PANAMA'S BANKS LOSE THEIR CORRESPONDENT ACCOUNTS IN US

Multiple sources in Panama City are reporting that several local financial institutions have lost their correspondent accounts in the United States, and American bank clients seeking to transfer funds to the Republic are unable to complete any wire transactions through those correspondents. Banco General SA and Banco Nacíonal de Panama SA are among those who reportedly are now without any means of receiving funds from the United States financial structure.

To add to the unease in Panama City, Banco General is alleged to be currently under investigation by a US law enforcement agency, together with a number of other banks. Americans who own businesses in Panama are now completely unable to pay their staff, and to cover  expenses incurred in the normal course of business. Given Panama's strong laws regarding employee rights, absentee owners face immediate civil, as well as even criminal, liability, for non-payment of salaries and social security taxes.

Additionally, if nonresidents cannot pay their mortgages on Panamanian real estate holdings, the banks will foreclose; personal property or other assets of foreign investors could also be seized, with or without legal action, if Americans default on their obligations.

The abrupt American termination of correspondent account relationships, with banks located in several small Caribbean tax havens, has left several other countries in the region without the ability to transact business with US companies, and there does not seem to be a solution to this vexing problem.

MOSSACK AND FONSECA THREATENS TO SUE JOURNALISTS

In the height of arrogance, the Panama law firm of Mossack and Fonseca has publicly threatened to sue the media sources that broke the "Panama Papers" story, claiming attorney-client privilege. Perhaps the partners need to go back to law school, for the Crime or Fraud Exception specifically provides that, when a lawyer is engaged in criminal conduct with his clients,  even if he is unaware that he is participating in a crime, the privilege does not apply. The firm cannot hide behind the shield of confidentiality, when it facilitates criminal activity, and is also willfully blind.

It might be relevant to make the observation at this time that most of the corporation work is done by the large staff of paralegal assistants, and legal secretaries. Many clients do not have contact with  a lawyer, nor are they personally counseled by one, regarding their rights and responsibilities. They just get a huge bill from a staff member before leaving the office, often for a BVI company, which was formed by financial services staff in Roadtown, Tortola.

I also note that the "underground" branch offices, which are in principal cities around the world, do not feature an attorney on staff. Perhaps the Mossack firm might like to explain how the privilege applies when there's no lawyer around,

SHOULDN'T THEY REALLY BE CALLED THE BVI PAPERS ?

Lawyers in Panama who have read my article, detailing that most of the companies formed by the law firm of Mossack and Fonseca were incorporated, not in Panama, but in the British Virgin Islands (BVI), where the notion of disclosure of Beneficial Ownership is a fantasy, are asking the question: Seriously, should it not be designated the BVI PAPERS ?

And should the UK Government, through its highest local official, be held to account for allowing the Overseas Territory to become the center of attention of the world's law enforcement community ? Bloody bearer shares, indeed ! Shame on the Foreign & Commonwealth Office for governmental malpratice.

SEARCH THE PANAMA PAPERS YOURSELF

Readers who wish to inquire whether the latest data dump of the "Panama Papers," the Mossack and Fonseca files released on Monday, contains any names of bank clients, customers, vendors, judgment debtors, or other persons of interest, can access the searchable database here, on the website of the International Consortium of Investigative Journalists.

CAYMAN ISLANDS CONTINUES TO AVOID THE ISSUES WITH UK ON BENEFICIAL OWNERSHIP

The Government of the Cayman Islands continues to decline to participate with the United Kingdom, in its uniform plan to insure that UK Overseas Territories have transparency, regarding beneficial ownership of corporations. Whether the alternative policies and procedures advanced by senior Cayman officials are a deliberate attempt to insure that beneficial ownership of its companies remains opaque is not known, but they will neither be effective, nor advisable, given the growing world awareness of the abuse of offshore companies, by tax cheats, and criminal elements.

The UK Exchange of Notes, which is designed to be adopted by all Overseas Territories, requires:

(1) A Central Registry of information, accessible to UK regulators and law enforcement agencies, via  a central point of contact.
(2)  A real-time source of information, and not one that must require multiple inquires, or other requirements that will allow dilatory tactics, when inquiries are made.
(3) A prohibition on notification of the companies, or individuals, that are the object of the inquiry.

The Cayman Islands plan:

(A) Requires only the corporate service providers to retain the Beneficial Ownership in their records.
(B) UK inquiries would be routed through a  Cayman Government agency, who would then obtain the information, and pass it along to the UK.
(C) It envisions using CIMA as the intermediary.

The Cayman plan is fatally flawed; it will not prevent the island's service providers from entering bogus information, deleting data when it is requested, or delaying ad infinitum any request for information. Cayman service providers are generally not licensed professionals. Therefore, there is no effective method of discipling them, should they delays for months, or notify the target of an investigation.

The use of CIMA is also not wise, as the agency has a long history of conducting investigations that take years, and are rarely completed, as well as allegations of corruption, including the alleged receipt of bribes, to delay, or even kill, investigations, by its staff, many of whom now hold assets that grossly exceed their income levels.

The entire Cayman transparency issue is further complicated by the fact that Cayman Islands corporate service providers often use BVI companies, to add an additional layer of opacity. This tactic must also be properly handled, in order to insure total transparency, to avoid clever subterfuge. using BVI companies as a screen.

If the Cayman Islands truly wants to reform, it need to adopt the UK plan; to do otherwise will most likely result in its placement on a future Blacklist, and a corresponding reduction in its attraction as an offshore financial center, not to mention additional foreign law enforcement and regulatory attention.  

DUNDEE PLACED CLIENT FUNDS IN OFFSHORE BANK UNDER IRS INVESTIGATION

A Cayman Islands shell bank, currently a defendant* in a civil suit in Grand Court, transferred client funds to an offshore bank that was under criminal investigation by the Internal Revenue Service. When Dundee Merchant Bank. popularly known as Dundee Bank, moved investment capital of Canadian clients offshore, it placed millions of dollars in accounts at the Bank of Butterfield & Son, Ltd., which has branches in Bermuda and the Cayman islands, notwithstanding that the bank was known to be under IRS investigation, for facilitating tax evasion.

Supoenas had previously been issued against the bank, by the Internal Revenue Service, in 2013, and the bank later admitted it was under investigation, in its public filings. Subsequently, Butterfield Bank publicly advised that it was withholding, and had reserved, $4.8m, to cover the anticipated fines and civil penalties that American regulators were expected to impose upon the bank.

Dundee Merchant Bank**, which is a wholly-owned subsidiary of Canada's Dundee Corporation, either failed to engage in any due diligence whatsoever regarding Butterfield Bank, or ignored it altogether. Either alternative constitutes gross negligence, and breach of fiduciary responsibility, chargeable to both the bank, and its parent.

Furthermore,  Dundee illegally comingled its clients funds, while engaging in a major deception, by assuring clients that each one had a specially-designated account at Butterfield Bank; this was a misstatement of material fact, made to customers by Dundee Merchant Bank President Derek Buntain, and Senior Vice President Sharon Lexa Lamb. Buntain fled Grand Cayman after the scandal broke, and is currently living in Canada.

 The funds of many of the Canadian investors were later illegally drained, and millions of dollars are missing, and presumed lost. Canadian securities trader, Ryan Bateman, reportedly placed a significant amount of the victims' money in his trading accounts at US banks.

Questions are certain to be raised, in the three pending court proceedings, including two in Ontario, regarding the role of certain Dundee Corporation executives, in the decision to place client money in a dodgy bank that was guilty of aiding and abetting tax evaders, and under criminal investigation. Such a command decision could only have been authorized by Dundee Corporation, as Dundee Merchant Bank, as its controlled subsidiary, took no independent action on major policy decisions.

The Cayman Islands Monetary Authority (CIMA) has never taken any action to order Dundee Bank to file liquidation proceedings in Cayman courts, raising the issue of whether corruption had a role in its inaction, or whether it was a case of regulatory malpractice, and malfeasance in office, of a government agency.

__________________________________________________________________________
*Lawrence Beverly Heath et al vs. The Dundee Merchant Bank and Sharon Lexa Lamb, Grand Court of the Cayman Islands, Cause 202 of 2015.

**Dundee Merchant Bank, upon information and belief, was ordered closed by Canadian regulatory authorities, when its parent bank was sold off, as Dundee, having only a "B" class license in Cayman, could not operate without a full-service international bank maintaining supervision and assistance. Notwithstanding public information released, the bank has never been properly liquidated, under Cayman law, nor deposits returned to its customers and clients. and it is believed to be insolvent.





  

WAS HONG KONG UNIVERSITY USING BVI COMPANY TO MOVE DONOR'S MONEY OFFSHORE ?

Recent Panama Papers disclosures included details of the formation, by Mossack and Fonseca, of British Virgin Islands companies, by a university situated in Hong Kong. The facts raise an interesting question: was the university using an offshore corporation to covertly move cash, of one of its largest benefactors (he donated $2m) , out of the Peoples' Republic ? Or was it illicit money of Chinese PEPs ?

Ordinarily, we would not find the BVI company formation suspicious, or unusual, as other Hong Kong schools of higher education have also obtained offshore companies in this fashion, but there are a number of red flags:

(1) The school failed to report the companies in its financial statements and reports, which is curious.
(2) the school went to the Hong Kong office of Mossack & Fonseca, rather than its usual suppliers of services.
(3) Considering the availability of offshore corporations, formed in tax haven jurisdictions located in the Asia/Pacific region, one wonders why the university chose the BVI, which is notorious for the opaque nature of its corporation laws, the difficulty of obtaining documents in a timely manner, and the widespread use of BVI companies, by the Mossack firm, for dodgy purposes.

The facts raise two questions:

(A) Were these university-controlled companies use in a pipeline, through which funds of a wealthy Mainland Chinese businessman, with close ties to senior government officials, were moved offshore ?

or

(B) Were the BVI companies used, by the donor, to move illegal bribes and kickbacks, obtained by senior Chinese officials, out of the country ? After all, who would suspect a university of such conduct.

One wonders whether the use of legitimate front entities, to transfer and launder money, was a standard policy of the law firm of Mossack and Fonseca ? If so, we will probably see more examples of such amoral conduct, as additional Panama Papers documents and files are made public.

WAKED MONEY LAUNDERING ORGANIZATION WORKED WITH RICARDO MARTINELLI AND GARY LUNDGREN

The Wakeds

Not mentioned in the many stories published this week concerning the Waked Money Laundering Organization of Panama, are details about who the Wakeds did business with, as they moved, cleaned and invested dirty cash, both for their clients, and for themselves. These are individuals and entities not yet designated by OFAC, but who should be exposed, for the protection of Panama's legitimate businesses.

The pending criminal investigation should expand to include two prominent individuals who have a long history of involvement in money laundering, and who are known to have been closely linked to Waked: Former Panamanian President Ricardo Martinelli, and Gary James Lundgren, the Alaskan native who runs a dodgy investment conglomerate in Panama City.

(1) Martinelli's "Super 99" supermarket chain, which cleaned millions of dollars in Colombian drug profits, including narco-cash turned over to David Murcia Guzmán for laundering, is suspected of being an outlet for bulk cash from Waked. This was before Martinelli was elected president.

Ricardo Martinelli

(2) Gary Lundgren accepted bulk cash from Waked, and regularly sold the organization Panama City real estate: office and residential condominiums. This has been confirmed, due to the fact that Lundgren later defrauded Waked out of one of the condo units, and the organization threatened his life, necessitating the two omnipresent bodyguards that we see hovering around Lundgren at all times.

Gary Lundgren

Add this to the fact that Martinelli and Lundgren had a direct relationship, and a picture of a widespread money laundering network emerges, which includes the Waked Organization. Both Martinelli and Lundgren repeatedly placed bulk cash into several of Panama's suspect banks, and the US investigation should be expanded to include them, and others who assisted in the illicit money movement.

SOME ADVICE FOR BANKS SEEKING TO HOLD CUSTOMERS TO THE NEW 25% CDD RULE

Treasury has promulgated its Final Rule on Customer Due Diligence for corporate bank accounts, meaning that financial institutions must perform a due diligence investigation on all 25% shareholders, as well as anyone to effectively controls a corporation. The details can be found here.

The problem is that, considering that some really sharp lawyers will find effective ways to evade the requirements, within the law, compliance officers should recommend the following:

(1) Demand color copies, front and back, or all stock certificates. (Are any of them endorsed in blank ?)
(2) require a copy of the Stock Transfer ledger, which is an internal corporate record of all stock certificates issued, sold, transferred, or returned. Where is it being kept ?
(3) Get an Opinion of Counsel, from the clients' local, onshore law firm listing the shareholders. Remember, lawyers have a law license to protect, and will ensure that it is accurate, or they could be liable, and possibly suffer bar discipline, if it is not.
(4) Obtain a signed, notarized agreement, with the client, that any sales, transfers or otherwise change in ownership of any stock will be reported to the bank, forthwith, via registered mail. This will keep your clients honest. Obtain the president's signature, as well as that of the treasurer, on the agreement.

Unless you secure the equivalent of this suggested course of action, you cannot guarantee that the clients will not subsequently transfer the stock to OFAC-sanctioned individuals, or other undesirable individuals or entities. Keep your banks clients honest by insisting that they comply, or close the accounts.     

MOSSACK AND FONSECA EMPLOYED MONEY LAUNDERING TRADECRAFT BY USING CHARITIES' NAMES

The fact that the law firm of Mossack & Fonseca used the names of legitimate global charitable organizations as cover for their dirty clients is further evidence that the partners at that firm had left their profession as attorneys, and crossed over into the dark side as money launderers, plain and simple. it also demonstrates that there was nothing they would not do to conceal their clients' illicit assets from public view. There's nothing sacred to laundrymen; they know that legitimate businessmen trust charities, and would not think to look for suspicious activities there.

The abuse of the names of legitimate and respected entities is a central component of the tradecraft of money laundering. By illegally placing the names of these nonprofits as beneficiaries of bogus Panamanian foundations, MF demonstrated who they really were: financial criminals.

One additional technique they utilized, the use of a deceptively similar, but different, name, is common in money laundering. MF slightly changed the legal name of the Red Cross. This was intentional, as the use of a name that appears to be that of a legitimate company, but under close inspection, is somewhat different, is how money launderers often trick the legitimate financial community.

With the next exposure of Panama Papers documents expected soon, we will continue to see how Mossack and Fonseca employed classic money laundering techniques to hide illicit funds, and then assist in laundering them for career criminals, drug kingpins, corrupt political leaders, and Politically Exposed Persons (PEPs). We will probably find the names of additional well-known charities, and non-profit organizations, being abused.

EUROPEAN CENTRAL BANK TO DISCONTINUE THE €500 NOTE

Looking at the news this week, regarding the fact that the European Central Bank (ECB) has advised that, after next year, it will discontinue printing and distributing its €500 note, I have a point to make. Turn the clock back to the 1990s, when the EU was planning the switch to the Euro, from national currencies, I wrote an article, predicting that the large note would facilitate bulk cash smuggling, and thereby money laundering.

Of all the major media in Europe, only the Guardian saw fit to print my warning. Now, with the €500 note having played a major role in European, and indeed, global, money laundering, someone at the ECB has finally agreed with me. I wonder how many money launderers have now advised their clients to immediately divest themselves of their cash stash of the 500s, and switch to the €200, lest they later are questioned, when they deposit the big notes after 2018.

DEFROCKED SECURITIES TRADER GARY LUNDGREN PAYS HIS STAFF WITH SALT-ENCRUSTED DRUG CASH SMUGGLED IN FRON COLOMBIA

Gary James Lundgren, the Alaskan native, and Panama resident, whose US licenses to sell securities were revoked for life by FINRA, has a curious way of paying his staff, vendors, and others whom he transacts business with. He pays them in a special kind of cash that ordinarily never sees the light of day: drug profits, smuggled in from Colombia.

Here's how we know what Lundgren is using. A decade ago, he was one of the money launderers for David Murcia Guzmán, the pyramid/Ponzi schemer who used his "legitimate" business as a cover for the laundering of narco-cash. Murcia shipped the drug dollars into Panama, at night, covertly on fast speedboats, in large duffel bags, and plastic garbage bags. This bulk cash smuggling was conducted for several months.

While en route, sometimes the cash would be sprayed with Pacific Ocean saltwater. When it came in Lundgren's hands, he often had damp money to clean. it now appears that he retained physical custody of a large portion of the cash entrusted to him, when Murcia was arrested, and summarily deported to, first Colombia, and then the United States, to face multiple charges related to his Ponzi scheme.

If you have ever gotten your wallet wet while on the high seas, the cash, after it dries, tends to retain a unique, somewhat rotten, odor. This week, one of Lundgren's tradesmen noticed the exact smell on cash that was given to him, by Gary Lundgren, as payment for services rendered. Gary reportedly also pays his staff, vendors, and other payees, the same way.

We wonder exactly how many millions of dollars, in Murcia drug cash, Gary Lundgren stole, and still has on hand. Remember, David Murcia moved as much as $3bn into Panama, and most of it has never been accounted for. Just how much of this remains in Gary Lundgren's hands is, I am sure, a question that several American law enforcement agencies would like to know, as well as the location of the storage facility where it resides.

PANAMANIAN BANKS NOW REFUSE TO ACCEPT FOREIGN CHECKS

In an obvious response to the pressures that have arisen as the result of the publication of the Panama Papers documents, many financial institutions in the Republic of Panama are now refusing to accept checks, drawn on foreign banks, for deposit into their accounts. This has been confirmed by local businesses in Panama City, who have been rebuffed when they attempt to make deposits of checks of foreign banks.

This new development will seriously undermine the payment of expenses, including salaries, by foreign-owned Panama City businesses, who have resorted to the use of checks, after American & Canadian banks have allowed their clients to wire only a small amount of funds to Panama, or totally refused to send any money to Panamanian financial institutions.

Considering that non-payment of employee salaries, as well as defaulting upon Social Security remittances, are considered serious offenses in Panama, foreign-based employers in Panama City are finding themselves at risk, and may be forced to consider shuttering their businesses altogether, lest they find themselves facing criminal charges, which could be extraditable offenses. Also, those businesses that must pay their outstanding debts to government agencies in cash, as is generally required, will not be able to get the dollars they need to satisfy those obligations.

What this will do to the already shaky economy of Panama cannot yet be calculated, but it represents a clear and present danger. With employees unable to be paid, they will refuse to show up for work, disrupting the ordinary conduct of many businesses in the country's capital, and bumping up Country Risk to an extraordinary level.

These new measures will force legitimate businesses, who want to remain open, to purchase dollars from criminal elements who are seeking to launder narcotics proceeds, and to bulk cash smuggle greenbacks into Panama, both of which will strengthen criminal operations in Panama, especially, the Black Market Peso Exchange. 

DEA BUSTS MASSIVE PANAMANIAN MONEY LAUNDERING OPERATION

The Drug Enforcement Administration (DEA) has announced the arrest of Nidal Waked, by the Colombian National police, at Bogota Airport; Waked, alleged to be one of the world's largest money launderers, has been indicted in US District Court in Miami, on money laundering and bank fraud charges.

At the same time, the Office of Foreign Assets Control (OFAC) has designated 68 companies involved in Waked's international money laundering network, which utilizes Panama's Colon Free Trade Zone (Zona Libre) to launder drug proceeds, as well as six of Waked's known associates, including:
(1) Balboa Bank & Trust
(2) Grupo Wisa, SA
(3) Vida Panama (Zona Libre) SA

According to the DEA, the participants engaged in:
(A) False Commercial Invoicing
(B) Bulk Cash Smuggling
(C) Trade-Based Money Laundering

Due to the extensive use, by the Waked organization, of a wide variety of Panamanian businesses to launder narco-cash, readers who are at financial institutions whose clients have any businesses with Panama are urged to review the complete list of OFAC-sanctioned entities and individuals, lest they unwittingly continue to maintain a financial relationship prohibited by law. Please note that some businesses involved, including hotels, shopping malls and newspapers, will be granted limited OFAC licenses. You are urged to view the Resource Center section at http://www.treasury.gov/ and go to "Financial Sanctions."

The effect of this case upon Panama's economy cannot be calculated at this time, but it will most  certainly affect Country Risk, as it draws attention to the massive amount of money laundering that exists in the Colon Free Trade Zone, as well as the abject failure of Panamanian law enforcement to control it. The Waked organization has openly conducted its money laundering operations for at least a decade, and has well-established ties to the country's Middle Eastern Organized Crime Syndicate.

SHOULD AMERICAN REAL ESTATE PROCESSIONALS TAKE THE PANAMA PAPERS AS A WARNING ?

Given the intense interest, in tax haven corporations, generated by the information released in the Panama Papers scandal, real estate professionals in the United States should follow a prudent course of action, and create an AML/CFT compliance program in-house, to insure that they will not be the subject of unwanted law enforcement attention, or even criminal indictment, for failing to apply effective Know your Customer procedures.

It is humbly suggested that all those involved in the real estate sector consider these steps, though voluntary under existing laws, as measures which they should consider mandatory, for proper risk reduction in their firm. All real estate offices should follow this course of action:

(1) Create an anti-money laundering compliance program, with a written compliance manual.
(2) Designate a Compliance officer, and see that he or she is properly trained.
(3) Conduct a semi-annual AML/CFT training program for all employees, including the support staff.
(4) Arrange for an outside compliance audit, on a semi-annual basis.
(5) Reach out the regulatory and law enforcement community, and build a network of contacts, whom you may call upon with questions about operations, as well as suspicious individuals or entities.