The Money plane

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volatile   Middle   East   and   later   South   America.   In   1966,   he   fo unded Republic   National   Bank   in   New   York   with   a   scant   USD   11   million   in capital   and   a   single   founded   Republic   National   Bank   in   New   York   with a   scant   USD   11   million   in   capital   and   a   single   branch   in   a   Manhattan brownstone.   Republic   quickly   became   known   on   the   street   as   a   bank that   would   send   an   armored   car   to   pick   up   large   sums   from   its   more secretive customers – no questions asked. The   bank   grew   rapidly   and   is   now   (1996)   the   twentieth   largest   in   the U.S.,   with   assets   of   USD   42   billion   and   more   than   70   branches   in   New York,   California,   and   Florida. An   arm   of   SAFRA’s   Geneva-based   Trade Development   Bank   (TDB),   Republic   had   a   net   income   for   the   nine months ending September 30, 1995, of USD 193.8 million. SAFRA   specializes   in   niches   that   most   other   banks   eschew,   such   as trading   gold   and   banknotes.   Though   its   commission   on   banknote   sales is      not      publicly divulged,         “it’s a     l     w     a     y     s       p  r  o  f  i  t  a  b  l  e  ”  ,    SAFRA   once   told to        Institutional I   n   v   e   s   t   o   r   .     According          to Charles   PEABODY,   a   bank   analyst   at   UBS   Securities,   “it’s been   increasingly   significant”   to   Republic’s   revenue   stream. “It’s   a   volume   business,   and   it   tie s   into   the   relationships   they have    with    the    central    banks    of the    world…    and    I    think Republic   does   have   good   relationships   with   the central    banks    of    the    world,    probably    built    up through their gold-trading operation”. In   the   mid-eighties,   SAFRA   became   the   victim   of a    smear    campaign    orchestrated    by    American Express,   which   had   bought   Republic’s   Swiss   parent,   TDB,   for USD   520   million   in   1983.   (SAFRA   regained   control   of TDB   five years    later).   American    Express    hired    a    convicted    felon    to spread    false    stories    in    the    international    press    depicting SAFRA   as   an   unscrupulous   operator   involved   in   everything from   Iran-contra   to   money   laundering.   SAFRA   successfully sued   two   newspapers   in   France   for   libel   and   eventually   won   a public   apology   from   American   Express   and   USD   8   million, which   went   to   four   charities,   including   the   International   Red Cross   and   the   Anti-Defamation   leage.   Though   SAFRA   was stung   by   the   accusations   and   character   assassination,   they helped     inoculate     his     bank     against     subsequent     money laundering    allegations    that    later    emanated    from    legitimate law-enforcement inquiries, as well as scare away reporters. Around   the   same   time   American   Express   was   disseminating these    malicious    falsehoods,    the    DEA,    Customs,    and    the Swiss   police   were   investigating   SAFRA’s   banks   in   Switzerland and   New   York   for   laundering   Colombian   and   Turkish   drug money.   “I   can   say   on   the   record   that   the   sense   I   got   from   the agent   with   respect   to   Republic   was   that   they   were   concerned about    its    activities”,    says    William    von    RAAB,    the    U.S. commissioner   of   Customs   from   1981   to   1989.   (Despised   by the    banking    industry    for    his    bluntness,    von    RAAB    had accused   bankers   at   a   1982   conference   in   Miami   of   knowingly washing   cartel   drug   money).   “I   am   ashamed   of   all   of   you.   You and   your   banks   are   engaging   in   sleaze”,   he   shouted.   A   few years   later,   the   crusading   von   RAAB   helped   draft   America’s first money-laudering law). A    bizarre    event    had    led    investigators    to    Republic.    On Thanksgiving   Day,   1987,   two   Armenian   brothers   arranged   to fly   to   Zürich   on   KLM   out   of   L.A.,   after   checking   their   baggage through   to   Zürich   on   Pan   Am.   “The   Pan   Am   people   were panicky   about   a   bom”.   Greg   PASSIC,   then   a   DEA   supervisor and   now   with   FINCEN,   told   New   York,   “The   bomb   squad   put the   suitcases   in   one   of   those   blast   containers,   and   exploded them, and USD 2.2 million went flying out the top of the thing”. The   suitcases   were   addressed   to   the   MAGHARIAN   brothers, big-time    currency    traders.    They    had    been    depositing    drug money   into   SHAKARCHI   Trading   Company   of   Zürich,   which allegedly   wired   it   as   well   as   the   funds   of   many   other   drug dealers     into     account     number     606347712     at     Republic. According   to   Newsday,   the   account   was   “the   junction   of   two major     narcotics-money-laundering     investigations     spanning four   conitents”.   Customs   agents   were   convinced   that   Republic was    complicit.    “The    agents    were    really,    really    down    on Republic”,   a   top-level   Customs   source   says.   “I   think   they   just felt it was a rotten bank”. A   classified   DEA   investigative   report   written   by   a   field   agent   in Bern,   Switzerland,   and   approved   by   the   DEA’s   Passic,   dated January   19,   1988,   described   the   link   between   SHAKARCHI, SAFRA,    and    Republic;    “SHAKARCHI    Trading    Company    of Zürich,     Switzerland,     operates     as     a     currency     exchange company    and    is    utilized    by    some    of    the    world’s    largest trafficking   organizations   to   launder   the   proceeds   of   their   drug- traffiking   Activities.   Its   director   Mohammed   SHAKARCHI,   has been    closely    associated    with    the    heads    of    these    criminal organizations and assists those criminal organizations. “SHAKARCHI    Trading    maintains    accounts    at    the    Republic National   Bank   of   New   York,   a   ban   which   has   surfaced   in several previous money laundering investigations. “While   he   was   alive,   Mahomoud   SHAKARCHI   (Mohammed’s   father)   maintened   a   clos   relationship   with   Edmond SAFRA,    owner    of    the    SAFRA    Bank    and    founder    of    the    Trade    Development    Bank    as    well    as    the    owner    of approximately   38   percent   of   the   stock   in   Republic   National   Bank   of   New   York.   All   of   those   banks   surfaced   in Mahomoud SHAKARCHI’s alleged drug laundering activities”.. In    March    1989,    the    MAGHARIANS    were    indicted    in    Los    Angeles    for    money    laundering;    two    years    later, SHAKARCHI’s   records   were   subpoenaed   by   Swiss   and   American   police,   who   also   confiscated   SHAKARCHI’s account   at   Republic,   through   which   more   than   USD   800   million   had   passed   over   a   five-year   period.   Neither Republic    nor    SAFRA    nor    SHAKARCHI    was    indicted,    though    SHAKARCHI    later    told    Israeli    journalist    Rachel EHRENFELD that he was convinced that the DEA was going after him to get him to flip against SAFRA. The   case   against   SHAKARCHI   was   quietly   dropped   in   1990,   after   the   U.S.   Attorney   for   the   Eastern   District concluded   that   there   wasn’t   enough   evidence   to   prove   the   money   in   the   Republic   account   was   drug   proceeds, Robert   COZZOLINA,   deputy   special   agent   in   charge   of   the   U.S.   Customs   Service   in   Manhattan,   told   New   York. EHRENFELD,   who   investigated   the   case,   alleged   in   her   book   Evil   Money   (HarperBusiness,   1992)   that   a   corrupt U.S.   government   official   purposely   put   errors   in   the   subpoena   so   SHAKARCHI’s   attorneys   could   easily   quash   it   and purposely   put   errors   in   the   subpoena   so   SHAKARCHI’s   attorneys   could   easily   quash   it   and   stop   the   investigation. To this   day,   PASSIC   says   he   believes   SHAKARCHI Trading   was   willingly   doing   business   with   drug   traffickers.   Customs agents   who   investigated   SAFRA   said   they   didn’t   want   to   talk   about   him   because   of   his   power.   “If   you   go   after somebody   like   SAFRA,   you   had   better   dot   every   i   and   cross   every   t   ”,   says   one   of   the   Customs   agents   who   worked the SHAKARCHI case. PASSIC,   who   says   he   “investigated   the   hell   out   of   Republic”,   paid   the   bank   a   backhanded   compliment,   saying   it used   more   due   diligence   than   he   had   initially   thought.   “When   we   went   up   and   talked   to   them   and   saw   the   programs they   had   in   place,   actually,   we   were   surprised.   Because   if   you   look   at   the   activity   that   the   bank   had   through   various corners of the world with these traffickers’ accounts, you know, it kinda raised our eyebrows. “One   of   the   things   they   did   that   we   were   unaware   of   –   they   are   one   of   the   largest   vendors   of   banknotes   in   the   world. They   actually   buy   and   sell   dollars.   And   you   know,   we   were   totally   ignorant   about   the   whole   process,   and   when   we heard   that   a   courier   was   flying   out   with   USD   25   million   in   a   airplane,   you   know   we   kind   of   freaked   out.   When   we   sat down   and   saw   that   a   lot   of   the   business   that   they   did   was   in   conjunction   with   de   Fed,   and   it   was   part   of   the   legal sales   and   purchase   of   U.S.   dollars,   they   explained,   at   least   to   my   satisfaction,   that   they’re   trying   their   damnedest   to keep the dope money out of their bank”.. Others   are   less   charitable,   Buddy   PARKER,   an   assistant   U.S.   Attorney   in   Atlanta   who   has   prosecuted   major laundering    cases,    says:    “Well,    let’s    say    Republic    always    had    some    very    interesting    customers    who    find    the government looking at them, more so than maybe other banks. “I   know   that   a   number   of   customers   of   Republic   Bank   have   been   targets,   some   of   which   have   been   prosecuted, some   of   which   haven’t…   Well,   they   seem   to   have   more   than   their   lion’s   share   of   these   kinds   of   accounts. And   these kinds   of   accounts,   if   you   look   at   the   way   their   activity   has   been   conducted,   would   say,   ‘You   know,   gee,   this   stuff stinks. This smells. I’ve got to be suspicious about who this account holder is. I need to find out a little bit more’”. As   for   Republic’s   dollar   trade   with   mobbed-up   banks,   von   RAAB   says   with   characteristic   bluntness,   “That’s   the   smell that was always coming off Republic”.. “Speaking   as   someone   who   has   been   a   law-enforcement   person   my   entire   life”,   says   the   state-banking   department source,   “it   may   be   overly   simplistic,   but   I’ll   put   it   like   this   :   If   you   identify   bad   guys,   and   you’re   sending   money   to   bad guys, I mean to me that’s not good !” COMBATING   MONEY   LAUNDERING   may   be   a   top   priority   of   the   Clinton   administration,   but   it’s   virtually   impossible to   stop.   There   are   about   700’000   wire   transfers   a   day,   totaling   USD   2   trillion.   Some   USD   300   million   of   that   –   less than   one   sixtieth   of   one   percent   –   is   laundered   funds   hidden   by   the   huge   volume   of   legitimate   transfers,   says   a September   1995   report   by   the   Office   of   Technology   Assessment.   The   report   concludes   that   there   is   no   existing technology   capable   of   identifying   all   but   the   most   obvious   trade   anomalies.   "There   is   no   way   you   can   program   the system   to   say,   ‘I   want   you   out   of   these   700’000   transfers   to   look   for   [dirty]   bank’   “,   says   Rayburn   HESSE,   a   State Department   senior   policy   adviser   who   chairs   a   federal   task   force   on   money   laundering.   “The   result   is   that   we   have an   international   banking   system   that   knows   no   horizons.   It   operates   around   the   clock.   Our   laws,   however,   know horizons called national boundaries”.. The   Treasury   Department   has   started   a   program   called   Operation   Outreach   to   recruit   banks   to   help   stop   money laundering.   “All   of   the   major   banks   in   New   York   were   receiving   drug   monies   and   still   are   today.   Our   prior   strategy was   to   try   to   get   evidence   on   them   and   see   if   we   could   jam   them   up”,   says   PASSIC,   the   former   DEA   official   who runs   the   program.   “Sometimes   we   found   out   there   were   just   very   minor   people   in   the   bank   that   were   involved,   that the   upper   management   really   was   not   involved,   as   we   initially   thought.   So   what   we’ve   been   trying   to   do   lately   is work   with   them,   and   see   if   we   can   encourage   them   to   develop   patterns   and   profiles   on   accounts   that   they   have,   and basically close the accounts down [of money lauderers] and chase them out”. Republic   is   on   the   board   of   Operation   Outreach,   and   its   cooperation   has   been   laudable,   says   PASSIC.   But   well informed   sources   say   Republic   pressed   law   enforcement   for   documentation   about   mob   links   to   Russian   banks   only after being contacted by New York late last year (1995).. No    one    in    government    with    even    rudimentary    knowledge    about    Russian    organized    crime    doubts    that    it    has penetrated   the   international   banking   system.   Many   say   that   selling   dollars   to   mobbed-up   Russian   banks   is   morally indefensible,   regardless   of   whether   the   trade   is   sanctioned   by   the   Federal   Reserve.   And   if   the   dollars   are   bought with   wired   funds   derived   from   asset-stripping,   narcotics,   stolen   U.S.   aid,   or   the   black-market   sale   of   arms   or   nuclear materials,   then   it’s   money   laundering.   “Even   though   you   can’s   fault   Republic   as   to   the   current   interpretation   of   the law, it doesn’t necessarily mean that it’s legal”, says a Treasury source. “It   just   means   that   some   of   the   questions   that   you   ask   [are]   ahead   of   where   we   have   gotten”,   adds   the   State Department’s   WINGER.   “We   are   grappling   with   it.   We   are   trying   to   put   it   together.   But   all   of   this   has   happened   very quickly, and it’s taking us some time to get adequate answers”. As   part   of   that   effort,   the   Treasury   helped   the   Russian   Central   Bank   draft   money-laundering   laws.   But   the Russian Parliament has dozens of convicted criminals among it members. The legislation has stalled . January 22, 1996 / New York

The Money plane - 2nd Part

Proclaimed   by   Institutional   Investor   to   be   “perhaps   the most    successful    banking    entrepreneur    of    the    postwar era”,   Republic’s   owner,   the   63-year   old   Edmond   SAFRA (assassinated   on   December   3,   1999)   has   built   up   a   USD 50    billion    global    empire    while    amassing    a    personal fortune    exceeding    USD    2    billion.    A    Lebanese-born Orthodox    Jew    descended    from    generations    of    Syrian traders,   SAFRA   was   also   a   financial   prodigy.   By   the   age of   21   he   had   founded   Banco   SAFRA   in   Brazil,   which became    a    magnet    for    Jewish    flight    capital    from    the