NatWest Bank, Wimbledon High Street | Source: Flickr, Jessicamulley

High Street bankers and corrupt Nigerian officials.  The report detailed the reprehensible actions of Barclays, NatWest, RBS, HSBC and UBS, which for years took money from Nigerian officials.  As we are all acutely aware, such corruption fuels poverty, entrenches dishonest politicians, and exacerbates obstructions to development for many countries.

I want to be surprised.  Really, I do. They just make it so hard for me.

Each of those banks has been embroiled in scandal at one point or another in the last ten years.  Just a few months ago, Barclays, a British financial services company, paid a $298 million fine to the U.S. Department of Justice for breaching sanctions on Burma, a brutal and repressive totalitarian military dictatorship.  In 2000 the British Securities and Futures Association (SFA) fined National Westminister Bank, or NatWest, when it discovered the bank used mispricing in derivatives to hide £90.5 million.  The SFA penalized the bank with the second largest fine in its history.  The Royal Bank of Scotland, also known as RBS, was found to have ties to Enron and likely played a role in the collapse of the infamous energy company.

The scandals surrounding HSBC and UBS are probably even more familiar to you.  Both banks have recently come under scrutiny by the U.S. Department of Justice for aiding American citizens evade taxes (see: A Bitter Battle of Self Preservation).  Both banks are fighting—and hopefully losing—to keep banking secrecy alive.  Lest I need to remind you, tax evasion is still a crime.

But I guess at the very least I would have thought that when it comes to foreign corruption, the banks would have found it in their hearts to make a moral exception.  In recognition of the damaging role that corruption plays in development, the international community has come to a consensus with regard to banks and politically exposed persons (PEPs). PEPs are people who are in public position (or are close to someone in public position) and therefore are at a greater risk to be involved in corruption or bribery.  PEPs are a major issue for the Financial Action Task Force and were extensively addressed in the 2003 United Nations Convention Against Corruption.

Like most other industrialized countries, the United Kingdom has strict laws when it comes to PEPs.  Under the UK Money Laundering Regulations, UK banks and other financial institutions must take enhanced due diligence measures, or an intensive investigation or audit, when they suspect they are dealing with a PEP or a “gate keeper” of a PEP.

When it comes to many of the scandals I outlined above, there is some possible gray area.  HSBC and UBS both have hid behind Switzerland’s sovereignty and banking privacy laws (an extremely tenuous defense, particularly as their agents came onto American soil and helped American citizens violate American laws).  The mispricing scandal involving NatWest was isolated to one employee, who was let go, although I find it unlikely he was acting completely of his own volition.  RBS settled in the lawsuit for its involvement in the Enron collapse, so I suppose its guilt was not proved beyond a shadow of a doubt.

To me at least, this new example is cut and dry.  The banks have a clear responsibility to investigate in any and all cases that might involve politically exposed persons.  And the Global Witness report shows that not only did these High Street banks fail to conduct these investigations, they systematically and frequently, turned a blind eye.  These cases would have been cut and dry for these bankers.  According to the report, there is little wiggle room here. The banks were violating UK law.  And they knew it.

Like I said, I would like nothing better than to be surprised by this shameful and flagrant disregard for their own country’s laws and their moral responsibility.  Unfortunately, I’m just not.

LONDON (Global Witness)—British high street banks have accepted millions of pounds in deposits from corrupt Nigerian politicians, raising serious questions about their commitment to tackling financial crime, warned Global Witness in a report published today. By taking money from corrupt Nigerian governors between 1999 and 2005, Barclays, NatWest, RBS, HSBC and UBS helped to fuel corruption and entrench poverty in Nigeria.

What is so extraordinary about this story is that nearly all of these banks had previously fallen foul of the UK banking regulator, the Financial Services Authority (FSA), in 2001 by reportedly helping the former Nigerian dictator Sani Abacha funnel nearly a billion pounds through the UK. These banks were supposed to have tightened up their systems but as this report now shows, a few years later, they were accepting corrupt Nigerian money again. There is no sign that the FSA has taken any action this time.

Global Witness’s new report, International Thief Thief, is based on analysis of court documents from litigation in London by the Nigerian government to get funds returned from the UK that were stolen by two former state governors. British banks made it possible for Dieypreye Alamieyeseigha of Bayelsa State and Joshua Dariye of Plateau State to bring their corrupt loot into the UK.

“Banks are quick to penalise ordinary customers for minor infractions but seem to be less concerned about dirty money passing through their accounts,” said Robert Palmer, campaigner at Global Witness. “Large scale corruption is simply not possible without a bank willing to process payments from dodgy sources, or hold accounts for corrupt politicians,” he added.

One of the banks profiled in the report is RBS, now majority owned by the taxpayer. RBS allowed former governor Alamieyeseigha to receive bribes and bring £2.7 million into the UK. An English High Court judge found that at least £1.56 million of these funds were bribes paid by a state contractor called Ehigie Edobor Uzamere, currently a Nigerian senator, in order to win a contract to build a fence around the governor’s official lodge. Global Witness has asked RBS whether it carried out adequate checks on its customer and his funds, but has not had a reply.

“It adds insult to injury that not only are ordinary taxpayers propping up failing banks, but that one of these banks has facilitated corruption in Nigeria, a country where more than half the population are still without access to clean water. This undermines British development aid, which fills the gaps created by poor governance and failing state services,” said Palmer.

Global Witness is concerned that banks and the FSA have yet to take this problem seriously enough. Anti-money laundering regulations require banks to identify their customers and the source of funds, but they are not being adequately enforced. Banks need to get much better at checking where the money is coming from and whether it was obtained through corrupt practices. The banks in this report may not have broken the law, but corrupt money still entered the UK and so our financial system is still complicit in corruption.

This is an ongoing problem, as shown by the action taken against HSBC by the US regulators last week. They required HSBC’s American arm to overhaul its due diligence systems following violations of US anti-money laundering laws and inadequate monitoring of transactions and customers, including ‘politically exposed persons’ – ie the foreign senior officials who could be involved in corruption.

The British coalition government plans to abolish the FSA. Whatever body replaces it must take corruption seriously. The government and the new regulator must send a clear signal to the financial sector that corrupt money is not welcome. And the banks themselves must demonstrate much more clearly the steps they are taking to stop dirty money entering the financial system.

The full report can be downloaded here.

By Nick Tattersall

Reuters

LAGOS–Britain needs to enforce money laundering regulations more strictly after some of its leading high street banks accepted millions of pounds in deposits from corrupt Nigerian politicians, a graft watchdog said on Monday.

Global Witness said in a 40-page report that five banks had taken millions of pounds between 1999 and 2005 from two former Nigerian governors accused of corruption, but had failed sufficiently to investigate the customers or the source of their funds. ( www.globalwitness.org )

Read more…

A new report from Global Witness, a coordinating committee member of the Task Force on Financial Integrity & Economic Development, exposes British banks for facilitating corruption in Nigeria

LONDON—British high street banks have accepted millions of pounds in deposits from corrupt Nigerian politicians, raising serious questions about their commitment to tackling financial crime, warned Global Witness in a report published today. By taking money from corrupt Nigerian governors between 1999 and 2005, Barclays, NatWest, RBS, HSBC and UBS helped to fuel corruption and entrench poverty in Nigeria.

What is so extraordinary about this story is that nearly all of these banks had previously fallen foul of the UK banking regulator, the Financial Services Authority (FSA), in 2001 by reportedly helping the former Nigerian dictator Sani Abacha funnel nearly a billion pounds through the UK. These banks were supposed to have tightened up their systems but as this report now shows, a few years later, they were accepting corrupt Nigerian money again. There is no sign that the FSA has taken any action this time.

Global Witness’s new report, International Thief Thief, is based on analysis of court documents from litigation in London by the Nigerian government to get funds returned from the UK that were stolen by two former state governors. British banks made it possible for Dieypreye Alamieyeseigha of Bayelsa State and Joshua Dariye of Plateau State to bring their corrupt loot into the UK.

“Banks are quick to penalise ordinary customers for minor infractions but seem to be less concerned about dirty money passing through their accounts,” said Robert Palmer, campaigner at Global Witness. “Large scale corruption is simply not possible without a bank willing to process payments from dodgy sources, or hold accounts for corrupt politicians,” he added.

One of the banks profiled in the report is RBS, now majority owned by the taxpayer. RBS allowed former governor Alamieyeseigha to receive bribes and bring £2.7 million into the UK. An English High Court judge found that at least £1.56 million of these funds were bribes paid by a state contractor called Ehigie Edobor Uzamere, currently a Nigerian senator, in order to win a contract to build a fence around the governor’s official lodge. Global Witness has asked RBS whether it carried out adequate checks on its customer and his funds, but has not had a reply.

“It adds insult to injury that not only are ordinary taxpayers propping up failing banks, but that one of these banks has facilitated corruption in Nigeria, a country where more than half the population are still without access to clean water. This undermines British development aid, which fills the gaps created by poor governance and failing state services,” said Palmer.

Global Witness is concerned that banks and the FSA have yet to take this problem seriously enough. Anti-money laundering regulations require banks to identify their customers and the source of funds, but they are not being adequately enforced. Banks need to get much better at checking where the money is coming from and whether it was obtained through corrupt practices. The banks in this report may not have broken the law, but corrupt money still entered the UK and so our financial system is still complicit in corruption.

This is an ongoing problem, as shown by the action taken against HSBC by the US regulators last week. They required HSBC’s American arm to overhaul its due diligence systems following violations of US anti-money laundering laws and inadequate monitoring of transactions and customers, including ‘politically exposed persons’ – ie the foreign senior officials who could be involved in corruption.

The British coalition government plans to abolish the FSA. Whatever body replaces it must take corruption seriously. The government and the new regulator must send a clear signal to the financial sector that corrupt money is not welcome. And the banks themselves must demonstrate much more clearly the steps they are taking to stop dirty money entering the financial system.

The full report can be downloaded here.

Click here for more information about Global Witness.

###

Note to editor:

For more information on the US action against HSBC US, see United States of America Department of the Treasury Comptroller of the Currency, Consent Order in the Matter of HSBC Bank USA, N.A. Mclean, Virginia, 7 October 2010; United State of America, Before the Board of Governors of the Federal Reserve System, Cease and Desist Order Issued Upon Consent Pursuant to the Federal Deposit Insurance Act, as Amended, 7 October 2010

Contact:

Robert Palmer
+44 (0)20 7492 5860
+44 (0)7545 645406

Anthea Lawson
+44 (0)20 7492 5882
+44 (0)7872 620855

Amy Barry
+44 (0)7980 664397

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The Task Force on Financial Integrity and Economic Development addresses inequalities in the global financial system that penalize billions of people, and advocates for improved transparency and accountability.

Global Witness is a coordinating committee and founding member of the Task Force on Financial Integrity & Economic Development.

For additional information please visit http://www.financialtaskforce.org

Photo: Urbanrenewal, Wikipedia (En)

The Swiss government has announced that it has examined the dossiers of over four thousand UBS clients suspected of committing tax evasion offences in the United States, but they have only transmitted their findings to the US authorities for around half of the examined cases.

Under the terms of the administrative agreement agreed between Switzerland and the US in August 2009, criteria were established for proceeding with an administrative assistance request submitted by the Internal Revenue Service. This included a requirement that the Swiss Federal Tax Authority examines 4,450 UBS client dossiers and issue decisions in respect of releasing each dossier before the agreed deadline of 26th August 2010.

Procedural delays arising from a court decision in January 2010, which concluded that the agreement between the Swiss and US authorities was illegal, hampered the FTA’s process, and in an attempt to head of the threat of a John Doe summons brought against UBS the Swiss government are now aiming to finalise the outstanding decisions before the year end.

Within Switzerland the controversy over the decision to cooperate with the US tax authorities, and the subsequent Parliamentary vote over-ruling the January court ruling, continues to divide opinion, with many people fearing that this case, the largest client information sharing exercise with a foreign tax authority, has caused irreparable harm to Switzerland’s legendary banking secrecy. We’d like to think so, but only time will tell confirm whether banking secrecy is a thing of the past.

–

Originally published on the Tax Justice Network blog.

For more on this story, check out 60 Minutes’ article on the case here…

ZURICH — A Swiss court Monday said it backed a U.S.-Swiss deal governing the handover of thousands of pages of confidential data on clients of UBS AG (UBS) to U.S. tax officials as “binding,” rejecting an appeal by a client of the Swiss bank in a test case.

The decision translates to a final stamp of approval from Swiss authorities, who ultimately clinched parliamentary approval last month for an August 2009 settlement between the U.S. and Switzerland to hand over data on roughly 4,450 alleged tax offenders with hidden Swiss offshore accounts

Read more…

“This report looks at deposits held offshore by private entities on a country-by-country basis, achieving a level of specificity previously unavailable to the public,” explained GFI director Raymond Baker. “With overall deposits in secrecy jurisdictions currently approaching US$10 trillion, this report measures a sizable chunk of global wealth and helps us to better understand where individuals and corporations are putting their money.”

Privately Held, Non-Resident Deposits in Secrecy Jurisdictions analyzes data from the Bank of International Settlements and the International Monetary Fund to measure total deposits by non-residents in areas considered secrecy jurisdictions under the definition established by the Tax Justice Network.

Notable report findings include:

• Total Current total deposits by non-residents in offshore centers and secrecy jurisdictions are just under US$10 trillion;
• The United States, the United Kingdom, and the Cayman Islands top the list of jurisdictions, with the United States out in front with more than US$2 trillion in non-resident, privately held deposits in the most recent quarter for which data are available (June 2009);
• Contrary to expectations of perceived favorability for deposits, Asia accounts for only 6 percent of worldwide offshore deposits, although Hong Kong is the tenth most popular secrecy jurisdiction by deposits in this report;
• The rate of growth of offshore deposits in secrecy jurisdictions has expanded at an average of 9 percent per annum since the early 1990s, significantly outpacing the rise of world wealth in the last decade. The gap between these two growth rates may be attributed to increases in illicit financial flows from developing countries and tax evasion by residents of developed countries.

The report also contains two case studies of Switzerland and Iceland, which show measurable fluctuations in financial deposits correlated to events in which financial secrecy or overall market solvency were threatened.

“This report shows that offshore deposits are on the rise, and the quantities of money being sent into these jurisdictions are massive,” said Mr. Baker. “The report also helps us to better understand where reporting may be improved to better differentiate between licit deposits and illicit deposits, which will ultimately enable better law enforcement in cases of tax evasion and other financial crimes.”

Privately Held, Non-Resident Deposits in Secrecy Jurisdictions is the second report by GFI economist Ann Hollingshead. Her earlier report, Implied Tax Revenue Loss from Trade Mispricing, was released last month. For copies of either report please visit www.gfip.org or contact Monique Perry Danziger at 202-293-0740 to request a copy or schedule an interview.

ON DISCLOSURE OF ANNEX

TO THE U.S.-SWISS SETTLEMENT AGREEMENTIN THE UBS CASE

November 17, 2009

“While it is good to know that 14,700 people have now disclosed previously hidden offshore bank accounts, the U.S.–Swiss Annex disclosed today, designed to compel disclosure of the names of U.S persons with Swiss accounts at UBS, is very disappointing.  It complicates and muddies what should have been a straightforward agreement by UBS and the Swiss Government to disclose Swiss accounts hidden from the United States by U.S. accountholders.  UBS admitted last year that it “participated in a scheme to defraud the United States” out of tax revenue.  Since then, UBS has been prohibited by its government from simply turning over the names of the 52,000 U.S. clients suspected of participating in that tax evasion scheme with UBS.  Instead, the tortured wording and the many limitations in this Annex shows the Swiss Government trying to preserve as much bank secrecy as it can for the future, while pushing to conceal the names of tens of thousands of suspected U.S. tax cheats.  It is disappointing that the U.S. government went along.”

–

Source: US Senate Permanent Subcommittee on Investigations

“The Ticino lawyer Fabrizio Pessina, from Chiasso, was arrested at Malpensa airport (Milan) on March 2 on his return from Spain where he had been playing golf. The financial brigade was interested in him, in the context of an investigation into two Italian businessmen suspected of diverting funds from a real estate project in Milan. On Fabrizio Pessina’s personal computers the investigators found, it seems by chance, a list of 552 Italian taxpayers with the details of their bank accounts, including the names of their offshore companies registered in Switzerland, Gibraltar, Liechtenstein and in the British Virgin Islands. The 552 accounts involve 1.2 billion Euros under management.”

Le Temps adds that:

“A second list, whose origin hasn’t been clearly established but whose details have appeared in the press, involves 200 clients of the Italian subsidiary of UBS. . . involving around one billion Euros”

According to the Italian press, which has been largely ignored in publicising this, Le Temps adds, these lists involve “top-rank” officials. Italy has just passed a controversial tax amnesty, a kind of get out of jail free card for criminal tax evaders, which the Italian opposition rightly notes will benefit organised crime and will make tax evasion worse in future.