Hearing Offers Glimpse of Secretive "Private Banking" World

(IPS) WASHINGTON -- Just as Gabon's President Omar Bongo declared war on corrupt government officials Nov. 8, a U.S. Congressional committee released a report that presents Bongo's overseas accounts in a U.S. bank as a case study in money laundering by the huge private banking industry.

Bongo, who has held power in Gabon since 1967, moved more than $130 million in and out of accounts at New York-based Citibank between 1970-1999 until bank overseers closed them earlier this year, according to the report.

The document was prepared for hearings due to begin this week on private banking by the Democratic staff of the Senate Permanent Subcommittee on Investigations.

Despite suspicions that the money came from oil-company kickbacks and the diversion of government funds, neither the bank nor federal overseers who looked into the accounts in the mid-1990s concluded that any action was necessary.

Under U.S. regulations, bankers must exercise "due diligence" in determining that the source of the funds is legitimate, the staff report said.

The study also covered private-banking services for the sons of former Nigerian head of state Gen. Sani Abacha before and during his reign from 1993 until his sudden death in June 1998.

It found that Abacha's three sons channelled more than $110 million through Citibank accounts in London between 1988 and 1999, when they were frozen by the British government.

Alain Ober, the private banker for both the Abachas and Bongo, provided them with "all kinds of special services," according to the report. In one case, he agreed to allow the Abachas to incur a $39 million overdraft so that they could quickly move that amount of money in the face of an ongoing government investigation into their funds without incurring a financial penalty.

Ober was scheduled to testify at last week's hearings.

To open a private bank account, clients ordinarily must deposit $1 million or more, in exchange for which the bank assigns a "private banker" or "relationship manager" to act as a liaison between the client and the bank and to facilitate the client's use of a wide range of services, including secrecy and confidentiality.

The industry has been extremely lucrative -- at Citibank for example, the rate of return on private bank accounts was about 24 percent.

Most international banks have private banking departments, but Citibank's department became especially notorious in 1995 in connection with the money-laundering activities of Raul Salinas, the brother of former Mexican president Carlos Salinas.

Raul Salinas, who had his own private banker at the Citicorp branch in New York City, sent $80-$100 million through his accounts there between 1992 and 1995, when the accounts were frozen by a Swiss court that concluded the funds were proceeds from drug trafficking.

The Congressional report argued that private banking was particularly useful for those individuals wanting to launder or hide money acquired illegally or through corruption.

"Though established for servicing the wealthy, it is also attractive to drug cartels, profiteers from corruption and tax evaders as a way to get their ill-gotten gains into the world banking system," according to Sen. Carl Levin, whose staff produced the report.

"Private banking is attractive to these people because it sells secrecy, the very service a money launderer wants," he said.

Levin will chair this week's hearings, at which a number of Citibank bankers and executives are due to testify. He is expected to introduce legislation that would require tighter governmental regulation of private banking and broaden existing laws that make money-laundering a criminal offence.

Under current law, money-laundering is only illegal if used to further drug-trafficking, terrorism or foreign bank fraud. Levin is expected to introduce legislation that would also make it a crime in cases where the money used was obtained from corrupt practices, bribery, and tax evasion.

Citibank, one of at least a dozen U.S. banks with private banking departments, has some 40,000 private bank accounts. Of these, the bank has stated, 350 were held by senior foreign government officials or their families.

In addition to Bongo, Abacha's sons and Salinas, Citibank has private accounts for Asif Ali Zardari, the spouse of former Pakistani Prime Minister Benazir Bhutto, former Venezuelan Prime Minister Jaime Lusinchi, and two daughters of former Indonesian President Suharto.

The congressional report, however, covers only Salinas, Zardari, Bongo and the Abachas.

Of the four, Bongo moved the most money through private accounts located at Citibank's offices in New York, London, Paris, Luxembourg, Switzerland, and the Channel island of Jersey.

And in a move that was widely reported in the world's financial press, Swiss courts, at Paris' behest, froze accounts -- other than those with Citibank -- associated with Bongo.

At a hearing in June 1997, the Swiss prosecutor in the case even described Bongo, a long-time Western ally in Africa, as the "head of an association of criminals."

Although Gabon has few commercial ties with the United States, Bongo invests much time and effort in cultivating his relationship here. Currently, six U.S. public-relations firms work for either the Gabonese government or for the president himself, according to the Justice Department's Foreign Agents Registration Office -- more than any other African country.

The Congressional report did not reach any definite conclusion about the source of Bongo's accounts which, like many private bank accounts, were coded and held by front corporations, in Bongo's case companies called Tendin and Leontine.

Bongo's initial private bank deposit of $52 million came from Citibank's Bahrain office in 1985 for Tendin Investments. He also borrowed money from the bank, often using the funds in his private accounts as collateral.

In internal documents obtained by the committee, bank executives expressed concern over both the possible disclosure of the existence of the accounts and the source of the money.

For example, in 1986, an internal document stressed that confidentiality regarding business with Bongo must be maintained. It noted that there was a "political" risk associated with "public knowledge of the credit transactions," one message said.

"A stigma is more likely to be attached to the large deposits the client has with us overseas if this were known."

But for much of the time, Citibank staff appeared uninterested in the source of the funds. In a 1996 internal message -- just after federal regulators began expressing an interest in Bongo's banking activities -- Ober wrote to a colleague: "Neither Bill (another private banker) nor myself ever asked our client from where this money came."

Ober later wrote an internal memorandum suggesting that the money came from a Gabonese government budget item that allocated 8.5 percent of the national budget to the president.

One U.S. regulator with the Office of the Comptroller of the Currency accepted this explanation, saying: "Based on the interview with Mr. Ober, the transactions conducted through Citibank N.A. are the sort of transactions that the customer has historically been making and are normal from the head of state of an African country."

But in interviews conducted with the committee staff, experts at the World Bank and the International Monetary Fund (IMF) rejected this explanation.