Supplementing information presented in FTRs 356, 357, 387, this broadcast presents more information about the Clearstream network and the important (though little recognized) issue of offshore banking. Visiting once again with the remarkable Lucy Komisar, we are presented with information about Clearstream, how it works and how it affects the political and economic health of the world. (The use of Clearsteam by Al Qaeda and the Bank Al Taqwa was discussed in the programs cited above.) Note that excerpts from a very important article by Lucy on this subject are presented in the description, rather than attempts at paraphrasing her answers.
Program Highlights Include: The genesis of Clearstream; the origin of its notorious “unpublished accounts”; the invention of “eurodollars”; Ernest Backes’ dismissal from Clearstream because of the Banco Ambrosiano scandal; the probable murder of Gerard Soisson of Clearstream; discussion of “transfer pricing”, “mailbox companies”, and the “Bermuda Inversion”—three of the devices used in the offshore banking business; the Enron scandal; the Stanley Works imbroglio; the use of Clearstream by Colombian drug traffickers; a French/Taiwanese arms deal conducted through Clearstream; murders initiated as a result of that arms scandal; the Menatep/Khodorokovsky investigation in Russia; Robert Douglass—the Rockefeller-connected head of Clearstream; the effect of offshore banking on the economic health of both industrialized and Third World countries.
1. DAVE: Why do you call “Offshore Banking” a “Threat to America?”
LUCY: Because these offshore banking havens are the vehicle for terrorists and drug-traffickers to finance their operations, and they enable corporations to escape taxation, thereby damaging the economies of many countries. This takes place both in the industrialized and third world countries.
2. DAVE: Much of the article from Hound-Dogs focuses on Clearstream, an organization that is described as a “clearinghouse.” What is a clearinghouse, how does it work?
LUCY: “ . . . In these days of global markets, individuals and companies may be buying stocks, bonds or derivatives from a seller who is halfway across the world. Clearinghouses like Clearstream keep track of the ‘paperwork’ for the transactions. Banks with accounts in the clearinghouse use a debit and credit system and, at the end of the day, the accounts (minus handling fees, of course) are totaled up. The clearinghouse doesn’t actually send money anywhere, it just debits and credits its members’ accounts. The money involved is massive. Clearstream handles more than 100 million transactions a year, and claims to have securities on deposit valued at $10 trillion.”
(“Offshore Banking: The Secret Threat to America” by Lucy Komisar; Hound-Dogs; Vol. 1; p. 5.)
3. DAVE: What are eurodollars, and how did eurodollars lead to the genesis of Cedel/Clearstream?
LUCY: “ . . . Cedel and its main competitor, Brussels-based Euroclear, were started to manage transfers of ‘eurodollars,’ U.S. currency kept in banks outside the United States. The Chinese and the Soviets invented Eurodollars in the ‘50’s so they would not have to put their assets in banks where the U.S. government could seize them. But others saw value in eurodollars, and they began to be traded for other currencies. Some banks attracted eurodollars with higher interest than was being paid in America, and U.S. corporations and individuals began using the accounts to avoid laws on domestic banks. The euro money market was born. (By the ‘90’s, the Federal Reserve estimated that about two-thirds of U.S. currency was held abroad as eurodollars.)” (Idem.)
4. DAVE: Tell us about Clearstream’s published and unpublished accounts. What is the difference and what are the implications of an “unpublished account?”
LUCY: “ . . . A bank would send a transfer to the code of the headquarters bank, which would send it on to the non-published account of its subsidiary. The bank would regulate this operation internally. [Gerard] Soisson authorized each non-published account, which would be known only by some insiders, including the auditors and members of the council of administration. As Cedel’s literature to clients explained: ‘As a general rule, the principal account of each client is published: the existence of the account, as well as its name and number, are published. On demand, and at the discretion of Cedel, the client can open a non-published account. The non-published accounts don’t figure in any printed document and their name is not mentioned in any report.’ Requests for non-published accounts came from some banks that weren’t eligible, but Soisson turned them down. . .” (Idem.)
5. DAVE: Much of your article focuses on a genuinely heroic man named Ernest Backes. Tell us about Ernest Backes and his role in setting up Cedel.
LUCY: “ . . . Many of [the charges against Clearstream] were first made in a controversial book called Revelation$, written by Denis Robert, a French journalist, and Ernest Backes, a former top official at the clearinghouse who helped design and install the computer system that facilitated the undisclosed accounts. The book’s impact was explosive. Six European judges called it ‘the black box’ of illicit international financial flows. Top Clearstream officials were fired. The scandal made headlines in big European newspapers; TV network specials; the French National Assembly’s financial crimes committee held a hearing. Luxembourg authorities ordered an investigation and in October 2003, the examining magistrate brought charges against [Clearstream CEO Andre] Lussi for money-laundering, tax fraud, forgery, false balance-sheets and other infringements of the financial law. Yet Revelations remains unpublished and relatively unknown in the United States, and this issue is not yet on the agenda of America.” (Idem.)
6. DAVE: In 1975, some big German and Italian banks initiated steps to shield their transactions from scrutiny. Tell us how this led to the genesis of the unpublished accounts.
LUCY: “ . . . In 1975, several big Italian and German banks wanted to centralize their accounting and didn’t want other members of Cedel to send transfers through their numerous individual branches. The Cedel council of administration—its board of directors—authorized banks with multiple subsidiaries not to put all their accounts on the lists. Backes and Gerard Soisson, then Cedel’s general manager, set up a system of non-published accounts.” (Idem.)
7. DAVE: Ernest Backes rose to become the No. 3 man at Cedel and then experienced a sharp downturn in his professional fortunes, apparently as a result of the Banco Ambrosiano scandal. Describe the Ambrosiano scandal and how that affected the lives of Ernest Backes and Gerard Soisson.
LUCY: “ . . . By 1980, Backes had become Cedel’s No. 3 official, in charge of relations with clients. But he was fired in May 1983.
Backes says the reason given for his sacking was an argument with an English banker, a friend of the CEO. ‘I think I was fired was because I knew too much about the Ambrosiano scandal,’ Backes says. Banco Ambrosiano was once the second most important private bank in Italy, with the Vatican as a principal shareholder and loan recipient. The bank laundered drug-and-arms-trafficking money for the Italian and American mafias and, in the ‘80’s, channeled Vatican money to the Contras in Nicaragua and Solidarity in Poland. The corrupt managers also siphoned off funds via fictitious banks to personal shell company accounts in Switzerland, the Bahamas, Panama and other offshore havens. Banco Ambrosiano collapsed in 1982 with a deficit of more than $1 billion. (Unknown to many moviegoers, Banco Ambrosiano inspired a subplot of “The Godfather Part III.) Several of those behind the swindle have met untimely ends. Bank chairman Roberto Calvi was found hanged under Blackfriars Bridge in London. Michele Sindona, convicted in 1980 on 65 counts of fraud in the United States, was extradited to Italy in 1984 and sentenced to life in prison; in 1986, he was found dead in his cell, poisoned by cyanide-laced coffee. (Another suspect, Archbishop Paul Marcinkus, the head of the Vatican Bank, now lives in Sun City, Arizona with a Vatican passport; U.S. authorities have ignored a Milan arrest for him.”
[For more about the Banco Ambrosiano scandal, see RFAs 17–21—available from Spitfire—as well as FTRs 2, 3, 103.] (Ibid.; pp. 5–6.)
8. “Just two months after Backes’ dismissal in 1983, Soisson, 48 and healthy, was found dead in Corsica, where he’d gone on vacation. Top Cedel officials had the body returned immediately and buried, with no autopsy, announcing that he had died of a heart attack. His family now suspects he was murdered. ‘If Soisson was murdered, it was also related to what he knew about Ambrosiano,’ Backes says. ‘When Soisson died, the Ambrosiano affair wasn’t yet known as a scandal. [After it was revealed] I realized that Soisson and I had been at the crossroads, We moved all those transactions known later in the scandal to Lima and other branches. Nobody even knew there was a Banco Ambrosiano branch in Lima and other South American countries.’ An Italian judge recently reopened the Calvi case, and Backes was asked to collaborate in the inquiry. He said, ‘ I was told that the questions around Soisson’s death would be a part of the new investigation.’’’ (Ibid.; p. 6.)
9. DAVE: Tell us how, after Backes and Soisson were gone from the organization, Clearstream accelerated the opening of unpublished accounts.
LUCY: “ . . . With Soisson out of the way, there was nothing to stop abuse of the system. Whereas Soisson had refused numerous requests (from such institutions as Chase Manhattan in New York, Chemical Bank of London and numerous subsidiaries of Citibank), Cedel opened hundreds of non-published accounts in total irregularity—especially after the arrival of CEO Andre Lussi in 1990. No longer were they just sub-accounts of officially listed accounts, Backes charges. Some were for banks that weren’t subsidiaries or even official members of Cedel. At the start of 1995, Cedel had more than 2,200 published accounts. But in reality, according to documents obtained by Backes, Cedel that year managed more than 4,200 accounts.” (Idem.)
10. DAVE: What are some of the organizations that have unpublished accounts with Clearstream?
LUCY: “ . . . Among the major companies with secret accounts, Backes discovered the Shell Petroleum Group and the Dutch agricultural multinational Unilever, one of whose accounts was associated with Goldman Sachs. On the French TV broadcast ‘Les Dissimulateurs’ (‘The Deceivers’) in March 2000, Clearstream President Lussi simply denied the accounts existed. ‘Only banks and brokers are eligible for membership,’ he said, ‘as it has always been the case. No private company accounts, no commercial or industrial companies.’ But his own spokesman contradicts this claim. ‘Customers of Clearstream can be banks or, exceptionally, corporate clients who have their own treasury departments the size of banks,’ Cope wrote in an e-mail to me, ‘We cannot accept CEO’s of multinationals or terrorists and have strict account-opening procedures to prevent such problems.’ Clearstream was formed in 1999 out of the merger of Cedel and the compensation company of Deutsche Borse (the German stock exchange). By 2000, according to Backes, Clearstream managed about 15,000 accounts (of which half were non-published) for 2,500 clients in 105 countries; most of the investment companies, banks and their subsidiaries are from Western Europe and the United States. Most of the new non-published accounts were in offshore tax havens. The banks with the most non-published accounts are Banque Internationale de Luxembourg (309), Citibank (271) and Barclays (200).” (Idem.)
11. DAVE: Tell us about some of the Colombian customers of Clearstream.
LUCY: “Backes found numerous discrepancies in the lists he obtained of the secret accounts. For example, code No. 70287 on the published list belongs to Citibank NA-Colombia AC in Nassau, and code No. 70292 is that of the Banco Internacional de Colombia Nassau Ltd. But on the non-published list, the numbers both belong to Banco Internacional de Colombia in Bogota. There’s no mention of Citibank. Based on the published list, members may think they are dealing with two banks in the Bahamas, one of which is a subsidiary of Citibank. Based on the published list, members may think they are dealing with two banks in the Bahamas, one of which is a subsidiary of Citibank, but anything sent to these establishments goes directly to the country of cocaine cartels. On the April 2000 Clearstream list, there are 37 Colombian accounts, of which only three are published. The spokesman for Citigroup in New York, declined repeated requests for comment. Cope declined to talk about any individual customers or accounts, citing Luxembourg banking secrecy laws.)” (Idem.)
12. DAVE: One of Russia’s wealthiest individuals and most successful businessmen, Mikhail Khodorkovsky, was recently arrested, generating many stories in the U.S. media about Russia’s returning to its old ways (i.e., repression). Khodorkovsky was one of Clearstream’s many customers. Detail the complex operations of Khodorkovsky.
LUCY: “ . . . Clearstream’s dealings with Russian banks are another area of concern. Menatep Bank, which had been bought in a rigged auction of Soviet assets and has been linked to numerous international scams, opened its Cedel account (No. 81738) on May 15, 1997, after Lussi visited the bank’s president in Moscow and invited him to use the system. It was a non-published account that didn’t correspond to any published account, a breach of Clearstream’s rules. Menatep further violated the rules because many transfers were of cash, not for settlement of securities. ‘For the three months in 1997 for which I hold microfiches,’ Backes says, ‘only cash transfers were channeled through the Menatep account.’” (Ibid.; p. 7.)
13. “ . . . Menatep bank was founded by Russian ‘oligarch’ Michail Khodorkovsky has been in a Russian jail since October on myriad charges of fraud and tax evasion. On Nov. 26,2003, Backes and another ex-banker, Swiss citizen Andre Stebel, filed a criminal complaint with the Swiss attorney general against Khodorkovsky and his colleagues Platon Lebedev, and Alexei Golubovich, accusing them of money laundering and supporting a criminal organization. . . The former bankers requested the Swiss officials to open an investigation into the charges and to search the records of the Swiss offices of Menatep SA, Menatep Finances SA and Valmet (which set up offshore companies and bank accounts) and of Bank Leu in Geneva related to investigate claims of fraud against the Russian company Avisma and money laundering by Menatep in Switzerland. . . .” (Idem.)
14. “ . . . The complaint alleges that Khodorkovsky, Lebedev, and Golubovich are or were owners in Switzerland of the Swiss companies Menatep SA, Freiburg, Menatep Finances SA, Geneva and Valmet SA, Geneva. It claims that since the creation, ‘the Bank Menatep SA has been mixed with the affairs of members of the Russian oligarchy and criminal organizations, such as Mikhail Khodorkovsky and Alexander Konanykhine. (Konanykhine got asylum in the U.S. in 1999, was ordered deported last fall to face charges in Russia, then had the order stayed and will have a new asylum hearing. American and Russian law enforcement officials believe he was in charge of moving billions of dollars out of Russia for the KGB; Konanykhin denies it.) It is also related to another mafia figure, Semyon Mogilvich, called the godfather of organized crime in Russia.’” (Idem.)
15. “The complaint cites the Avisma case which it says involved fraud and money laundering whereby tens of millions of dollars were diverted from the Russian company, a manufacturer of titanium, a substance used in airplanes. In the mid-90’s, Menatep was the majority owner of Avisma. The document says that the scheme involved selling titanium at a low price to TMC, a shell company set up by Valmet, which resold the product at a higher price on the international market. This practice, called transfer pricing, is widely used internationally to cheat tax authorities and minority shareholders. . . .” (Idem.)
16. DAVE: Tell us about Robert Douglass, of Cedel International.
LUCY: “ . . . Backes explained that a company called Cedel International had been inscribed in the Swiss register of commerce but not included in the Books of the mother company, Cedel International in Luxembourg. He commented, ‘This non-consolidated ‘branch,’ whose president is Robert Douglass of New York, the former private secretary of Governor Nelson Rockefeller and now vice chairman of the Chase Manhattan Corporation [now J.P. Morgan Chase], had apparently not raised too many questions for Swiss federal magistrates,’ Douglass is an attorney at the New York law firm Milbank, Tweed, Hadley & McCloy, with offices at 1 Chase Manhattan Plaza. Milbank, Tweed is the law firm for Chase, the bank founded by the Rockefellers. Douglass declined to comment. (The same Milbank Tweed, for its client Citibank, worked with the Cayman Islands agent Maples and Calder to set up the ‘Delta Corp’ to do phony commodity swaps and disguise Citibank loans to Enron as trades. Maples and Calder also set up the Cayman Islands shell company that helped the owners of the Italian conglomerate Parmalat embezzle billions of dollars and swindle investors.)” (Ibid.; p. 8.)
17. DAVE: Another murder connected to Clearstream’s machinations involved a French/Taiwanese arms deal. Describe that if you would.
LUCY: “ . . . In the early ‘90’s, [former deputy general director of the Taiwan branch of the bank Societe General Joel] Bucher contends, Cedel was used to launder $350 million in illegal ‘commissions’ on a contract for the sale by Thomson-CSF, a French government arms company, of six French frigates to Taiwan. He said that the money, handled by an SG subsidiary, was paid as a registered securities transfer to a ‘nominee’—a stand-in for the real beneficiary—and that Thomson (now known as Thales) didn’t appear in the transaction except in the Cedel archives. He said SG used two non-published Cedel accounts. The kickbacks were exposed after the 1993 murder of a naval captain named Yin Ching-feng, who had written a critical report on the purchase and its inflated $2.8 billion price. Bucher told Taipei authorities that a third of the kickbacks went to Taiwanese generals and politicians, while the rest was pocketed by French officials. Taiwan courts sentenced 13 military officers and 15 arms dealers to between eight months and life in prison for bribery and leaking military secrets.” (Idem.)
18. DAVE: You write of the genesis of Swiss banking secrecy in the pre WWII period. Tell us about France’s discovery of financial treachery by members of the French elite and how that led to Switzerland’s legendary bank secrecy. [NOTE: Lucy gave an eloquent summary of the information presented in the Hound-Dogs article. The information is identical to information presented by Lucy in FTR#412. Listeners/Readers are referred to that description for a detailed presentation of the information discussed in this program.]
19. DAVE: Let’s talk about some of the mechanisms used in the offshore banking operations. Tell us about “transfer pricing” and the use of mailbox companies. [For good discussion of “transfer pricing,” see discussion in paragraph #15, about the Menatep scandal.]
LUCY: “ . . . Shell companies—front companies, ‘mailbox’ companies, sometimes called International Business Corporations (IBCs) or Personal Investment Companies (PICs)—were set up to own bank accounts and effect phony transactions to hide or launder funds. They didn’t produce goods or services; they existed for book-keeping, to receive, hold, and transfer money so as to hide the real people involved. Banks and accounting firms marketed shell and even ready-made ‘off-the shelf companies,’ the latter already registered with local governments, picked up by clients like merchandise in a store. Offshore networks popularly come in series of three. It’s called layering, or laddering. ‘Throw in Cayman and Panama; sprinkle with Aruba or Curacao,’ said the Miami official of an international investigation firm that hunts fraudsters. Money launderers set up a British Virgin Islands corporation, open a bank account in Curacao, airfreight the money to Aruba, have it wire transferred. In days, it’s been through three jurisdictions, and there are no records, You can convert profits to losses, put money in phony loans, buy businesses without people knowing who you are, and evade all laws regulating money. If authorities looking into a loan to the company want to find out who owns it, lawyers say, ‘That’s protected by secrecy law.’ Sometimes, for greater obfuscation a shell company is owned by another shell from a second jurisdiction. At the end, there is ‘integration’: the individual buys a big hotel or invests in the stock market. . . .” (Ibid.; p. 10.)
20. DAVE: Well-publicized cases of American firms using some of these scams were the Enron case and the Stanley Works case. Tell us about those. [For discussion of Enron, see paragraph#16, above.]
LUCY: “ . . . Take the case of Stanley Works, which announced a ‘move’ of its headquarters-on paper-from New Britain, Connecticut, to Bermuda and of its imaginary management to Barbados. Though its building and staff would actually stay put, manufacturing hammers and wrenches, Stanley Works would no longer pay taxes on profits from international trade. The Securities and Exchange Commission accepts the pretense as legal. ‘The whole business is a sham,’ fumed New York District Attorney Robert Morgenthau, who more than any other U.S. law enforcer has attacked the off-shore system. ‘The headquarters will be in a country where that company is not permitted to do business. They’re saying a company is managed in Barbados when there’s one meeting there a year. In the prospectus, they say legally controlled and managed in Barbados. If they took out the word legally, it would be a fraud. But Barbadian law said it’s legal, so it’s legal.’ The conceit apparently also persuaded the SEC.” (Idem.)
21. DAVE: Of course the Bush administration is deeply involved with the Enron situation. Bush’s Democratic opponent John Kerry has been active in attempting to bring the offshore banking scams to heal. Tell us about Kerry’s efforts in that regard.
LUCY: “Some American political leaders have been pushing to reform the offshore system for years. Democratic Senator John Kerry of Massachusetts, who ran the Iran-Contra and BCCI hearings in the 1980’s and 1990’s, called for changes then: he even wrote a book about it. . . .” (Ibid.; p. 11.)