Narco Cash Flowed Through Citi, Deutsche Bank, BofA, Court Papers Say

A Colombian cocaine cartel allegedly laundered millions of dollars in drug money through the international banking giants Citibank, Deutsche Bank and Bank of America, federal court papers reveal.

The disclosure, contained in a little-noticed affidavit by an undercover narcotics agent in Boston, comes as federal authorities are continuing their investigations of major banks suspected of moving money through the United States for drug cartels and countries under trade sanctions.

These include Citigroup Inc., Citibank’s parent company, where federal prosecutors in Boston are investigating possible money laundering violations by Banamex, a Mexican subsidiary.

Narcotraffickers and money launderers allegedly used accounts at the three banks in moving tens of millions of dollars around the world, with $9.3 million remaining in accounts at Citi and Deutsche Bank, according to the D.E.A.

After asking a judge to allow U.S. authorities to confiscate the money, federal prosecutors indicated last week they may instead settle with two Colombian brokerages which hold the accounts and may then see some of the money returned.

The repeated wire transfers occurred during a four-year D.E.A. undercover investigation that resulted in the seizure of $200 million in cash and more than a ton of cocaine. In addition, a dozen suspects were extradited from Colombia and 15 pleaded guilty on a variety of money laundering and drug trafficking charges.

Investigators say a Colombian cartel known as La Oficina de Envigado, said to have inherited the business of the defunct Medellín cartel of Pablo Escobar, moved the cash between 2010 and 2011.

Agents reported transferring drug money to the Citi, Deutsche Bank and Bank of America accounts, often at the specific instructions of La Oficina cocaine exporter Aldo Fernando Guerrero Clavijo, alias “Zeus” or “Rolo.” Couriers delivered the cash to suburban parking lots and busy streets, sometimes retrieving it from hidden electronic compartments in their cars in New York, Los Angeles, Houston, Philadelphia, Boston, Orlando, Fla. and other cities, according to the D.E.A.

The money came in heat-sealed bags or packed with scented towels to mask any lingering “narcotic odor,” Jaime X. Cepero, a Massachusetts police investigator detailed to a D.E.A. task force in Boston, said in an affidavit filed in August last year. In one instance, cash delivered in Rome bore visible traces of cocaine, Cepero said.

Cepero testified in court last year that the banks receiving the drug money had been investigated by an Internal Revenue Service agent working with the D.E.A. And in some instances, at least, banks reported the suspicious activity to the Treasury Department as required by law, according to Cepero.

Whether that exonerated the banks receiving the money was not clear. A D.E.A. spokesman in Boston referred questions to the U.S. Attorney’s office for Massachusetts where a representative declined to comment.

The D.E.A. affidavit did not directly allege wrongdoing by the banks. And it was not clear that there was any connection between the Banamex and Colombian investigations, though court papers suggested there could be.

However, money laundering experts told 100Reporters that transactions like those described by Cepero — which involved the use of Colombian currency brokerages — were fraught with legal peril and have in the past resulted in enforcement actions.

“These should be off-the-wall high-risk,” said James F. Dowling, a former undercover agent for the Treasury Department and former White House advisor on narcotics and money laundering. “There should be very tight procedures around” such transactions, Dowling said.

Representatives of Citigroup, Bank of America and Deutsche Bank declined to comment.

Simple Path for Payments

While the cocaine itself was in many cases smuggled into Mexico for shipment into the U.S., much of the outbound cash followed a remarkably simple path back to the source of the cocaine in Colombia.

Investigators say they deposited the cash in two accounts undercover agents opened in Massachusetts and New York — at Bank of America and at Eastern Bank, a regional lender — where only select employees were informed of the investigation.

Cepero then wired the drug money to accounts designated by Guerrero at Deutsche Bank, Bank of America and Citi, many of which were held in the names of so-called casas de bolsa, or currency brokerages, in Colombia and Venezuela. Guerrero is serving a 12-year sentence in prison after he pleaded guilty to drug trafficking and money laundering.

The brokerages are not banks but have the ability to receive U.S. dollars and pay them out as Colombian pesos. The system allegedly helps the cartel obscure the source of the funds and bank the proceeds of the sale of cocaine.

As early as 2006, the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, issued a stark warning about the danger of dealing with so-called casas de cambio, or exchange houses, in Mexico. Colombia is also a “jurisdiction of primary concern” for money laundering, a top-tier State-Department ranking that alerts financial institutions to added risk, according to the State Department.

The Treasury Department in June blacklisted La Oficina for its role in drug trafficking, long after having imposed sanctions on individuals associated with the cartel.

Red Flags

Many major banks have ceased serving currency exchange houses, according to Donald Semesky, a former chief of financial operations for the D.E.A. who testified as an expert witness for the prosecution in the sentencing phase of the La Oficina case. Semesky said that generally, “American banks have purged all those accounts, probably as a result of this.”

Banks are not required to prevent all tainted money from entering their accounts, merely to take reasonable efforts to prevent this. And when tainted money has been discovered in accounts, enforcement action against the bank has not always followed.

According to Cepero, the La Oficina cartel moved money through the brokerages, which in turn were clients of the banks, meaning the banks did not have direct business with the cartel.

Semesky added that it may be very difficult for a given bank to identify the ultimate destination of a payment in foreign settings. Still, repeated, round-numbered and inexplicably large and unusual deposits to accounts held by money changers from high-risk areas should prompt concern, specialists say.

Ralph E. Sharpe, a former senior banking enforcement and compliance official at the Treasury Department, said that under such circumstances a bank is obligated to file a Suspicious Activity Report, or S.A.R., to flag unusual activity.

But he said that law enforcement authorities can ask that a bank take no action in order not to disturb an ongoing investigation.

At least one defense attorney, Keith S. Halpern, pointed a finger at the banks when defending his client, Wyllseyn Marquez-Gomez, a poor currency trader from the Colombian town of Cúcuta on the Venezuelan border.

Marquez, who left school at 13 and supports a family of five, earned just $2,500 through his passing involvement in the transfer of $550,000 in drug money that was collected by the D.E.A. in Houston and wired through Bank of America, according to Halpern.

“It was obvious that it was money laundering. The transactions that were going on made no economic sense. My argument was, ‘Where are the banks?’” Halpern told 100Reporters.

Sentencing guidelines allow judges to weigh a defendant’s sentence against the penalties imposed on others involved in the same crime, though this usually concerns co-defendants, Halpern said.

Though the banks were not charged, Halpern said the banks were arguably also responsible.

“You’ve got a dozen or so poor Latinos swept up in Colombia, sitting in the dock facing years,” he said. “It’s worse that the banks weren’t charged with crimes. It’s less equitable.” Marquez received four years under a plea agreement.

Inside Look

Citing recorded meetings and wiretaps, Cepero’s affidavit paints a detailed picture of how La Oficina allegedly used the brokerages to launder money.

At the J.W. Marriott hotel in Bogotá, Guerrero met in December 2010 with Cepero, who was then undercover, to discuss banking arrangements and the use of the brokerages.

In covertly recorded conversations, Guerrero “said that you can push through anything you want” using the currency brokerages, according to Cepero’s affidavit.

“Guerrero said the he just needed to tell them […] how much he was going to push through in advance […] so they could be ready and do their thing.”

Andres Covelli Cadavid, a trader who dealt with both of the brokerages on behalf of La Oficina, also told Cepero he could use as many as ten U.S. bank accounts held in the names of local brokerages and that, by exercising some caution, he could move as much as $20 million in drug money without too much difficulty, according to the affidavit.

Covelli was sentenced in November to seven years in prison after pleading guilty to a single count of money laundering conspiracy.

The Citibank funds were held in an account for the brokerage Corredores Asociados, which is 95 percent owned by Banco Davivienda, Colombia’s third-largest bank by assets.

The funds at Deutsche Bank were in the name of Compañía de Profesionales de Bolsa, a private company.

Both accounts were among 54 ordered seized at the D.E.A.’s request in May of 2011 as the investigation concluded.

According to Cepero, the brokerages unquestioningly moved the drug money despite “obvious red flags.” A brokerage compliance officer allegedly even instructed Covelli to keep wires below $100,000 to avert scrutiny.

The brokerages’ client, a company controlled by Covelli called CI Feran Ltd, claimed the shipments were returns on investments on the purchase of car parts.

But the senders, which were undercover D.E.A. accounts, “bore no apparent relation to car parts or the automobile industry,” according to Cepero.

According to Cepero, neither Profesionales nor Corredores ever asked Feran to identify the sender of the money or questioned Covelli about the source of the funds being wired into New York bank accounts.

In court filings this year, lawyers for both Corredores and Profesionales have issued blanket denials that the funds in their accounts are in any way connected to drug smuggling.

“The allegations have been denied,” said Harold E. Patricoff, a Miami lawyer representing both Corredores and Profesionales. “The fact that criminal defendants may have pled guilty in another case does not mean that anything went wrong concerning my clients.”

Court papers filed last week indicated that the U.S. Attorney’s office in Boston had reached a settlement in principle with Corredores and hoped to begin mediation with Profesionales.

It was unclear why prosecutors no longer wanted to go to trial.

Similar exchange houses figured prominently in the $160 million settlement between Wachovia bank and the Justice Department in March 2010.

In recent years, both Treasury and the Federal Reserve took enforcement actions against Citigroup, Citibank and Banamex USA over money laundering risks. Examiners from the federal Office of the Comptroller of the Currency (O.C.C.) faulted Citibank in 2012 for the “incomplete identification of high-risk customers.” Citibank told the O.C.C. that it had failed to monitor untold sums deposited to foreign accounts from 2006 to 2010.

A similar practice at HSBC resulted in roughly $200 trillion passing through that bank without scrutiny.

German market regulators have also questioned money laundering controls at Deutsche Bank, while the New York Fed said systemic reporting errors suggested that Deutsche Bank’s “entire U.S. regulatory reporting structure requires wide-ranging remedial action,” according to a letter obtained by The Wall Street Journal.[/message_box][/column]

Federal prosecutors said Wachovia had failed to scrutinize $420 billion in potentially laundered money passing through its accounts, the vast majority of which had originated with casas de cambio in Mexico.

Indeed, according to Cepero, La Oficina’s money launderers were using a Wachovia account in New York that somehow remained active nearly two months after Wachovia settled with the Justice Department.

Ancel Martinez, a spokesman for Wells Fargo, which acquired Wachovia in 2008, said he could not comment on individual transactions. “We dedicate significant resources to maintaining an anti-money laundering program and a strong compliance culture,” Martinez said in an email.

Representatives of the Treasury Department’s Office of the Comptroller of the Currency, which is the principal bank regulator, and FinCEN, declined to comment.

The Cepero affidavit also discusses the movement of cocaine into Mexico and money out of that country. Federal prosecutors in Boston are known to be investigating cross-border transactions involving Citigroup’s Mexican subsidiary, Banamex.

During an instant messenger chat in 2008, according to Cepero, Guerrero claimed that he was responsible for the collection of “every card,” or dollar, in Guatemala, “or in the D.F.,” referring to the distrito federal, the area encompassing Mexico’s capital.

Until recently, trade and cooperation between La Oficina and Mexico’s cartels had been a crucial channel for the export of Colombian cocaine to the United States, the Mexican news magazine Proceso wrote in December. But the 2012 capture of La Oficina’s head, Ericson Vargas Cardona, alias Sebastián, (who was extradited to the United States in October), deprived the Mexican cartels of “their principal contact in Medellín,” according to the magazine.

The Citibank account at the center of Cepero’s affidavit is also not the only one alleged to have held drug money detected during the La Oficina investigation.

According to Cepero, the D.E.A. also wired drug money into other Citibank accounts held in the names of Corredores and Profesionales that was bound for companies linked to both Covelli and to Henry Guberek-Grimberg, a suspected money launderer holding Colombian and Israeli citizenship.

Guberek-Grimberg is now a fugitive from justice after having been indicted last year on drug-related money laundering charges by a federal grand jury in Florida.

“I can tell you from my perspective down here,” said Roberto E. Abreu, a Miami attorney representing Covelli, “the government rarely goes after the banks.”

Update: The Treasury Department announced Tuesday it was slapping sanctions on eight La Oficina members under the Kingpin Act, which freezes known narcotraffickers out of the banking system.

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Douglas Gillison

Douglas Gillison is a former staff writer for 100Reporters. His investigative projects have included the declassification of 1,300 pages of FBI records from a 1997 political massacre and the exposure of payments by a publicly traded mining company that are now the subject of an international criminal bribery investigation.

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