24 Sep 2020
By Tanya Kozyreva, Michael Hudson, Spencer Woodman, Will Fitzgibbon, Agustin Armendariz, Golden Matonga, Delphine Reuter, Micah Reddy and Fergus Shiel, ICIJ, 23 September 2020
ICIJ — Ivor Ichikowitz recoils at the arms industry’s “reputation for being very cloak-and-dagger.”
“We are not in the destroying-anything business,” the 53-year-old founder of South African arms company Paramount Group told CNBC a few years ago. “We’re in the protecting business.”
His bankers at Barclays, the global financial group based in the United Kingdom, have been happy to have his business, profitably moving hundreds of millions for Ichikowitz and his companies.
But in recent years in-house watchdogs at Barclays have sounded alarms about corruption allegations involving Ichikowitz, raising questions about whether he engaged in the kind of secretive maneuvers he bristled about in public. They flagged more than $430 million in transactions, which moved through the bank for more than five years beginning in August 2011 as suspect, according to closely guarded suspicious activity reports, known as SARs, that were obtained by BuzzFeed News and reviewed by the International Consortium of Investigative Journalists.
After firing off several warnings to the U.S. Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN, Barclays hired an outside private intelligence firm co-headed by former British spy Christopher Steele to dig deeper. The resulting brief raised even more red flags, citing sources who said Ichikowitz had parlayed political donations into military contracts in South Africa, according to a report Barclays sent to FinCEN.
Banks are required to exercise greater care when serving politically-connected clients who are viewed as more vulnerable to bribery or corruption because of their senior positions, the countries they reside in or their industries. Sometimes, banks flag their money movements, not necessarily because the transactions are suspicious, but rather because of general concerns about clients and their businesses.
Barclays in New York “remains concerned with Ichikowitz and his companies’ source of wealth and Ichikowitz’s possible involvement in bribery and corruption,” compliance officers wrote in the December 2017 SAR.
The documents, part of a larger leak known as the FinCEN Files, offer an unparalleled view into how controls within large global banks intended to keep tainted money from moving around the globe collide with their overriding imperative to churn out bigger and bigger profits. The reports also point to a regulatory regime unequal to the task of policing banks’ profit-driven movement of illicit cash.
“Bankers are wired to make money. They don’t want to say no,” said Paul Pelletier, a former senior U.S. Justice Department official and financial crimes prosecutor. “In order to get banks to behave, there has to be sure and swift enforcement against bad actors. And that is not what is happening on the ground.”
The suspicious activity reports shed rare light on apparent conflict within a global bank about how to treat notable high-profile clients linked to corruption scandals, but never formally charged with wrongdoing. The tensions often pit bank compliance officers, who are charged with alerting authorities about suspicious money flows against private bankers who trophy-hunt for wealthy clients.
The frictions can even result in divergent approaches to the same client within different parts of a bank.
In 2017, even as Ichikowitz’s and Paramount Group’s money continued to course through Barclays, its corporate division moved to sever ties to a company linked to Ichikowitz because it was “outside of [its] risk appetite”, according to the suspicious activity report.
Moving suspect money for politically-exposed persons, known as PEPs, can lead to fines or worse. Just two years before, in November 2015, a U.K. regulator fined Barclays $109 million for failing to properly vet some of its risky, politically-connected clients, going to “unacceptable lengths to accommodate” them.
SARs reflect the concerns of compliance officers and are not necessarily indicative of criminal conduct or other wrongdoing.
The reports describing money flows from Ichikowitz’s businesses were included in a batch of more than 2,100 suspicious activity reports requested by the U.S. Congress as part of the investigation into Russian interference in the 2016 election.
Concierges to the global wealth set
The FinCEN Files pull back the veil on the discreet world of private banking, which consulting giant McKinsey & Co. in 2019 described as “the most profitable sector in the global banking industry,” attracting the likes of some of the biggest banks in the world, including Barclays, and some smaller players such as Swiss-based Julius Baer.
Unlike investment bankers, who are charged with selling stock or engineering game-changing merger deals, private bankers are tasked with trawling for wealthy clients, luring their riches to the bank.
Ever since the 2008 financial crisis, private bankers — who compete to manage about $200 trillion in global personal wealth — have become more important to banks. In 2018, private banking contributed “a sizable 5 to 6 percent of profits,” McKinsey said.
Private bankers go to extraordinary lengths to pander to rich clients. They serve as personal concierges to the global wealth set, scoring hard-to-get tickets to sporting events and concerts. For the super-elite, they can go even further. The five-star treatment provided by one bank has included stays at a magnificent vacation property in Uruguay’s seaside resort town Punta del Este.
More important, they lavish on clients an array of financial perks and services — including access to hot initial public offerings of stock and attractive loans such as Donald Trump extracted from his private bankers at Deutsche Bank.
Such attention to clients can pay off — and bring risk.
Nine billionaires who have appeared on the Forbes list of richest people in the last decade moved money through Barclays between 2009 and 2017 that was later flagged as suspicious, the FinCEN Files show.
An enduring challenge even for banks trying to follow money trails is grappling with an entire industry set up to cover tracks. The wealthy and well-connected can easily set up companies in offshore jurisdictions where secrecy is a selling point. They are helped by an army of enablers; among them, private bankers who connect clients to firms that create trusts or offshore companies.
“The real growth of the global financial secrecy industry worldwide has been powered by the premier first-world banks,” said James S. Henry, former chief economist at McKinsey & Co. and now a global justice fellow at Yale University.
Henry, drawing on new data from the Organisation for Economic Cooperation and Development, together with information from the United States, estimated that as of the end of 2019 roughly $50 trillion of financial wealth was invested offshore and virtually tax free through more than 100 secrecy jurisdictions.
Of course, financial institutions declare that they have safeguards designed to check illicit money flows.
“Financial crime weakens financial institutions and we have a shared interest, in addition to our legal obligations, to prevent it,” Barclays said in a written statement to ICIJ. “Financial crime is, by its nature, complex and difficult to detect.”
Barclays declined to answer questions about specific clients and transactions, citing the confidential nature of suspicious activity reports.
Barclays said it continues to investigate and monitor account activity after SARs are filed, working at times with law enforcement. In most cases, accounts are not closed after SARs are filed, the bank noted.
“If we conclude we have financial crime concerns we take appropriate action and have done so in numerous cases over the years,” Barclays said. Terminating client relationships only happens “after careful and objective investigation and analysis of the evidence, balancing potential financial crime suspicions with the risk of ‘de-banking’ an innocent customer.”
Barclays added that it has “complied with all our legal and regulatory obligations including in relation to U.S. sanctions.”
Bankers versus compliance
An imbalance of power works in favor of private bankers, those well-rewarded servants of the very rich, and against the banks’ lower-paid compliance officers, who are often disparaged within firms as back-office bureaucrats.
The gulf is particularly stark in Europe. Before the 2008 financial crisis, compliance was a backwater profession attracting people with lesser qualifications, said Andrew Samuels, who worked for Barclays in London from 2015 to 2016 as a program manager for whistleblowing and investigations. The job Samuels held is common in banks and involves investigators fielding tips from employees and assessing the risks some clients and transactions can pose.
Samuels is now chief executive of WisIPort, which helps companies with whistleblowing and compliance initiatives. He said there’s a lot of tension between “the new sheriffs — the more visible, more professional compliance officers” — and the private bankers, interested in acquiring more clients and assets.
The bankers’ resistance to following the rules is encouraged by the weakness of the Financial Conduct Authority (FCA), the United Kingdom’s primary overseer of banks such as Barclays. Since 2007, financial institutions including Barclays, Deutsche Bank and Standard Chartered Bank have paid a little more than $500 million in fines in the U.K. for money laundering violations— a pittance compared with the billions of dollars in profits most global banks generate in a year.
Critics say the FCA gamekeepers keep a lax eye on poachers and show little interest in pursuing whistleblower tips.
“The people who investigate the allegations of whistleblowers are often people who have been through the revolving door, in and out of banks and the regulator,” Norman Lamb, a former member of Parliament, said in 2019.
Barclays had 14 revolving-door connections in the U.K. government, making it the second-most connected company after Deutsche Bank, according to an April 2009 report by the Organisation for Economic Cooperation and Development.
A spokesperson for the FCA disputes the suggestion that there has been a lack of enforcement, noting that since 2017 there has been a “significant increase” in the number of open investigations.
The FCA assesses every whistleblower tip it receives to determine what action to take, the spokesperson added, and he said that the revolving door allegation is inaccurate. “FCA investigators are for the most part longstanding enforcement professionals and none of the FCA’s enforcement senior management have worked in banking,” the spokesperson said.
While U.S. regulators have been criticized for fecklessness, they are more aggressive than their U.K. kin.
The different regulatory approaches might help explain why a bank headquartered in the U.K. holds on to a risky client even though its compliance officers in New York are telling U.S. authorities all about their concerns with the same client.
“If bankers can override the compliance people willy-nilly that is a huge flaw in the system,” Pelletier said. “Why do you have compliance people then?”
Read more at the International Consortium of Investigative Journalists
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