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PRIVATE BANKING AND MONEY LAUNDERING: A CASE STUDY OF OPPORTUNITIES AND VULNERABILITIES

Senate Hearing 106-428]From the U.S. Government Printing Office]

S. Hrg. 106-428

RIVATE BANKING AND MONEY LAUNDERING: A CASE STUDY OF OPPORTUNITIES ANDVULNERABILITIES

======================================================================

HEARINGS

before the

PERMANENTSUBCOMMITTEE ON INVESTIGATIONS

of the

COMMITTEE ON

GOVERNMENTAL AFFAIRSUNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

__________

NOVEMBER 9 AND 10, 1999

__________

Printed for the use of the Committee on Governmental Affairs

U.S. GOVERNMENT PRINTING OFFICE

1-699 WASHINGTON : 2000______________________________________________________________________

or sale by the Superintendent of Documents, Congressional Sales Office

ttp://www.gpo.gov/fdsys/pkg/CHRG-106shrg61699/html/CHRG-106shrg61699.htm (1 of 206) [2/25/2013 7:22:36 PM]


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U.S. Government Printing Office, Washington, DC 20402

COMMITTEE ON GOVERNMENTAL AFFAIRS

FRED THOMPSON, Tennessee, Chairman

ILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, ConnecticutED STEVENS, Alaska CARL LEVIN, Michigan

USAN M. COLLINS, Maine DANIEL K. AKAKA, HawaiiEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois

ETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New JerseyHAD COCHRAN, Mississippi MAX CLELAND, Georgia

RLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina

UDD GREGG, New HampshireHannah S. Sistare, Staff Director and Counsel

Joyce A. Rechtschaffen, Minority Staff Director and Counsel

Darla D. Cassell, Administrative Clerk

------

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

SUSAN M. COLLINS, Maine, ChairmanILLIAM V. ROTH, Jr., Delaware CARL LEVIN, Michigan

ED STEVENS, Alaska DANIEL K. AKAKA, HawaiiEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois

ETE V. DOMENICI, New Mexico MAX CLELAND, GeorgiaHAD COCHRAN, Mississippi JOHN EDWARDS, North Carolina

RLEN SPECTER, Pennsylvania

K. Lee Blalack, II, Chief Counsel and Staff DirectorLinda J. Gustitus, Minority Chief Counsel and Staff Director

Mary D. Robertson, Chief Clerk

C O N T E N T S

------

pening statements:Page

Senator Collins.............................................. 1, 71Senator Levin................................................ 4, 72

Senator Specter.............................................. 8Senator Cochran.............................................. 9



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WITNESSESTuesday, November 9, 1999

obert L. Roach, Counsel to the Minority, Permanent Subcommittee

on Investigations.............................................. 10

lise J. Bean, Deputy Chief Counsel to the Minority, PermanentSubcommittee on Investigations................................. 13

my C. Elliott, Vice President, Citibank Private Bank, New York.. 18

lbert Misan, Vice President, Citibank Private Bank, New York.... 20lain Ober, Vice President, Citibank Private Bank, New York...... 36 Edward Montero, Senior Executive, Citibank Private Bank, New

York........................................................... 37

ohn Reed, Chairman and Co-Chief Executive Officer, Citigroup,New York, accompanied by Todd Thomson, Chief Executive Officer,

Citibank Private Bank, New York, and Mark Musi, ChiefCompliance and Control Officer, Citibank Private Bank, New York 50

Wednesday, November 10, 1999

ntonio Giraldi, Former Private Banker, currently in FederalPrison for Money Laundering.................................... 74

aymond W. Baker, Guest Scholar in Economic Studies, TheBrookings Institution, Washington, DC.......................... 84

alph E. Sharpe, Deputy Comptroller for Community and ConsumerPolicy, Office of the Comptroller of the Currency, Department

of the Treasury, Washington, DC................................ 92

ichard A. Small, Assistant Director, Division of Banking

Supervision and Regulation, Federal Reserve System, Washington,DC............................................................. 96

Alphabetical List of Witnesses

aker, Raymond W.:Testimony.................................................... 84

Prepared statement with an attachment........................ 1053

ean, Elise J.:Testimony.................................................... 13

Prepared statement (Minority Staff Report on Private Bankingand Money Laundering: A Case Study of Opportunities and

Vulnerabilities)........................................... 872lliott, Amy

Testimony.................................................... 18

Prepared statement........................................... 940iraldi, Antonio:

Testimony.................................................... 74Prepared statement........................................... 1003



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isan, Albert:Testimony.................................................... 20

Prepared statement........................................... 946ontero, G. Edward:

Testimony.................................................... 37

Prepared statement........................................... 953ber, Alain:

Testimony.................................................... 36

Prepared statement........................................... 950eed, John:

Testimony.................................................... 50

Prepared statement with attachments.......................... 957

oach, Robert L.Testimony.................................................... 10

Prepared statement (Minority Staff Report on Private Bankingand Money Laundering: A Case Study of Opportunities and

Vulnerabilities)........................................... 872

harpe, Ralph E.:Testimony.................................................... 92

Prepared statement........................................... 1079mall, Richard A.:

Testimony.................................................... 96Prepared statement........................................... 1101

Exhibits

ote: ``Citibank PBG'' refers to Citibank Private Bank Group, an

organizational unit within Citigroup

1. GChart: Structure of Trocca, Ltd............................. 111

2. GChart: Flow of the Salinas Funds............................ 112

3. GChart: Salinas Cashiers Checks Through Citicorp Mexico...... 113

4. G4/92 Citibank documentation policy.......................... 114

5. G5/92 Salinas account opening documentation.................. 123

6. G9/91 Citibank client acceptance policy...................... 127

7. GExcerpt from 3/1/95 Salinas client profile.................. 133

8. G9/15/92 e-mail from Reynaldo Figueiredo on ``Client

Information--Policy and Procedures''........................... 134



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9. G12/8/93 e-mail from G. Edward Montero on ``Client Profile/Suitability/Sales Practices''.................................. 136

0. G``Rumors of Corruption Besiege Mexico's President,''

Sacramento Bee, (8/11/93)...................................... 138

1. a. GExcerpts from transcript of 3/1/95 telephone

conversations among Citibank Private Bank personnel (Amy C.

Elliott, Pedro Homen, and Sarah Bevan)......................... 141

b. GExcerpts from transcript of 3/1/95 telephone

conversations between Citibank Private Bank personnel

(Pedro Homen and Amy C. Elliott)........................... 142

2. G1996 President Bongo's client profile....................... 143

3. G6/25/97 KYC [Know Your Client] Deficiencies review of Abacha

sons' client profile........................................... 144

4. G4/28/97 e-mail to Alain Ober and others from Christopher L.Rogers on President Bongo's press clippings.................... 145

5. G11/6/98 e-mail to Salim Raza from Christopher L. Rogers on

closing President Bongo's accounts............................. 147

6. G9/15/98 Citibank Private Bank memorandum from Belma Kusoglu

to Credit Committee regarding $39.1 million overdraw........... 148

7. GExcerpts from Citibank Private Bank brochure................ 149

8. GExcerpts from transcript of 3/1/95 telephone conversationsamong Citibank Private Bank personnel (Hubertus Rukavina, Pedro

Homen, Tom Salmon, Sarah Bevan, Joanne Sciortino).............. 151

9. G4/14/97 Citibank Private Bank memorandum to File from Alain

Ober regarding source of funds in President Bongo's accounts... 154

0. G6/18/97 OCC memorandum to Bank File from Steven D. Lindsey,OCC National Bank Examiner regarding ``Related files of El Hadj

Omar Bongo, President of Gabon (Africa)''...................... 155

1. GU.S. General Accounting Office Report to the Ranking

Minority Member, Permanent Subcommittee on Investigations,Committee on Governmental Affairs, U.S. Senate, Private

Banking: Raul Salinas, Citibank, and Alleged Money Laundering,October 1998................................................... 159



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2. GStatement for the Record of Robert H. Hast, Acting Assistant

Comptroller General for Investigations, Office of SpecialInvestigation, U.S. General Accounting Office, Private Banking:

Paul Salinas, Citibank, and Alleged Money Laundering, November

9, 1999........................................................ 171

3. GStatement for the Record of Thomas J. McCool, Director,

Financial Institutions and Markets Issues, General GovernmentDivision, U.S. General Accounting Office, Money Laundering:Observations on Private Banking and Related Oversight of

Selected Offshore Jurisdictions................................ 182

4. GStatement for the Record of Stuart E. Eizenstat, Treasury

Deputy Secretary............................................... 198

5. GSupplemental questions and answers for the record of the

Permanent Subcommittee on Investigations' Minority Staff....... 204

6. GSupplemental questions and answers for the record of JohnReed, Chairman, Citigroup, Inc................................. 206

7. GSupplemental questions and answers for the record of Ralph

Sharpe, Deputy Comptroller, Community and Consumer Policy,Office of the Comptroller of the Currency...................... 216

8. GSupplemental questions and answers for the record of Richard

A. Small, Assistant Director, Division of Banking Supervisionand Regulation, Board of Governors of the Federal ReserveSystem......................................................... 224

9. GCitibank comments on the Permanent Subcommittee on

Investigations' Minority Staff Report on Private Banking andMoney Laundering............................................... 231

0. GDocuments relating to Raul Salinas:

a. GCitibank summary of Salinas account totals and client netrevenue [CB21344].............................................. 238

b. G6/92 monthly business letter projecting Salinas account of

$15-$20 million [CB24979-82]................................... 239

c. G6/16/92 memorandum from Jim Parker [CB24610-12]........... 243

d. G1992 client acceptance checklists with public figure



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designations [CB24613-14; CB24572]............................. 246

e. GReview memorandum for Trocca, Ltd. account [CB24483-84]... 249

f. G8/17/93 document on lunch with Salinas, Rhodes, Montero,

Elliott [CB9453]............................................... 251

g. G7/11/94 memorandum from Ariana Fleischmann on meeting

between Confidas personnel and Mr. and Mrs. Salinas [CB24617-18]............................................................ 252

h. GMemorandum from Amy C. Elliott on revealing client name

[CB24907-8].................................................... 254

i. G3/1/95 memorandum from Sara Bevan regarding Salinas``Public Figure'' classification and origin of wealth [CB23250] 256

j. G3/3/95 memorandum from Amy C. Elliott on accepting Mr.Salinas as a client [CB7178-79]................................ 257

k. G11/14/95 memorandum from Clark Kall on Swiss meeting with

Mrs. Salinas [CB24607]......................................... 259

l. G9/18/95 memorandum from Clark Kall and Ariana Fleischmannon closing accounts [CB24978].................................. 260

m. G11/21/94 memorandum from Robert D. Agosti on documents for

requesting parties [CB9449].................................... 261

n. GMinutes of Citibank Board of Directors meetings

summarizing discussions of the Salinas matter:................. 262

11/21/95 [CB21345];

12/19/95 [CB21347-8]

o. G11/18/97 communication from John Reed to Citibank Board,

including discussion of the Salinas matter [CS7462-63]......... 265p. GTape transcripts of Citibank employee conversations

regarding management and status of Salinas' accounts:.......... 267

3/1/95 11:07 AM [CB22428-54];

3/1/95 1:59 PM [CB22319-27];

3/1/95 2:38 PM [CB22328-32];



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3/1/95 2:47 PM [CB22079-81];

3/1/95 2:51 PM [CB22467-72];

3/1/95 3:02 PM [CB22456-57];

3/1/95 3:11 PM [CB22458-60];

3/1/95 4:31 PM [CB24655-64];

3/2/95 11:41 AM [CB22336-40];

11/14/95 3:08 PM [CB24640-41]

q. GUndated memorandum from Bob Fox on management of Salinas'

accounts in Mexico City [CB4584-85]............................ 339

r. GChart entitled, ``Preliminary list of FX and Funds

Transfers,'' describing transfers of Salinas' funds fromCitibank's Mexico City branch to a concentration account in New

York [CB25018]................................................. 341

s. GDocuments related to cash flows and balances in Salinas'accounts:...................................................... 342

GTwo 1-page memoranda on 1993 and 1994 cash flows

[CB23079, CB1128];

G6/29/93 memorandum from Amy C. Elliott [CB22908];

G1/95 documents on sending Salinas' funds through another

bank [CB23412-14];

G11/15/95 memorandum from Amy C. Elliott detailing

certain fund transfers from Salinas' accounts [CB7180-83];

G2/2/96 document prepared by Scotland Yard ontransactions in Salinas' accounts

t. GDocuments related to due diligence policies and

implementation:................................................ 355

G1992 concentration account memos [CB24896-903];

G9/25/92 memorandum from Edward J. Kowalcyk on client



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profiles [CB14628-30];

G1/22/93 memorandum from Albert Misan on due diligence[CB15410];

G3/11/93 memorandum from Edward J. Kowalcyk on BR&Creview [CB15836-39];

G12/8/93 memorandum from G. Edward Montero on clientprofiles [CB14626-27];

GOne page summary of deadlines and required reviews

established in 12/8/93 memorandum [CB11455];

G1/94 review of Mexico team client profiles in New York[CB24909-49; CB7236];

G5/6/94 memorandum from Albert Misan on client profileaudit [CB18311-21];

G2/21/95 memorandum from Albert Misan with 9/30/94 memo

on profiles [CB14631-39];

G6/1/95 memorandum from G. Edward Montero on clientprofiles [CB16534-36];

G9/7/95 memorandum from Albert Misan on cash deposits

[CB11909];

G12/22/95 memorandum from Edward J. Kowalcyk on Mexico-

New York team BR&C review [CB24904];

G4/10/96 memorandum from Albert Misan with 4/9/96memorandum from G. Edward Montero on client profiles

[CB15398-400]

u. GCitibank Client Account Management System [CAMS] Screen

profiles of Raul Salinas:...................................... 416

3/1/95 [CB17293];

3/8/95 [CB17286];

3/15/95 [CB17281];

11/22/95--includes handwritten edits [CB21433];



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11/29/95 [CB7196]

v. GList of meetings that Citibank personnel had with Mr. and

Mrs. Salinas, prepared by Citibank [CB23814-16A]............... 421

w. GDocuments related to corruption allegations involving Raul

Salinas:....................................................... 425

G``Rumors of Corruption Besiege Mexico's President,''Sacramento Bee (8/11/93);

G``Raul's Shady Business at CONASUPO,'' Proceso (12/4/95);

GEste Pais excerpts (8/1/92);

G``Agricultural trade--big business for U.S. andMexico,'' U.S. Dept. of Agriculture (3/92)

x. GDocuments related to the structure of Salinas' Trust and

PICs:.......................................................... 435

GDiagram of Trust-PIC structure [CB2418];

GUK Non-Residence Declaration Form for Trocca, Ltd.

[CB24579];

GRegister of Directors and Officers of Trocca, Ltd.[CB23446];

G7/22/92 Declaration of Trust, Brennan Ltd. [CB23686];

G6/30/93 Declaration of Trust, Brennan Ltd. [CB23677];

G11/24/92 memorandum from Carlos Gomez forwarding arequest from Amy C. Elliott for documentation confirming to

Raul Salinas that he is the beneficial owner of Trocca,Ltd. [CB23361];

G2/16/95 memorandum from Arthur Vogt regarding another

Salinas PIC, Birchwood Heights Ltd. [CB23901];

GRegister of Shareholders of Birchwood Heights Ltd.

[CB23976]



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y. G6/5/96 memorandum from Alvaro de Souza on Citibank'sposition on a Salinas matter [CB16996-97]...................... 443

1. GDocuments relating to Asif Ali Zardari:

a. G2/27/95 Swiss Form A identifying Asif Ali Zardari as thebeneficial owner of the Capricorn Trading S.A. account in the

Citibank Private Bank in Switzerland [600]..................... 445

b. GWire transfer records documenting transfers of $18 millioninto Mr. Zardari's Capricorn Trading S.A. account in Dubai and

transfers of $18.3 million out of the Dubai account into the

Capricorn Trading S.A. account in Citibank Private Bank inSwitzerland:................................................... 446

G10/5/94 transfer of $5 million from A.R.Y. International

Exchange into the Capricorn Trading S.A. account in

Citibank in Dubai [X6903-4];

G10/6/94 transfer of $5 million from A.R.Y. InternationalExchange into the Capricorn Trading S.A. account in

Citibank in Dubai [X6900-2];

G2/24/95 transfer of $8 million from Morgan NYC into theCapricorn Trading S.A. account in Citibank in Dubai [X6905-

8];

G3/6/95 transfer of $8.1 million from the CapricornTrading S.A. account in Citibank in Dubai into theCapricorn Trading S.A. account in Citibank Private Bank in

Switzerland [X6894-99];

G5/3/95 transfer of $10.2 million from the CapricornTrading S.A. account in Citibank in Dubai into the

Capricorn Trading S.A. account in Citibank Private Bank in

Switzerland [X6890-93];

G5/4/94 record of Citibank Private Bank in Switzerlandcredit of $10.2 million to account of Capricorn Trading

S.A. [599]

c. GMandate Agreement between Asif Ali Zardari and Jens

Schlegelmilch concerning Bomer Finance, Inc. [601-2]........... 466

d. GMandate Agreement between Begum Nusrat Bhutto and JensSchlegelmilch concerning Mariston Securities, Inc. [603-4]..... 468



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e. GBritish Virgin Islands Certificate of Incorporation for

Capricorn Trading S.A. [605]................................... 470

f. G6/29/94 letter from Cotecna Inspection S.A., stating that

if it receives a contract from the government of Pakistan forthe inspection and price verification of imported goods, it

will pay Mariston Securities, Inc., 6 percent of the payments

made under the contract [597].................................. 471

g. G12/11/97 communication from John Reed to Citibank Board,

including a discussion of the Zardari matter [CS7464-5]........ 472

h. GList of meetings between Mr. Zardari and Citibank

personnel, provided by Citibank................................ 474

2. GDocuments relating to El Hadj Omar Bongo:

a. GAttachment A to 9/23/99 letter to Subcommittee from

Citibank legal counsel, summarizing accounts related to OmarBongo, President of Gadon, referred to as ``Client 1a,'' and

his offshore corporation, Tendin Investments, Ltd., referred toas ``Client 1b''............................................... 478

b. G15-year record, 1985-1999, of Tendin account funds,

prepared by Citibank Private Bank [X2557]...................... 479

c. G5/95 Tendin Investments Ltd. 1-page document [X4318]...... 480

d. GExcerpts from client profiles prepared by Citibank PBG for

President Bongo's accounts:.................................... 481

GNew York PBG profile, 1996 [X2444, 2448, 2450, 2451,2454];

GNew York PBG profile, prepared before or on 2/13/97[X4328];

GNew York PBG ``Full Profile'' prepared after 10/31/97

[X6695-98];

GLondon PBG KYC Client Acceptance Checklist, 1998 [X6320-

21, 6326];

GLondon PBG ``Extended Entity Profile,'' 1999 [X6301-3]



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e. GExcerpts from OS account documentation:................... 497

GNew York PBG ``Client File'' [X3340-43];

G10/24/95 OS account opening documentation [X3353-56,

3358, 3360-61];

G2/9/96 letter from President Bongo to New York PBG

[739];

G2/9/96 Security Agreement [737-38];

G2/12/96 memorandum to ``Credit'' from Luella A. Gentles,senior account officer [736]

f. G3/9/95 memorandum to Donnelle Knowles from Alain Ober on

using codes [X2374]............................................ 512

g. G6/92 documents on $100,000 cash withdrawal [734].......... 513

h. G5/94 documents on $69,035 check [714]..................... 514

i. GExcerpts from documentation related to extensions of

credit to President Bongo, 1986-1998:.......................... 515

G1986 credit approval recommendation [851];

G1/9/90 e-mail to William Owen from C.O. Grant [769];

G8/30/90 e-mail to Christopher L. Rogers from Len Maestra

[770];

G7/92 credit approval document for $24.4 million [757];


G2/16/93 e-mail to Angelica De Robien from Rudolph

Thomson on overdraft facility [847];

G2/17/93 letter to Angelica De Robien from TendinInvestments, Ltd., on overdraft facility [848];

G2/18/93 document by William P. Owen on Tendin overdraftfacilities and loans [755];

G11/93 credit approval document for $47.7 million [751-



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52];


G4/94 credit approval/annual review [X2536-37];

G4/95 credit approval/annual review [X2528, 2530];

G4/95 facility renewal recommendation, Paris PBG [X7043-44];

G6/20/95 e-mail to Salim Raza from Alain Ober on Product

Suitability [X2286];

G2/96 facility memorandum [X2525];

G4/96 credit approval/annual review [X2522, 2524];

G6/96 and 7/96 e-mails related to overdraft facilities

[X7059-60];

G10/97 credit approval/annual review [X2504];

G10/98 credit approval/annual review [X2418]j. GExcerpts from documents related to internal Citibank PBG

inquiries into President Bongo's accounts:..................... 540

G1996 Sensitivity Hot Sheet [X6887];

G10/21/96 memorandum to Alain Ober from Angelo Fusaro

regarding Tendin accounts, with an attachment [835-43];

G12/4/96 handwritten reply from Alain Ober with anattachment [X6874, 6876];

G6/12/98 PBG call report from Alain Ober with referenceto attempted fraud [X2479]

k. GDocuments related to Federal Examiners review of President

Bongo's accounts:.............................................. 553

G12/10/96 memorandum to Christopher L. Rogers from Alain

Ober on $52 million [X2283];

G12/11/96 reply from Christopher L. Rogers to Alain Ober[X7056];



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G2/26/97 memorandum to Nuhad Saliba from Alain Ober on

credit extensions [X7066]

l. GDocuments related to 1996 and 1997 deposits into President

Bongo's accounts:.............................................. 556

G12/96 e-mails on transfer from Gabon treasury to Tendin

accounts [X7063];

G1/7/97 e-mail to Donnelle Knowles from Alain Ober on

Gabon treasury funds deposit [X7064];

G2/97 e-mails on deposits into President Bongo's accounts

[X7065];

G2/25/97 facsimile to Donnelle Knowles from Alain Ober on

failure to invest deposited funds [X7067-68];

G2/26/97 e-mail to Donnelle Knowles from Alain Ober ondeposits to ``OS'' and Tendin accounts [X4314]

m. GDocuments related to OCC review of President Bongo's

accounts:...................................................... 562

G4/9/97 memorandum to Alain Ober from Christopher L.

Rogers on source of funds [X4315-17];

G4/11/97 memorandum to File from Alain Ober on source offunds [X6694];

G4/14/97 memorandum to File from Alain Ober on source of

funds [693];

G4/28/97 e-mail to Alain Ober from Christopher L. Rogers

on France-Gabon Paris Press Clippings [X7054-55];

G6/18/97 memorandum to Bank File from OCC National BankExaminer Steven D. Lindsey on President Bongo's accounts

[689-92] (Also printed above in Exhibit 20.)

n. G1998 Quality Assurance--KYC Scorecards:................... 573

GTendin accounts [X2477-78];

GOS accounts [X3414-15]



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o. GDocuments related to closing President Bongo's accounts:.. 577

G11/6/98 e-mail to Salim Raza from Christopher L. Rogers

[X7045];

G12/24/98 e-mail to Salim Raza from Christopher L. Rogers

[X7048];

G1/15/99 e-mail to Anjum Z. Iqbal from Christopher L.Rogers [X7049];

G2/1/99 e-mails on closing accounts [X7051];

G3/1/99 e-mail to Salim Raza and Anjum Z. Iqbal fromChristopher L. Rogers [X7052];

G6/99 Transaction monitoring report, London PBG, onTendin withdrawal [X6284];

G7/27/99 letter from President Bongo to Citibank PBG,

Paris on closing Leontine Ltd. account [CS2150];

G8/99 e-mails on closing President Bongo's accounts[CS2156-57];

G8/99 e-mails on closing accounts and Bongo nephew

[CS2158];

G8/99 document with figures related to President Bongo's

accounts [CS2149]p. GDocuments related to French criminal investigation of Elf

Aquitaine and Elf Gabon:....................................... 588

G``Brief History and Current Status of the French

Investigation of the Elf Money Laundering Scheme,'' TheLibrary of Congress Law Library (No. 99-7539, 10/99);

G``Relations Between France and Gabon Worsened over the

Elf Affair,'' Le Monde (4/2/97, translated by The Libraryof Congress Law Library);

G``Gabon Chief Threatens Oil Deals After Fraud Charges,''The Guardian (London) (4/8/97);

G``Omar Bongo Could Be Implicated in the Elf Affair,'' Le



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Monde (4/8/97), translated by The Library of Congress LawLibrary);

G``Pas si joli,'' Africa Confidential (5/9/97);

G``The Swiss Justice Refuses to Unfreeze the Bank Accountof President Bongo, Jacques Verges Becomes the Attorney of

Omar Bongo in the Elf Affair,'' Le Monde (8/6/97,

translated by The Library of Congress Law Library);

G``Swiss Investigators Seize Gabon President's Bank

Account,'' AFX News (8/27/98);

G``President of Gabon's Appeal Against Account Block

Rejected,'' AP Worldstream (11/2/98);

G``A Swiss Account,'' La Lettre du Continent (11/19/98,

translated by The Library of Congress Law Library);

G``No Immunity in Switzerland,'' La Lettre du Continent(4/15/99, translated by The Library of Congress Law

Library);

G``Judge Perraudin's Investigation Uncovers ELF's SecretAfrican Affairs,'' Le Monde (10/25/99, translated by The

Library of Congress Law Library)

3. GDocuments relating to Abacha sons:

a. GAttachment D to 8/9/99 letter to Subcommittee from

Citibank legal counsel summarizing accounts related to Mohammedand Ibrahim Sani Abacha, referred to as the ``first and second

individuals identified in Item 2(l)''.......................... 610

b. G9/27/99 letter to Subcommittee from Citibank legal counsel

on Abacha sons' accounts....................................... 611

c. GExcerpts from client profiles prepared by Citibank PBG forAbacha sons' accounts:......................................... 612

GNew York PBG profile, 1997, Gelsobella account [CS7178,

7182-83, 7185, 7189];

GNew York PBG profile, 1997, Chinquinto account [CS7159,

7163-65, 7170];



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GLondon PBG ``Combined Client Profile/Account Plan,''1998 [CS3250, 3252-53];

GLondon PBG ``Existing Client KYC Approvals,'' 1998

[CS2733-38]

d. GKYC Deficiencies, 6/25/97 [CS3281]........................ 631

e. GExcerpts from account documentation:...................... 632

G2/28/92 Call Plan/Call Report from Alain Ober on opening

New York accounts [CS2064];

G3/3/92 e-mail to Alain Ober from Michael Mathews

providing client reference [CS2071];

G7/29/93 Call Plan/Report from Michael Mathews [CS2937];

G11/11/94 Numbered Account Opening Form for London

account [CS3285];

G1995 documents on using codes for Abacha sons' accounts[CS1970-71, 1967, 3157];

G1997 documents on cash purchase of London apartment

[CS3189, 3179, 3171];

G5/1/96 statement for Navarrio account showing $10million transfer on the order of Morgan Procurement Corp.through Citibank New York [CS2955];

G5/1/97 statement for Navarrio account showing $4.5million transfer through Citibank New York [CS2969];

G4/97 and 6/97 documents related to Abacha sons' requests

and Citibank PBG London's providing them with a bank

reference to Goldman Sachs International [CS3277, 3169-70,3215-17]

f. GDocuments related to Citibank PBG inquiries into

suspicious activity in Abacha sons' accounts:.................. 651

G1/18/95 InterOffice Memo to Files from Luella Gentles on

Chinquinto account [CS1953];

G1/20/95 Account Summary for Chinquinto account [CS1955];



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G12/22/94 Account Summary for Gelsobella account, andparticular account transactions [CS1904-11];

G8/95 e-mails, facsimiles, and draft documents related to

request by Abacha sons for Advanced Payment Guarantee

[CS3211-12, 3190-96]

g. GDocuments related to closing Abacha sons' accounts in New

York:.......................................................... 670

G8/21/96 letter to Yaya Abubakar from Citibank PBG, New

York [CS1986];

G11/15/96 letter to Mohammed Sani from Alain Ober

[CS1985];

G11/24/96 letter to Alain Ober from Mohammed Sani and

Yaya Abubakar [CS1975];

G9/13/96 memorandum to D. Terry from Alain Ober [CS7491];

G3/5/97 e-mail to Carl Brome from Alain Ober [CS7488];

G10/3/97 memorandum to Linda Schuster from Alain Ober[CS1900]

h. GDocuments related to 1998 transfer of $39.1 million:...... 676

G9/15/98 memorandum to Credit Committee from BelmaKusoglu [CS3360];

G10/7/98 memorandum to Claude Poppe from David Oxford

[CS3371];

G9/18/98 Margin System, Detailed Assets document

describing time deposits used in $39 million transfer[CS3373];

G9/98 Account Statement showing $39 million transfer

[CS2995-96];

G10/98 Transaction Monitoring inquiry regarding $39

million transfer [CS3136]

i. GDocuments related to 1999 freezing of Abacha sons'accounts in London:............................................ 682



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G3/19/99 amended civil complaint filed in High Court of

Justice, Queen's Bench Division, Commercial Court, inLondon, freezing Abacha accounts in London;

GTransaction Monitoring inquiry regarding $2.5 millionwithdrawal, containing dates ranging from 11/98 until 6/99

[CS3130];

G6/99 Transaction Monitoring inquiry on $298,600withdrawal from Abacha sons' account;

G6/3/99 e-mail to Salim Raza from Michel Accad on HighCourt freeze order [CS7474]

j. GDocuments related to Nigerian government actions taken

with respect to Abacha family:................................. 696

G7/99 e-mails among Citibank Private Bank personnel in

New York on Nigerian government efforts to seizemisappropriated funds from Abacha family and requesting

information on existence of Abacha accounts [CS2153];

G``How the grand lootocracy beggared Nigeria's people,''The Observer (11/22/98);

G``London court freezes accounts of late Nigerian

ruler,'' Agence France Presse (6/3/99);

G``Nigeria seeks help in tracing billions `taken' by

former military leaders,'' FinancialTimes (London) (7/23/99;

G``Abacha's accounts frozen as provisional measure,''

press release from Federal Office for Police Matters,

Switzerland (10/14/99);G``Swiss freeze accounts of Nigeria's Abacha,'' Reuters

(10/14/99);

G``Abacha son on trial for Mrs. Abiola's murder,''Reuters (10/14/99);

G``Switzerland provides mutual legal assistance in theAbacha case,'' press release from Federal Office for Police

Matters, Switzerland (1/21/2000);



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G``One billion Swiss Francs involved: The subject ofstolen Nigerian funds takes gigantic amplitude,'' Le Temps

(1/22/2000) (with translation from French)

4. GDocuments relating to Citibank Private Bank accounts of

public figures:

a. GCitibank Private Bank's 6/98 Public Figure Policy

[CB21476-80]................................................... 716

b. G6/98 memorandum from Shaukat Aziz, Citibank PBG head, on

new Public Figure Policy [973]................................. 721

c. G1999 KYC Annual review standards at Citibank Private Bank

[CB14922-23]................................................... 722

d. G6/20/95 memorandum to Marcelo Mendoza from Alan Robinson

on ``Public Figure'' Policy [CB24678].......................... 724

e. GExcerpts from Public Figure annual reviews in Europe,Middle East, Africa (EMEA) Division:........................... 725

G5/96 reviews [CS1895-97];

G10/96 reviews [CS1891-94, 3254-55];

G3/97 reviews [X4319, 7070-73];

G10/97 reviews [CS1888-90];

G1/99 reviews [CS1882-87, 2135-38, 2140-41];

G2/99 reviews [CS2144-46, 2148];

G8/99 reviews [CS2154-55]

f. GExcerpts from ``The Private Banking Group--Western

Hemisphere Public Figure Review Recommended Action List as ofMay 17, 1999'' [CB24972-73] (Reprinted below in Exhibit 35i.).. 760

5. GMaterials relating to former Venezuelan President Jaime

Lusinchi:

a. GAttachment A to 8/9/99 letter to Subcommittee from

Citibank legal counsel, summarizing accounts related to formerPresident Lusinchi, referred to as ``Client 1g,'' and his wife,



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referred to as ``Client 1h''................................... 762

b. G2/22/94 memorandum from Nicolas Yanes describing review ofMr. Lusinchi's account [X4279]................................. 763

c. G4/6/94 memorandum from Rodrigo K. Alvarez placingconditions on the Lusinchi account [X4278]..................... 764

d. G4/7/99 memorandum from Jose Luis Daly concurring withRodrigo K. Alverez 4/6/94 memorandum [X4280]................... 765

e. G``Venezuela Mulls Extradition of Ex-President's Wife,''

Reuters North American Wire (7/14/94).......................... 766

f. G8/31/97 Sensitivity Hot Sheet listings, indicating Mr.Lusinchi had been listed on the sheet since 4/94 [X6887]....... 768

g. GOctober 1998 Business Background/Source of Wealth Updatefor Mr. Lusinchi [X4276-77].................................... 769

h. G10/26/98 Public Figure Sheet indicating decision had been

made to retain Mr. Lusinchi as a client [CB24977].............. 771

i. GThe Private Banking Group--Western Hemisphere PublicFigure Review Recommended Action List as of May 17, 1999,

recommending closing account of Mr. Lusinchi [CB24972-73]...... 772

j. GPublic Figure Annual Approval Form, 5/99, recommendingterminating the relationship with Mr. Lusinchi [CB24974-75].... 774

k. G6/16/99 letter from Thomas M. Lahiff requesting that Mr.Lusinchi transfer his accounts to another financial institution

[X3779]........................................................ 776

6. GMaterials relating to former Indonesian President Raden

Suharto:

a. GAttachment C to 9/7/99 letter from Citibank legal counselto the Subcommittee, summarizing accounts related to two

daughters of former President Suharto, referred to as ``Client2(h)'' and ``Client 2(j)''..................................... 777

b. GExcerpts from 2/15/00 letter from Citibank legal counselto Senator Levin, summarizing accounts related to two daughters

and one son of former President Suharto, referred to as``Clients 2e, 2g, and 2h''..................................... 778



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7. GMaterials relating to former Citibank private banker Carlos

Gomez:

a. G1998 Carlos Gomez Fraud Summary and Action Plan, prepared

by Citibank PBG [607-10]....................................... 779

b. G1998 Federal criminal indictment of Carlos Gomez (Case No.

1:98CR00195-001, United States District Court, SouthernDistrict of New York).......................................... 783

c. G1998 Judgment In A Criminal Case, based upon guilty plea

to bank fraud.................................................. 788

d. G1998 Judgment for $23,226,661.00 in Citibank v. Gomez(Index No. 600401/98, Supreme Court of the State of New York,

County of New York)............................................ 793

8. GMaterials relating to foreign secrecy laws:

a. GCitibank Private Bank form requiring employee

acknowledgment of Swiss bank secrecy laws...................... 797

b. GJ.P. Morgan Private Bank form requiring employeeacknowledgment of Swiss bank secrecy laws...................... 798

c. G1998 exchange of letters between Bankers Trust Private

Bank and Federal Reserve Bank of New York regarding disclosinginformation on beneficial owners of private investmentcompanies that are clients of the Bankers Trust Private Bank... 799

d. G10/27/99 The Library of Congress Law Library reports on

corporate secrecy laws in the Bahamas, the Cayman Islands, theChannel Islands, Hong Kong, the Netherlands Antilles, Panama,

Singapore and Switzerland [LL File No. 99-7799]................ 812

9. G4/9/98 Shaukat Aziz and Philippe G. Holderbeke memos on

Citibank Private Bank's KYC efforts [CB21635-41]............... 843

0. GSelected documents from 545 pages of documents produced byCitibank on 1/26/00, more than 2 months after the November

hearings:

a. G1/26/00 letter from Citibank Private Bank's legal counsel

producing 545 pages of documents............................... 850



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b. GDocuments related to $1.9 million transfer on 2/22/95 fromGabon treasury to Citibank Private Bank accounts controlled by

President Bongo:............................................... 851

G2/22/95 e-mail to Alain Ober (at Citibank Private Bank

in New York) from Kayembe Nzongola (at Citibank Gabon)[X7216];

G3/1/95 e-mail to Donnelle Knowles and others from AlainOber [X7208];

c. GDocuments related to $2.9 million transfer on 7/30/96 from

Gabon treasury to Citibank Private Bank accounts controlled byPresident Bongo:............................................... 853

GTransaction record of incoming funds transfer on 7/30/96

[X7290];

GTransaction journal, including incoming funds transfer

on 7/30/96 [X7289];

G7/31/96 e-mail to Donnelle Knowles from Alain Ober[X7293];

G7/31/96 handwritten notes of Alain Ober regarding

telephone conversation with Laure Gondjout, assistant to

President Bongo [X7308];

G7/31/96 e-mail to Salim Raza from Alain Ober [X7295];

G8/1/96 e-mail to Alain Ober from Salim Raza [X7296]

d. GDocuments related to $1.891 million transfer on 12/24/96from Gabon treasury to Citibank Private Bank accounts

controlled by President Bongo:................................. 859

GTransaction record of incoming funds transfer on 12/24/

96 [X7541];

GTransaction journal, including incoming funds transferon 12/24/96 [X7540]

e. GDocuments related to $20 million deposit of funds into

President Bongo's accounts:.................................... 861

G3/20/97 e-mail to Christopher L. Rogers from Alain Ober[X7526];



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G3/21/97 handwritten notes of Alain Ober [X7482];

G3/24/97 memorandum to Alain Ober and others from

Christopher L. Rogers [X7486];

G3/25/97 e-mail to Alain Ober and others from Christopher

L. Rogers [X7482]

f. GDocuments related to due diligence review of PresidentBongo's accounts, status of Elf criminal investigation, and

possible termination of President Bongo's relationship:........ 865

G2/21/97 memorandum to Tony Nzongola and others from

Nuhad Saliba [X7481];

G7/29/98 e-mail to Alain Ober from Michael Mathews (at

Citibank Private Bank in London) [X7568];

G7/29/98 e-mail response to Michael Mathews from AlainOber and 7/30/98 e-mail reply to Alain Ober from Mathews

[X7565]

g. GMiscellaneous documents:.................................. 868

G8/19/99 handwritten notes regarding President Bongo's

accounts [X7615-16];

G1/8/99 letter to Alain Ober from President Bongo[X7625];

G3/13/95 e-mail to Alain Ober and others from Donnelle

Knowles (at Cititrust in the Bahamas) about proposed codingsystem for President Bongo's accounts [X7202]

1. GSEALED EXHIBITS: (* Retained in the files of theSubcommittee)

a. GExcerpts from Citicorp Internal Audits and Reviews of the

Citicorp Private Bank, 1995-1998............................... *

b. GExcerpts from Federal Reserve Analysis of Citicorp Private

Bank, 1996-1998................................................ *

RIVATE BANKING AND MONEY LAUNDERING: A CASE STUDY OF OPPORTUNITIES AND



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VULNERABILITIES

----------

TUESDAY, NOVEMBER 9, 1999

U.S. Senate,

Permanent Subcommittee on Investigations,of the Committee on Governmental Affairs,

Washington, DC.

The Subcommittee met, pursuant to notice, at 10:03 a.m., in

oom SD-628, Dirksen Senate Office Building, Hon. Susan M.ollins, Chairman of the Subcommittee, presiding.

Present: Senators Collins, Cochran, Specter, and Levin.Staff present: K. Lee Blalack, II, Chief Counsel and Staff

irector; Mary D. Robertson, Chief Clerk; Kirk E. Walder,

nvestigator; Brian C. Jones, Investigator; Linda Gustitus,inority Staff Director and Chief Counsel; Elise J. Bean,

inority Deputy Chief Counsel; Robert L. Roach, Counsel to theinority; Claire Barnard, Detailee/HHS; Leo Wisniewski,

etailee/Secret Service; Carl Gold, Congressional Fellow;obert Slama, Detailee/Secret Service; Regina Keskes, Intern;

yan Blalack, Intern; Justin Tatham, Intern; Morgan Frankel,enate Legal Counsel; Brian Benczkowski (Senator Domenici);

ichael Loesch (Senator Cochran); Frank Brown (Senator

pecter); Anne Bradford (Senator Thompson); Julie Vincent

Senator Voinovich); Nanci Langley (Senator Akaka); Mariannepton (Senator Durbin) Jonathan Gill, GAO Detailee (Senatorieberman); and Shelly O'Neill (Senator Akaka).

OPENING STATEMENT OF SENATOR COLLINS

Senator Collins. Good morning. This Subcommittee will come

o order.

During the next 2 days, the Permanent Subcommittee onnvestigations will examine the confidential, complex world of

rivate banking and whether private banks are--by their veryature--particularly susceptible to money laundering. At the

utset, I should note that this is not the first time that thisubcommittee has investigated money laundering. Our colleague,

enator Roth, in the mid-1980's, chaired a series of

ubcommittee hearings which exposed how criminals used offshoreanks to launder their dirty money. The Subcommittee's findings

rompted passage of the Money Laundering Control Act of 1986,hich defined money laundering as a freestanding criminal



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ffense for the first time.More recently, Congressman Leach in the House of

epresentatives has held a series of hearings on moneyaundering.

These hearings, which were initiated by the Ranking

inority Member, Senator Levin, are very timely. Our bankingystem's vulnerability to money laundering is once again a

ocal point of debate in the wake of recent disclosures that

illions of dollars were siphoned out of Russia into accountst the Bank of New York and, within a few days or even a fewours, rerouted to multiple accounts all over the world.

What happened at the Bank of New York, as well as the cases

hat we will highlight today, should be a cautionary tale forhe rest of the banking industry, law enforcement, and

ongress. We cannot allow the integrity of our banking systemo be sullied by the dirty money that fuels the engine of

riminal enterprises both here at home and abroad. Our banks

ust be vigilant in their efforts to detect and report criminalctivity and avoid acting as conduits for money laundering.

top money laundering, and you dry up much of the seed capitalriminal organizations need for their operations.

Today's hearing will focus on one aspect of our bankingystem--private banking--that may be particularly attractive to

riminals who want to launder money. Private banking isrobably unfamiliar to most Americans since, by and large,

rivate banks cater to extremely wealthy clients. Indeed, most

f the private banks examined by the Subcommittee require their

lients to deposit assets in excess of $1 million. The banksharge their customers a fee for managing those assets and forroviding the specialized services of the private banks.

Some of those services include traditional banking servicesuch as checking and savings accounts. But private banks go far

eyond providing routine banking services. They markethemselves to clients by offering services to meet the special

eeds of the very wealthy, including providing investment

uidance, estate planning, tax assistance, offshore accounts,nd, in some cases, complicated schemes designed to ensure the

onfidentiality of financial transactions.The private banker coordinates the management of the

lient's wealth and acts as the client's personal advocate tohe rest of the bank. If a client needs to set up an offshore

rust, for example, the private banker takes care of it. He

erves as a liaison between the client and the bank's trustanagers, investment specialists, and accountants. In short,

rivate bankers are expected to provide personalized can-doervice for their wealthy clientele.



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Historically, private banking was a specialty businessominated by Swiss banks. In the last 30 years, however, large

anks in the United States have aggressively pursued privateanking business and sought to increase their market share.

rivate banking is profitable, competitive, and a growing

usiness in the United States, and private banking services areow an established line of business in many American banks.

Private banks offer their wealthy clients not only first-

lass service but confidentiality as well. While the averageassbook savings depositor at a community bank in Maine hasery little, if any, need for Swiss bank accounts, some wealthy

nd prominent people seek the anonymity of the financial

ervices offered by private banks. And, it is fair to say thatrivate banks sell secrecy to their customers.

The Subcommittee's investigation found that private banksoutinely use code names for accounts, concentration accounts

hat disguise the movement of client funds, and offshore

rivate investment corporations located in countries withtrict secrecy laws--so strict, in fact, that there are

riminal penalties in those jurisdictions for disclosingnformation about the client's account to banking regulators in

he United States.These private banking services--which are designed to

nsure confidentiality for the client's account--presentifficult oversight problems for banking regulators and even

aw enforcement. For instance, in one of the cases examined by

he Subcommittee, the private bank opened special accounts for

he client using the fictitious name ``Bonaparte.''The difficulties associated with identifying clients to

ccount activity worsen when private banks use concentration

ccounts to transfer their clients' funds. In one case examinedy the Subcommittee, the private banker's use of a

oncentration account, which commingles bank funds with clientunds, cut off any paper trail for millions of dollars of wire

ransfers. The concentration account became the source of funds

ired from Mexico, and investment accounts in Switzerland andondon became the destination.

I want to emphasize that private banking is a legitimateusiness. There can be bona fide reasons why private banks

ffer products designed to ensure anonymity andonfidentiality. The problem, however, is that what makes

rivate banking appealing to legitimate customers also makes it

articularly inviting to criminals.The Subcommittee found that criminals can easily employ

rivate banking services to move huge sums of money. In one ofhe cases examined by the Subcommittee involving Raul Salinas--



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he brother of the former President of Mexico--the Generalccounting Office determined that private banking personnel at

itibank helped Mr. Salinas transfer between $90 and $100illion out of Mexico in a manner that ``effectively disguised

he funds' source and destination, thus breaking the funds'

aper trail.''Mr. Salinas received first class service from Citibank's

rivate bank. My concern is that this gold-plated service

ncluded disguising the source, flow, and destination of fundshat may have been the proceeds of the illegal activity.

Now, I want to emphasize that the Subcommittee has

ncovered no evidence that Citibank or any other private bank

nowingly helped Mr. Salinas or other criminals launder dirtyoney. We have, however, found that some private banks

eglected their own internal procedures designed to detect andeport suspicious activity as they are required to do by law.

For example, too often Citibank's private bank essentially

aid lip service to its own procedures. Moreover, and even moreroubling, it continued to do so even in the face of highly

ritical internal audits and warnings from banking regulatorshat there was a risk of exposure to money laundering.

One of the purposes of these hearings is to determine whyhose internal policies were neglected and why it took Citibank

o long to correct the problem. A second goal of these hearingss to examine whether our banking regulators have done and are

oing enough to ensure that banks--especially private banks--

ake seriously their obligation to implement internal

rocedures designed to report potential money laundering.inally, these hearings will examine whether Congress needs too more to combat this problem.

At this time, I would like to call upon the distinguishedanking Minority Member, Senator Levin, for his opening

tatement. Before doing so, however, I want to once againommend Senator Levin and his staff for the fine in-depth work

hat they have done on this investigation and for initiating

hese hearings.Senator Levin.

OPENING STATEMENT OF SENATOR LEVIN

Senator Levin. Thank you, Madam Chairman.

Thirteen years ago, with the passage of the first money

aundering statute in 1986, Congress made clear its desire noto allow U.S. banks to function as conduits for dirty money.

ince that time, the world has experienced an enormous growthn the accumulation of wealth by individuals around the globe,



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nd wealthy individuals have turned in growing numbers to aategory of banking called ``private banking'' as the mechanism

or managing their money.Estimates are that $500 billion to $1 trillion of

nternational criminal proceeds are moved internationally and

eposited into bank accounts annually. It is estimated thatalf of that money comes to the United States.

Today we are looking at how private banking can provide

anagement not only for legal money, but also for the wealth ofnternational criminals and corrupt government officials.

Private banking is a very competitive and very profitable

usiness, often bringing in a 20 to 25 percent return to a

ank. Private bankers are marketers and promoters who arexpected to attract wealthy clients to the bank. Once a person

ecomes a client of a private bank, the bank's primary goalenerally has been to service that client, and servicing a

rivate bank client almost always means using services that are

lso the tools of money laundering: secret trusts, offshoreccounts, secret name accounts, and shell companies called

rivate investment corporations.These private investment corporations, or PICs, are

esigned for the purpose of holding and hiding a person'sssets. The assets could be real property, money, stock, art,

r other valuables. The nominal officers, trustees, andhareholders of these shell corporations are often themselves

hell corporations controlled by the private bank.

The PIC then becomes the holder of the various bank and

nvestment accounts, and the ownership of the private bank'slient is buried in the records of so-called secrecyurisdictions, such as the Cayman Islands.

Private banks keep prepackaged PICs on the shelf, awaitingctivation when a private bank client wants one. Shell

ompanies in secrecy jurisdictions managed by shellorporations which serve as directors, officers, and

hareholders--shells within shells within shells, like Russian

atryoshka dolls, which in the end can become impenetrable toegal process.

Private bankers specialize in secrecy. Even if a clientoesn't ask for secrecy, a private banker often encourages it.

n the brochure for Citibank's Private Bank on theirnternational trust services, in the table of contents, it

ists the attractiveness of secrecy jurisdictions this way:

The Bahamas, the Cayman Islands, Jersey, and Switzerland, theest of all worlds.''

This brochure also advertises the advantages of using aIC. One advantage it lists is this one: ``PIC assets are



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egistered in the name of the PIC, and your ownership of theIC need not appear in any public registry.''

Secrecy is such a priority that private bankers have atimes been told by their superiors not to keep any record in

he United States disclosing who owns the offshore PIC

stablished by the private bank.One former private banker told us that he and his fellow

ankers had to hide cheat sheets in their desks because they

eren't allowed to keep names of the offshore accounts thathey were managing. Since they couldn't remember the names andhe numbers of all those accounts when they needed them, they

ould keep a secret list in their desks or with a secretary to

elp them remember. When the list was discovered, the bankeras reprimanded.

American banks aren't allowed to maintain secret accountsn the United States that are not subject to legal process, so

S. private bankers often establish secret accounts and secret

orporations in countries that do allow them. Then they managehe money in those accounts and the assets in those

orporations from their offices in the United States. In short,merican banks help wealthy customers do abroad what the

ustomer and the bank can't do in the United States under U.S.aw.

Today we are looking at the Private Bank of Citibank.itibank is the largest bank in the United States. It has one

f the largest private bank operations. It has the most

xtensive global presence of all U.S. banks, and it has had a

ogue gallery of private bank clients.Citibank, for instance, has been private banker to Raul

alinas, brother of the former President of Mexico, now in

rison in Mexico for murder and under investigation in Mexicoor illicit enrichment; Asif Ali Zardari, husband of the former

rime Minister of Pakistan, now in prison in Pakistan forickbacks and under indictment in Switzerland for money

aundering; Omar Bongo, President of Gabon, and subject of a

rench criminal investigation into bribery; sons of Generalani Abacha, former military leader of Nigeria, one of whom is

ow in prison in Nigeria on charges of murder and undernvestigation in Switzerland and Nigeria for money laundering;

nd Jaime Lusinchi, the former President of Venezuela, indictedor money laundering in Venezuela.

Other private banks have similar accounts. The Bankers

rust counsel, when describing one of its clients, told ourtaff words to the effect that ``these are bad people.'' Well

f the bank thinks they are bad people, why are they acceptinghem as customers of the private bank?



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In the Bankers Trust case, it appears that the bank didnow its client. But what it knew was that the client was bad,

nd it continued to do business with him.Today we are going to look at some of the cases in greater

etail to learn how these individuals became clients of

itibank, what efforts Citibank made to implement its dueiligence policies and ascertain the source of the client's

ealth, and what Citibank did to help disguise the client's

ccounts.America cannot have it both ways. We cannot condemn

orruption abroad, be it officials taking bribes or looting

heir treasuries, and then tolerate American banks making

rofits off that corruption.Private banking has a legitimate function, but it has too

ften been used to manage dirty money. We must end the use ofrivate banking by the criminals and by the corrupt.

I want to thank our Chairman for her support of these

earings and this investigation, and her staff for their hardork in helping to bring these about. And I particularly want

o thank my Minority staff for their work, which can only beescribed as Herculean.

Thank you, Madam Chairman.[The prepared opening statement of Senator Levin follows:]

PREPARED OPENING STATEMENT OF SENATOR LEVIN

Thirteen years ago, with the passage of the first money laundering

tatute, Congress made clear its desire not to allow U.S. banks to

unction as conduits for dirty money. This Subcommittee, through aeries of hearings and reports in the 1980's on money laundering andff-shore secrecy jurisdictions, contributed significantly to the

nactment of that law. Money laundering is now a Federal crime and ouranks and financial institutions are required by law to establish and

mplement anti-money laundering programs.Since that time the world has experienced an enormous growth in the

ccumulation of wealth by individuals around the globe, and wealthy

ndividuals have turned in growing numbers to a category of bankingalled ``private banking'' as the mechanism for managing their money.

Raymond Baker, a Guest Scholar in Economic Studies at Brookings andwitness at tomorrow's hearing, estimates that $500 billion to $1

rillion of international criminal proceeds and hundreds of millions ofollars from tax evasion are moved internationally and deposited into

ank accounts annually. He estimates that half of this money comes to

he United States. Today we are looking at how private banking canrovide management not only for legal money but also for the wealth of

nternational criminals and corrupt government officials.We need to first understand what private banking is. Most private



33/206


anks are a bank within a larger bank, distinguished by the size of theccounts they hold and the presence of a one-on-one private banker or

elationship manager assigned to manage the assets of each client. Topen an account in a private bank, prospective clients--and we estimate

hat there are over 200,000 private bank clients at U.S. banks today--

ust deposit a substantial sum, usually $1 million or more. In returnor this deposit, the private bank assigns a private banker to act as a

iaison between the client and the bank and to facilitate the client's

se of a wide range of services offered by the bank. The client paysither a flat fee, a fee based on a percentage of the assets underanagement or both.

Private banking is a very competitive and very profitable business,

ften bringing in a 20 to 25 percent return to a bank. Private bankersre marketers and promoters who are expected to attract wealthy clients

o the bank. Once a person becomes a client of a private bank, theank's primary goal is to service that client, and servicing a client

lmost always means using services that are also the tools of money

aundering--secret trusts, offshore accounts, secret name accounts, andhell companies called private investment corporations.

These private investment corporations or PICs are designed for theurpose of holding--and hiding--one person's assets. The assets can be

eal property, money, stock, art or other valuables. The nominalfficers, trustees, and shareholders of these shell corporations are,

n turn, often shell corporations controlled by the private bank. TheIC then becomes the holder of the various bank and investment

ccounts, and the ownership of the private bank's client is buried in

he records of so-called secrecy jurisdictions, such as the Cayman

slands. Private banks keep pre-packaged PICs ``on-the-shelf,''waiting activation when a private bank client wants one. They havehell companies in secrecy jurisdictions managed by shell corporations

hich serve as directors, officers and shareholders. There are shellsithin shells within shells--like Russian Matyoshka Dolls--which in the

nd can become impenetrable to legal process.Private bankers specialize in secrecy. Even if a client doesn't ask

or secrecy, the private banker encourages it. Look at this brochure

or Citibank's private bank on their international trust services. Inhe table of contents it lists the attractiveness of secrecy

urisdictions this way: ``The Bahamas, the Cayman Islands, Jersey andwitzerland: The best of all worlds.'' This brochure also advertises

he advantages of using a PIC. One advantage it lists is this one:

``PIC assets are registered in the name of the PIC and your

ownership of the PIC need not appear in any public registry.''

Secrecy is such a priority that private bankers are often told byheir superiors not to keep any record in the United States disclosing



34/206


ho owns the offshore PICs established by the private bank. One formerrivate banker told us he and his fellow bankers had to hide cheat

heets in their desks, because they weren't allowed to keep names ofhe offshore accounts they were managing. Since they couldn't remember

he names and numbers of all those accounts when they needed them, they

ould keep a secret list in their desks or with a secretary to helphem remember. When the list was discovered, the banker was

eprimanded.

Secrecy is so important that private bankers sometimes speak inode to each other in phone calls across the Atlantic to disguise theeneficial owner of the account they are talking about, so other bank

mployees won't know the beneficial owners of the very accounts they

re working on. One private banker in Citicorp London had worked forears on the Salinas account and never knew Raul Salinas was the

eneficial owner. Raul Salinas was always referred to by a code, CC2,r the name of his PIC, Trocca, Ltd. The private banker said she was

urprised when she learned Raul Salinas owned one of her accounts.

American banks aren't allowed to maintain secret accounts in thenited States, so U.S. private bankers establish secret accounts and

ecret corporations in countries that do allow them. Then they managehose accounts from their offices in the United States. In short,

merican banks help wealthy customers do abroad what the customer andhe bank can't do within the boundaries of the United States.

Today we are looking at the private bank of Citibank. It is theargest bank in the United States, and it has one of the largest

rivate bank operations. It has the most extensive global presence of

ll U.S. banks, and it has had a rogues' gallery of private bank

lients. Citibank has been private banker to:

--LRaul Salinas, brother to the former President of Mexico; now

in prison in Mexico for murder and under investigation inMexico for illicit enrichment;

--LAsif Ali Zardari, husband to the former Prime Minister ofPakistan; now in prison in Pakistan for kickbacks and under

indictment in Switzerland for money laundering;

--LOmar Bongo, President of Gabon; subject of a French criminalinvestigation into bribery;

--Lsons of General Sani Abacha, former military leader ofNigeria; one of whom is now in prison in Nigeria on charges of

murder and under investigation in Switzerland and Nigeria formoney laundering;

--LJaime Lusinchi, former President of Venezuela; charged with

misappropriation of government funds;--Ltwo daughers of Radon Suharto, former President of Indonesia

who has been alleged to have looted billions of dollars fromIndonesia;



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--Land, it appears General Albert Stroessner, former Presidentof Paraguay and notorious for decades for a dictatorship based

on terror and profiteering.

And these are just the clients we know.

Other banks have similar accounts. The legal counsel for Bankersrust private bank asked the Subcommittee not to make public any

nformation about an account of a certain Latin American client because

he private banker was concerned that the banker's life would be inanger if the information were revealed. The Bankers Trust counsel,hen describing one of its clients, told our staff words to the effect

hat, ``These are bad people.'' If the bank thinks they're ``bad

eople,'' why are they accepting them as customers of the private bank?n the Bankers Trust case it appears the bank does know its client; but

hat it knows is that its client is ``bad.''Today we're going to look at some of these cases in greater detail

o learn how these individuals became clients of Citibank, what effort

itibank made to implement its due diligence policies and ascertain theource of the client's wealth, and what Citibank did to help disguise

he clients' accounts.No one is suggesting that private banking is an improper banking

ctivity or that banks should not be making a profit on the serviceshey offer their clients. As several of Citibank's top managers said to

s, the question is how you conduct private banking in an ``honorable''ay.

The key factor to banking in an ``honorable way'' is the exercise

f due diligence in learning who a client is and the source of the

lient's wealth and then taking appropriate action. This is aundamental requirement for a strong anti-money laundering program.

America can't have it both ways. We can't condemn corruption

broad, be it officials taking bribes or looting their treasuries, andhen tolerate American banks making fortunes off that corruption.

The Federal Reserve, the Office of the Comptroller of the Currency,he State Department, and the General Accounting Office all have

oncluded that private banking is vulnerable to money laundering. We

ill ask today's witnesses, private bankers from Citibank, about somepecific cases showing us how and why that's true. At tomorrow's

earing we will look at generic private banking practices, the role ofhe Federal regulators, and the significance of private banking in the

lobal movement of money.Private banking has a legitimate function, but it has too often

een used to manage dirty money. We must end the use of private banking

y the criminals and the corrupt.I thank the Chairman for her support for these hearings and her

taff for their hard work in helping us to bring these about. I alsohank my Minority staff for their excellent work.



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Senator Collins. Senator Specter, we are pleased to have

ou here with us today, and I would call upon you for anypening remarks you might have.

OPENING STATEMENT OF SENATOR SPECTER

Senator Specter. Well, thank you very much, Madam

hairwoman. I shall be brief.First, I compliment you for scheduling these hearings in

he tradition of this very important Subcommittee, and I

ompliment Senator Levin for the extraordinary Minority report,

ome 63 pages, and I have not seen hearings start with such aomprehensive analysis in advance. It gets these hearings off

o a running start.They are certainly extremely important because money

aundering is instrumental on drug trafficking and organized

rime, and they are also extremely important from the point ofiew that the United States is making very substantial

inancial contributions to many countries where individualsave access to U.S. funds for their own private purposes.

The information about money laundering on Russian officialsuggests a direct conduit for the very substantial funds which

he United States is advancing to Russia, and with the Salinasase in Mexico, the bailout, while you can't trace the specific

ollars, there is a very strong inference that U.S. taxpayers'

ollars are going into private pockets aided and abetted by

hese private banks.Where you have provisions such as Dubai law that the bank

s not required to know the beneficial owner but only the

ignatory party, it is just an open invitation to the kind ofecrecy which both Senator Collins and Senator Levin have

utlined here.As Senator Levin identifies it, shells within shells, it is

he quintessential shell game. And I believe on the basis of

hat is of record and in this Minority report, there is veryubstantial evidence at this time of wrongdoing. And these

earings will give the public notice as to what is going onnd, I think, set the stage for some very important remedial

ction.My Subcommittee on Labor, Health, Human Services is going

o be negotiating with White House officials a little later

his morning, so I am going to have to study the record aspposed to being here. But I wanted to come and commend what

ou are doing here today and give you my support. Thank you.Senator Collins. Thank you very much.



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Senator Cochran, we are also delighted to have you with usoday.

OPENING STATEMENT OF SENATOR COCHRAN

Senator Cochran. Thank you very much, Madam Chairman.Our Subcommittee staff has done an enormous amount of work

o obtain information about the effectiveness of U.S. laws and

egulations to combat money laundering. I look forward toearing the report of our staff and to the consideration of theesults of this investigation and the issues that have been

aised by the staff in this important review.

Thank you very much.Senator Collins. Thank you.

Due to time constraints, the Subcommittee was unable tonvite all the parties affected by this issue to present oral

estimony. We have received a written statement from the

eneral Accounting Office. We expect to receive one from Stuartizenstat, Treasury Deputy Secretary, as well as from other

nterested officials. The hearing record will remain open for4 days for the inclusion of such statements, and the ones we

ave received, without objection, will be included in therinted hearing record.\1\

-----------------------------------------------------------------------\1\ The three GAO statements appear as Exhibits 21-23 in the

ppendix on pages 159-197.

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At this time I would like to welcome our first panel ofitnesses. We have with us two members of the Subcommittee'sinority staff who will present an overview of the

ubcommittee's investigation of the private banking industrynd its vulnerabilities to money laundering. We will first hear

rom Robert Roach, who is the Minority Counsel. Mr. Roach wille followed by Elise Bean, who is the Deputy Chief Counsel.

Pursuant to Rule VI, all witnesses who testify must be

worn in, so at this point, I would ask that you stand. Do youwear that the testimony you are about to give to the

ubcommittee will be the truth, the whole truth, and nothingut the truth, so help you, God?

Mr. Roach. I do.Ms. Bean. I do.

Senator Collins. Thank you.

Mr. Roach, you may proceed. As you know better than mostitnesses who appear before us, we ask that you limit your oral

estimony to no more than 10 minutes.Mr. Roach. I will watch for the light.



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TESTIMONY OF ROBERT L. ROACH, COUNSEL TO THE MINORITY,

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

Mr. Roach. Senator Collins, Senator Levin, and Members of

he Subcommittee, good morning. We appreciate the opportunityo appear before the Subcommittee today to summarize the staff

nvestigation to date into the private banking industry and its

ulnerability to money laundering.Private banks provide financial services to wealthy

ndividuals who usually must deposit $1 million or more to open

n account. All U.S. banks are required by law to have an

ctive anti-money laundering program. Regulators and banks haventerpreted this requirement to include due diligence reviews

f bank clients and their transactions, including understandinghe source of large deposits into a client's account, and

eporting any suspicious activity.

This responsibility with respect to private banking isignificantly greater than retail accounts because clients have

igh net worth, transactions routinely involve large amounts ofunds often crossing international jurisdictions, and private

ankers become personally involved with clients and in-housedvocates for their interests.

We have prepared a report which describes the privateanking industry in the United States, explains why certain

rivate banking features and services increase money-laundering

pportunities, and details four case histories taken from the

itibank Private Bank illustrating a number of anti-money-aundering issues. We ask that that report be made part of theecord.\1\

-----------------------------------------------------------------------\1\ The Minority Staff Report entitled ``Private Banking and Money

aundering: A Case Study of Opportunities and Vulnerabilities,''ppears in the Appendix on page 872.

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Senator Collins. Without objection.Mr. Roach. In the interest of time, our oral presentation

ill be limited to three case histories to be reviewed atoday's hearing: Raul Salinas; El Hadj Omar Bongo, President of

abon; and the sons of General Sani Abacha, former militaryeader of Nigeria.

First, the Raul Salinas case. Citibank's management of the

alinas account raises three major issues: Lack of dueiligence, the bank's willingness to satisfy a client's demand

or extreme secrecy, and the tension that exists between aank's desire to please its clients and its legal obligation to



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ombat money laundering.First, secrecy. The private bank, through the direction of

my Elliott, private banker to Mr. Salinas, established a shellompany for Mr. Salinas with layers of disguised ownership. It

ermitted a third party using an alias to deposit funds into

he accounts, and it moved the funds out of Mexico through aitibank concentration account that aided in the obfuscation of

he audit trail.

Cititrust in the Cayman Islands activated a Cayman Islandhell corporation called a PIC, or private investmentorporation, called Trocca, Ltd., to serve as the owner of

ecord for the Salinas private bank accounts. We tried to

rovide somewhat of a graphic description of how Trocca, Ltd.as structured.\2\

-----------------------------------------------------------------------\2\ See Exhibit No. 1 which appears in the Appendix on page 111.

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Cititrust used three Panamanian shell companies to functions Trocca's Board of Directors.