US Senate Report on Corruption and Income Laundering

U.S. Senate report suggests Asif Ali Zardari stole in excess of a single billion$ from Pakistan and Citibank assisted him in money laundering.

Through the period 1994 to 1997, Citibank opened and maintained a few non-public financial institution accounts in Switzerland and a consumer account in Dubai for a few companies below Mr. Zardari’s regulate. There are allegations that some of these accounts were utilized to disguise $10 million in kickbacks for a gold importing deal to Pakistan. Framework of Personal Financial institution Partnership. Mr. Zardari’s romance with Citibank began in Oct 1994, as a result of the expert services of Kamran Amouzegar, a non-public banker at Citibank non-public financial institution in Switzerland,and Jens Schlegelmilch, a Swiss attorney who was the Bhutto family’s lawyer in Europe and close personal pal for more than twenty several years.According to Citibank, Mr. Schlegelmilch represented to Mr. Amouzegar that he was performing for the Dubai royal family and he required to open some accounts at the Citibank department business office in Dubai. Mr.Schlegelmilch experienced a Dubai residency permit and a visa signed by a member of the Dubai royal family. Mr. Amouzegar agreed to introduce Mr. Schlegelmilch to a banker in the Citibank department business office in Dubai.

According to Citicorp, Mr. Schlegelmilch informed the Citibank Dubai banker that he required to open an account in the identify of M.S. Capricorn Trading, a British Virgin Island PIC. The stated reason of the account was to receive money and transfer it to Switzerland. The account was opened in early Oct 1994.

According to Citibank, Mr. Schlegelmilch informed the Dubai banker that he would provide as the agent of the account and the signatory on the account. Less than Dubai law, a financial institution is not required to know an account’s effective proprietor, only the signatory. Citibank informed the Subcommittee employees that Mr. Schlegelmilch did not reveal to the Dubai banker that Mr. Zardari was the effective proprietor of the PIC, and the account supervisor in no way asked him the identification of the effective
proprietor of the account. Rather, in accordance to Citibank, she assumed the effective proprietor of the account was the member of the royal family who experienced signed Mr. Schlegelmilch ’s visa. According to Citibank, the account supervisor really executed some because of diligence on the royal family member whom she considered to be the effective proprietor of the account.

Shortly just after opening the account in Dubai, Mr. Schlegelmilch signed a standard referral settlement with Citibank Switzerland non-public financial institution guaranteeing him twenty% of the initial a few several years of shopper internet revenues attained by the financial institution from just about every shopper he referred to the non-public financial institution.

On February 27, 1995, Mr. Schlegelmilch, performing with Mr. Amouzegar,opened a few accounts at the Citibank Switzerland non-public financial institution. The accounts were opened in the identify of M.S. Capricorn Trading, which currently experienced an account at Citibank’s Dubai department, as very well as Marvel and Bomer Finance, two other British Virgin Island Photos founded by Mr. Schlegelmilch, in accordance to Citibank. Just about every non-public financial institution account stated Mr. Schlegelmilch as the account speak to and signatory.Citibank informed the Subcommittee that the Swiss Type A, a governing administration- required effective proprietor identification type, discovered Mr. Zardari as the effective proprietor of just about every PIC.

Deficiency of Thanks Diligence. The selection to allow Mr. Schlegelmilch to open the a few accounts on behalf of Mr. Zardari, in accordance to Citibank,concerned officials at the highest concentrations of the non-public financial institution. The officials were: (a) Mr. Amouzegar, the non-public banker (b) Deepak Sharma, then head of non-public financial institution functions in Pakistan (c) Phillipe Holderbeke, then head of non-public financial institution functions in Switzerland (who grew to become head of the Europe, Center East, Africa Division in February 1996) (d) Salim Raza, then head of the EMEA Division of the non-public financial institution and (e) Hubertus Rukavina, then head of the Citibank non-public financial institution. Mr. Rukavina informed the Subcommittee employees that when he was asked about opening the Zardari accounts, he did not make the selection to open them, but alternatively directed that the matter be talked about with Mr.Sharma. According to Mr. Rukavina, he in no way heard whether or not the accounts were finally opened. Mr. Rukavina still left the non-public financial institution in 1996 and still left Citibank in 1999.
Citibank informed the Subcommittee employees that the non-public financial institution wasaware of the allegations of corruption versus Mr. Zardari at the time it opened the accounts in Switzerland. However, Citibank reasoned that if the expenses for which Mr. Zardari experienced been incarcerated for two several years experienced any advantage, they would not have been dropped. Financial institution officials also considered that the family prosperity of Ms. Bhutto and Mr. Zardari was big sufficient to assistance a big non-public financial institution account, even even though Citibank was not in a position to specify what actions were taken to verify the amount of money and supply of their prosperity. Citibank stated that financial institution officials were also informed of the M.S. Capricorn Trading account in Dubai, and they were comforted by the fact that there experienced been no problems with that account. According to Citibank, Mr. Amouzegar informed his superiors that Mr. Zardari was the effective proprietor of the Capricorn account in Dubai when they were looking at the request to open the accounts in Switzerland. Inexplicably, however, the Dubai account supervisor was evidently still operating below the assumption that the effective proprietor of the Dubai Capricorn account was a member of the Dubai royal family. Subcommittee employees have been not able to figure out whether or not Citibank officials were unaware of or inattentive to the really serious inconsistency between Citibank Switzerland and Citibank Dubai with regard to the Capricorn Trading account. Citibank also informed the ubcommittee employees that financial institution officials experienced some worries that if they turned down the accounts, their actions might have implications for the corporation’s functions in Pakistan however, they stated they in no way acquired any threats on that concern.

Citibank informed the Subcommittee employees the non-public financial institution determined to allow Mr. Schlegelmilch to open the a few accounts for Mr. Zardari on the condition that the non-public financial institution would not be the main accounts for Mr. Zardari’s property and the accounts would perform as passive investment accounts. Citibank informed the Subcommittee employees that Mr.Holderbeke signed a memo delineating the restrictions put on the accounts, together with a $forty million mixture limit on the sizing of the
a few accounts, and transaction restrictions demanding the accounts to perform as passive, secure investments, without various transactions or funding go-throughs. None of the Citibank staff interviewed by Subcommittee employees could identify any other non-public financial institution account with these types of restrictions. Other non-public financial institutions interviewed by the Subcommittee employees were asked if they experienced ever recognized a shopper on the condition that particular restrictions be imposed on the account. The financial institutions all stated they experienced not. One financial institution agent discussed that if the financial institution felt that it needed to put restrictions on the client’s account, it did not want that variety of shopper. The existence of the restrictions are in them selves proof of the non-public bank’s awareness of Mr. Zardari’s weak standing and worries with regards to the sources of his prosperity.

Movement of Resources. Citibank informed the Subcommittee employees that, as soon as opened, only a few deposits were created into the M.S. Capricorn Trading account in Dubai. Two deposits, totaling $10 million were created into the account pretty much straight away just after it was opened. Citibank documents exhibit that a single $five million deposit was created on Oct five,1994, and yet another was created on Oct 6, 1994. The supply of both equally deposits was A.R.Y. Intercontinental Exchange, a company owned by Abdul Razzak Yaqub, a Pakistani gold bullion trader dwelling in Dubai.

According to the New York Periods, in December 1994, the Bhutto governing administration awarded Mr. Razzak an exceptional gold import license. In an job interview with the New York Periods, Mr. Razzak acknowledged that he experienced utilized the exceptional license to import more than $500 million worthy of of gold into Pakistan. Mr. Razzak denies, however, generating any payments to Mr. Zardari. Citibank could not reveal the two $five million payments. Ms. Bhutto informed the Subcommittee employees that considering that A.R.Y. Intercontinental Exchange is a foreign trade business, the payments did not automatically occur from Mr. Razzak, but could have occur from a third social gathering who was basically generating use of A.R.Y.’s trade expert services. The employees invited Ms. Bhutto to offer supplemental details on the M.S. Capricorn Trading accounts, but she has not still performed so.

On February 25, 1995, a third deposit of $eight million was created into the Dubai M.S. Capricorn Trading account. Records exhibit that the payment was created as a result of American Specific, with the originator of the account stated as “Morgan NYC.” Citibank indicated it does not know who Morgan NYC is, nor does it know the supply of the $eight million.

All of the money in the Dubai account of M.S. Capricorn Trading were moved to the Swiss accounts in the Spring of 1995. On March 6, 1995,$ million was transferred and on Could five, 1995, yet another $10.2 million was transferred. Both of those transfers concerned U.S. dollars and were routed as a result of Citibank’s New York places of work. Citibank informed the Subcommittee employees that M.S. Capricorn Trading closed its Dubai account soon just after the final transfer was finished.

Citibank has indicated that significant quantities of other money were also deposited into the Swiss accounts. As described below, the $forty million cap was arrived at, and tens of millions of supplemental dollars also passed as a result of all those accounts. However, Swiss financial institution secrecy law has prevented the Subcommittee from obtaining the details on the transactions in the Zardari accounts.

Account Monitoring. Citibank informed the Subcommittee employees that, in 1996, the Swiss business office of the non-public financial institution conducted a number of opinions of the Zardari Swiss accounts, eventually selecting in Oct to close them.

The initial assessment was allegedly in early 1996, induced by raising publicity about allegations of corruption versus Mr. Zardari. Citibank informed the Subcommittee employees that Messrs. Holderbeke, Raza, Sharma and Amouzegar participated in the assessment, and evidently concluded that the allegations were politically inspired and that the accounts should keep on being open. The Subcommittee employees was informed that the assessment did not consist of looking at the accounts’ transaction activity.

In March or April, 1996, Mr. Amouzegar asked that the all round limit on the Zardari accounts be increased from $forty million to $60 million, Apparently mainly because the accounts experienced arrived at the earlier imposed limit of $forty million. Citibank informed the Subcommittee employees that Mr.Holderbeke regarded the request, but declined to boost the $forty million limit.

In June, push stories in the United Kingdom that Mr. Zardari experienced obtained authentic estate in London induced still yet another assessment of the Zardari accounts. Citibank non-public financial institution informed the Subcommittee employees that its Swiss business office internally talked about the supply of the money for the home purchase. Mr. Amouzegar and Mr. Raza then satisfied with Mr.Schlegelmilch, who allegedly informed them that money experienced been deposited into the Citibank accounts, transferred to yet another PIC account exterior of Citibank and utilized to purchase the home. Mr.Schlegelmilch allegedly indicated the money experienced occur from the sale of some sugar mills and were legitimate. Citibank informed the Subcommittee employees it is not absolutely sure if any person at the non-public financial institution attempted to validate the details about the sale of the sugar mills. In addition, even even though this account activity violated the condition imposed by Citibank that the accounts were not to be utilized as a go as a result of for money, the accounts were held open.

Closing the Accounts. In July 1996, just after Mr. Amouzegar still left the non-public financial institution to open his own company, yet another non-public banker, Cedric Grant, took in excess of administration of the Zardari accounts. Citibank informed the Subcommittee employees that Mr. Grant began to assessment the Zardari accounts about a single thirty day period later on to familiarize himself with them. He also reviewed the transactions that experienced taken put inside the accounts.

In September and Oct 1996, push accounts in Pakistan regularly elevated concerns about corruption by Mr. Zardari and Ms. Bhutto, as Ms. Bhutto’s re-election marketing campaign increased its routines prior to a February election date. In September, Ms. Bhutto’s only surviving brother, Murtaza Bhutto, was assassinated, and Ms. Bhutto’s mom accused Ms. Bhutto and Mr. Zardari of masterminding the murder,mainly because the brother experienced been leading opposition to Ms. Bhutto.

In Oct, Mr. Grant finished his assessment of the Zardari accounts and provided a penned analysis to Messrs. Holderbeke, Sharma and Raza,in accordance to Citibank. Mr. Grant experienced uncovered many violations of the account restrictions imposed by Citibank, together with various transactions and funding go-throughs. Citibank informed the Subcommittee employees that the accounts experienced functioned more as checking accounts than passive investment accounts, specifically opposite to the non-public bank’s
restrictions. Apparently, very well in excess of $forty million experienced flowed as a result of the accounts, even though Subcommittee employees were not able to determine the true amount of money mainly because Swiss financial institution secrecy law prohibits Citibank from sharing that details with the Subcommittee. Citibank indicated that Mr. Amouzegar experienced both dismissed or did not pay out awareness to the account activity. Mr. Grant advised closing the accounts, and they were closed by January 1997.

Lawful Proceedings. On September eight, 1997, the Swiss governing administration issued orders freezing the Zardari and Bhutto accounts at Citibank and a few other financial institutions in Switzerland at the request of the Pakistani governing administration.
Considering the fact that Citibank experienced closed its Zardari accounts in January 1997, it took no action nor did it make any effort and hard work to notify U.S. authorities of the accounts until eventually late November 1997. Citibank contacted the Federal Reserve and OCC about the Zardari accounts in late November,in anticipation of a New York Periods posting that ultimately ran in January 1998, alleging that Mr. Zardari experienced recognized bribes, and that he held Citibank accounts in Dubai and Switzerland. On December eight and 11, 1997, Citibank briefed the OCC and the Federal Reserve,respectively, about the accounts and the techniques it experienced taken as a
result of the Zardari matter. These techniques bundled: closing all of the accounts that experienced been referred by Mr. Schlegelmilch to the non-public financial institution and terminating his referral settlement examining all of the accounts opened in the Dubai business office and tightening up account opening procedures in Dubai, together with demanding the Dubai business office to identify the effective proprietor of all Dubai accounts. Citibank did not identify any variations created or prepared for the Swiss business office, even even though the
majority of the activity with regard to the Zardari accounts experienced taken put in Switzerland.

On December five, 1997, Citibank ready a Suspicious Exercise Report on the Zardari accounts and filed it with the Money Crimes Enforcement Community at the U.S. Office of Treasury. The submitting was created fourteen months just after its selection to close the Zardari accounts thirteen months just after Mr. Zardari was arrested a 2nd time for corruption in November 1996 and almost two months just after the Swiss governing administration experienced requested four Swiss financial institutions (together with Citibank Switzerland) to freeze all Zardari accounts.

In June 1998, Switzerland indicted Mr. Schlegelmilch and two Swiss businessmen, the previous senior govt vice president of SGS and the taking care of director of Cotecna, for money laundering in link with kickbacks compensated by the Swiss organizations for the award of a governing administration deal by Pakistan. In July 1998, Mr. Zardari was indicted for violation of Swiss money laundering law in link with the similar incident. Ms. Bhutto was indicted in Switzerland for the similar offense in August 1998. A trial on the expenses is predicted.

In Oct 1998, Pakistan indicted Mr. Zardari and Ms. Bhutto for accepting kickbacks from the two Swiss organizations in trade for the award of a governing administration deal. On April fifteen, 1999, just after an 18-thirty day period trial, Pakistan’s Lahore Large Court docket convicted Ms. Bhutto and Mr.Zardari of accepting the kickbacks and sentenced them to five several years in jail, fined them $eight.6 million and disqualified them from keeping community business office. Ms. Bhutto, who now lives in London, denounced the selection. Mr. Zardari continues to be in jail. Extra prison expenses are pending versus both equally in Pakistani courts.

On December 11, 1997, Citicorp’s Chairman John Reed wrote the next to the Board of Directors:

“We have yet another concern with the partner of Ex-Primary Minister Bhutto of Pakistan. I do not still comprehend the details but I am inclined to imagine that we created a mistake. Extra reason than ever to rework our Personal Financial institution.” Mr. Reed informed the Subcommittee employees that it was the combination of the Salinas and Zardari accounts that created him charge Mr. Aziz, the new non-public financial institution head, with taking a tricky search at the bank’s community determine coverage and community determine accounts.

The Zardari circumstance history raises challenges involving because of diligence, secrecy and community determine accounts. The Zardari circumstance history commences with the Citibank Dubai branch’s failure to identify the real effective proprietor of the M.S. Capricorn Trading account. As a result, the account officer in Dubai executed because of diligence on an specific who experienced no romance to the account getting opened. In Switzerland,Citibank officials opened a few non-public financial institution accounts inspite of proof of impropriety on the aspect of Mr. Zardari. In an job interview with Subcommittee employees, Citigroup Co- Chair John Reed informed the Subcommittee employees that he experienced been suggested by Citibank officials in planning for a excursion to Pakistan in February 1994, that there were
troubling accusations about corruption bordering Mr. Zardari,that he should continue to be absent from him, and that he was not a person with whom the financial institution required to be linked. Nonetheless a single year later on, the non-public financial institution opened a few accounts for Mr. Zardari in Switzerland. Mr. Reed informed the Subcommittee employees that when he realized of the Zardari accounts he thought the account officer must have been “an idiot.”

Citibank has been not able to verify that financial institution workforce confirmed that Mr. Zardari experienced a degree of prosperity sufficient to assistance the sizing of the accounts that he was opening. In addition, the Swiss non-public banker took no action to validate the legitimacy of the supply of the money that were deposited into the account. For instance, there was no effort and hard work created to verify the statements that some of the money derived from the sale of sugar mills.

Citibank also executed no because of diligence on the shopper owned and managed Photos that were the named accountholders. Mainly because the Photos were shopper-created, the bank’s failure to conduct because of diligence on the Photos intended that it experienced no information of the routines, property or entities concerned with the companies. One of the Photos, Bomer Finance, has been identified to have been a repository for kickbacks compensated to Mr. Zardari, and all those kickbacks tainted money deposited at the Geneva department of Union Financial institution of Switzerland. Documentation has not been created accessible to figure out whether or not Bomer Finance also utilized its Citibank account for illicit money.

Another because of diligence lapse was the non-public bank’s failure to watch the Zardari accounts to make sure that the account restrictions imposed on them were getting adopted. When officials were presented with proof in 1996 that the restrictions were getting violated, they even so allowed the accounts to go on.

The Zardari accounts in Switzerland were opened a single working day right before Raul Salinas was arrested. The account was regularly reviewed in 1996,just after the Salinas scandal grew to become community. Nonetheless there is no proof that any person in the non-public financial institution experienced been sensitized to the problems linked with handling an account of a particular person suspected of corruption.

The Zardari instance also demonstrates the realistic consequences of secrecy in non-public banking. Citibank statements that its decisionmaking in the Zardari matter cannot be absolutely discussed or documented, considering that all Citibank officials are matter to Swiss secrecy guidelines prohibiting discussion of shopper-unique details. In gentle of the fact that U.S. financial institutions are intended to oversee their foreign branches and implement U.S. law, together with anti-money laundering prerequisites, this incapability
to develop documentation similar to a troubling circumstance all over again highlights the problems with U.S. financial institutions selecting to operate in secrecy jurisdictions.

Pattern of Lousy Account Administration. The Zardari circumstance history took put during a collection of critical internal and federal audits between 1992 and 1997 of the Swiss business office which, during most of that time,served as the headquarters of the non-public financial institution. The shortcomings discovered in the audits bundled insurance policies, procedures, and problems that afflicted the administration of the Zardari accounts.
They bundled:

Failure of the “corporate culture” in the Swiss business office to foster ” ‘a local weather of integrity, ethical conduct and prudent chance taking’ by U.S. standards” insufficient because of diligence “less than appropriate internal controls” absence of oversight and regulate of third social gathering referral agents these kinds of as Schlegelmilch and insufficient checking of accounts all of which resulted in “unacceptable” internal audit rankings. In December 1995, the Swiss business office acquired the cheapest audit rating acquired by any business office in the non-public financial institution during the nineteen nineties. These audit scores suggest the office’s weak handling of the Zardari accounts was aspect of an ongoing pattern of weak account administration.

These allegations were also talked about in the push. See, e.g., “The Troubled Reign of Bhutto II,” Los Angeles Periods (five/seventeen/1994) (”Many Pakistanis blame Bhutto’s abrupt elimination in August, 1990, on the unsavory standing obtained by her partner, Asif Zardari, a polo-enjoying contractor dubbed ‘Mr. 10 Percent’ for the rake-off he was stated to take from governing administration contracts.”)

Mainly because of their central function in drug trafficking and arranged criminal offense, money laundering routines have been the matter of eight prior investigations of the Long lasting Subcommittee on Investigations.
Inspite of raising global awareness and more powerful anti-money laundering controls, some present estimates are that $500 billion to $one trillion in prison proceeds are laundered as a result of financial institutions globally just about every year, with about 50 % of that amount of money moved as a result of United States financial institutions.

This report summarizes the Minority Subcommittee employees investigation to date into U.S. non-public financial institutions and their vulnerability to money laundering. The investigation has uncovered that the solutions, expert services and tradition of the non-public banking marketplace present alternatives for money launderers, and that without seem controls and energetic enforcement, non-public banking expert services have been and will go on to be utilized by all those intent on laundering money.