The UBS executive claimed that the bank had never been a contracting partner with Mossfon. This was a surprising statement since Buchholz and Zollinger had met with UBS only a few months earlier to discuss its bearer share companies. Altogether, the bank’s various branches and subsidiaries had created more than one thousand companies through Mossfon. Buchholz explained to the UBS executive that he was misinformed. In many cases, Mossfon didn’t even know who actually owned the companies the bank commissioned, Buchholz said.
The UBS executive professed to be shocked by this revelation. He responded that he might have to inform authorities about the firm’s violation of the Swiss money-laundering code. Buchholz noted that in the past Mossfon had specifically demanded that UBS and other banks supply the identities of the owners of the companies but that the banks had not been forthcoming. The executive hotly denied this.
Recognizing that the conversation was going nowhere, Buchholz argued that UBS and Mossfon had cooperated successfully for years. In the face of new legal changes in most jurisdictions, they should work together to solve these new challenges. This seemed to calm the situation somewhat.
The executive agreed to provide information—although he said that if Mossfon’s nominees were directors of the company, the firm would have to contact the beneficial owner directly. He also insisted that if any companies were in arrears, the bank expected Mossfon to absorb the loss. When Buchholz relayed the message to the partners, Zollinger noted that the bank was trying to “push their responsibility away” and suggested that if UBS wanted to stick Mossfon with the tab for the companies, perhaps the firm should resign from the directorships of all UBS companies.
Adrian Simon in the Geneva office chimed in. “UBS has totally changed and because of the problems they had to face they are now reacting in an outrageous way,” he wrote, noting that through the years UBS had substantially marked up the Mossfon companies it helped clients create.
Zollinger replied: “This is actually a VERY GOOD POINT!!! They have SOLD the companies for a much higher price to the clients and THEY have paid our invoices to us, NOT their final clients … UNBELIEVABLE!”
Mossfon and UBS devised a strategy to deal with the problem. Mossfon called it “due diligence light.” The firm agreed to take on the UBS companies as private clients, but it would continue to rely on the bank to review the clients. The company owner had to submit a copy of a valid passport with every page certified by the bank. Mossfon also asked UBS to provide a reference letter. This way, the account holder quickly got an offshore company but the bank itself could pretend it was not directly responsible. Later, Credit Suisse and HSBC received similar treatment.
HSBC had been even more active in trying to distance itself from its offshore business. The move coincided with the arrival of Alexandre Zeller in 2008 as the new CEO of the Swiss private bank. Zeller had come from a state-owned cantonal bank, and he was shocked by what he found when he arrived at HSBC. The individual desks acted like independent fiefdoms. There was next to no review of clients. Bankers were not only creating offshore companies for customers, they were serving as directors for them. The files for the highest-level clients, such as Middle Eastern royalty, were not in the system but were kept in a safe in the CEO’s office.
Even though HSBC was supposed to cater to private individuals, it had also opened accounts belonging to Venezuela’s central bank—accounts that held almost $700 million at one point. A secret Swiss bank account could have had any number of uses for a regime that supported an embargoed Cuba and a military insurgency in Colombia and had repeatedly failed to live up to its obligations under international narcotics control agreements, according to the George W. Bush administration. Government officials from Venezuela were quite conversant with Swiss banks and the offshore world; some of them had offshore companies with Mossfon, including President Hugo Chávez’s chief bodyguard and his wife, the country’s former treasurer.
In response to Mossfon’s request for information, HSBC informed the firm that the relationship managers who had created many of the companies would now act “independently” of the bank. They would continue as the contact person for the companies, but Mossfon should change its records to reflect the fact that HSBC Swiss Private Bank was no longer the administrator. The CEO of HSBC Luxembourg clarified the situation somewhat in a meeting. The bank was no longer actively promoting offshore services as it had in the past, he said, but if a client asked for a structure, it would connect them with the appropriate intermediary.
Zeller received limited support from HSBC headquarters in London. He also appears not to have fully been aware of how bad the situation truly was. One of the desks in his bank was actively managing a major drug money-laundering operation. At its center were the brothers of Judah Elmaleh, the head of HSBC’s Mediterranean, Europe, and Israel (MEDIS) desk, which it had inherited from Edmond Safra’s Republic Bank.
The chain began with marijuana grown in Morocco. The product initially was shipped to Spain. From there, convoys of “go-fast” cars drove it to Paris at speeds too fast for the police to safely interdict. Parisian gangs sold the drugs, generating huge amounts of currency. Dealing with the money was where the Elmalehs entered.
Judah Elmaleh’s brother Meyer, who operated a small asset management company in Geneva, would later claim that the scheme had begun when a friend asked, “I have clients who have cash, do you have customers who need cash?”
The cash was transported in heavy plastic bags to Mardoche Elmaleh, another of Judah’s brothers. He counted the money and informed Meyer, who then communicated the amount to yet another brother, Nessim, who worked alongside Judah on the MEDIS desk inside HSBC. Nessim identified French clients of the bank who had secret accounts in Switzerland. The account holders wanted to access their money, but if they transferred it legally, they would have to pay taxes.
One such customer was Florence Lamblin, the Green Party deputy mayor of the thirteenth arrondissement in Paris, who had a century-old inheritance stashed at HSBC in Switzerland. Mardoche Elmaleh met Lamblin in her office and handed over a garish red bag with “Paris” written across it in large letters stuffed with €355,000 in 20-, 50-, and 100-euro notes. The scene was repeated multiple times with other wealthy Parisians. Nessim Elmaleh then withdrew the same amount that was delivered in cash from the recipient’s secret HSBC account. This way, the account holder received his or her money without having to declare it.
The Elmalehs took the money deducted from the secret HSBC accounts and ran it through two shell companies based in London, Yewdale Limited and Globalised Limited. From these companies, the money was sent to one of more than four hundred Panamanian trusts the brothers created. These trust accounts in turn were used to buy real estate in North Africa and the Middle East. The Elmalehs received an 8 percent cut for their work and may have laundered as much as €100 million a year. The brothers had so much money coming in, they complained that their safe-deposit boxes could not fit it all. They solved the problem by converting the cash to gold.
The brothers were adroit manipulators of the secrecy world. Meyer Elmaleh was a director of at least thirty-five of Mossfon’s Panamanian companies and four in the BVI. Nessim and Judah controlled companies with Mossfon as well. Judah held his through bearer shares. Yewdale, one of the two London shell companies used to launder the drug money, while not a Mossfon company itself, was mentioned more than one hundred times in the Panama Papers.
* * *
IN WASHINGTON, DC, Laura Stuber, a young lawyer working for Senator Carl Levin’s Permanent Subcommittee on Investigations, noticed that its investigations kept bumping into HSBC. The bank made an appearance in a 2004 inquiry into Riggs Bank, which hid the money of despots such as the former Chilean dictator Augusto Pinochet and the president of Equatorial Guinea through secret bank accounts and offshore companies. When Riggs tried to get information on one of the Central African Republic’s accounts held by the bank, HSBC, citing secrecy restrictions in Luxembourg, d
eclined to reveal the identity of the owner. In the following years, there were other instances, including when the committee looked into the family of the president of Gabon, who used HSBC among other banks to funnel illicit cash to his daughter.
In late 2010, Stuber got Levin’s permission to start looking into HSBC’s activities. It took a year and a half, but the end result was a blockbuster report, followed by a dramatic Senate hearing in which HSBC’s head of compliance publicly tendered his resignation while testifying before the subcommittee. The report’s most explosive finding detailed how HSBC purchased a Mexican bank that became a go-to financial institution for drug cartels. There were also allegations that HSBC laundered as much as 60 to 70 percent of the illicit money in Mexico. An estimated 15 percent of the Cayman Islands accounts operated by the Mexican bank—through which passed as much as $2.1 billion—had no information on the customers who held them. Stuber and Levin’s committee did not just focus on the Mexican operation. The inquiry also touched on matters closer to home, although the committee did not have the time or resources to look at HSBC’s Swiss operation in detail. It would only be apparent later that several of the cases the committee investigated involved Mossfon.
The committee’s report described how HSBC’s U.S. operation had opened more than two thousand accounts in the name of anonymous bearer share corporations. The vast majority of these accounts had come through the bank’s Miami office, where bearer share accounts held assets totaling an estimated $2.6 billion, generating annual revenue of $26 million for HSBC. One of the examples the committee used to highlight the risks from these certificates centered on Mauricio Cohen Assor and Leon Cohen-Levy, father and son, two Miami Beach hotel developers who had been sentenced to ten years in prison for tax fraud a few years earlier. They were also longtime Mossfon customers.
The Cohens had at least thirteen offshore companies with Mossfon, companies that had been created with the help of the Swiss lawyer André Zolty, who had extensive dealings with Mossfon and HSBC. His firm specialized in helping an international clientele avoid paying taxes and had as many as 895 companies with Mossfon. Zolty was one of the clients Mossfon inherited when it took over the Geneva office from Antoni Guerrero in 1998.
The Senate report highlighted two of the Cohens’ Mossfon companies, which held HSBC accounts through bearer shares: Blue Ocean Finance Limited and Whitebury Shipping Time-Sharing Limited, registered in Panama and the BVI, respectively. The companies helped hide $150 million in assets and $49 million in income, according to the Senate report. They also attempted to shield an opulent lifestyle that father and son enjoyed quite publicly.
The companies’ real estate holdings included a $10 million apartment at Trump World Tower in New York, a $26 million Miami Beach mansion, and a $10 million condo on ritzy Fisher Island. The inventory of cars the Cohens collected included a Rolls-Royce Phantom, a Porsche Carrera GT, a Bentley, a Ferrari Testarossa, and a limousine. And of course, to rise above Miami’s brutal traffic, they owned a $1.2 million helicopter.
Senate investigators obtained transcripts of phone conversations between Mauricio Cohen and his HSBC banker from 2007, in which the banker unsuccessfully tried to convince his client to register his bearer shares. Cohen threatened to take his business elsewhere. He said: “But, I can’t put that, otherwise I have to declare them in the United States? I can’t do that, I don’t want to declare … otherwise, I have to close the accounts with you and go to Geneva.”
Cohen implored the HSBC relationship manager to take his name off the Whitebury Shipping account. He also wanted the banker to explore whether he could transfer the company to Panama, where bearer shares were still allowed. It does not appear the company was moved, although Mossfon’s files show that shortly after the conversation Cohen changed who held power of attorney over Whitebury.
The Cohens were accused of opening bank accounts in the name of nominees, among them their secretary and their limousine driver. Father and son were convicted of filing false tax returns, and the court ordered them to pay back taxes, interest, and penalties of more than $17 million—in addition to their ten-year prison sentences.
More troubling still was what the Senate committee discovered about HSBC’s cavalier attitude toward its customers who were under sanction by the U.S. government. In February 2008, the U.S. Treasury Department froze the assets of Syrian businessman Rami Makhlouf, having charged him with manipulating the Syrian judicial system and using its intelligence officials to intimidate business rivals to gain control over profitable commodities contracts, lucrative oil exploration, and power plant projects. Makhlouf could do this because he was the cousin of President Bashar al-Assad and because his brother, Hafez, was the bloodthirsty head of Syria’s feared civilian intelligence agency, the Mukhabarat. The sanctions also prohibited U.S. persons from engaging in business with Makhlouf. A week after the sanctions were announced, according to the Senate report, a compliance officer in the Cayman Islands branch of HSBC informed colleagues in New York that HSBC’s Swiss private bank administered a trust for Makhlouf. The compliance officer was told that David Ford, HSBC’s anti-money-laundering officer, had assured them that the Makhlouf relationship had been reviewed at the highest levels of the bank. HSBC had decided to continue with the customer.
Mossfon would not realize until a compliance check in 2011 that seven of the BVI companies it administered for the HSBC Swiss private bank had either Rami Makhlouf or another brother, Ehab Makhlouf, acting as directors. Adrian Simon, the head of Mossfon’s Geneva office, contacted the HSBC relationship manager in charge of the account for explanation. The relationship manager told Simon that HSBC was aware that Makhlouf was the cousin of the Syrian president, but the bank “was comfortable with him.” He said that if Mossfon chose to resign from the companies, HSBC would move them to a competitor, the law firm Alemán, Cordero, Galindo & Lee.
The compliance officer at Mossfon’s BVI office was not comforted by the response. In an email, she described the situation as “high risk” and urged the firm to disassociate itself from the Makhloufs. Christoph Zollinger disagreed. He wrote: “From my part—if HSBC headquarters in England—do not have an issue with the client, then I think we can accept him. As far as I can see, there are allegations (rumors), but not any facts or pending investigations or indictments against these persons.”
A few months after Mossfon’s discovery, the European Union sanctioned Rami and Hafez Makhlouf, the latter having been implicated in violently disrupting demonstrations against the regime. Even Switzerland followed suit and put the brothers on its blacklist. After that, both HSBC and Mossfon finally terminated the accounts.
By this point, morale in Mossfon’s Geneva office was low. Swiss banks were shedding foreign clients who didn’t have enough money in their accounts to make the risk worthwhile. Customers were transferring their funds into hard assets: diamonds, gold, antique watches. Bankers insisted on meeting Mossfon employees outside their offices. Where Swiss clients once asked for ten companies, they only requested two or three. There was a palpable sense in Geneva that a golden age of secrecy had ended.
Even Adrian Simon was ready to move on. The year before, a former employee at the Geneva office who had moved to HSBC to administer its offshore company accounts left the bank to join Alemán, Cordero, Galindo & Lee. Before leaving, he convinced HSBC to move many of the companies Mossfon administered to the rival firm. “We have lost HSBC Geneva,” Simon wrote to his superiors in Panama City. “I do not see a reason not to resign.”
While Mossfon resigned from the Makhlouf companies a few months later, it continued to do business with HSBC.
In early 2012, Alexandre Zeller parted amicably with HSBC and stepped down as CEO of the Swiss bank. A few months later, French police arrested the Elmaleh brothers. Using wiretaps and other forms of surveillance, they had watched the ring at work, including the cash delivery to Florence Lamblin. The police dubbed it Operation Virus. In a six a.m. raid in Geneva, Swiss police and pros
ecutors took Meyer Elmaleh into custody and seized €800,000 in cash and 160 luxury watches in a hidden safe in his closet. He was sentenced to three years in prison but only served six months. Judah fled the country. His brother and fellow banker Nessim pleaded guilty and received a two-year suspended sentence. Mossfon learned of the arrests a year later but continued to do business with some of the brothers, including Nessim.
Around the time that police were rounding up the Elmalehs, the BVI Financial Services Commission fined Mossfon $20,500 for deficiencies uncovered during its audit.
Levin’s Senate report and hearing made headlines across the world. The Obama administration’s Department of Justice opted not to prosecute HSBC despite the bank’s “blatant” criminal activity. Instead, HSBC paid a record $1.9 billion in fines. Stuber, the committee lawyer who started its investigation of HSBC, hoped exposing the bank would lead to greater reforms. “I don’t think HSBC was an anomaly, it was just where we looked,” she says today.
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JOURNALISTIC FIREPOWER
The first cross-border journalistic leak investigation into the secrecy world unfolded as a series of disasters. It began when a dozen or so reporters and editors met in Washington, DC, at the offices of the International Consortium of Investigative Journalists (ICIJ) in January 2012. They came from the United States, Latin America, Canada, Europe, Russia, and New Zealand. Gerard Ryle, ICIJ’s newly hired director, an Australian by way of Ireland, briefed the group. He had obtained databases from two unrelated offshore companies, Singapore-based Portcullis TrustNet and BVI-based Commonwealth Trust Limited. The combined data set offered the most comprehensive view into the secrecy world ever afforded journalists.
Secrecy World Page 16
