Standard & Poor's, the credit-rating agency, has already downgraded its rating of Andorra (one-fifth of whose economy relies on banking) as a result of the spreading scandal. With this in mind, we look at the actual allegations that the US Financial Crimes Enforcement Network (FinCEN) has made against Banco Privada de Andorra.

The downgrading of Andorra is a blow to the Pyrennean principality because it is highly dependent on its banking sector, which makes up some 20% of its GDP. This comes less than 2 months since 6 March, when the Director of FinCEN (to whom the Secretary of the Treasury delegated the privilege) used s311 USA PATRIOT Act to classify the bank as “of primary money laundering concern,” which opens the door to him requiring US financial institutions and financial agencies to take certain “special measures” to address the problem. The report that FinCEN eventually released on BPA painted the portrait of a veritable money-laundering shop. In FinCEN's words: “It is difficult to assess on the information available the extent to which BPA is used for legitimate business purposes.”

The so-called “fifth special measure” that FinCEN is proposing to impose in the Federal Register under section 5318A(b)(5) of the US Criminal Code calls for a prohibition against US financial institutions opening or maintaining correspondent accounts for or on behalf of the Andorran bank after the effective date of the final rule that brings it into being.

Profile of a money-laundering shop

Banco Privada de Andorra or BPA is the fourth largest of a total of five Andorran banks and is a subsidiary of the BPA Group, a privately-held entity. It was founded in 1962 and has €1.79 billion in assets and provides private banking services, corporate banking services and small-scale personal banking. It has seven domestic branches in Andorra and five foreign branches that operate in Spain, Switzerland, Luxembourg, Panama, and Uruguay. It has fewer domestic and foreign branches than the other major banking groups in Andorra. BPA’s Panamanian branch is licensed as an offshore bank by the Superintendecia de Bancos de Panama. It provides services to high-risk customers including international shell companies, money-transmitters that may be unlicensed and senior foreign political officials. FinCEN found that it had four US correspondent accounts – these may no longer be operating. These are thought to be with Bank of America, Citigroup, Deutsche Bank and HSBC.

FinCEN concluded that several of BPA’s top managers in Andorra facilitated financial transactions on behalf of so-called “third-party money-launderers,” providing services for individuals and organizations involved in organized crime, corruption, smuggling, and fraud.

These “third-party money-launderers” or TPMLs (which can include 'gatekeepers' to the financial system such as lawyers and accountants) established close relationships with complicit bank staff who processed illicit transactions for them.

Case study 1

Between 2011 and February 2013, High-Level Manager A at BPA in Andorra colluded with Andrey Petrov, a TPML who worked for Russian criminal organizations engaged in corruption. Petrov used the proceeds of transnational organized crime to bribe officials in Spain, secured beneficial 'zoning rights' (whatever they are) and contracts from a local official. He is thought to be connected to Semion Mogilevich, one of the FBI’s “ten most wanted” fugitives.

After Petrov’s application for a line of credit at a Spanish bank was rejected, High-Level Manager A ensured that Petrov could obtain a line of credit fromanother Spanish bank and that the application would not be perceived as suspicious. In February 2013, Spanish police arrested Petrov and several associates for laundering approximately €56 million.

Case study 2

In another scheme, a Venezuelan TPML (“TPML 2”) and his network relied on BPA to deposit the proceeds of public corruption. They worked closely with high-ranking government officials in Venezuela, resident agents in Panama, and an Andorran lawyer to establish Panamanian shell companies. The money laundering network owned hundreds of shell companies and engaged in other criminal business. Its money-laundering methods included false contracts, mis-characterised loans, over- and under-invoicing and other trade-based manoeuvres.

TPML2 had a relationship with High-Level Manager B at BPA. He gave High-Level Manager B false contracts to support transactions purported to be on behalf of Venezuelan public institutions including Petroleos de Venezuela SA or PDVSA, Venezuela's government-owned oil company. In some instances, these contracts did not list a customer for the services, but Manager B overlooked that problem. He also opened a shell company on behalf of the Venezuelan TPML. Approximately $2 billion moved through various Venezuelan shell company accounts at BPA. Some of the transactions that were processed through the United States, hence the involvement of FinCEN. Inh total, according to the Americans, BPA facilitated the movement of $4.2 billion in transfers related to Venezuelan money laundering.

(NB A shell company is an entity that is formed for the purpose of holding property or funds and does not itself engage in any significant business activity. A shelf corporation is an entity that is formed and then placed aside for years. The length of time that a shelf corporation has been in existence adds legitimacy to the entity and makes it a prime vehicle for money laundering.)

Case study 3

Between 2011 and October 2012, High-Level Manager C at BPA allegedly accepted bribes to process bulk cash transfers for TPML Gao Ping. Ping acted on behalf of a transnational criminal organization engaged in trade-based money laundering and human trafficking and established relationships with Andorran banks to launder money on behalf of his organization and numerous Spanish businessmen. Through his associate, Ping bribed Andorran bank officials to accept cash deposits into less scrutinized accounts and transfer the funds to suspected shell companies in China. Spanish law enforcement arrested Ping in September 2012 for money laundering.

Case study 4

This case study is more of a marketing lesson than a money-laundering one. FinCEN says that BPA gained some fame among criminal networks for its weak AML controls and its provision of high-risk services to shell companies. “Third-party money-launderers,” moreover, marketed its illicit services to each other. For example, TPML 4, who once worked with the Sinaloa cartel and had plenty of experience of bulk cash smuggling, cultivated BPA in order to attract money laundering clients. He asked his clients to send small transfers through accounts at other banks and to reserve the large transactions for accounts at BPA. The relevant report goes on: “In communications with co-conspirators, TPML 4 advertised a relationship with BPA in attempts to attract potential money laundering deals. TPML 4 told clients that this relationship with BPA and other government officials would ensure that their transactions would not be scrutinized by the financial community. In addition, TPML 4 also marketed services to potential clients by providing specific wire transfer instructions for accounts at BPA.”

TPML 4 was wily, planning to increase operations during the US government shut-down in 2013 and using many Panamanian, Spanish, and Swiss shelf corporations to attract clients. Several of these shelf corporations had bank accounts at BPA and elsewhere.

Caught by the correspondents – almost

BPA did not just fail to monitor transactions for 'red flags' – it often listed its own Andorran address for the originator’s or beneficiary’s address. It knowingly provided services to unlicensed money transmitters – this led one of its US correspondent banks to ask it to sign an explicit agreement to stop processing these transactions through its account, which it then closed. Between approximately 2007 and 2012, BPA also used its US correspondents to send or receive wire transfers totalling more than $50 million for Panamanian shell companies that shared (and still share) directors, agents, and the same address. These transfers involved large, round dollar amounts and did not specify a purpose for the transactions. When US correspondents requested additional information, BPA either failed to respond or provided extremely limited information. The US correspondent banks in this story, however, could undoubtedly have done more.