Argentine Bank’s Money Transfers Linked To Money-Laundering Investigation

An Argentine bank whose anti-money-laundering controls got a clean bill of health from the New York Federal Reserve processed money transfers worth approximately $24 million that federal prosecutors now say were illicit funds being laundered, the Wall Street Journal has reported.

The New York Fed’s regulatory failure comes at the same time that many large banks are pulling back their international money transfer businesses in the face of stricter AML regulations — forcing legitimate businesses and organizations to jump through regulatory hoops in order to conduct business, especially B2B business.

According to court filings, the Park Avenue branch of Banco de la Nacion Argentina in New York City allegedly moved the funds between 2005 and 2012 — including a three-year period between 2007 and 2010 when the bank was warned by the Fed to tighten up its controls against money laundering, and continuing for two years after the bank was no longer under Fed scrutiny. More than 20,000 checks were processed for a client that authorities allege was in the business of obscuring the illegal source of the money.

There’s no indication that Banco de la Nacion Argentina knew of any suspicious transactions or is facing criminal charges in the probe. But because the bank’s New York branch held $364 million in total assets in 2012, $24 million represented a substantial part of its business.

“Even a rudimentary monitoring system should have detected money movements of this magnitude,” said Robert Pargac, a Navigant Consulting money-laundering compliance expert quoted by the Journal.

The allegations, which are part of a civil complaint filed in U.S. District Court in 2013 by the U.S. attorney’s office in Montana, surfaced as the New York Fed is facing criticism for lax oversight of large Wall Street banks. New York Fed examiners OKed Citigroup’s internal controls at that bank’s Banamex unit in 2008 before a multimillion-dollar fraud emerged there, and Fed examiners also failed to catch red flags about J.P. Morgan Chase’s chief investment office before its $6 billion “London whale” trading debacle in 2012, according to previous Wall Street Journal reporting.

New York Fed President William Dudley is scheduled to testify about the issue before a Senate committee this month.

The bank’s connection to the alleged money-laundering scheme was uncovered after the IRS and the Montana U.S. attorney’s office moved in May 2013 to seize $45,000 from a Banco de la Nacion account belonging to La Moneta Cambio, a money transmitter based in Argentina. According to court filings, an Argentine citizen named German Coppola worked with La Moneta to move $60 million through a network of U.S. companies between 2009 and 2011.

Companies allegedly set up by Coppola opened bank accounts with Banco de la Nacion and deposited checks signed over from various third parties. Some checks appeared to be from accounts controlled by participants in the alleged scheme, while others had a small stamp in the shape of a frog, a mark associated with the Black Market Peso Exchange, a network for converting illicit U.S. dollars to foreign currencies through international trade.

Coppola’s companies allegedly moved the funds out of the U.S. through transfers to other companies, including at least two connected to La Moneta owner Francisco Pagano. Between 2005 to 2012, La Moneta deposited more than 20,000 checks and transferred out approximately $24 million to companies or individuals in South America, Europe and China, the court filings said.