Robert "Bob" Mazur: The Infiltrator

Interview
Part 2A: Anti-money Laundering Transaction Reporting and Monitoring

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What can we do, both as an industry group, and from a legislative and regulatory perspective, to gear our focus towards cash transactions and cross-border movement of cash?

The biggest loophole that exists in bulk cash is that many nations have adopted the concepts of currency and monetary interim reports when money has crossed the border — the reporting of cash transactions when they're over certain amounts. But if you look closely at the regulations for bank-to-bank transactions, of course, correspondent banking is exempt. So I can pick up $40 billion. If I'm Wachovia Bank, I can have a correspondent relationship with a house of exchange, a casa de cambio, in Mexico.

Now, a casa de cambio is, technically, a financial institution. It's a money service business. Therefore, under the corresponding banking division, the International Bank will establish an account relationship and service them. Because it is a corresponding banking relationship and a bank-to-bank transaction, no reporting requirements are necessary. This is the way that the international banking community has made a farce of the currency transaction reporting requirements. Yes, the little guys are getting caught. Yes, even just going after the little guys, there's too much information in the system for most governments to be able to deal with.

Of the $106 billion that HSBC brought back into the United States, they reported 19 suspicious activity reports — 19 out of $106 billion that was brought back. That's an absolute joke.

But now, let's look at what's not in the system. Look at HSBC, and read the Senator Levin subcommittee that Senator Levin is the chairman of in the United States, a 300 [plus] page report written about HSBC's tactics and the various methods through which they cause the laundering of literally tens of billions of dollars. Based on news reporting, as well as looking into the Senate subcommittee report, they repatriated $106 billion in US currency into the United States over about a three-year period. They admit that, as it relates to their Mexican banking operation (their own bank in Mexico), they brought $14 billion back and never did one stitch of due diligence on that.

Of the $106 billion that HSBC brought back into the United States, they reported 19 suspicious activity reports — 19 out of $106 billion that was brought back. That's an absolute joke. Meanwhile, we all run around in this cottage industry of anti-money laundering compliance, trying to do the right thing for the cause, but we've got huge loopholes that, for political or other reasons, we seem to have ignored for a very long time. I've written articles about how I think the really bad money launderers could easily be identified and prosecuted by a true multinational cooperation.

I wrote an article that was published a little more than two years ago in the New York Times. What I was recommending then was that we needed to go to our own institutions, in the United States, the Federal Reserve Bank, and pry from their hands the information that they have about the cash that they repatriate on behalf of member banks. I got this idea working undercover, dealing with one of the BCCI Bank officers, who said to me one time, at about two o'clock in the morning in a social club in Miami, "Do you know who the biggest money launderer in the United States is?" As a dutiful agent, I thought, here it is. This is going to be a great case. I'm getting ready. He said, "It's the Federal Reserve, of course." I said, "What?" He said, "Yeah, don't you understand?" This is a true story.

Back in the early 1990s, the Central Bank in Colombia, the Bank of the Republic, had a window called the anonymous window, or the sinister window. You could bring an unlimited amount of US currency to the Bank of the Republic and exchange it, anonymously, for Colombian pesos. Now, as many central banks around the world do, the Bank of the Republic had their account with the Federal Reserve. So what do they do with that cash? They shrink wrap it on pallets, and in some instances, when you read into the HSBC case, fill 40-foot oceangoing containers full of currency and bring it back.

Now, don't you think there's somebody at the Federal Reserve who's sitting there — like when your plane is coming in at the airport, the guys with the reflective orange things leading the plane — in front of this 40-foot container going, "Bring that thing right in here?" Shouldn't somebody be saying, "Why is the Bank of the Republic in Colombia giving us billions upon billions of dollars?" That was his argument about, then, what he believed to be a farce, in that there's no doubt [that] people at the Federal Reserve at that time, and since that time, have to recognise that the repatriation of bulk currency to that amount from correspondent banking relationships around the world is not a clean business.

So now I'm thinking about that, the BCCI days, and the Wachovia case, where in Wachovia, they admit in a deferred prosecution — this is 2010. We now have HSBC in 2012, but let's go back to 2010. In the deferred prosecution, Wachovia Bank admitted that they committed a criminal offence in connection with their solicitation of $400 billion in deposits from account holders in Mexico during 2004-2007. Among the services provided was the repatriation of $14 billion in bulk currency. Now, $14 billion — I used to be a money launderer undercover, I can tell you that money is picked up in 5s, 10s, and 20s.

Do you know who the biggest money launderer in the United States is?" As a dutiful agent, I thought, here it is. This is going to be a great case. I'm getting ready. He said, "It's the Federal Reserve, of course.

Now, it's mostly smuggled out of the United States across the imaginary border to Mexico and then taken to businesses in Central and South America, and propped up to look legal, like houses of exchange. $14 billion, giving Wachovia the benefit of the doubt, saying it was $20 bills instead of 5s, 10s, and 20s. So making the packet smaller, if it was $20 bills, it would have weighed about 780 tonnes. So who did they think they were getting 780 tonnes of US currency from, and how in the world do you rationalise taking in 400 billion in US dollar deposits in a three-year period? $400 billion is one-third of the gross national product of Mexico. That's a per capita income country of $4000 a year, and they don't make that money in dollars. They make them in Mexican pesos. So where did the $400 billion come from? Sometimes, we ignore the elephant in the room and we really focus on the little guys, and we look at the standard prosecutions that happened in many cases. We're looking at money service businesses, where a money service business breaks up a $50,000 transaction into ten $5000 transactions, and they get hit for a criminal offence for structure. How does that compare, when now we talk about the type of conduct that we've just discussed?

The other major issue that I think is out there, and I address this in my article, it's very difficult to expect criminal investigators to take three year old information developed by aggressive, brilliant regulators who identified this trend [or] type of activity, three to four years ago, because in order to criminally prosecute someone, you need to prove intent. So you have to prove what the person knew at the time they entered into the transaction. A very gifted banker knows how to build plausible deniability, and four years later, you're not going to be able to prove that they knew where this money was coming from.

Sometimes I hear complaints. There are 12 or 14 banks that have gotten deferred prosecutions, huge fines paid, but nobody goes to jail. Take Wachovia. They got $400 billion in deposit activity. They paid a $160 million fine. That was two per cent of their net profits for that year that they paid $160 million in fines. People go, "that's the cost of doing business." But if you want to find out who are the bankers that are doing this, get into the Federal Reserve records; find out who it is that's repatriating the huge amounts of money.

When I can identify that it's a particular bank in Australia, I should be able to work government to government, working with the Central Bank here, to identify which banks provided that money, and of those banks that provided that money, there should be a way that the regulators here can force the local bank to turn over who gave that cash over. So you just follow the money backwards, and you can do a lot of damage. In addition to that, there are federal law enforcement agencies that prosecute major drug traffickers all the time. The Joumaa case is one example.

But another problem that they face is that there are clearly two brains in a bank. There's a compliance brain, and then there's a sales brain, and you've got to find a way to be able to get the sales brain to embrace the compliance goals.

You've got literally thousands of major bad guys who are sitting in jail who have fortunes. It doesn't take very much to drag them back before grand juries and force them to answer questions about their financial affairs, and to identify that small segment of the international banking community, the account management representatives, who are servicing those individuals. When I was in the DEA, if I put in the computer "Credit Suisse" or any major bank, hundreds upon hundreds of pages would be spit out about drug traffickers who had accounts there.

Someone needs to have a responsibility on a continuing basis to comb through that information, identify who the traffickers are, or the arms dealers that have these large account relationships, and tear that information apart so that you can identify who it is that's really creating a black eye for an international banking community that, certainly on a compliance side, is really attempting to do the right thing.

But another problem that they face is that there are clearly two brains in a bank. There's a compliance brain, and then there's a sales brain, and you've got to find a way to be able to get the sales brain to embrace the compliance goals. I've only seen that in one bank. I found out by accident.

A major bank in the United States was talking to one of their account executives, an account relationship manager. He said that their bank made them sign a contract, individually, that called for them to pay fivefold for any loss that the bank incurred in fines or forfeitures, with respect to an account that they brought in and endorsed as being a good account. If you've got salespeople who now have their livings that are tied up in what they're trying to sell, compliance — because that's what they do — they give a sales job to compliance to try to convince them, because they're motivated. They're motivated because they get paid largely on commissions. So if they don't get the deposits coming in, they don't get the money.

But if they don't have something hanging over their heads — and I thought that was an excellent idea from that one bank officer that I accidentally learned that from. If you wanted to have a real impact on compliance, find a way to have sales accountable for not following the numbers in the compliance game, not just by closing the account, but by having them have a financial investment in the loss.

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