The U.S. is investigating whether the Netherlands’ Rabobank Groep ignored signs of money laundering by clients at branches of its California banking unit near the Mexican border, according to people with knowledge of the matter.
The criminal investigation is being conducted by Justice Department prosecutors in Washington and the U.S. Attorney’s Office in San Diego, said two people who asked not to be identified because the inquiry is confidential. The probe could trigger additional enforcement action against Rabobank, which is still being monitored by the Justice Department after admitting wrongdoing in a 2013 settlement over interest-rate manipulation.
U.S. authorities are stepping up scrutiny of banks, large and small, that have been suspected of being used by drug cartels and other criminal enterprises to launder illegal proceeds. The U.S. has settled cases with banks including HSBC Holdings Plc and is probing others.
Rabobank, a cooperative based in Utrecht, built its North American operations through acquisitions starting in 2002. Rabobank NA now runs more than 120 locations in the state. The U.S. unit had assets of about $14.3 billion at the middle of last year, less than 2 percent of the parent company’s total assets, according to regulatory filings.
Hendrik Jan Eijpe, a spokesman for Rabobank and Peter Carr, a Justice Department spokesman, declined to comment.
Rabobank officials said in February they weren’t planning to divest the U.S. operation, which mainly lends to California’s farming and agricultural community, in an effort to boost capital. They made the comment in response to a report by Bloomberg News that they had explored a sale.
Rabobank’s Jan Eijpe reiterated Wednesday there are no plans to sell the unit.
The Justice Department’s investigation comes after Rabobank’s U.S. operations were connected with previous instances of suspected money laundering by clients. In 2013, the Office of the Comptroller of the Currency told Rabobank it had concerns about the bank’s money laundering controls, according to an OCC consent order.
The U.S. also seized assets from Rabobank accounts stemming from at least two criminal cases in 2011 and 2013 against alleged money launderers, according to court filings. The documents didn’t accuse the bank of wrongdoing. In the 2011 case, the U.S. said the funds were tied to a Mexican cocaine-trafficking operation. Three defendants pleaded no contest to state drug charges and were sentenced to nine years in prison.
In the 2013 case, federal prosecutors seized a Rabobank account belonging to a San Diego customs broker, who pleaded guilty to money laundering and other charges for helping his clients evade $18 million in taxes on $100 million in fraudulently imported goods, according to the documents.
Rabobank is bound by a deferred prosecution agreement with the Justice Department over allegations that 30 of its current and former employees were involved in rigging the London interbank offered rate, or Libor. In 2013, Rabobank was fined 774 million euros ($1.1 billion) and six of its former traders were criminally charged in the global investigation into manipulation of the benchmark interest rate, which also led to the resignation of then-Chairman Piet Moerland. Two Rabobank employees pleaded guilty to conspiracy. A case against the other four is pending.
That agreement effectively put the bank on probation and obliged it to report certain misconduct and cooperate in other investigations. The bank risks prosecution if the government decides it isn’t being cooperative or breaches a promise not to commit other crimes.
Until the Libor case, Rabobank had never been the subject of criminal enforcement actions or had any significant regulatory citations, according to documents filed by federal prosecutors in the Libor case.
Rabobank has cooperated with the government following the Libor investigations and shared other instances of potential misconduct, U.S. prosecutor Carol Sipperly said during an Oct. 31 hearing in the Libor case. It was too early to tell what happened in those instances, she added.
Rabobank’s lawyer, James Cavoli confirmed during the hearing that the bank has been sharing information about matters beyond the Libor case with the government. “Sometimes it involves misconduct, sometimes it involves things that might be potential misconduct, but might not be,” said Cavoli, a partner with Milbank, Tweed, Hadley & McCloy LLP in New York, during a hearing with U.S. District Judge Alvin Thompson in Hartford, Connecticut.
Neither lawyer mentioned a money-laundering probe during the brief telephone hearing. Cavoli declined to comment on whether the bank is being investigated for inadequate money-laundering controls.
In December 2013, Rabobank accepted an OCC finding that its anti-money-laundering program was deficient, without admitting or denying any wrongdoing. As part of that accord, Rabobank agreed to make regular reports to the regulator about efforts to improve compliance. The OCC consent decree didn’t detail the problems found at the bank.
Founded in the 19th century to serve Dutch farmers, Rabobank had total assets of 679.5 billion euros at the end of June, according to the bank’s most recent financial statements. The bank reported net income of almost 1.1 billion euros and revenue of 6.4 billion euros in the first six months last year.