for example, secret monitor reports, as an example of the way in which corporations can continue to hold the whip hand.
I totally agree with you there. Oversight is a large part of the answer, and there are oversight failings in every direction. And one of them is, when you have a large institution, how do you hold them accountable? You find them, the shareholders say, “Hey, that’s my money.” Very little personal responsibility going on. If you shut them down, there may be global disruptions in the financial system. So, what do you do?
One of the solutions the United States has attempted to use is to appoint a court monitor, and say… For example, in HSBC, they had a monitor appointed for five years, to oversee their effort to strengthen their anti-money laundering controls. But that monitor who prepared annual reports, when somebody outside of the bank and outside of the department of justice tried to get a copy of one of those reports, they couldn’t get it. And they even went to court, and were unsuccessful in getting a copy of that.
It still happens today. Credit Suisse, just, I think it was a week or two ago, won a Swiss court ruling to keep secret a report by the Swiss financial regulator, on how Credit Suisse had failed to prevent fraud and money laundering by one of its star bankers. So, the secrecy of reports is a big problem. And there’s no big electoral return from doing anti-money laundering investigations like Senator Levin did. I’m not sure anybody in Michigan really base their vote on those kinds of investigations. So there isn’t the same sort of incentive for people to do that anti-money laundering work.
PSI is still doing some of it. They came out with a report in July, on how to Russian oligarchs were buying and selling multimillion dollar works of art as a way to launder funds. Because the art industry is not subject to anti-money laundry and controls. Showing you, again, how the banks have become tougher for them. And so, they’re finding other ways to launder their cash. So, oversight, it’s a problem.
And the secrecy of reports, I have to tell you, in U.S. you can get a copy of most reports, not court monitor reports, we have many other kinds of reports, but in Europe, I would often hear about a 100-page report, 200, 300 pages, after a year of work, and the regulators don’t show it to anyone. They only show it to themselves. And so, anybody outside of a very small circle can’t benefit from that kind of oversight.
Well, I mean, I’m pleased that you’ve raised that. Because, actually, I think it goes deeper than that. Because in many jurisdictions, when a financial institution comes onto the radar of a regulator which has concerns about it, such that they think that its conduct should be examined N investigated, they allow the institution to actually select the identity of, essentially, the interrogator. The organisation that will conduct that review.
And that seems, to me, to be a fundamental conflict of interest. Because if you allow the institution to select who is going to examine it, then, by definition, they’re going to be motivated to identify and select the examiner they think is going to be least capable of revealing any wrongdoing. And that, I think, is just an example of a fundamental problem that exists in relation to the oversight of financial institutions. So, I don’t know what your views on that are.
Well, I agree with you 100%. And I think it’s even worse, because they don’t pick the least capable investigatory firm, they pick one that looks really smart, has a good reputation, but has a way of not really disclosing the worst of the worst, and disguising what’s going on. And I think we have to change the rules so that regulators select the investigating firms.
We still make the bank pay for it, but the bank doesn’t get to pick their investigator. It has to be somebody that responds to the regulator. And then you’ll have to have regulators who favor firms that actually do a solid investigation. So, I think you’re completely right. When you have a financial institution able to select who’s going to do the investigation, you’re just setting yourself up for failure.
Yeah. Now, I’ve got to ask you this question, Elise, what was it like to work with Senator Levin? I mean, he does have legendary, as it were, status, in anti-financial crime circles. He certainly seemed always, to me, to be a remarkable character both in his demand for detail, and his commitment to fair investigation. Can you tell us a little bit about what it was like working with him?
Well, I have to say it was a remarkable experience. He was a true public servant. He was interested in the facts. He was willing to work with anyone to get those facts. And he insisted on getting them. And he was fierce in his demands for information. He also prepared for hearings in a way that I’ve never seen any other member of Congress do.
He would begin his preparation for hearing, weeks, sometimes months, beforehand. Really delve into the details, look at the key documents. He would develop his… He would have us write a first set of questions for him, for hearing. And then he would go through them, question by question, dramatically change them.
We’d have to redo them. And we sometimes went through that process two and three times. The weekend before a hearing, he would have us come in for the entire weekend. He would come in and just immerse himself in the facts and the documents until, at the time of the hearing, he actually knew the facts and the documents better than most of the witnesses.
He also, in addition to that preparation, he had a better ability to actually listen to what people said to him, compared to anyone else I ever met. At a hearing, he would actually hear what the person would say, and follow up in a way that he would clarify things that were ambiguous. He wouldn’t let people get off the hook. And he would ask questions until he got a clear answer.
He was also willing to stay a long time. A lot of members of Congress, two hours, they’re done. Our record was an 11 hour hearing. That was the one on the financial crisis involving Goldman Sachs. Levin just stayed there, and had the ability to stay there until he was able to get through all the questions he had.
Aside from all of that, the guy was funny. He was smart, he was polite. He didn’t yell at his staff. If he did something wrong, he just get the hangdog look and say, “Shouldn’t I have known that? Shouldn’t somebody have told me that?” I mean, just the way that just made you want to work even harder for him. So, he was just a remarkable public servant.
I mean, apart from his obvious intellectual ability, he clearly had a huge force of personality. And now that he has retired, do you feel that it’s gone into reverse, or are you satisfied that there remains a strong, an appetite to investigate financial chicanery and wrongdoing, but by the Senate?
Well, I have to say no one’s like Senator Levin. I mean, no one has that drive that he had. But still, there’s very good work being done by PSI. I mentioned there, a recent report on money laundering to the art industry. And they’ve done a lot of other kinds of things. Looking at issues involving China, and a whole range of things that didn’t have to do with the financial crime focus that Senator Levin had, but they’re still doing very good work.
There’s a lot of civil society groups that are doing tremendous work. I don’t know if you saw the recent report on money laundering in Dubai, by Matthew Page and Jodi Vittori? Global Financial Integrity has been doing a whole series of reports this year, that are just remarkable, on trade-based money laundering. So, there’s still a lot of investigation and interest that’s still going on, that gives me great hope.
I agree. And I certainly agree that the PSI is definitely continuing to do a lot of great work. But maybe it’s probably because I’ve got a personal interest in this, or rather like you, it just seems, to me, that the focus on financial crime, in particular, has waned, somewhat.
If PSI isn’t focused on financial crime, then who the hell is? And do they have the same weight, in terms of being able to influence policy decisions? Do they have the ability to focus minds in the same way that PSI does? And that that concerns me a little bit, because-
Well, I’ll just mention to you, the House Financial Services, led by Maxine Waters, has an investigation going on into Deutsche Bank. I ran into Trump’s challenging of their subpoena. It’s gone all the way to the Supreme Court, really slowed down that investigation.
As you say, Senator Levin, there’s nobody like Senator Levin, but there is still work going on. And I think the House Financial Services Committee is a terrific place where they’re really… I mean, they’re responsible for the beneficial ownership bill advancing. Even the Senate Banking Committee has been doing a tremendous bipartisan effort to try to get that law passed. So, there’s still hope.
There’s still hope, yeah. Elise, what are you spending your time doing now? And what are your future plans?
Well, one of the things that I did, as you mentioned in the introduction, is I helped set up a nonprofit, called The Levin Centre, at Wayne State University, in Detroit, that’s Senator Levin’s hometown. And the focus of that nonprofit is to strengthen oversight in Congress, on the state level, and even internationally.
We worked with the EU, a bit, and they’ve actually set up their own Permanent Subcommittee on Investigations, that looks at financial crime. And that is a terrific development. So, I’m spending time on training congressional staffers on how to do better investigations. And also continuing to follow all of these financial crime issues that we’ve discussed today.
Yeah, that’s absolutely terrific. Elise, it has been, as ever, a joy to speak to you. We, I regret to say, have run out of time. We could carry on talking for hours. And perhaps we might be able to persuade you to come back and talk to us about a few more of the PSI investigations that you were involved in. But for now, thank you very much. On behalf of all of our listeners and KYC360 members, thank you.
And I also say that KYC360 is doing fantastic work in this space. And I am really a fan and an admirer of all of the work that you and KYC360 have been doing.
Well, that’s very kind. And coming from you, that really does mean a great deal, Elise. So, thank you. Now, if you’d like to learn more about the PSI investigations, and the valuable lessons for compliance professionals that can still be drawn from them, you could really do no better than treat yourself to a copy of Elise Bean’s book, Financial Exposure. At the end of this podcast, you will receive an email with further information about how to obtain a copy of that book.
This recording will be available as a podcast, on KYC360, and many other platforms, from tomorrow. Our next interview takes place on the 23rd of October, with Chinali Patel, a UK Treasury Representative based in Asia, who’s dedicated on behalf of the UK government, to the regional effort in combating financial crime. So, that will be another, I think, very interesting interview, which I hope that you’ll be able to tune in for. For now, stay well. And thank you for the privilege of your time. Goodbye.