Banks Linked to Andorran Lender Suspected of Money Laundering
Four big banks, including the U.S. unit of HSBC Holdings PLC, provided access to the American financial system to a European lender accused of laundering money for organized-crime groups, according to U.S. authorities.
HSBC Bank USA NA was one of four institutions that provided correspondent bank accounts to Banca Privada d'Andorra, or BPA, according to the Treasury Department's Financial Crimes Enforcement Network response to a public-records request by The Wall Street Journal.
HSBC, which has been trying to tighten its controls against money laundering following a $1.9 billion settlement in 2012, immediately terminated its correspondent banking relationship after the agency's announcement on Tuesday, a person familiar with the matter said. Foreign banks use correspondent accounts with U.S. banks to process transactions and clear dollar payments.
The agency Tuesday named BPA as a "primary money-laundering concern" and alleged its managers for years knowingly facilitated transactions by money launderers working for organized crime groups. BPA is a private bank based in Andorra, a tiny principality perched between Spain and France that has a thriving banking industry catering to wealthy individuals.
BPA said it "has worked and is working with the Andorran financial regulator to uncover any wrongdoing," adding that any doubts about the bank's behavior "will quickly disappear."
Bank of America Corp.'s Bank of America NA and Citigroup Inc.'s Citibank NA also had correspondent-banking relationships with BPA, the enforcement unit said, citing commercial databases. Deutsche Bank AG's Deutsche Bank Trust Co. Americas had a correspondent relationship with Spain-based Banco de Madrid SA, a BPA subsidiary.
An HSBC spokesman said the company takes "immediate action when a customer is alleged to have been engaged in money laundering, including but not limited to freezing accounts."
A Citigroup spokeswoman said the bank "takes very seriously its obligation to help safeguard the financial system from abuse and will take appropriate action in response to [the] finding."
A Bank of America spokesman said the bank had reviewed the notice and is taking "all appropriate action." A Deutsche Bank spokeswoman said the bank reviewed the notice and "has taken all appropriate actions."
None of the banks have been accused of wrongdoing by the enforcement unit for these correspondent banking relationships.
BPA used the relationships with unnamed U.S. correspondent banks to access the U.S. financial system and process hundreds of millions of dollars from 2009 to 2014, according to the enforcement arm. Those transactions allegedly involved shell companies, unlicensed money transmitters and "other high-risk business customers," the agency said.
Correspondent accounts are often viewed as higher risk, because the U.S. bank is effectively doing business with the customers of the other bank and their dealings can be opaque. For this reason, some banks have pared back their correspondent relationships.
In 2012, HSBC admitted to having inadequate procedures for spotting money laundering. In the period leading up to the settlement, HSBC Bank USA left more than 100 correspondent banking relationships "for risk reasons," according to the 2012 settlement.
Stuart Levey, HSBC's chief legal officer, in January said that the bank is making "excellent progress" with its anti-money-laundering efforts.
Andorra's authorities late Tuesday took control of BPA, one of five lenders in the country. In Spain, the central bank seized subsidiary Banco de Madrid. The Bank of Spain said it wants to ensure smooth operations at the small lender, which has branches in Spain's largest cities catering to wealthy individuals.
Banco de Madrid said Wednesday that the Treasury Department cited concerns about money laundering at BPA specifically, without naming the Spanish unit, and it is operating normally.
The Treasury's enforcement arm, known as FinCEN, said the money-laundering activities through BPA occurred largely at the lender's Andorra headquarters. The agency also said a BPA manager accepted "exorbitant" commissions to create shell companies and complex financial products used to siphon off $2 billion from Petróleos de Venezuela SA, or PdVSA, a state-owned oil company controlled by the Caracas regime. PdVSA couldn't be reached for comment.
"Corrupt high-level managers and weak anti-money-laundering controls have made BPA an easy vehicle for third-party money launderers to funnel proceeds of organized crime, corruption and human trafficking through the U.S. financial system," said FinCEN Director Jennifer Shasky Calvery.
Víctor Pou, a professor in Spain's IESE business school who studies Andorra's financial system, said FinCEN's announcement comes as a shock for the small country, which is trying to shed a long-standing reputation as a tax haven.
"Of all of Andorra's banks, BPA had a reputation for being the most aggressive and the one most determined in growing internationally," Mr. Pou said.
Andorra has traditionally been used by wealthy Spaniards to park funds out of sight from tax authorities, tax lawyers and advisers said. But Andorra's government said the country complies with its international obligations on such matters.
The Treasury agency singled out two suspects now held in Spanish prisons in separate cases to support findings regarding alleged BPA infringements. In both cases, the agency said, high-level managers at BPA provided substantial assistance for money-laundering activities.
Andrei Petrov, who is suspected of money laundering in Spain and was arrested in 2013, was described by the agency as "working for Russian criminal organizations engaged in corruption" and having suspected links with Semion Mogilevich, one of the Federal Bureau of Investigation's "Ten Most Wanted" fugitives.
It also named Gao Ping, a Chinese national, who was arrested in 2012 and is believed to be at the center of an extensive corruption network in Spain. In addition to money laundering, Mr. Gao is suspected by Spanish authorities of engaging in extortion and human trafficking, and of providing illegal loans.