Manhattan Banks Being Scrutinized in Laundering Investigation

March 4, 2004

Hudson United Bank will pay a $5 million fine and has agreed to ramp-up its anti-money laundering compliance program as a result of the failure by one of its branches to monitor the money laundering risks posed by a number of its accounts, according to a settlement reached with the Manhattan District Attorney's Office on March 2.

The bank’s AML deficiencies were uncovered as part of an ongoing investigation of New York City banks that do business with international money services businesses (MSBs), which are viewed by some government agencies as posing a major laundering and terrorist financing risk.

New York City investigators found that a now-closed Manhattan office of Hudson United failed to adequately monitor accounts held by offshore money remitters, casas de cambio (money exchange houses) and black market currency dealers in South America for money laundering risks. The bank purchased these accounts in June 2002, and closed them in November 2003 as a result of the investigation but not before more than $1 billion flowed through them, according to the New York District Attorney's office.

As part of the agreement to enhance its anti-money laundering efforts, the bank will hire a new AML compliance officer.

The Hudson settlement comes on the heels of another case that New York City prosecutors are calling the biggest of its kind in the state, involving the Manhattan financial corporation Beacon Hill Service Corp. As part of the same investigation in which Hudson United stumbled, Beacon Hill was convicted on February 23 in Manhattan Supreme Court of four counts of operating an unlicensed money transmitting business in violation of New York’s banking law.

The corporation received funds from shell corporations and South American casas de cambio, among others, and transmitted $31.5 million to accounts in Pakistan, Lebanon, Jordan, Dubai, Saudi Arabia and elsewhere in the Middle East. From 1997 through early 2003, wire transfers from 40 Beacon Hill accounts totaled more than $6 billion.

Prosecutors said Beacon Hill received and moved money by checks, wire transfers and bank drafts. In an attempt to shield clients it did not keep records. The clients paid fees for Beacon Hill to deposit money in accounts in countries with strict corporate and bank secrecy laws, said the New York prosecutor’s office.

The investigation is ongoing and is examining other New York banks that provide similar services to money transmitters, as well as their customers and recipients that may be involved in money laundering.