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US authorities have vowed to crack down on money laundering through offshore banks, after issuing a US$15mn fine to a Puerto Rican lender accused of facilitating payments linked to bribery, drugs and crypto scams. 

The Financial Crimes Enforcement Network (FinCEN) says Bancrédito, a San Juan-based bank that is now in liquidation, wilfully violated anti-money laundering and transaction reporting requirements between 2015 and 2022. 

Before its liquidation, Bancrédito provided services including checking accounts, correspondent banking and trade finance, FinCEN says.  

The authority says the bank allowed AllBank Corporation, a Panama-based lender shut down in 2019, to move more than US$100mn through a correspondent bank account held with Bancrédito. 

Those transactions included wire transfers by a Venezuelan national convicted of bribing government officials in Argentina, payments on behalf of an individual who had a yacht and aircraft seized by the Drug Enforcement Agency, and several payments from a company connected to the OneCoin cryptocurrency scam. 

“Bancrédito processed millions of dollars in suspicious transactions through the United States on behalf of high-risk customers, providing correspondent accounts to foreign financial institutions without the required due diligence and reporting required by the [Bank Secrecy Act],” says FinCEN director Andrea Gacki. 

Prior to its liquidation, the lender was one of Puerto Rico’s oldest and largest international banking entities (IBEs).  

Under US law, IBEs were not required to implement an anti-money laundering programme until March 2021, though were required to report suspicious activity under the Bank Secrecy Act.  

The fine is the first enforcement action taken against a Puerto Rican IBE. 

Gacki says the authority “is sending the message that the era of easy money laundering through Puerto Rican IBEs is over”. 

“Correspondent accounts held in the US by foreign financial institutions serve as an important gateway to the US economy, but have long been recognized to present unique risks that US financial institutions need to appropriately manage,” FinCEN adds. 

“Bancrédito’s failure allowed nearly an unfettered flow of funds by these international correspondent accounts through the US financial system, jeopardising the integrity of the United States financial system.” 

 

Offshore lenders 

Under US law, IBEs are only permitted to take deposits and provide loans to non-resident customers and foreign businesses, rather than Puerto Rican residents.  

Government listings show that in April 2022, the most recent date for which data is available, there were 27 IBEs active in Puerto Rico, including branches of international lenders Citi and UBS. As of Q1 this year, those lenders held assets totalling more than US$49bn in value. 

In a money laundering risk assessment published last year by the US Department of the Treasury, IBEs were singled out as carrying an elevated risk of exposure to money laundering “because of their offshore banking business model”. 

Scarce resources have meant there have been relatively few supervisory staff assigned to IBEs, making them “attractive money laundering vehicles, potentially allowing nefarious actors to misuse them to facilitate illicit financial activity”, the assessment found. 

Elizabeth Callan, a former financial crime analyst at the US treasury, the Drug Enforcement Agency and the CIA, says the enforcement action shows such businesses are likely to face greater scrutiny from enforcement authorities. 

“FinCEN has identified IBEs as an entryway to the financial system, and where there might be trade-based money laundering or other financial crime, is making it clear it is looking to do something about it,” says Callan, now an anti-money laundering and financial crime risk and compliance subject matter expert for North America at risk management tech firm SymphonyAI Sensa-NetReveal. 

“This is also an example of FinCEN addressing some of those gaps or risks that were pointed out in the US national money laundering risk assessment in 2022, and more broadly, we can expect to see action against other key risks for the US financial system that were identified in the assessment. 

“The nature of enforcement is that you don’t need 500 actions to send a message; one or two important or major ones will make it clear to the industry what authorities are looking at and where banks should focus attention.” 

Lenders should ensure they carry out proper due diligence on their customers and their activity, Callan says. 

“FinCEN also explains that much of the problem stemmed from the downstream customers or counterparties, and publicly available negative information existed on some of those downstream customers,” she adds.  

“For banks, that’s a really important part of this; you have to make sure you’re screening negative news properly, and where you do have hits, that they are properly investigated.” 

Other suspicious activity identified by FinCEN, not related to correspondent banking, involves Bancrédito founder Julio Herrera Velutini, a Venezuelan and Italian citizen and UK resident. 

The US Department of Justice last year accused Herrera Velutini of promising to provide funding to former Puerto Rico governor Wanda Vazquez Garced to support her election campaign in 2020. 

In exchange, Vazquez Garced agreed to stop investigations into Bancrédito by Puerto Rico’s financial regulator, it alleged.