West Virginia Had Role In International Fraud Probe

WHEELING – Federal prosecutors and agents from the local area helped crack an international case that resulted in a nearly $2 billion settlement – one of the largest in the history of the American justice system, according to U.S. Attorney William Ihlenfeld II.

London-based HSBC Holdings PLC and Virginia-based HSBC Bank USA N.A agreed to forfeit $1.256 billion and enter a deferred prosecution agreement with the Justice Department for HSBC’s violations of the Bank Secrecy Act, the International Emergency Economic Powers Act and the Trading with the Enemy Act, Ihlenfeld said. HSBC also agreed to pay $665 million in civil penalties as a result of its illegal conduct, for penalties totaling $1.92 billion.

The multi-pronged probe into money laundering and other illegal activities began in West Virginia in 2008 with the investigation of Dr. Barton Adams, a Vienna, W.Va., doctor of osteopathy who laundered more than $2 million through HSBC as part of a health care fraud scheme. HSBC stood silent instead of filing alerts as required by law, according to Ihlenfeld’s office. Adams was convicted last month of health care fraud and tax evasion in federal court in Wheeling and faces up to 15 years in prison when sentenced. His wife was convicted last year on similar charges and also faces the possibility of a lengthy prison term.

Published reports indicate infighting occurred between various Justice Department agencies involved in different aspects of the investigation. Ihlenfeld declined to comment on the “internal process” that took place, but he did offer information regarding the need for multiple organizations, such as the Drug Enforcement Administration and Immigration and Customs Enforcement, to be involved in such a large-scale operation.

“Whenever you have a case of this magnitude, where there is so much illegal activity going on – you’ve got one of the largest banks in the world, and you’ve got money being laundered to a significant extent – you’re going have multiple agencies and multiple U.S. attorneys’ offices impacted,” he said, pointing out that illegal activity occurred in New York, West Virginia and even other nations. “My office worked with the IRS. Also, the DEA, ICE and other agencies were investigating the New York portion of the case. It’s not unusual that different districts would have an interest in assisting in such a case.

“In this particular case, we joined forces and each did different things to brings this case to a resolution,” he added.

Ihlenfeld said he was not involved with the investigation prior to taking office in August 2010; however, the U.S. Attorney’s Office for the Northern District of West Virginia already had begun its work related to Adams. Ihlenfeld said the case was one of the first things he was briefed on when he assumed the post.

“This began as a relatively small health care fraud investigation, and it grew and grew,” Ihlenfeld said. “The work of the agents and attorneys in my office uncovered something much larger than they originally expected to find – one of the most significant cases ever seen in this district.

“It uncovered many additional problems that were going on in this bank,” he continued. “I commend them for it. They put in an incredible amount of time, and they deserve credit for helping to expose an incredible problem at one of the world’s largest banks.”

He also praised the work of the Internal Revenue Service-Criminal Investigation and Financial Crimes Enforcement Network agents, especially FinCEN Senior Special Agent Bryant Moravek, IRS-CI Special Agents Ryan Korner and Jason Gandee and Assistant U.S. Attorney Michael Stein. These four individuals recently received the 2012 United States Attorney’s Award for their efforts. Stein was also recognized by a U.S. Senate Subcommittee for bringing the illegal activity to light.

A four-count felony criminal information was filed against HSBC in federal court in the Eastern District of New York by Ihlenfeld, Brooklyn U.S. Attorney Loretta Lynch and Jaikumar Ramaswamy, the head of the Asset Forfeiture and Money Laundering Section of the Department of Justice. The information charged HSBC with willfully failing to maintain an effective anti-money laundering program, willfully failing to conduct due diligence on its foreign correspondent affiliates, violating IEEPA and violating TWEA. HSBC waived federal indictment, agreed to the filing of the information and accepted responsibility for its criminal conduct and that of its employees.

The HSBC Group illegally conducted transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma – all countries that were subject to sanctions enforced by the Office of Foreign Assets Control at the time of the transactions. Published reports state that the bank allowed $200 trillion to slip through relatively unmonitored between 2006 and 2009, including more than $670 billion in wire transfers from HSBC Mexico, making it a favorite of drug cartels and money launderers.

Bank executives were not charged with criminal activity, due to the bank’s cooperation and concern that it could collapse under an assault by prosecutors. HSBC does business in nearly 80 countries and reported a profit of $17 billion last year.