Senator Elizabeth Warren Asks Jack Lew, Who Owned an Offshore Account at Citigroup, to Investigate Panama Papers

By Pam Martens and Russ Martens: April 8, 2016 

Jack Lew Testifying at His Confirmation Hearing, February 13, 2013

Jack Lew Testifying at His Confirmation Hearing, February 13, 2013

Yesterday Senators Elizabeth Warren and Sherrod Brown sent a letter to U.S. Treasury Secretary Jack Lew, asking him to investigate potential U.S. involvement in the money laundering issues recently exposed by the leak of the Panama papers from the law firm, Mossack Fonseca. The Senators told Lew:

“The Justice Department is reportedly reviewing this matter to determine whether there may be ‘high-level, foreign corruption that might have a link to the United States or the U.S. financial system.’ But, as the primary agency charged with protecting the integrity of the U.S. financial system and enforcing our laws against money laundering and terrorist financing, we strongly urge the Treasury Department to conduct its own inquiry into Mossack Fonseca’s activities and its clients.”

According to journalists who have seen the documents that were leaked by an unknown source, there were 617 “banks, law firms, accountants, company incorporators and other middlemen” operating in the United States that are implicated by the document leak in terms of helping clients conceal their assets.

Unfortunately, Senators Warren and Brown appear to have short memories. Otherwise, U.S. Treasury Secretary Jack Lew would be the last person that comes to mind to conduct an investigation to protect “the integrity of the U.S. financial system.” How Lew was confirmed by the U.S. Senate for U.S. Treasury Secretary remains an open mystery at Wall Street On Parade.

Lew had previously worked as an executive for the very division of Citigroup that blew up the bank during the 2008 financial crisis and cost taxpayers the largest bank bailout in U.S. history.

When Lew left his executive position at Citigroup at the end of 2008 and joined Hillary Clinton’s State Department as Deputy Secretary of State, he retained an investment in Citigroup Venture Capital International (CVCI), a $7 billion private equity fund which was housed in the Cayman Islands at the infamous Ugland House. According to a previous Government Accountability Office (GAO) report, Ugland House is home to 18,857 corporations. In 2009, President Obama called it either “the largest building in the world or the largest tax scam in the world.”

According to Lew’s January 11, 2009 financial disclosure report, his CVCI account at that point had a value of between $100,000 and $250,000. During Lew’s confirmation hearing for U.S. Treasury Secretary, he said he had sold the position at a loss.

But Ugland House was not Lew’s only Citigroup problem during his confirmation hearing. Senators challenged Lew on the fact that he had accepted a $940,000 bonus from Citigroup in early 2009, even though the insolvent bank was subsisting solely on taxpayer bailout funds at that time.

Another issue for Lew in his confirmation hearing was that this windfall bonus was contingent upon terms in his employment contract with Citigroup requiring that when he left the bank he would attain a “high level position with the United States government or regulatory body.” Lew achieved both requirements. As U.S. Treasury Secretary, he now Chairs the Financial Stability Oversight Council (F-SOC) which plays a key role in overseeing too-big-to-fail banks such as Citigroup.

Citigroup is not just the recipient of the largest taxpayer bailout in U.S. history. It has also been serially investigated for laundering money. According to its SEC filing, when Lew left the bank in 2008, it had 15 subsidiaries in Panama and dozens of subsidiaries in the Cayman Islands, another secrecy/tax haven. Citigroup has subsequently made it quite difficult for the public to scrutinize just what subsidiaries it still owns, as we reported previously.

The U.S. government has been aware for decades that money laundering was occurring at some of the largest banks on Wall Street. On November 9-10, 1999, the U.S. Senate’s Permanent Subcommittee on Investigations took a hard look at Citigroup’s commercial bank, Citibank. Senator Carl Levin provided the following details in his opening remarks:

“Today we are looking at the private bank of Citibank. It is the largest bank in the United States, and it has one of the largest private bank operations. It has the most extensive global presence of all U.S. banks, and it had a rogues’ gallery of private bank clients. Citibank has been private banker to:

“– Raul Salinas, brother to the former President of Mexico; now in prison in Mexico for murder and under investigation in Mexico for illicit enrichment;

“– Asif Ali Zardari, husband to the former Prime Minister of Pakistan; now in prison in Pakistan for kickbacks and under indictment in Switzerland for money laundering;

“– Omar Bongo, President of Gabon; subject of a French criminal investigation into bribery;

“– sons of the General Sani Abacha, former military leader of Nigeria; one of whom is now in prison in Nigeria on charges of murder and under investigation in Switzerland and Nigeria for money laundering;

“– Jaime Lusinchi, former President of Venezuela; charged with misappropriation of government funds;

“– two daughters of Radon Suharto, former President of Indonesia, who has been alleged to have looted billions of dollars from Indonesia…

“– General Albert Stroessner, former President of Paraguay and notorious for decades for a dictatorship based on terror and profiteering.”

A main focus of the 1999 hearing was on Amy G. Elliott, the Relationship Manager at Citibank who handled the Raul Salinas account. Robert L. Roach, serving as Counsel to the Senate investigation, testified that the Relationship Manager’s role at Citibank is to function as “in-house advocates” for the interests of their clients.

Sounding very similar to the allegations now swirling around the law firm Mossack Fonseca, Roach explained the services provided to Salinas, brother to then President of Mexico, Carlos Salinas, as follows:

“The private bank…established a shell company for Mr. Salinas with layers of disguised ownership. It permitted a third party using an alias to deposit funds into the accounts, and it moved the funds out of Mexico through a Citibank concentration account that aided in the obfuscation of the audit trail. Cititrust in the Cayman Islands activated a Cayman Island shell corporation called a PIC, or private investment corporation, called Trocca, Ltd., to serve as the owner of record for the Salinas private bank accounts…

“Cititrust used three Panamanian shell companies to function as Trocca’s Board of Directors. Cititrust also used three Cayman Island shell companies to serve as Trocca’s officers and principal shareholders. Cititrust controls all six of these shell companies and routinely uses them to function as directors and officers of PICs that it makes available to private clients. Later, Citibank established a trust, identified only by a number, to serve as the owner of Trocca, Ltd. Raul Salinas was the secret beneficiary of the trust.

“The result of this elaborate structure was that the Salinas name did not appear anywhere on Trocca’s incorporation papers. The Trocca, Ltd. accounts were established in London and Switzerland…

“To accommodate Mr. Salinas’ desire to conceal the fact that he was moving money out of Mexico, Ms. Elliott introduced Mr. Salinas’ then-fiancée Paulina Castanon as Patricia Rios to a service officer at the Mexico City branch of Citibank. Operating under that alias, Ms. Castanon would deliver cashiers checks to the branch where they would be converted into dollars and wired into a concentration account in New York. The concentration account is a business account established by Citibank to hold funds from various destinations prior to depositing them into the proper accounts. Transferring funds through this account enables a client’s name and account number to be removed from the transaction, thereby clouding the audit trail. From there, the money would be transferred to the Trocca, Ltd. accounts in London and Switzerland…

“Between October 1992 and October 1994, more than $67 million was moved from Mexico to New York and then on to London and Switzerland by way of this system…Yet no one questioned Mr. Salinas about the origin of these funds. Far from inquiring about the sources of the funds, Ms. Elliott wrote to her colleagues in June 1993 that the Salinas account ‘is turning into an exciting, profitable one for us all. Many thanks for making me look good.’ ’’

According to a November 2015 report by Bloomberg, Citigroup’s Banamex USA unit is currently under a U.S. Justice Department investigation over money laundering issues.

If you look at the serial abuses of the public trust at Citigroup, you have to seriously wonder why the U.S. government would bail it out so it could simply move forward with more abuse. Last May 20, the bank admitted to a criminal felony charge brought by the Justice Department for its role in rigging foreign currency markets.

Sheila Bair, the former head of the Federal Deposit Insurance Corporation (FDIC) that insures the deposits of U.S. commercial banks, revealed in her book Bull by the Horns that Citigroup had a minuscule $125 billion in U.S. insured deposits at the time of its crash. The bulk of Citigroup’s deposits were actually foreign while it showed $2 trillion in assets on its books and $1 trillion off its books.

Bair wrote the following in her book regarding Citigroup’s situation in 2008:

“By November, the supposedly solvent Citi was back on the ropes, in need of another government handout.  The market didn’t buy the OCC’s and NY Fed’s strategy of making it look as though Citi was as healthy as the other commercial banks.  Citi had not had a profitable quarter since the second quarter of 2007.  Its losses were not attributable to uncontrollable ‘market conditions’; they were attributable to weak management, high levels of leverage, and excessive risk taking.  It had major losses driven by their exposures to a virtual hit list of high-risk lending; subprime mortgages, ‘Alt-A’ mortgages, ‘designer’ credit cards, leveraged loans, and poorly underwritten commercial real estate.  It had loaded up on exotic CDOs and auction-rate securities.  It was taking losses on credit default swaps entered into with weak counterparties, and it had relied on unstable volatile funding – a lot of short-term loans and foreign deposits.  If you wanted to make a definitive list of all the bad practices that had led to the crisis, all you had to do was look at Citi’s financial strategies…What’s more, virtually no meaningful supervisory measures had been taken against the bank by either the OCC or the NY Fed…Instead, the OCC and the NY Fed stood by as that sick bank continued to pay major dividends and pretended that it was healthy.”

Jack Lew’s title in 2008 was Chief Operating Officer for the Alternative Investments unit of Citigroup which facilitated many of its failed investments.

Given Lew’s history at Citigroup and the bank’s history with money laundering, the U.S. Treasury Secretary should leave this matter to the U.S. Justice Department. The public has had its fill of crony investigations and slaps on the wrist.

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