By Pam Martens and Russ Martens: May 11, 2018 ~
There’s a guy in Manhattan who’s sleeping about as well as Michael Cohen these days. That’s the broker at Morgan Stanley Smith Barney who opened the brokerage account for Donald Trump’s lawyer, Michael Cohen. According to a document posted at the Twitter page of Michael Avenatti, the lawyer for porn star Stormy Daniels, this fellow may have some explaining to do to the Feds if he didn’t file a Suspicious Activity Report (SAR) with the U.S. Treasury’s Financial Crimes Enforcement Network, known on the street as FinCEN.
Avenatti’s document shows the following regarding a Morgan Stanley Smith Barney account:
“From July 13, 2017 through September 8, 2017, Mr. Cohen deposited three checks in the amounts of $505,000, $250,000, and $250,000 in his Morgan Stanley account.
“Each deposit was remitted from an account held at First Republic Bank in the name of Essential Consultants, LLC.”
Essential Consultants LLC is the account from which Cohen made the payment of $130,000 in hush money to Stormy Daniels. It is also the account that was receiving over $3 million in corporate funds, including more than $1.6 million from two foreign companies and a company linked to the Russian oligarch Viktor Vekselberg, now on a U.S. sanctions list and closely tied to Russian president Vladimir Putin.
Brokers on Wall Street are required to thoroughly understand the “Know Your Customer” rule. That means they must thoroughly understand how the client is earning the money he is depositing into the account to make sure it is coming from a legitimate source. Brokers must also take continuing education classes to stay abreast of the latest regulatory interpretations of the Know Your Customer rule and the anti-money laundering statutes.
If there is any one point that these continuing education courses overly emphasize, it is that the broker needs to be on extra high alert if their client is politically connected or a foreign entity. Obviously, that’s to guard against the potential for washing money.
FinCEN guidelines require that a Suspicious Activity Report must be filed where funds are suspected of involving any of the following circumstances:
“Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation;
“Is designed, whether through structuring or other means, to evade any requirement of 31 CFR Chapter X or any other regulation promulgated under the Bank Secrecy Act, Public Law 91-508, as amended, codified at 12 U.S.C 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5332;
“Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction, or
“Involves the use of the financial institution to facilitate criminal activity.”
Would a major U.S. financial institution ever actually facilitate criminal money laundering? The best person to ask about that is former Senator Carl Levin who previously chaired the U.S. Senate’s Permanent Subcommittee on Investigations and took a hard look at the matter in the late 1990s.
Morgan Stanley Smith Barney resulted from Smith Barney being bought in several transactions by Morgan Stanley beginning in 2009 and finalizing in 2012. Morgan Stanley is one of the largest investment banks and brokerage firms on Wall Street. Smith Barney had been the brokerage subsidiary of Citigroup, parent of the large commercial bank, Citibank.
According to an investigation by the U.S. Senate’s Permanent Subcommittee on Investigations, Citibank’s private bank has held accounts for what Levin called “a rogues’ gallery of private bank clients.” At a Subcommittee hearing in 1999, Levin detailed some of those clients as follows:
“– Raul Salinas, brother to the former President of Mexico; now in prison in Mexico for murder and under investigation in Mexico for illicit enrichment [Salinas had his murder conviction overturned on appeal];
“– 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; and, it appears,
“– General Albert Stroessner, former President of Paraguay and notorious for decades for a dictatorship based on terror and profiteering.”
Amy Elliott, a Relationship Manager at Citibank who handled the Raul Salinas account was portrayed in a dubious light during the hearing. Robert Roach, Counsel to the Senate investigation, testified that the Relationship Manager’s role is to function as “in-house advocates” for the interests of their clients. Roach explained the services provided to Raul 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-fiancee 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.’ ’’
Citigroup was back in the news just last year over money laundering issues. The Justice announced on May 22, 2017 that Banamex USA, a unit of Citigroup, was being given a non-prosecution agreement and forfeiting $97.44 million. Banamex USA agreed to admit to criminal violations for “willfully failing to file Suspicious Activity Reports (SARs).” The Justice Department found the following had occurred:
“According to admissions contained in the NPA [non-prosecution agreement] and the accompanying statement of facts, from at least 2007 until at least 2012, BUSA [Banamex USA] processed more than 30 million remittance transactions to Mexico with a total value of more than $8.8 billion. During the same period, BUSA’s monitoring system issued more than 18,000 alerts involving more than $142 million in potentially suspicious remittance transactions. BUSA, however, conducted fewer than 10 investigations and filed only nine SARs in connection with these 18,000-plus alerts, filing no SARs on remittance transactions between 2010 and 2012.”
Now it could well be that Michael Cohen’s broker never worked under the Citigroup umbrella. He could be a long-time veteran of Morgan Stanley. This is what Morgan Stanley’s 2018 Code of Conduct has to say about such matters:
“Morgan Stanley’s reputation for integrity and excellence is essential to the Firm’s success. Franchise risk arises when a transaction, business practice, client or counterparty could damage Morgan Stanley’s reputation. Examples of issues that may give rise to franchise risk include:
- a client that is linked to alleged corruption, money laundering or other improper activities
- a transaction that lacks appropriate economic substance or business purpose
- a transaction or client that raises significant environmental or social risk issues
- a transaction that raises significant suitability or tax-related concerns
- a transaction that raises significant conflict of interest concerns”
Opening an account for the personal attorney to the President of the United States whose presidential campaign is under a Federal investigation involving lots of funny money and then watch as that account receives hundreds of thousands of dollars from a limited liability corporation that has been incorporated in the super secretive state of Delaware should have set off alarm bells in both the compliance department and with the broker at Morgan Stanley.
Other than Citigroup’s history, what else would make us think that this big Wall Street brokerage house might not have filed the mandated Suspicious Activity Report? Because that’s exactly what happened at the largest Wall Street bank, JPMorgan Chase, as it laundered money for Bernie Madoff for years.
On January 7, 2014 in a press conference called to announce two felony charges against JPMorgan Chase for its role in the Madoff Ponzi scheme, U.S. Attorney Preet Bharara, FBI Assistant Director-in-Charge George Venizelos, and the Director of FinCEN, Jennifer Shasky Calvery, assailed JPMorgan Chase for standing idly by while brazen money laundering occurred under its nose in the business bank account it held for Bernard Madoff while also ignoring its legally mandated duty to file Suspicious Activity Reports.
The gross dereliction of its duty was illustrated in a 2011 court complaint filed against JPMorgan by Irving Picard, the trustee of the Madoff victims’ fund. Picard told the court that “during 2002, Madoff initiated outgoing transactions to [Norman F.] Levy in the precise amount of $986,301 hundreds of times — 318 separate times, to be exact. These highly unusual transactions often occurred multiple times on a single day. As another example, from December 2001 to March 2003, the total monthly dollar amounts coming into the 703 Account from Levy were almost always equal to the total monthly dollar amounts going out of the 703 Account to Levy. There was no clear economic purpose for such repetitive transactions that had no net impact on Levy’s account at BLMIS [Bernard L. Madoff Investment Securities]. There was a huge spike in activity between Levy and the 703 Account in December 2001. In that month alone, Madoff engaged in approximately $6.8 billion worth of transactions with Levy…” (The term “703 Account” refers to Madoff’s primary business account at JPMorgan Chase which ended in the numbers “703.”)
And here was the final slap in the face to the U.S. Justice Department and FinCEN by JPMorgan Chase. The Bank did file a Suspicious Activity Report on the Madoff account with the U.K.’s Serious Organized Crime Agency (SOCA) on October 28, 2008 — but it failed to file the same report with U.S. authorities.