name='verify-v1'/>"> MediaTrial: Presidency says Zardari did not launder money through Citibank

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Saturday, December 12, 2009

Presidency says Zardari did not launder money through Citibank

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The Presidency has officially claimed that the US Congressional Subcommittee on Money Laundering had cleared Asif Ali Zardari, as it had found no evidence that Citibank or any other private bank knowingly helped Mr Salinas (of Mexico), or any other criminals launder dirty money.

This official statement has been released by the spokesman of the president Farhatullah Babar in response to questions sent to him about the details provided by the Citibank’s top administration to the US Subcommittee on Money Laundering in November 1999.

Mr Babar in his response said in 1998 a US Senate subcommittee was formed to probe Citibank practices and to ascertain whether it had exercised “due diligence” in opening private bank accounts of high profile persons. The subcommittee was to scrutinise the Citibank practices and not to probe Asif Ali Zardari for money laundering. In fact, the Congress itself stated at the time that it had not alleged wrongdoing against Mr Zardari.

However, when the reports of Citibank probe became public a section of press declared that the US Congress was scrutinising Asif Ali Zardari’s accounts for investigating money laundering. Mr Zardari immediately contradicted the reports saying that since he did not have an account with the Citibank there was no question of his accounts being investigated for money laundering.

He also clarified that the US Congress was scrutinising the Citibank’s practices and not his accounts, which did not even exist. “Subsequently a year later the position of Senator Zardari was vindicated by the Chairman of the Senate subcommittee Senator Susan Collins after the conclusion of the probe. The subcommittee had uncovered no evidence that Citibank or any other private bank knowingly helped Mr Salinas (of Mexico) or any other criminals launder dirty money.”

“There was no mention of the name of Asif Ali Zardari let alone the allegation of money laundering against him in the Senate sub committee’s report.”

“Yesterday Mr Zardari was victim of a vicious media trial for being the spouse of PPP Chairperson Shaheed Mohtarma Benazir Bhutto. Today he is victim of even more intense tirade for having graduated to become the leader of the PPP and the president. For the PPP it is dÈj‡ vu.”

Mr Babar was asked about the $60 million Swiss account of Asif Ali Zardari, which was frozen and then released under the NRO, and details of which were presented by the Swiss Citibank’s top management before a US Congressional committee as a special case study in Nov 1999.

A report prepared later by the Permanent Subcommittee on Investigations hearing private banking and money laundering issues, chose Asif Zardari’s case as one of the four case studies and gave minute details about how the account was opened, which was involved and how much money was stashed.

The report, which is now part of public congressional record and is also available on the website of the sub-committee, says during the period of 1994 to 1997, Citibank opened and maintained three private bank accounts in Switzerland and a consumer account in Dubai for three corporations under Mr Zardari’s control. There are allegations that some of these accounts were used to disguise $10 million in kickbacks for a gold importing contract to Pakistan.

“Mr Zardari’s relationship with Citibank began in October 1994, through the services of Kamran Amouzegar, a private banker at Citibank private bank in Switzerland, and Jens Schlegelmilch, a Swiss lawyer who was the Bhutto family’s attorney in Europe and close personal friend for more than 20 years. According to Citibank, Mr Schlegelmilch represented to Mr Amouzegar that he was working for the Dubai royal family and he wanted to open some accounts at the Citibank branch office in Dubai. Mr Schlegelmilch had a Dubai residency permit and a visa signed by a member of the Dubai royal family. Mr Amouzegar agreed to introduce Mr Schlegelmilch to a banker in the Citibank branch office in Dubai.

According to Citicorp, Mr Schlegelmilch told the Citibank Dubai banker that he wanted to open an account in the name of M S Capricorn Trading, a British Virgin Island PIC. The stated purpose of the account was to receive money and transfer it to Switzerland. The account was opened in early October 1994. Mr Schlegelmilch informed the Dubai banker that he would serve as the representative of the account and the signatory on the account. Under Dubai law, a bank is not required to know an account’s beneficial owner, only the signatory

Citibank told the Subcommittee staff that Mr Schlegelmilch did not reveal to the Dubai banker that Mr Zardari was the beneficial owner of the PIC, and the account manager never asked him the identity of the beneficial owner of the account. Instead, according to Citibank, she assumed the beneficial owner of the account was the member of the royal family who had signed Mr Schlegelmilch’s visa.

On February 27, 1995, Mr Schlegelmilch, working with Mr Amouzegar, opened three accounts at the Citibank Switzerland private bank. The accounts were opened in the name of M S Capricorn Trading, which already had an account at Citibank’s Dubai branch, as well as Marvel and Bomer Finance, two other British Virgin Island PICs established by Mr Schlegelmilch.

Each private bank account listed Mr Schlegelmilch as the account contact and signatory. Citibank informed the subcommittee that the Swiss Form A, a government-required beneficial owner identification form, identified Mr Zardari as the beneficial owner of each PIC. The decision to allow Mr Schlegelmilch to open the three accounts on behalf of Mr Zardari, according to Citibank, involved officials at the highest levels of the private bank. The officials included: Mr Amouzegar, the private banker; Mr Deepak Sharma, then head of private bank operations in Pakistan; Mr Phillipe Holderbeke, then head of private bank operations in Switzerland (who became head of the Europe, Middle East, Africa Division in February 1996); and Mr Hubertus Rukavina, then head of the Citibank private bank.

According to Citibank, Mr Amouzegar informed his superiors that Mr Zardari was the beneficial owner of the Capricorn account in Dubai when they were considering the request to open the accounts in Switzerland.

Citibank told the subcommittee staff that the private bank decided to allow Mr Schlegelmilch to open the three accounts for Mr Zardari on the condition that the private bank would not be the primary accounts for Mr Zardari’s assets and the accounts would function as passive investment accounts.

Citibank told the subcommittee staff that Mr Holderbeke signed a memo delineating the restrictions placed on the accounts, including a $40 million aggregate limit on the size of the three accounts, and transaction restrictions requiring the accounts to function as passive, stable investments, without multiple transactions or funding pass-through.

Citibank told the subcommittee staff that, once opened, only three deposits were made into the M S Capricorn Trading account in Dubai. Two deposits, totaling $10 million were made into the account almost immediately after it was opened. Citibank records show that one $5 million deposit was made on October 5, 1994, and another was made on October 6, 1994. The source of both the deposits was ARY International Exchange, a company owned by Abdul Razzak Yaqub, a Pakistani gold bullion trader living in Dubai.

On February 25, 1995, a third deposit of $8 million was made into the Dubai M S Capricorn Trading account. Records show that the payment was made through American Express, with the originator of the account listed as “Morgan NYC.” Citibank indicated it did not know who Morgan NYC was, nor did it know the source of the $8 million.

All of the funds in the Dubai account of M S Capricorn Trading were moved to the Swiss accounts in the spring of 1995. On March 6, 1995, $8.1 million was transferred; and on May 5, 1995, another $10.2 million was transferred. Both the transfers involved US dollars and were routed through Citibank’s New York offices.

Citibank informed the subcommittee staff that M S Capricorn Trading closed its Dubai account shortly after the last transfer was completed. Citibank indicated that significant amounts of other funds were also deposited into the Swiss accounts. As described below, the $40 million cap was reached, and millions of additional dollars also passed through those accounts. However, Swiss bank secrecy law prevented the subcommittee from obtaining the details on the transactions in the Zardari accounts.

Citibank told the subcommittee staff that, in 1996, the Swiss office of the private bank conducted a number of reviews of the Zardari Swiss accounts, finally deciding in October to close them. Increasing publicity about allegations of corruption against Mr Zardari allegedly in early 1996 triggered the first review. Citibank told the subcommittee staff that Messrs Holderbeke, Sharma and Amouzegar were among the participants in the review, and apparently concluded that the allegations were politically motivated and that the accounts should remain opened. The subcommittee staff was told that the review did not include looking into the accounts’ transaction activity.

In March or April 1996, Mr Amouzegar asked that the overall limit on the Zardari accounts be increased from $40 million to $60 million, apparently because the accounts had reached the previously imposed limit of $40 million. Citibank told the subcommittee staff that Mr Holderbeke considered the request, but declined to increase the $40 million limit.

In June, press reports in the United Kingdom that Mr Zardari purchased real estate in London triggered still another review of the Zardari accounts. Citibank private bank told the subcommittee staff that its Swiss office internally discussed the source of the funds for the property purchase. Mr Amouzegar and another official then met Mr Schlegelmilch, who allegedly informed them that funds had been deposited into the Citibank accounts, transferred to another PIC account outside the Citibank and used to purchase the property.

In July 1996, after Mr Amouzegar left the private bank to open his own company, another private banker, Cedric Grant, took over management of the Zardari accounts. Citibank told the subcommittee staff that Mr Grant began to review the Zardari accounts about one month later to familiarize him with them. In October, Mr Grant completed his review of the Zardari accounts and provided a written analysis to Messrs Holderbeke, Sharma and another official, according to Citibank. Mr Grant had found numerous violations of the account restrictions imposed by Citibank, including multiple transactions and funding pass-through. Citibank told the subcommittee staff that the accounts had functioned more as checking accounts than passive investment accounts, directly contrary to the private bank’s restrictions.

Apparently, well over $40 million had flowed through the accounts, though subcommittee staff was unable to ascertain the actual amount because Swiss bank secrecy law prohibits Citibank from sharing that information with the subcommittee. Citibank indicated that Mr Amouzegar had either ignored or did not pay attention to the account activity. Mr Grant recommended closing the accounts, and they were closed by January 1997.

On September 8, 1997, the Swiss government issued orders freezing the Zardari and Bhutto accounts at Citibank and three other banks in Switzerland at the request of the Pakistani government. Since Citibank had closed its Zardari accounts in January 1997, it took no action nor did it make any effort to inform US authorities of the accounts until late November 1997. Citibank contacted the Federal Reserve and OCC about the Zardari accounts in late November, in anticipation of a New York Times article that eventually ran in January 1998, alleging that Mr Zardari had accepted bribes, and that he held Citibank accounts in Dubai and Switzerland.

On December 8 and 11, 1997, Citibank briefed the OCC and the Federal Reserve, respectively, about the accounts and the steps it had taken as a result of the Zardari matter. These steps included: closing all of the accounts that had been referred by Mr Schlegelmilch to the private bank and terminating his referral agreement; reviewing all of the accounts opened in the Dubai office; and tightening up account opening procedures in Dubai, including requiring the Dubai office to identify the beneficial owner of all Dubai accounts. Citibank did not identify any changes made or planned for the Swiss office, even though the majority of the activities with respect to the Zardari accounts had taken place in Switzerland.

On December 5, 1997, Citibank prepared a Suspicious Activity Report on the Zardari accounts and filed it with the Financial Crimes Enforcement Network at the U.S. Department of Treasury. The filing was made fourteen months after its decision to close the Zardari accounts; thirteen months after Mr. Zardari was arrested a second time for corruption in November 1996; and nearly two months after the Swiss government had ordered four Swiss banks (including Citibank Switzerland) to freeze all Zardari accounts.

In June 1998, Switzerland indicted Mr. Schlegelmilch and two Swiss businessmen, the former senior executive vice president of SGS and the managing director of Cotecna, for money laundering in connection with kickbacks paid by the Swiss companies for the award of a government contract by Pakistan. In July 1998, Mr Zardari was indicted for violation of Swiss money laundering law in connection with the same incident. Ms Bhutto was indicted in Switzerland for the same offence in August 1998.

In October 1998, Pakistan indicted Mr Zardari and Ms Bhutto for accepting kickbacks from the two Swiss companies in exchange for the award of a government contract. On April 15, 1999, after an 18-month trial, Lahore High Court convicted Ms Bhutto and Mr Zardari for accepting the kickbacks and sentenced them to 5 years in prison, fined them $8.6 million and disqualified them from holding public office. Ms Bhutto, who was then living in London, denounced the decision. Mr Zardari remained in jail. Additional criminal charges were lying pending against both in Pakistani courts.

On December 11, 1997, Citicorp’s Chairman John Reed wrote the following to the Board of Directors: “We have another issue with the husband of ex-Prime Minister Bhutto of Pakistan. I do not yet understand the facts but I am inclined to think that we made a mistake. More reason than ever to rework our Private Bank.”

The Zardari case history took place during a series of critical internal and federal audits between 1992 and 1997 of the Swiss office, which, during most of that time, served as the headquarters of the private bank. The shortcomings identified in the audits included policies, procedures and problems that affected the management of the Zardari accounts. They included: failure of the “corporate culture” in the Swiss office to foster “a climate of integrity, ethical conduct and prudent risk taking” by the US standards”; inadequate due diligence; “less than acceptable internal controls”; lack of oversight and control of third party referral agents such as Schlegelmilch; and inadequate monitoring of accounts.

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