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The Main Reasons of the Scandal with BPA

31/08/2015/in Useful Publications /by BankAdmin

“The main reasons of the scandal with Banca Privada d’Andorra were lack of capacity of the regulators and the lack of oversight, specifically effective oversight, of the Board of the Bank’s Directors “, – says Burke Files, an international expert in asset recovery, due diligence, anti-money laundering and intellectual property matters. Mr. Files is […]

Andorra Secretly Unblocks Chavista Accounts, Drops Laundering Case

01/04/2015/in Useful Publications /by BankAdmin

Spanish daily El Mundo revealed on Tuesday that Andorra’s Criminal Court ruled 10 months ago that Venezuelan officials of the Hugo Chávez administration could withdraw millions of euros from accounts heldwith the Banca Privada d’Andorra (BPA), part of Banco Madrid. The funds, previously blocked on November 30, 2012, were released in May 2014 after judge […]

The Main Reasons of the Scandal with BPA

31/08/2015/in Useful Publications /by BankAdmin

Andorra Secretly Unblocks Chavista Accounts, Drops Laundering Case

01/04/2015/in Useful Publications /by BankAdmin

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The Main Reasons of the Scandal with BPA

31/08/2015/in Useful Publications /by BankAdmin

Mr. Files is the head of an international investigative firm Financial Examinations & Evaluations, Inc. specializing in asset recovery, due diligence, anti-money laundering and intellectual property matters. Mr. Files has been the case manager on fraud investigations ranging from tens of thousands of dollars to over 3 billion. He also is a published author of five books, in particular “Due Diligence for the Financial Professional, 2nd edition 201 O” winner of two book awards, and “Money and Budgets”. In the interview to all-andorra.com Mr. Files analyzes situation with Banca Privada d’Andorra, possible ways out and also role that could Andorra play in the financial banking world in the future:

How the situation with Banca Privada d’Andorra will affect in general the financial market of Andorra? Whether the banking sector of the country will become less attractive to clients (individuals and institutional investors)? Comparison with similar scandals in some Swiss banks.

There was a difference between what happened at Banca Privada d’Andorra and the scandals in the Swiss banks. The Banca Privada d’Andorra bank was connected to organized crime groups in Russia and China and used its correspondent accounts four U.S. banks to access the U.S. financial system. It was not an issue of skirting the edge, as US Authorities determined, that Banca Privada d’Andorra’s management was either so clueless or so aggressive in assisting organized crime and corruption- there was no reason to warn the bank- but rather just shut it down. But, Banca Privada d’Andorra was not singled out for punishment because it was Andorran- it was signaled out for its systemic failures. Swiss banks got the axe. Two Swiss banks closed because of their active efforts in helping clients. Bank Frey & Co. and Wegelin & Co. have closed. These Swiss banks actively worked with persons who were tax evading.

These banks join a list of banks that have been closed because of their actions. From FBME Bank of Tanzania, Banco Delta Asia- from Macao famed for being the North Korean bank of choice. But they are not alone. HSBC was shuttered by the Cayman Island Monitory Authority for the money laundering in Mexico. In 2004 the Japanese ordered CitiBank to shutter its Private Banking Group. The government accused the operation as being nothing but a money laundering organization.

The effect of Banca Privada d’Andorra closing in Andorra is different as there are too few banks in Andorra. Andorra has a concentration of licenses in just a few enterprises. Thus, if there are 5 banks and one is lost – 20%± of the capacity is lost. Andorra needs more banking – not less.

How can banking systems of the country change after carrying out government investigations? What measures do government and other banks need to apply for improving the situation and preventing it in the future? What measures were taken by the Swiss authorities after similar events?

Andorra has 4 major banks and €3.3 Billion on the balance sheets. Switzerland has 275 banks and € 2,804.00 Billion on their balance sheets. They are very different environments with participants with very different missions.

After every “red faced moment” we learn from our oversights and the wise determine not to repeat those errors. As for what Andorra, should do? Andorra has very wise and smart financial professionals – however, Andorra needs more. Andorra needs to think about what concurrent steps could be designed to expand financial sector professional capacity. This can be done through education, providing different and new opportunities. This is true not just for the commercial sector but also for the regulators and the educators.

The professional community, regulators, and educators should establish an organization of neutral ground to exchange share and grow the capabilities and opportunities of Andorra. It is an ideal that in those environments, one of free and open exchange, that solid knowledge and growth will occur.

It is worth noting that Banca Privada d’Andorra had undergone regular anti-money-laundering audits by KPMG and Deloitte since 2003. This also shows you the waste of retaining a Big 4 Accounting firm for an AML audit. For AML audits the Big 4 typically hire new trainees and send them in to look for money laundering when most of these guys do not even understand how records can be manipulated. It goes back to a jurisdiction possessing real professional capacity, not looking for an over reliance on Big 4 branding.

What structural (and other) features of Andorra’s banking system led to a possibility of such a situation?

Lack of capacity of the regulators and the lack of oversight, specifically effective oversight, of the Board of Directors of Banca Privada d’Andorra. This happens when an industry out grows the limits of its regulatory framework, and a company outgrows it previous scope of governance. It is a sign of growth, mind you a perverse sign of growth, but a sign of growth nonetheless. The bank utterly failed in its duty of governance. They failed in governance matters that are required by ALL international banking organization from Bank of International Settlements, the EU Banking Commission, and United States OCC and Federal Reserve. The shutdown of the bank and the losses were preventable. Management, with proper governance, could have prevented the sanctions and the following losses. The shareholders and depositors of Banca Privada d’Andorra should look to management to be responsible for their losses as the losses were as a result of managerial failure.

The US or the EU Banking Commission of any of the nation’s FlUs are not consulting bodies – they are enforcement bodies. If you are failing, they do not send in a rescue team they send in an investigations and punishment team.

Comparison between banking systems of Switzerland and Andorra?

If Andorra tries to copy Switzerland – Andorra will fail as an Offshore Financial Center. Switzerland will do Switzerland better than Andorra can do Switzerland. Andorra needs to be Andorra. Andorra is a smaller jurisdiction and as such can be more nimble and adapt to financial services changes in the market place. Andorra as a nation and as a professional community needs to deliver products and services of value. It is about winning clients with those products and services that are utterly unique and compelling.

Never – and I mean Never in the history of business and finance have the rules and market place changed so fast. As a banker, if you offered the services you did 10 years ago – no one would come to your Door.

Yes – Door – as in the physical thing you walk through. It may be a shock to many of the young digeratti that Doors are a physical thing – much different from a Landing Page. Now all have web sites and you think about SEO and connectivity. This is important today – but what about in 6 months or 2 years. Banks and traditional financial institutions are in the process of being disintermediated from the financial world. The “shadow banks” ten years ago, were a third of the size of traditional banks. Now shadow banks are 4 times the size of traditional banks. What can Andorra do to capture the future? The present is the past the moment you have read this sentence.

Today there are only 5 local banks in Andorra operating on the market. Meanwhile, there are no foreign banks that want to enter the market. Whether it is an advantage or disadvantage of the Andorra financial system? Whether it is necessary to open the market for bigger competition? What measures must be used?

Who cares if foreign banks wish to enter Andorra or not. The heck with them. It is Andorra growing – it is about Andorran banks and financial services growing and entering other markets. Andorra needs more banks, more funds, more insurance companies, risk pools, and merchant support services. Andorra needs more innovative ideas to pull business to Andorra. This advantage must be crafted in law, it must be crafted in the professional community, and it must be crafted with an eye toward the future.

What services should be offered? One must look to those services and or products that are over regulated or poorly understood in your market space. Andorra’s market spaces my have some local components – but it is a reasonable assumption that a vast majority of the clients for Andorra come from outside the EU. The idea of retreating and rolling over is utter nonsense. Gambia has just set itself up as an offshore financial center based around a state of the art corporate registry. The Netherlands has an amazing set of systems in place for dealing with Intellectual Property. IP is the other 80% of the balance sheets for most public companies. OFC are growing in number – not shrinking. What can Andorra do to craft utterly compelling products and services to an environment that is tolerant of both success and failure – but not be tolerant of mischief?

In all of this, do not forget the judiciary. An honest and efficient method of dispute resolution is a must. Slow courts and arbitrary rulings will kill any jurisdiction. Why are Russian Oligarchs litigating their disputes in the US and the UK – they trust the courts? Why are IP cases being delivered to The Netherlands for litigation, as the courts will get an answer to the litigants in 6 weeks – not 6 months or 6 years.

When one considers an environment for an advantage as an OFC – the advantage is always an advantage crafted in to law, be it financial, dispute resolution, regulations, etc.. The OFC’s remove the undue burden of the over regulated oligopolies of the G20 without removing responsibility. Every opportunity I right has a corresponding responsibility.

Recently similar scandals have happened in the European banking market, and their frequency is increasing. The last exposures concerned primarily Swiss banks. What is the current situation in general in the European banking sector and how it was affected by these events? Did this affect the investment appeal of this segment of the economy?

A good question. The Central Bank of Moldova is on the hook for about a billion dollars missing. What is known, however, is that money amounting to nearly one-fifth of the country’s gross domestic product (GDP) -over $1 billion in total -vanished into thin air. Radde Bank fined a billion for interest rate manipulation. The Libor scandal is ongoing – with over 20 banks and their trading departments still in the crosshairs. In 2014 BNP Paribas pays an 8.9 billion fine for laundering cash from Sudan -a full 25% of Sudan’s GDP and in 2015 pays 140 more in a sanction violation case. How BNP Paribas was not named as a “Bank of Significant Money Laundering Concern” – is amazing – I am told it was a very close call. And yet I am told there are over 40 banks currently facing fines of 100 million or more.

The underlying issue for all of the fines is that the employees have little skin in the game. If they make their numbers they get a bonus. If they get it wrong the bank pays a big fine and the employee keeps their bonus. There is also a great deal of risk taking that is remote from the Board and the compliance office.

These risks are often poorly understood if at all disclosed. It is an issue of poor management and misunderstood governance in banks that are – honesty too big for their current management structures.

Does this impact the attractive of investment in banks – YES, it does. Today the average European Bank’s RoRWA is less than 1.2% which is less than inflation thus a vast majority of European banks are destroying value. Do the fines play a role – yes, both directly and indirectly. They play a direct role on those banks that have to pay the fine and the associated legal and regulatory look-back costs. The rest of the financial community pays a cost in running around like panicked chickens to see if they are next to be fined, and investing huge sums in mostly hollow costs to prevent a fine – meanwhile hollowing out those sectors of business that were once profitable.

Today, I would not buy one bank share from any of the 20 largest banks in the EU. These equities are buying shares in dinosaur scales. Most of these shares will loose value at least for the next 5 to 8 years. If I were to look for real opportunity in a Bank, I would look to Poland and the Check Republic first, then to The Baltic Banks and Romania, now that they are really cleaning up corruption. Why these locations? There is less regulation and more opportunity. There is a hint – can you craft an environment that has less regulation and more opportunity. If so, that is the purpose of an OFC. Also, these banks are offering new services and a better customer interface for your chosen customers than the Dinobanks.

In connection with the current situation in Banca Privada d’Andorra and the subsequent recent downgrade of Andorra’s rating by S&P, how attractive would be other sectors of the economy of Andorra for potential investors? How the latest scandals connected with the Swiss banks affected other segments of the economy of Switzerland?

According to World Bank 2013 statistics – Switzerland had a GDP of 685 Billion and Andorra a GDP of 3.2 Billion. Switzerland has a great deal more land, and a more diverse industrial base. 80% of Andorra’s income is directly or indirectly from Tourism. This is a significant concentration. It is also of sufficient size – the concentration on tourism, that it is imperative for Andorra to develop additional economic diversification.

Financial Services is one that can play a significant role in the future of the Principality – but it should not be copied from elsewhere – it should be made new, unique and utterly Andorran.

The bank secrecy in Andorra – how “real” it is considering the latest events as a result of which particular names of the banks’ clients became known?

Bank Secrecy is dead. However – Bank Privacy is very important. Like services or types of automobiles, privacy should be a scalar condition. Some may earn and may deserve a more private status. Other may not need or care. The financial services also need to make their systems secure from data theft either from a system hack or an inside theft. A proper level of security must be required of all who are dealing in financial services and commerce. Data security is more than employment agreements and the latest firewall updates. It cannot be left to individual choices, but must be made an Andorran policy followed with regulations. Something a bit more meaningful than a SAS 70, or its replacement, the SSAE 16.

Accountants do not know enough about data security to be entrusted with data security. This type of approach is a must.

What can Andorra do to stabilize and then expand its role on the OFC Community?

Andorra should think about creating brand of “Financial Andorra”.

Very important thing is to develop immediately the professional infrastructure for the Principality through State sponsored education as well as a required continuing education for all in the financial services industry. Presentation sponsored by the State on a regular basis and required training for law, accounting, compliance, operations, IT and regulators.

Assemble a Navigation Team – a Team of utterly unbiased experts – not of the Principality – to guide the Principality in the development of the Brand Andorra as an OFC. No conflicts, no history within Andorra, no baggage.

PR technologies could be useful: encourage professional to author articles about Andorra in a variety of professional publications, not just finance – but technology, tourism, etc… Not advertisements – but professional articles.

Speak to and digests the recommendations of projections of the futurists looking at finance, payments systems, intellectual property, technology, investment vehicles, client connectivity, etc.. Seek advantages in law and technology for the future of the economy as projected. Revise often.

Creation of destination events for the industries and professions you are targeting is also needed.

Do not forget education. Look to be a center of knowledge and a center of advanced learning in those fields in which Andorra’s economy is to grow. Knowledge alone is insufficient for riches – but ignorance is a guarantee of poverty. The barriers have come down for education. Now anyplace there is an internet connect – an education can be offered.

Andorra should be more aggressive and forward looking in developing a uniquely Andorran financial service center. A financial service center based up creativity and responsibility that is very inclusive of ideas, professionals, customers and the future of financial services and commerce.

Andorra Secretly Unblocks Chavista Accounts, Drops Laundering Case

01/04/2015/in Useful Publications /by BankAdmin

Spanish daily El Mundo revealed on Tuesday that Andorra’s Criminal Court ruled 10 months ago that Venezuelan officials of the Hugo Chávez administration could withdraw millions of euros from accounts heldwith the Banca Privada d’Andorra (BPA), part of Banco Madrid.

The funds, previously blocked on November 30, 2012, were released in May 2014 after judge Anna Estragués ruled in favor of the Venezuelans’ lawyers.

Estragués found a lack of evidence linking the account holders to allegations made by Andorranprosecutors, US financial crime unit FinCEN, and Spain’s Financial Intelligence Unit (Sepblac). The three bodies maintain that Venezuelan officials used accounts in Andorra, a European mountain principality located between France and Spain, to launder illegallyobtained money.

The former members of the Chávez administration are alleged to have accepted bribes from international companies in return for awarding them lucrative public contracts.
“All of these elements are not currently obvious, and with almost a year and half passing since the adoption of precautionary measures … other evidence of the original crime of alleged moneylaundering in the Principality has not emerged,” reads the sentence made by Andorra’s Tribunal de Corts, which simultaneously unfroze the bank accounts in question.

Who Benefits?

Diego Salazar Carreño is chief among the beneficiaries of the ruling. First cousin to Rafael Ramírez Carreño, Venezuela’s ambassador to the United Nations, Salazar Carreño is the former president of state Andorra’s Tribunal de Corts has dismissed allegations of money laundering by Venezuelan officials. (gemsworldpostcards)
petroleum firm PDVSA — a company accused by the US Treasury Department of laundering US$2 billion via BPA.

Salazar Carreño isn’t only known in Venezuela for his connection to Rafael Ramírez. According to watchdog website Poderopedia, he obtained a multimillion PDVSA contract to manage its insurance and reinsurance policy, and is also linked to the purchase of the media organization Cadena Capriles in October 2013.

El Mundo detailed earlier in March a conversation in late 2012 between Luis Mariano — the man in charge of managing Salazar Carreño’s accounts in Andorra — and BPA manager Pablo Laplana.

In the recording, made by Andorra’s Guardia Civil in the course of moneylaundering investigations, Mariano refers to Salazar’s willingness to bribe Andorran authorities to unblock his accounts, which contained $200 million.

Laplana reportedly replied that the director general of BPA, Joan Pau Miquel (now jailed), the Finance minister of the principality, and the director of Andorra’s Central Bank had already met to discuss such a move.

The Spanish daily further reported on a meeting between the lawyer working for Salazar and Laplana, in which Mariano convinces the official of the negative ramifications that “could be uncovered” if it were proven “that clients of the bank belonged to a criminal band that’s moved over a billion dollars.”

In other telephone recordings, Mariano reveals that Salazar’s sources of income had not dried up. “The Chinese are paying him, and they can’t enter the blocked accounts,” the lawyers says, threatening that the Venezuelan business magnate will simply open accounts in another country and deny BPA his custom.

According to the Andorran police report, Mariano claimed to have received orders from Salazar to open an account in Geneva, Switzerland. Laplana answers that if there are “difficulties” with the Swiss, Salazar can open new holdings with BPA’s branch in Panama, saying he’ll begin work on establishing them immediately.

In the 2012 report authored by FinCEN, multiple other highprofile business and political figures are implicated in money laundering via European banks.

Among those implicated are former Vice Minister for Energy Nervis Gerardo Villalobos, military official Alcides Rondón — who occupied key security posts under Chávez— and former Vice Minister for Development Javier Alvarado. Also accused by the US authorities are former intelligence chief Carlos Aguilera and business magnates Rafael Jiménez and Omar Farias.

Diego Salazar Carreño, former head of state petrol firm PDVSA, is alleged to have attempted to bribe the BPA to unblock his accounts. (Entresocios)

Venezuelan Silence

Although it became known on March 16 that the former Chavista officials used BPA accounts to launder around $4.2 billion, it took another eight days for judicial authorities and the National Assembly to announce a separate investigation.

Without offering further details, Attorney General Luisa Ortega Díaz told press that the Venezuelan Foreign Ministry had requested all relevant information from Andorra about the accounts and funds in question.

A full session of the National Assembly meanwhile saw congressmen agree to open an investigation only if the Venezuelan opposition could provide proof of wrongdoing to the relevant authorities.
“The state Comptroller’s committee assumes that opposition congressmen will come and bring proof for us to open an investigation … the investigation will be opened the moment they offer reliable evidence,” committee President Pedro Carreño, a close ally of the government, stated.

Neither President Nicolás Maduro nor his executive cabinet have made any statement on the issue.