RegulationSep 5 2013

Coming clean

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He issued the apology ahead of his address to the world’s leading financial experts who gathered in Cambridge last week to discuss the threat posed by ‘dirty money’.

It is a rare appearance for Mr Mazur, such has been the nature of his work that few people have knowingly met him in his professional capacity in the flesh and there are no images in circulation that reveal his likeness.

For 27 years he has risked his life on a daily basis to secure convictions of mobsters, a rogue south American general and former executives of a global bank in the City of London – BCCI, which offered laundering services to a colourful array of very wealthy, but corrupt clients who sought to hide their wealth.

Role

Though not a man of the cloth, Mr Mazur’s take on the role dirty money plays in the global bank system will be both uncomfortable and uncompromising for the financial services industry, and delivered with a characteristic air of fire and brimstone. Recent scandals at Barclays, Standard Chartered and HSBC, have eroded the reputations of the City of London, its bankers and intermediaries, placing them at the heart of a global debate over how banks rebuild their reputations and stem the dirty flow of around US$2.1 trillion (£1.3 trillion) that enters the global system each year – of which $400bn (£364bn) a year alone is likely to be drug money.

Flight money, as defined by Mr Mazur, includes that of tax evaders, evaders of customs duties, drug traffickers, arms dealers, those pilfering treasuries, those seeking to evade sanctions to deal with prohibited nations, and the covert wealth of intelligence communities. But it is not just banks that are within Mr Mazur’s sights: brokers, service companies and advisers who buffer the industry provide essential expertise in manipulating the system to enable them to wash dirty money clean.

In the wake of the recent scandals, Mr Mazur said the near addiction of global banks to the liquidity provided by the marketing of dirty flight money has allowed the emergence of the nexus of a global criminal economy that finances the greatest threats to national security both in the US and Western Europe: the cross-pollination of the international drug trade and terrorism.

His message could not be more timely. Mr Mazur said those who doubt the significance of the threat should study a report from the US Oversight, Investigations and Management House Sub-committee that identified a working partnership worth tens of billions of dollars in narcotics, trafficking and financial crime each year that has been forged between Mexican and Colombian drug cartels and Hezbollah, now engaged in the Syrian conflict. And in the UK, Home Secretary Theresa May has hinted that in October she will announce that the threat posed by organised crime will be raised to the status of international terrorism, recognising perhaps that new alliances have flourished worldwide.

For Mazur, it is time the gloves came off in the fight on dirty money. He said: “We need to radically change how regulators and law enforcers investigate money laundering – right now they have dropped the ball. Law enforcement agencies do none of the many things they could do to proactively identify and prosecute dirty banks.

“We need an international task force that draws on global expertise to identify the individuals within banks, brokers and advisers that currently plead naivety after the event. We need hands-on proactive intelligence specialists, and undercover investigators should be trained to infiltrate the banks and businesses that enable laundering. That is what we did as investigators: infiltrate the system and secure evidence for prosecutions.”

He cited research from the United Nations Office on Drugs and Crime that the US is failing in its role as the global policeman: law enforcers identify and seize just 1 per cent of the estimated profits of crime cartels, with around 70 per cent of the remaining profits laundered through the global banking system – a figure that Mr Mazur disputes, putting it far higher at 99 per cent. But it is not just banks that receive Mr Mazur’s attentions.

He said: “Regulators are less effective [than law enforcers] in the hunt for dirty banks.

“As we have seen with Wachovia, HSBC, and Standard Chartered, they got to the facts way too late in the game. Regulators are like a fireman showing up at a property with smouldering ash. They can only tell you that the building burned down, and possibly that it was arson. But, they can rarely tell you who did it. We need to have people dedicated to figuring out who started the fire at the early stages of the blaze and while the arsonist is still within sight.”

Criticism

And wealth advisers and intermediaries do not escape criticism. He said: “There’s no doubt that many are quite law abiding people, but many more than we would hope are in it for the profit of helping the wealthiest with money seeking secrecy from governments. There are always willing hands waiting to take their cut for offering secrecy.”

Mr Mazur claimed that many of the financial mechanisms employed by BCCI are still being used by global banks to attract new customers. Banks have two brains, according to Mr Mazur; one is driven by profit and bonuses and the other by compliance and risk management. And where there is currently no deterrent, some sections of the financial services industry will partner organised crime by turning a blind eye.

For Mr Mazur, the deferred prosecution case against HSBC in November 2012 not only represented the largest alleged case of flight money laundering to date, but also highlighted the failings of the status quo and the deferred prosecution system that acts as a regulator’s stick to keep bonus-hungry bank workers, brokers and advisers in-line.

In the settlement, HSBC admitted to failures in monitoring its branches in Mexico.

At least $881m (£566m) of drug trafficking proceeds – including drug proceeds for the Sinaloa Cartel in Mexico, the Norte del Valle Cartel in Colombia and others – were allegedly laundered.

Hundreds of thousands of dollars passed through bank teller windows in cash-filled boxes it was claimed.

According to court documents, HSBC Group allowed prohibited transactions to be processed through US financial institutions, and it followed instructions from sanctioned entities such as Iran, Cuba and Sudan.

In one case, cited in court documents, HSBC “worked with sanctioned entities to insert cautionary notes in payment messages including ‘care sanctioned country’, or ‘do not mention our name in NY’ or ‘do not mention Iran’.”

Filing its deferred prosecution agreement in the following month, HSBC paid $1.9bn (£1.2bn) in fines and forfeitures – this is, as Mr Mazur points out, “roughly 10 per cent of the pre-tax profits it earned in just 2010, one of the more than five years during which it admitted to prohibited transactions”.

No single executive was held responsible or faced criminal charges.

Some observers might claim that bank staff were naïve about this money’s source, but Mr Mazur’s issue is that under the deferred prosecution process there is little or no incentive for bank officers or chief executives to be more vigilant, if turning a blind eye comes with little or no penalty and rich rewards.

Mazur is one of the few commentators to have worked inside both cocaine cartels and London’s banks and seen how the system works first hand. He snared the elite of Pablo Escobar’s Medellin cartel, secured vital last-minute evidence in the prosecution of Panamanian General Manuel Noriega, and secretly taped more than a half-dozen relationship managers and senior executives at BCCI admitting that they were fully aware that money flowing into the London headquarters came from Colombian cartels.

With 27 years’ experience as a federal investigator, Mr Mazur has been able to offer a vivid insight into how criminality operates in the City that belies the notion that high-end money laundering is about mobsters with violin cases.

Working for Pablo Escobar’s cartel, Mr Mazur slowly worked his way up the hierarchy, establishing trust until he had an open invitation from the board members of the cartel that were dotted around the world.

But he also witnessed how the handling of drug money became indivisible from everyday life.

He said: “The people I dealt with in London [in the early 1990s] were all bankers. Outwardly, quite proper – but secretly very connected to power.”

His colourful adventures are recorded in his book The Infiltrator, but despite this Mr Mazur does his best to avoid the limelight and offers little information that might help identify him. And he is under no illusions that his mission to overhaul the relationship that the financial services industry has with organised crime and terrorism will be any less dangerous or challenging. But for Mazur there is no other option.

Until individuals and banks are held responsible for their actions, nothing will change, and at each turn he expects the financial services industry to avoid the disinfectant of sunlight and transparency in favour of the secrecy that its customers crave.

He said: “The money has very many willing gatekeepers. They can be tracked by a sophisticated analysis of the bulk US currency movements around the globe each year, but that would require the Federal Reserve Bank in the US opening their records, and helping us get inside the records of their member banks – that will never happen.”

Steve Sampson is a freelance journalist and co-author of Narcomania: How Britain Got Hooked On Drugs