Four Defendants Indicted for Securities Fraud, Conducting International Pump-and-Dump Scheme, and Money Laundering
Assistant U.S. Attorneys Daniel C. Silva (619) 546-9713, Mark W. Pletcher (619) 546-9714, and David J. Rawls (619) 546-7966
NEWS RELEASE SUMMARY – February 7, 2018
SAN DIEGO – Rabobank National Association, a California subsidiary of the Netherlands-based Coöperatieve Rabobank U.A., pleaded guilty in federal court today to a felony conspiracy charge and agreed to forfeit $368,701,259 – the largest financial penalty in the Southern District of California – for obstructing regulators and hiding deficiencies in its anti-money laundering program.
At today’s hearing before U.S. Magistrate Judge Jill L. Burkhardt, Rabobank admitted to conspiring with several former executives to defraud the United States by unlawfully impeding an examination of its operations throughout California, including its Calexico and Tecate bank branches, by its primary regulator, the Department of the Treasury’s Office of the Comptroller of the Currency (OCC).
Rabobank admitted that its deficient anti-money laundering program resulted in hundreds of millions of dollars in untraceable cash, sourced from Mexico and elsewhere, to be deposited into its rural bank branches in Imperial County, and transferred via wire transfers, checks and cash transactions, without notifying federal regulators as required by law. And when the OCC was on the verge of discovering such grave deficiencies in 2013, Rabobank executives actively sought to deceive the regulators as to the true state of its operations, in the hope of avoiding regulatory sanctions that had previously been imposed on Rabobank in 2006 and 2008 for nearly identical failures.
According to the plea agreement, Rabobank admitted it was aware that the suspicious transactions made by certain customers were indicative of international narcotics trafficking, organized crime and money laundering. Despite this risk, the bank solicited businesses and individuals conducting these transactions, and failed to adequately monitor and conduct adequate investigations into these suspicious transactions.
Rabobank’s guilty plea comes less than two months after a former Rabobank vice president, George Martin, entered into a deferred prosecution agreement with the United States for his role in aiding and abetting Rabobank’s failure to maintain an anti-money laundering program that met Bank Secrecy Act requirements. Martin admitted his conduct in federal court in San Diego on Dec. 14, 2017, and is cooperating with the continuing investigation. As part of its guilty plea, Rabobank also agreed to cooperate with the United States’ continuing investigation of additional criminal conduct.
“Rabobank had an obligation to shine light on suspected drug traffickers, money launderers and organized crime,” said U.S. Attorney Adam L. Braverman. “Instead, this bank deliberately allowed hundreds of millions of dollars of suspicious cash transactions and wire transfers to flow through its branches and took measures to hide this activity from regulators. We will vigorously protect the integrity of the banking system, and we will not allow the financial institutions in our communities to play any role in facilitating international money laundering or financing transnational criminal organizations.”
“When Rabobank learned that substantial numbers of its customers’ transactions were indicative of international narcotics trafficking, organized crime, and money laundering activities, it chose to look the other way and to cover up deficiencies in its anti-money laundering program,” said Acting Assistant Attorney General John P. Cronan. “Worse still, Rabobank took steps to obstruct an examination by its regulator into those same deficiencies. The integrity of our financial system depends on prompt reporting by banks and other financial institutions of suspicious, potentially criminal transactions, and on these entities’ truthfulness and transparency with their regulators. Rabobank’s guilty plea today and forfeiture of more than $360 million is a warning to financial institutions that there are significant consequences for banks that engage in obstructive conduct in an effort to hide their anti-money laundering program failures from their regulators.”
“It is the responsibility of Homeland Security Investigations (HSI) to monitor and investigate activity which exploits the global infrastructure, to include financial systems. This complex investigation revealed, and Rabobank admits, that Rabobank was aware of the extreme risk that it was processing hundreds of millions of dollars related to transnational crime and international money laundering – activity which plagues the Southwest Border,” said Dave Shaw, Special Agent in Charge for HSI in San Diego. “This plea and significant forfeiture sends a strong message to financial institutions that this activity will not be tolerated.”
“Today, Rabobank is being held accountable for its illegal actions involving the movement of more than $360 million through the U.S. financial system on behalf of high risk customers,” stated IRS Criminal Investigation’s Special Agent in Charge R. Damon Rowe. “In today’s environment of increasingly sophisticated financial markets, it’s critical that global institutions follow U.S. law and abide by our anti-money laundering regulations. The IRS is proud to share its world-renowned financial investigative expertise in this and other complex financial investigations.”
The Bank Secrecy Act (“BSA”), located at Title 31 of the United States Code, requires financial institutions to implement and maintain an anti-money laundering compliance program (“BSA/AML program”) reasonably designed: (i) to detect suspicious activity indicative of money laundering and other crimes and (ii) to assure and monitor compliance with the BSA’s recordkeeping and reporting requirements, including to report to the Department of the Treasury any suspicious transactions (through the filing of “suspicious activity reports” or “SARs”) indicative of a possible violation of the law. In its plea agreement, Rabobank admitted knowing of significant BSA/AML program failures between 2009 and 2012. Some of these failures were caused by Rabobank’s policies and procedures that suppressed any investigation into suspicious transactions that occurred at its branches, by its accountholders, or by individuals conducting transactions on behalf of its accountholders that had all the indications of being involved in, derived from, or promoting illegal conduct.
According to admissions in its plea agreement, Rabobank received regular alerts of transactions by “High-Risk” customers, or through accounts deemed to be “High-Risk,” and that had been the subject of prior SARs filed by Rabobank. These High-Risk customers and accounts included those controlled and managed by Mexican businesses, nonresident aliens and U.S.-based accountholders who transacted hundreds of millions of dollars in untraceable cash, sourced from Mexico and elsewhere, into and through Rabobank accounts.
Rabobank also admitted in its plea agreement to creating and implementing policies and procedures to prevent adequate investigations into these suspicious transactions, customers, and accounts. Among those policies and procedures, Rabobank came up with the “Verified List” – a tool that effectively allowed Rabobank to execute an end-run the BSA/AML and SAR requirements. Rabobank instructed its employees that if a customer was on the “Verified List,” no further review of that customer’s transactions was necessary -- even if the transactions generated an internal alert, or the customer’s activity had changed dramatically from when it was “verified.” Rabobank’s BSA/AML staff were further instructed to aggressively increase the number of bank accounts on the Verified List. In 2009, Rabobank had less than ten “verified” customers; by 2012, as a result of Rabobank’s defective BSA/AML policies and procedures, it had more than 1,000 “verified” customers.
Additionally, Rabobank admitted failing to monitor and conduct adequate investigations into these transactions and submit SARs to the Financial Crimes Enforcement Network (“FinCEN”), as required by the BSA. Rabobank’s border branches, including those located in Calexico and Tecate in Imperial County, were heavily dependent on cash deposits from Mexico. Rabobank knew that millions of dollars in cash deposits at these branches were likely tied to illicit conduct. In particular, the Calexico branch, located about two blocks from the U.S.-Mexico border, was the “highest performing” branch in the Imperial Valley region due to the abundance of cash derived from Mexico. Throughout the time period, Rabobank continued this practice of soliciting cash-intensive customers from Mexico and elsewhere, all the while employing the foregoing inadequate BSA/AML policies and procedures to address the obvious, known “High Risks” associated with these accounts, transactions, and transactors.
When the OCC began conducting its periodic examination of Rabobank in 2012, Rabobank, acting through three of its executives, agreed to, among other things, knowingly obstruct the OCC’s examination. Rabobank responded to the OCC’s February 2013 initial report of examination with false and misleading information about the state of Rabobank’s BSA/AML program. Rabobank made false and misleading statements to the OCC regarding the existence of reports developed by a third-party consultant, which detailed the state of disrepair and resulting ineffectiveness of Rabobank’s BSA/AML program.
To further conceal the inadequate nature of its BSA/AML program and to avoid “others contradicting our findings” and statements to the OCC, Rabobank demoted or terminated two RNA employees who were raising questions about the adequacy of Rabobank’s BSA/AML program.
The case is being prosecuted by Assistant U.S. Attorneys Daniel C. Silva, Mark W. Pletcher, and David J. Rawls from the Southern District of California, and Trial Attorneys Kevin G. Mosley and Maria Vento of the Criminal Division’s Money Laundering and Asset Recovery Section. The investigation team included HSI, IRS, and the Financial Investigations and Border Crimes Task Force (the “FIBC”), a multiagency Task Force based in San Diego and Imperial Counties, and funded by the Treasury Executive Office of Asset Forfeiture (“TEOAF”). The investigation occurred in parallel with regulatory investigations by the OCC, Office of General Counsel, and FinCEN, Enforcement Division.
RABOBANK, NATIONAL ASSOCIATION
SUMMARY OF CHARGES
Conspiracy to Defraud the United States, and to Corruptly Obstruct an Examination of a Financial Institution – Title 18, United States Code, Section 371
Maximum penalties: $500,000 fine; a mandatory special assessment of $400; and a term of probation of at least one year, but not more than five years.
Homeland Security Investigations
Internal Revenue Service – Criminal Investigation
TEOAF’s Financial Investigations and Border Crimes Task Force