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Exclusive: U.S. grills suspects in new strategy to build bank laundering cases

By Brett Wolf

ST. LOUIS (Reuters) - U.S. prosecutors are using a new tactic to crack down on banks that fail to fight money laundering: systematically asking suspects in a wide range of criminal cases to help them follow the money back to their bankers.

The efforts are paying off in probes of banks and other financial institutions now filling the prosecution pipeline, according to Jonathan Lopez, who last month left his post as deputy chief of the Justice Department’s Money Laundering and Bank Integrity Unit (MLBIU).

"Asking criminals the simple question 'Who is moving your money?' can lead the Department of Justice to a financial institution's doorstep," said Lopez, who declined to identify specific targets.

The department confirmed the stepped up reliance on criminal informants in anti-money laundering investigations, but also declined to discuss probes underway.

The four-year-old MLBIU, which includes a dozen prosecutors, is responsible for insuring that financial institutions adhere to U.S. laws including the main U.S. anti-money laundering law, the Bank Secrecy Act (BSA). It has filled in an enforcement gap among federal financial regulators who lack the capacity or expertise to aggressively pursue money-laundering cases.

The Justice Department has begun seeking banking information not only from perpetrators of fraud and drug traffickers, but also from suspects linked to the full range of criminal activity, said Lopez, who is now an attorney at Orrick, Herrington & Sutcliffe LLP in Washington. Many criminals seeking reduced punishment have pointed fingers at banks, casinos, money transfer businesses, check cashers, broker-dealers and other financial institutions, he said. 

"Essentially any criminal who moves money can be a potential gateway to a financial institution," he said.

MEDICARE FRAUDSTERS

The money-laundering unit has worked with Justice Department prosecutors and investigators around the country to ensure that grilling suspects for money-laundering leads is a routine part of every investigation, Lopez said.

"We have been telling prosecutors and agents that this is a priority for us," said Justice Department spokesman Peter Carr.

The unit has worked on high-profile cases, including one resolved in 2012 against HSBC, which entered into a $1.9 billion settlement and admitted anti-money laundering failures that allowed drug cartels to wash hundreds of millions of dollars.

In another case, payment transfer company MoneyGram International Inc agreed in November 2012 to forfeit $100 million and admitted it aided in wire fraud and failed to maintain an effective anti-money laundering program in violation of the BSA.

The anti-money laundering unit has also successfully pursued smaller targets, including check-cashing firms in New York.

Some of these cases involved informants. Others drew on leads, such as documents subpoenaed directly from financial institutions during probes of criminal schemes, Lopez said.

He declined to link specific tactics to individual cases, other than to say the charges against the check-cashing firms were the result of information provided by those committing fraud against the government's Medicare health benefits system.

The unit is also deep into a probe into Citigroup's Banamex USA over possible failures to police money transfers across the U.S.-Mexico border, a source familiar with the matter told Reuters last week. It is not known whether informants led prosecutors to the bank.

Citigroup declined to comment other than to refer to a filing in March in which the bank said it had received grand jury subpoenas from the U.S. Attorney's Office in Massachusetts concerning compliance with the BSA and federal anti-money laundering requirements. The Federal Deposit Insurance Corp has also subpoenaed Banamex USA concerning BSA and anti-money laundering issues. Citigroup said then that it is cooperating fully with these inquiries.

Authorities in the United States and other nations have cracked down on money laundering as part of their fight against drug trafficking, terrorism and organized crime. The effort is distinct from the sanctions-violation probes that have led to large fines against foreign banks such as BNP Paribas.

Among the requirements of the BSA, financial institutions must report to authorities transactions that are suspicious or involve large amounts of cash.

As borne out by the details of numerous enforcement cases, some institutions have simply ignored their reporting obligations while others balk at the costs of meeting them. Such institutions are attractive to those who want to evade scrutiny of their financial transactions. 

Yet federal regulators have failed to identify many such firms during routine institutional exams by teams that are too small or lack experience in detecting specific BSA compliance lapses, industry consultants say.

Before the bank integrity unit was created, criminal investigations only occasionally led to cases against financial institutions for anti-money laundering failures that were considered "willful."

The new unit has sought to “breathe new life into BSA enforcement,” Lopez said.

(Reporting by Brett Wolf of the Compliance Complete service of Thomson Reuters Accelus in St. Louis; Editing by Randall Mikkelsen and Martin Howell)

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