Blue chip U.S. firms gave safe haven to Montesinos corruption funds

The new U.S. Immigration and Customs Enforcement pilot task force created late last year with a sweeping mandate to investigate public corruption in Latin America appears headed toward taking on one of the hemisphere’s most notorious networks of official corruption: The web of bribery and extortion linked to Peru’s former intelligence chief, Vladimiro Montesinos, the trusted henchman of former president Alberto Fujimori.

When ICE investigators begin disentangling the transactions by which Montesinos and his cronies funneled hundreds of millions of corrupt dollars abroad they are likely to awaken a long-slumbering question -- the complicity of some of the world’s top banks in handling Montesinos’ finances during a long period when his massive wrongdoing was common knowledge in Peru and well-publicized abroad.

ICE inquiry in opening stages

The precise status of the ICE task force efforts related to Peru and Montesinos is not known publicly. MLA reported (September, October 2003) that the group had selected six Latin American countries as its first round of targets: Nicaragua, the Dominican Republic, Guatemala, Honduras, Ecuador and Peru. An official with knowledge of its operations indicated investigators are in the preliminary stages of analyzing information about Peruvian corruption, its “nexus” to the United States and ties to U.S. financial institutions.

Blue chip institutions

Those ties were extensive. Some were chronicled in a little-noticed June 2002 report by a Peruvian congressional committee headed by Congresswoman Ana Elena Townsend Diez Canseco. The Townsend report found that the U.S. financial institutions used extensively by Montesinos, or his front men and companies, included UBS AG in New York, Bank of New York, American Express and Northern Trust Bank. Money Laundering Alert has previously reported that Citibank FSB, Bank of America, and California’s Hacienda Bank were used as well.

The 650-page Townsend report details other financial transactions involving Montesinos or his straw persons or front companies, including those with MasterCard, Visa and Chase Manhattan Bank.

SAR by UBS predecessor

The numerous transactions handled by those institutions for Montesinos and his cronies were explicitly acknowledged by at least one bank as highly suspicious. With the help of the Center for Investigative Reporting at the University of California at Berkeley, MLA has learned that UBS predecessor Swiss Bank Corporation, in New York, filed a series of suspicious activity reports with the U.S. Treasury Department’s Financial Crimes Enforcement Network related to Montesinos in the first half of 2001.

The SARs reported that UBS held five accounts linked to Montesinos, who was a high-profile international fugitive at the time. Some of the transactions appear deliberately orchestrated, with identical amounts moved on the same day for the benefit of individuals who were foreign political figures known to be connected to Montesinos.

ICE and FBI may jostle over case

More such transactions seem certain to come to light as ICE presses ahead with its inquiries. One possible stumbling block might be the interest of the Federal Bureau of Investigation in Montesinos. The FBI played a key role in a prior investigation of Montesinos’ corruption and found a $15 million account of Peruvian colonel and Montesinos cohort, Victor Venero Garrido, at Citibank FSB in Miami.

Relations between ICE and the FBI have been strained ever since the FBI elbowed the former Customs Service agency, which is now a part of the Department of Homeland Security, out of the lead role in terrorist financing investigations. ICE has now staked out the foreign corruption field as its domain but treads lightly when the FBI has a stake in a case, as is the situation with Montesinos.

Laundering charges possible even after filing SAR

The filing of SARs by UBS or any institution does not vitiate a violation of the U.S. money laundering law. (Title 18, USC Sec.1956) In general, the laundering law prohibits financial transactions with certain criminal proceeds and the international movement of criminal funds to hide or disguise their source, ownership and control. The filing of a SAR is required under the Bank Secrecy Act, but if it reports transactions that involved criminal proceeds, the money laundering laws apply irrespective of compliance with the BSA. An institution can file many SARs, but still be prosecuted for money laundering.

Corruption flourished in ‘90s in Peru

Vladimiro Montesinos, now imprisoned in Peru on one set of convictions, faces still other criminal charges there, including money laundering, drug trafficking, murder and crimes against humanity, in connection with more than a decade of wrongdoing. His reputation for corruption was widely known by financial institutions abroad by the mid nineties.

It is not known with any precision how much he and his associates stole. The Townsend report found that of $200 million that Montesinos allegedly plundered some $57 million ended up in U.S. financial institutions. Of some $110 million that Montesinos had in Switzerland, about $80 million has been returned to Peru by Swiss authorities.

Montesinos has been in jail in Peru since his June 2001 arrest in Venezuela, where he sought refuge after fleeing Peru the year before, when the Fujimori government crumbled amid a corruption scandal.

U.S. corruption probe

The ICE investigation of official corruption is an unprecedented offensive against crooked Latin American public officials who ship their loot to the United States or move their money through U.S. financial institutions.

The agency’s investigations of prominent figures in Nicaragua and Dominican Republic are already well under way. In one ICE investigation that began last year involving former Nicaraguan president, Arnoldo Aleman, and former Nicaraguan taxation director, Byron Jerez, the U.S. government obtained court orders to seize condominiums, eight certificates of deposit and other property valued at about $5 million.

That is small potatoes compared with Montesinos’ alleged graft.

Swiss findings

A Swiss investigation of Montesinos cited in the Townsend report identified 10 accounts in various Swiss banks, including UBS AG Lugano, Bank Leu Zurich, Canadian Imperial Bank, Fibi Bank and Bank Leumi Le Israel. The funds frozen in these accounts totaled $48,126,712.

The Peruvian committee uncovered the funds, accounts and operations abroad of various people linked to Fujimori and Montesinos including Venero Garrido, accused of creating his own network of front companies to win state bids; Nicolas Hermoza, former head of the Peruvian army; Maximo Agustin Mantilla, ex-Interior Minister; and Trinidad Becerra de Montesinos, Montesinos’ wife.

Transactions and money transfers carried out by these individuals, and others linked to them, exceeded $276 million, the committee found. Of that amount, the committee located $41 million in U.S. banks, of which $18 million was identified and $400,000 was returned to Peru.

SARs depicted how money moved

The transactions by which Montesinos moved his money are exemplified by those described in the Suspicious Activity Reports MLA reviewed with the help of the Center for Investigative Reporting.

During the first half of 2001, according to UBS, five accounts were held in the name, or for the benefit, of Montesinos in the New York branch of the Swiss Bank Corporation. UBS identified similar accounts in the names of others with ties to Montesinos -- including ex-army chief Hermoza and former interior minister Mantilla.

Help from “personnel in the Bahamas”

In Hermoza’s case, he and his family had four accounts at SBC’s New York branch – one numbered account and three accounts in the name of corporations (Nanda Ltd., Atenea Inc. and Pegaso S.A.), according to a SAR dated April 27, 2001. The corporations’ accounts were “created and maintained by SBC personnel in the Bahamas,” says the SAR.

A 1996 client profile stated Hermoza’s occupation was “general,” which was crossed out and replaced with “engineer.”

Parallel movements in company accounts

The SAR shows the activity in the Pegaso and Atenea accounts was identical; both were opened on July 16, 1996, each with an initial deposit of $223,666, which was transferred from the Nanda account. Between July 16, 1996 and May 23, 1997, each account received nine transfers totaling $584,638 from the Nanda account. At the time the four accounts were closed in July 1997, the Pegaso and Atenea accounts each held $1.5 million.

UBS also held a joint account for Mantilla and his brother, Jorge Mantilla, in the name of Dunmore Management, Inc. The account was opened in the Miami branch of SBC in 1990. According to the SAR, funds from unidentified sources totaling $2.5 million were credited to the account sporadically between February and October 1991. Numerous debits were made to the account until April 1995, including 21 SWIFT payments totaling $1.26 million to unidentified beneficiaries.