It was an unlikely match from the start: a small community bank in Newark and an obscure mutual fund registered in the Cayman Islands.
But in 2015, executives for the fund, Global Securities Trade Finance, pitched City National Bank of New Jersey on a highly profitable private-banking partnership that would cater to wealthy Latin American clients, sources told ACAMS moneylaundering.com.
The partnership would not end well. By July 2018, federal prosecutors in South Florida were claiming that Gustavo Hernandez Frieri, a Colombian American “professional money launderer” in Miami, used the Cayman fund’s account at City National to receive a $5 million wire in February 2017, and that the funds originated from Venezuelan state-run oil firm PDVSA.
Hernandez allegedly initiated that transaction on behalf of PDVSA’s then executive director of financial planning, Abraham Edgardo Ortega, who pleaded guilty in October to a federal charge of conspiring to launder money. Hernandez pleaded not guilty to the same charge in May.
Prosecutors have said little about City National’s alleged involvement aside from claiming that Hernandez once boasted to an informant that the New Jersey lender was “controlled by his partners in Uruguay” who “have our people in the back.”
But the New Jersey lender, which lists only $155 million in assets and $150 million in liabilities, played a greater role in handling funds for Global Securities than previously reported, according to internal records reviewed by moneylaundering.com and sources familiar with the matter.
Between October 2015 and July 2018, Global Securities accounts at City National received a total of at least $19.9 million in more than 50 payments from originators in Switzerland, Germany, Colombia and the United States, according to internal records. The ultimate purpose of many of the payments is unclear.
At least $4.2 million was wired from City National to Wells Fargo accounts controlled by other firms in the Global Securities network.
Another $6.5 million flowed from Global Securities accounts at City National back to Colombia, Switzerland and Singapore in at least nine transactions.
The bank’s high-risk clients drew the attention of federal prosecutors, who began issuing subpoenas within a year of the first transactions between Global Securities and City National, said a person familiar with the matter.
By late 2018, various subpoenas sought details on Global Securities and other City National clients, including a group of money services businesses, or MSBs, and a portfolio of wealthy foreign nationals.
The bank has also elicited serious concerns from its primary federal regulator, the Office of the Comptroller of the Currency. On June 26, the OCC gave the bank 30 days to propose plans for either merging with another institution or submitting to an acquisition.
The order raises the stakes for the community bank, which operates two branches in Newark, another in Harlem and counted fewer than 70 staff altogether as of last month, including around a dozen compliance personnel.
City National’s compliance department has undergone at least two significant personnel changes while under heightened regulatory scrutiny.
On May 1, with examiners from the OCC still onsite and in the middle of a four-week examination, the lender’s top Bank Secrecy Act compliance officer was forced out after recommending an overhaul of the institution’s anti-money laundering program, two individuals familiar with the matter said.
The compliance officer had previously spent eight years directing enterprise-wide AML efforts for American Express.
A second employee, a transaction analyst, had been fired the previous year after rejecting a second $5 million wire, this time from a British Virgin Islands entity, Sukhan Global SA, to a Global Securities account at City National, three individuals familiar with the matter told moneylaundering.com.
The employee was forced out of the role before filing a suspicious activity report, or SAR, on the transaction, those sources said.
“The use of ‘U.S. Financial Institution 1’ was as a layer,” a person familiar with the matter told moneylaundering.com in April, using the federal government’s description of City National in their complaint against Hernandez.
The complaint does not identify U.S. Financial Institution 1 by name, but a related indictment indicates City National handled transactions with values and dates that match those associated with the Hernandez case.
In response to the claims in this article, a representative of City National’s chief executive officer, Preston D. Pinkett III, told moneylaundering.com in a June 28 email that the bank “has always cooperated fully with all government investigations and will continue to do so.”
“If you are suggesting that the bank fired employees because they attempted to cooperate with law enforcement or attempted to comply with legal and regulatory requirements, that would not be correct,” the representative wrote in the email.
An attorney for Gustavo Hernandez called some of the claims in this article “incorrect” and declined to comment further. Spokespersons for the OCC, U.S. Attorney’s Office for the Southern District of Florida and Wells Fargo declined to comment.
City National executives had met with at least three Global Securities representatives by the fall of 2015, according to internal records and other sources.
One of the representatives, Cesar Hernandez, brother of alleged “professional money launderer” Gustavo Hernandez, met with City National in his role as chief executive officer of Global Strategic Investments, a Miami branch of Global Securities’ sprawling network in Latin America and the U.S.
Federal prosecutors would later identify Global Strategic Investments as one of at least two entities Gustavo used “to launder money with false mutual fund investments.” Cesar, the CEO, has not been charged with a crime. His attorney declined to comment for this story.
Global Securities executives sold City National on a new partnership that would give Latin American clients access to checking accounts, wires, foreign exchange services and specialized loans, according to records of the presentation reviewed by moneylaundering.com.
The partnership targeted wealthy customers in Panama, Colombia, Argentina, Uruguay and Mexico, as well as Floridians with ties to Latin America.
City National would have been eager to hear a pitch for more revenue. In the summer of 2015, the bank was scrambling to find $20 million in capital to comply with the terms of a 2010 consent order from the Office of the Comptroller of the Currency, or OCC, two sources said.
The bank opened its first checking account for Global Securities Trade Finance by October 2015, according to internal records reviewed by moneylaundering.com. Three more checking accounts would follow, those records show.
“I just think somebody sold them a dream, and they bought it and never bothered to check,” a second person familiar with the matter said. “This bank was in trouble … they needed to raise capital or the OCC was going to shut them down.”
Internal records reviewed by moneylaundering.com show that Global Securities accounts at City National received their first two wires in October and November 2015, for a combined $610,000. Both wires originated from a Global Securities account at Bank of America in New York.
Six months later, on May 26, 2016, one of the four Global Securities accounts at City National received what would eventually represent the largest incoming wire in the four-year partnership between the fund and the New Jersey lender: a $7 million transfer arrived from Swiss lender UBS in Zurich with no details on the originating party, according to the data.
Spokespersons for UBS and Bank of America declined to comment for this story.
Another large transfer—the $5 million wire from Deltec Bank & Trust Limited in the Bahamas that prosecutors referenced in their July 2018 complaint against Gustavo Hernandez— arrived at City National on Feb. 28, 2017, internal records show.
A $926,000 payment from Blossom Capital Finance Fund LTD arrived April 4, 2018. On April 23, another $900,000 entered City National from a corporate account at BBVA Colombia held by Himmel SAS.
Four days later, Global Securities received $871,800 from Madison Assets Fund LTD in the British Virgin Islands. The data reviewed by moneylaundering.com does not identify the originating bank.
No sooner had the funds accumulated at City National than they began flowing out. From October 2015 to July 2018, according to sources, at least 110 wires totaling $4.2 million arrived into a pair of accounts at Wells Fargo: one held by Global Securities Advisors GP and another by Global Shared Solutions Corp. The round-dollar transfers ranged from $1,500 to $480,000.
Global Securities Trade Finance also routed millions of other dollars through City National to corporate accounts held by various legal entities in Colombia, Singapore and Switzerland, according to sources.
A $2 million wire to GSM Colombia SAS arrived Sept. 1, 2016. At least $1.9 million was sent to Serfindata SA, a Bogota-based firm which, according to its website, finances Colombian taxi drivers. Serfindata did not respond to requests for comment.
$2.6 million flowed to Market Real Solution, a Panamanian firm, in five transfers of $500,000, $217,000, $492,500, $985,000 and $492,500 initiated in March, April, May, July and August 2017 respectively.
At least $1.7 million went to Domaine Select Wines and Spirits, an importer in Manhattan, according to sources. In August 2015, the company announced a partnership with Walden Capital Management, and Gustavo Hernandez was listed as one of the private equity firm’s representatives. The company did not respond to requests for comment.
AsiaCiti Trust Singapore, a corporate services provider, received a $32,250 wire in August 2017.
One of the largest wires involving Global Securities was never actually accepted.
On Feb. 15, 2018, the aforementioned transaction analyst spotted what would have been yet another $5 million incoming wire to Global Securities. The transfer originated from a New Jersey branch of Pershing LLC, a subsidiary of Bank of New York Mellon, on behalf of Sukhan, the British Virgin Islands firm, according to records and two individuals familiar with the matter.
When the analyst requested supporting documentation, the client provided details for German Trujillo Manrique, a Colombian businessman accused in his home country of embezzling millions of dollars from a school lunch program, according to sources.
The analyst rejected the wire and drafted a SAR within days of the incident, but was fired by a supervisor before the report could be submitted, three individuals familiar with the matter told moneylaundering.com. The supervisor, who claimed the analyst had a conflict of interest in creating the report, was fired less than six months later.
“Had the bank filed that SAR, it would be in a much better position now,” said the first person familiar with the matter.
‘Bank within a bank’
City National’s compliance challenges did not end with Global Securities.
In December 2015, two months after its first transactions with Global Securities, the bank began onboarding a portfolio of around 160 wealthy individuals under a legal entity created as a result of the partnership, according to two individuals familiar with the matter.
Almost all of the clients hailed from foreign locales, including the British Virgin Islands, Venezuela, Uruguay, Argentina, Belize and Panama, according to internal records reviewed by moneylaundering.com.
Millions of dollars flowed through their accounts each month until City National closed them down last year, according to two sources.
The transactions did not go unnoticed within the bank. In early 2018, a City National employee emailed a client for details on three wires associated with the portfolio, including one for $1.6 million, according to sources. The client answered that the payments related to a loan.
Gustavo Hernandez, the accused “professional money launderer” in Miami, was copied on the email, according to sources.
“[The portfolio] was a bank within the bank,” the first person familiar with the matter said. “The original primary target was the hiding of assets, and tax evasion for Uruguayan and Argentinian wealth, but they weren’t very good at hiding this.”
The sum total of transactions involving the wealth portfolio and various offshoots of Global Securities all occurred while the New Jersey lender was separately maintaining a robust and lightly monitored portfolio of accounts for MSBs, three sources said.
By 2015, City National onboarded at least 15 MSBs in the U.S., Dominican Republic, Spain, Israel and a free trade zone in Uruguay, two sources said. City National ended up processing hundreds of millions of dollars worth of remittance-related transactions for those clients over the next four years.
At one point, the funds represented 25 percent of the bank’s entire processing volume, according to the first person familiar with the matter.
City National’s allegedly high-risk operations eventually drew government scrutiny.
In February 2018, the OCC issued a cease-and-desist order barring City National from opening any new corporate or personal accounts “that the bank designates as medium risk or higher,” then assessed the bank as “significantly undercapitalized” in November.
Federal prosecutors by that point had already subpoenaed all records associated with the group of MSBs and portfolio of wealthy foreign clients served by City National, according to the first person familiar with the matter.
Another MSB client brought legal baggage of its own to the bank’s doorstep.
In June 2018, attorneys for Rana Financial, a remittance firm in Pompano Beach, Florida, alleged in a lawsuit that City National elicited a $300,000 investment from their client three years earlier by misleadingly claiming that the company could otherwise lose its account.
City National’s chief executive, Preston D. Pinkett III, “specifically instructed his staff to target highly susceptible MSB clients” for investments, Rana Financial’s attorneys claimed in the lawsuit, adding that the lender was “one of the few depository institutions in the United States offering accounts to MSBs and was well aware of the incredible leverage it had.”
The parties settled for an undisclosed sum in March.
Contact Daniel Bethencourt at email@example.com
|Topics :||Anti-money laundering , Counterterrorist Financing , Know Your Customer|
|Document Date:||July 24, 2019|