A Banker Who Helped Hide Mexican Drug Money Is Helping U.S. ProsecutorsBy and
Compliance official admits to misconduct on border accounts
Deal requires cooperation in exchange for deferred prosecution
A former U.S. manager for Dutch banking giant Rabobank Groep says he helped hide possible criminal activity by clients and is assisting U.S. prosecutors in a long-running investigation of whether the lender was tied to laundering millions of dollars in Mexican drug money.
The manager, George Martin, entered an agreement with the Justice Department that requires his cooperation with the probe of Rabobank’s U.S. retail operations as part of a deferred prosecution, according to court filings.
Martin, who worked as a compliance official in the bank’s California unit from 2007 until 2012, admitted to aiding a criminal scheme to mask possible money laundering by account holders. Some of Martin’s superiors at the bank directed the criminal conduct while others were at least aware of it, prosecutors alleged in court filings made public Friday in federal court in San Diego. The scheme ran from 2009 to at least his departure in April 2012, prosecutors said.
The case against Martin is the first brought by the Justice Department in its four-year investigation into whether Rabobank ignored evidence that its branches along the Mexican border were being used to launder drug money. Documents filed by prosecutors in the case against Martin allege high-level bank officials were willfully hiding possible money laundering by clients and obstructing regulators from finding out about it, key elements in deciding whether to bring charges for violating the Bank Secrecy Act.
Rabobank has been in talks with U.S. authorities for months to settle the probe, according to two people familiar with the matter.
Robert Long, a lawyer for Martin, didn’t immediately respond to a message seeking comment. "As is our standard practice, we do not comment on former or current employees," Hendrik Jan Eijpe, a spokesman for Rabobank, wrote in a text message. The bank, which has closed some of its U.S. operations on the Mexico border, has said it is cooperating with authorities.
Over the past year, Rabobank sought to sell its roughly 100 U.S. branches to another California bank, according to people with knowledge of the situation. But the deal fell apart earlier this year, one of them said. The California-based unit, which specializes in agricultural lending and has $14 billion in assets, is just a small piece of the global bank with $780 billion in assets.
Prosecutors in San Diego and Washington interviewed past and current Rabobank employees last year about anti-money-laundering controls at branches along the U.S.-Mexico border, putting some of them in front of a grand jury to testify about the actions of certain executives, people familiar with the interviews told Bloomberg News last year.
Deferred prosecution agreements are more commonly used by prosecutors in cases against companies as a way to punish misconduct while rewarding offenders with the dismissal of criminal charges for coming clean and cooperating. Martin’s former position at the bank would make him a potentially valuable witness as prosecutors examine actions by his superiors.
Martin, who worked as a manager in the bank’s compliance department, was responsible for monitoring for possible criminal activity in client accounts and helping decide which ones should be investigated for suspect transactions that would be reported to the U.S. Treasury Department.
Beginning in 2009, he and others at the bank, who aren’t identified in court papers, set policies that restricted the ability of lower-level people to scrutinize customer accounts, including accounts previously deemed by the bank as being "high-risk" and had been the subjection of prior suspicious activity reports to the Treasury Department.
Martin admitted to working with others at the bank to misuse a "verified activity list" of clients. Ostensibly, the list was an efficiency measure to keep workers from re-examining customers whose businesses were already deemed legitimate. In reality, the list was a way to keep the activity of potential money launderers from being investigated by others at the bank, according to the court filings by prosecutors.
The number of accounts on the verified activity list increased from less than 10 in 2009 to more than 1,000 by 2012, prosecutors said.
In February 2010, Martin and others at the bank were informed by U.S. authorities about potential money laundering activity in a Mexican-based business account with Rabobank’s branch in Calexico, California. They didn’t investigate further because branch staff wanted additional business from the account holders, prosecutors allege. The business’s name isn’t identified in court papers.
Even after law-enforcement agents eventually seized the business’s accounts on suspicion they were being used to move millions in drug proceeds, Martin and others at the bank decided not to scrutinize the accounts, which prosecutors said were used to move more than $10 million in suspicious transactions from 2009 to 2011.
In February 2010, Martin and others also willfully curtailed money-laundering investigations into a Mexican-based business account at its Tecate, California branch, prosecutors allege. The business owners and related entities had previously been the subject of at least 25 suspicious activity reports filed by Rabobank, prosecutors allege. That business also isn’t identified in court papers.
Under the terms of agreement, Martin will cooperate for two years with prosecutors investigating the bank and others for violations of the Bank Secrecy Act and other crimes. His agreement includes no jail time but he must perform 50 hours of community service.
Signs of Trouble
Rabobank, a cooperative based in Utrecht, the Netherlands, promotes itself as one of Europe’s cleanest and safest banks. Signs of trouble at its U.S. operations began in 2006, when the U.S. Office of the Comptroller of the Currency warned the bank that its anti-money-laundering protections may have been lacking. Rabobank later came under scrutiny by the Internal Revenue Service and other U.S. agencies.
The Bank Secrecy Act requires banks to keep certain records and alert the U.S. government of suspicious client transactions. To win a conviction for violating it, prosecutors have to show that an individual knowingly went against the law. Because it’s easier to show systemic failures as opposed to willful lapses by specific people, the bank law has primarily been used to prosecute institutions.
The most notable Justice Department probe of a bank for violating anti-money-laundering provisions was against HSBC Holdings Plc in 2012. In that matter, which also involved violations of sanctions on Iran, HSBC paid $1.9 billion to U.S. authorities and entered into a five-year deferred prosecution agreement, which ended this month. No individuals were charged in that case.
Concerns about Rabobank’s controls extend beyond California. Two years ago, the Federal Reserve and New York’s Department of Financial Services issued a public enforcement action against the bank’s New York operations, citing deficiencies related to risk management and compliance, though they didn’t impose financial penalties.
— With assistance by Wout Vergauwen