Keith Meyers/The New York Times
Stephen
Flatow of West Orange, N.J., accused Iran of financing the terrorist
group responsible for the suicide bombing that killed his daughter,
Alisa, in 1995.
A bus bombing two decades ago — and a New
Jersey father’s quest for justice — inadvertently set off a chain of
events that led American prosecutors to accuse some of the world’s
biggest banks of transferring money for nations like Iran.
On Monday, that crackdown culminated with the guilty plea of
BNP Paribas,
which admitted to doing billions of dollars in deals with Iran and
other countries blacklisted by the United States and agreed to pay a
record $8.9 billion penalty to state and federal authorities.
The trail that ultimately led to BNP began in
2006, when the Manhattan district attorney’s office came upon a lawsuit
filed by the father, who blamed Iran for financing the Gaza bus bombing
that killed his 20-year-old daughter. Buried in the court filings,
prosecutors found a stunning accusation: a charity that owned a gleaming
office tower on Fifth Avenue was actually a “front” for the Iranian
government, a claim that the prosecutors ultimately verified.
The prosecutors soon discovered that
Credit Suisse and
Lloyds, two of the world’s most prestigious banks, had acted as Iran’s
portal to the United States financial system. To disguise the illicit
transactions — the United States is closed for business to Iran — Credit
Suisse and Lloyds stripped out the Iranian clients’ names from wire
transfers to the Fifth Avenue charity and affiliated entities. The
findings led the Manhattan prosecutors and the Justice Department in
Washington to announce criminal cases against both banks.
As those cases were coming to light in 2009, a
whistle-blower stepped forward to point the finger at BNP, France’s
biggest bank. That tip has now materialized in a landmark criminal
settlement, with BNP pleading guilty to criminal charges, capping a
sweeping investigation into how the bank processed billions of dollars
on behalf of Sudan and Iran.
The twists and turns leading to the BNP case —
a series of whistle-blower tips and fortuitous discoveries recounted in
interviews with current and former prosecutors — open a window into the
interconnected yet shadowy world of global finance. At its center is
New York City, the heart of American capitalism where banks process
billions of dollars in payments on behalf of international clients.
It is a cautionary tale of how European
banks, spotting a lucrative business opportunity that American rivals
shunned, opened their doors to countries under sanctions and ultimately
exposed their reputations to the stain of criminal cases. The interviews
with prosecutors, some who spoke freely and others anonymously, also
tell a story of how a local prosecutor’s office in New York, perhaps
better known for crackdowns on drugs and organized crime, landed in the
middle of an international investigation into terrorist bombings and
foreign banks.
“We’re often asked why a local prosecutor is
getting involved in a case of global financial crime, and my answer is
how could we not,”
Cyrus R. Vance Jr.,
the Manhattan district attorney, said in an interview. “We’re situated
in the finance capital of the world. We just had to know where to look
to connect the dots.”
The district attorney’s role in the case, which began under Mr. Vance’s predecessor,
Robert M. Morgenthau,
was not always clear. Adam Kaufmann, a prosecutor who helped lead the
investigations, once traveled to Washington to meet with officials from
the
Treasury Department’s
Office of Foreign Assets Control, the primary enforcer of American
sanctions against Iran. The Treasury Department, he recalled, was
baffled as to why a Manhattan prosecutor was investigating the case at
all.
The investigation, Mr. Kaufmann explained,
began in earnest back in January 2006. At the time, in a cramped office
cubicle in lower Manhattan, a 32-year-old analyst for the Manhattan
district attorney’s office pored over the New Jersey father’s lawsuit
against Iran. The father, Stephen Flatow of West Orange, N.J., accused
Iran of funding the terrorist group responsible for the suicide bombing
in Gaza that killed his daughter, Alisa, in 1995.
A federal judge awarded Mr. Flatow, a lawyer
at a title company, $250 million in damages. Iran never paid. And so Mr.
Flatow sought to collect from the Alavi Foundation, the charity that he
claimed was a front for the Iranian government.
The analyst at the district attorney’s
office, Eitan Arusy, took a keen interest in the father’s accusations.
Before joining the office, he was an Israeli soldier who happened to
have responded to the scene of that very same bus bombing.
And the Alavi Foundation, it turned out, was
in the heart of the district attorney’s jurisdiction. It held an
ownership stake in a Fifth Avenue skyscraper just steps from Rockefeller
Center and the Museum of Modern Art. The 36-story tower, formerly known
as the Piaget Building, was built in the late 1970s by a non-profit
tied to the Shah of Iran.
One day in 2006, Laura Billings, a prosecutor
in the district attorney’s office who helped lead the Alavi Foundation
investigation, visited the tower to see for herself whether anything
suspicious was unfolding inside. But the building, which has housed the
offices of Ivan F. Boesky, the famed Wall Street speculator who was
convicted as part of the 1980s insider trading scandal, and is currently
home to Godiva, the chocolate maker, was an ordinary office tower.
The prosecutors reached a breakthrough,
however, during a visit to a Persian rug shop owner who had ties to
Iran. Gathered around a table, picking at watermelon and pistachios, the
shop owner and prosecutors discussed politics and family. At the end of
the conversation came a revelation: the Alavi Foundation, the shop
owner declared, was completely under the control of Iran.
Another confidential informant provided
additional clues, specifically that the Alavi Foundation had received
millions of dollars from Bank Melli, an Iranian state-owned bank. Get
the payment records, the informant explained, and prosecutors would find
the trail to Iran.
But when the prosecutors and the
F.B.I. pulled the charity’s bank records, Bank Melli was nowhere to be found. Credit Suisse and Lloyds were there instead.
The evidence against the
Alavi Foundation was extensive, former prosecutors say, but pointed to a
federal case rather than a local one. The district attorney’s office
ceded its Alavi investigation to the United States attorney’s office in
Manhattan. Under United States attorney
Preet Bharara,
federal prosecutors filed a civil complaint accusing the Alavi
Foundation of “providing numerous services to the Iranian government.”
That action led to Mr. Bharara announcing a settlement agreement that
forced the Alavi Foundation to forfeit its holdings in the office tower.
When the government sells the building, the proceeds will flow to the
families and estates of victims of terrorism.
With the Alavi Foundation case off its plate,
the district attorney’s office turned its focus to Credit Suisse and
Lloyds. The prosecutors offered the banks a choice: turn over records
related to Iranian banks or face a criminal case.
The banks chose to cooperate, producing reams
of records that laid bare a scheme to disguise how Bank Melli was
funneling money into the United States. To avoid detection, the records
showed, Credit Suisse and Lloyds falsified money-transfer paperwork,
replacing Bank Melli’s name with their own.
“Please do not mention our name to any bank
in the USA,” Bank Melli wrote to Lloyds in one of the documents obtained
by prosecutors.
Unbeknown to the
prosecutors in Manhattan, the Justice Department’s criminal division in
Washington had its own investigation into Credit Suisse. The inquiry
from the division’s asset forfeiture and money laundering section, now
led by Jaikumar Ramaswamy, began with a tip from an
I.R.S. agent who had spotted a suspicious transaction.
The parallel investigations merged at a legal
conference in 2007, when Mr. Kaufmann from the district attorney’s
office lunched with a Justice Department official. Out of the meeting
came a plan to pursue not only Credit Suisse and Lloyds, but other
foreign banks suspected of flouting United States sanctions. When Mr.
Kaufmann left the office in 2013, he handed the cases to his successor,
David Szuchman, and a senior prosecutor, Polly Greenberg.
The cases benefited from a trove of internal
emails from Credit Suisse that showed how bank executives strategized
ways to capture business from Iran once Lloyds left the market. If
Credit Suisse did not act fast, the emails warned, it might lose out to
other European banks.
In 2009, prosecutors kicked off a string of cases, first taking aim at Lloyds and then Credit Suisse.
Barclays settled in 2010, laying the groundwork for
ING,
Standard Chartered and
HSBC to strike their own deals in 2012.
“I felt strongly that banks should not be
used as vehicles for transferring illicit funds or contraband on behalf
of sanctioned countries,” Mr. Morgenthau, who at 94 is now of counsel to
the law firm Wachtell, Lipton, Rosen & Katz said in an interview.
The BNP case announced on Monday traces to
these deals. As the deals were being negotiated, a whistle-blower
approached a rank-and-file prosecutor at the Manhattan district
attorney’s office about BNP’s ties to Iran. BNP was also doing business
with Sudan at a time that the nation was operating a genocidal regime.
The whistle-blower is not expected to receive any compensation for
assisting the case.
The case — a collaboration among the Justice
Department in Washington, the United States attorney’s office and the
district attorney’s office in Manhattan, as well as the Federal Reserve,
Treasury Department and Benjamin M. Lawsky, New York State’s financial
regulator — stood apart from the others. The volume of transactions
reached tens of billions of dollars. And the $8.9 billion penalty is
more than triple the amount that the six other banks collectively paid
to resolve sanctions cases.
For Mr. Flatow, who ultimately received $25 million, the actions are vindicating.
“The fact that our case laid the groundwork for these actions is really a tribute to Alisa who would be 40 this year,” he said.
Alain Delaqueriere contributed research.
A version of this article appears in print on 07/01/2014, on page A1 of
the NewYork edition with the headline: Grieving Father Pulls a Thread
That Unravels Illegal Bank Deals .
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