Exhibit 99.1
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NON-PROSECUTION AGREEMENT BETWEEN THE BANK OF NEW YORK AND THE U.S.
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ATTORNEY'S OFFICES FOR THE EASTERN AND SOUTHERN DISTRICTS OF NEW YORK
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THE BANK OF NEW YORK ("BNY"), by its undersigned attorney,
pursuant to authority granted by its Board of Directors, the UNITED
STATES ATTORNEY'S OFFICE FOR THE EASTERN DISTRICT OF NEW YORK (the
"EDNY USAO"), and the UNITED STATES ATTORNEY'S OFFICE FOR THE SOUTHERN
DISTRICT OF NEW YORK (the "SDNY USAO") (collectively, the "USAOs")
enter into this Agreement (the "Agreement"). Except as specifically
provided below, the Agreement shall be in effect for a period of three
years from the date it is fully signed and executed.
The EDNY USAO Investigation
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1. The EDNY USAO has been conducting a criminal
investigation into allegations that BNY: (a) aided and abetted the
fraudulent activities of RW Professional Leasing Services Corp. ("PLS")
by executing sham escrow agreements that PLS presented to other banking
institutions around the country in support of medical equipment loan
applications; and (b) willfully failed to take the actions required to
file a Suspicious Activity Report ("SAR") in a timely and complete
manner and failed to notify law enforcement authorities of suspicious
activities relating to PLS and the escrow agreements, as required by
the provisions of the Bank Secrecy Act and its implementing regulations
(31 U.S.C. Sections 5318(g)(1), 5322; 12 C.F.R. Sections 208.60-64;
31 C.F.R. Sections 103.11, 103.18). The Federal Reserve Bank of New York
(the "Federal Reserve") and the New York State Banking Department
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("NYSBD") have conducted independent reviews of these matters, which
have now been concluded.
2. BNY accepts and acknowledges responsibility for the
conduct of its employees that is the subject of the EDNY USAO
investigation (as set forth in detail in the statement annexed as
Exhibit A and incorporated by reference) as follows: (a) in or about
and between 1991 and 2002, as a result of misconduct by BNY Branch
Managers and employees working at a BNY retail branch location in
Island Park, New York (the "Island Park Branch"), BNY managers and
employees supplied unauthorized and materially false and misleading
escrow agreements to PLS, which BNY managers and employees had reason
to believe would be presented by PLS to other banks in support of
medical equipment loan applications; and (b) in or about and between
February 2002 and June 2002, after managerial employees and senior
executives in BNY's Legal Division, Audit Division, Retail Banking
Division and Regional Commercial Banking Division became aware of
misconduct committed by PLS and Island Park Branch employees relating
to the unauthorized escrow agreements, BNY personnel intentionally
failed to take the actions required to file a SAR or notify law
enforcement.
The SDNY USAO Investigation
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3. The SDNY USAO has been conducting a criminal
investigation into allegations that BNY: (a) aided and abetted the
operation of an unlicensed money transmitting business, in violation of
18 U.S.C. Section 1960; (b) aided and abetted the unlawful operation of a
foreign bank, in violation of 12 U.S.C. Section 3105(d); (c) failed to
implement an effective anti-money laundering program, as required by 31
U.S.C. Section 5318(h) and 12 C.F.R. Section 2121; and (d) engaged in money
laundering, in violation of 18 U.S.C. Section 1956.
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4. BNY accepts and acknowledges responsibility for the
conduct of its employees that is the subject of the SDNY USAO
investigation, as set forth in detail in the statement annexed as
Exhibit B and incorporated by reference. As demonstrated by the
statement contained in Exhibit B, which concerns the activity from in
or about February 1996 through in or about July 1999 in two accounts at
BNY's One Wall Street Branch in the names of Benex International Co.,
Inc. ("Benex"), and BECS International Corp., LLC ("BECS"), BNY (1)
failed to put in place an effective system for analyzing wire transfer
activity by its customers for potential money laundering; (2) failed to
conduct adequate due diligence on Benex and BECS in order to understand
the true nature of their business and the activity in the Benex and
BECS accounts; (3) failed to monitor or scrutinize the wire-transfer
activity in the Benex and BECS accounts from an anti-money laundering
perspective; and (4) failed to make any effort to determine whether the
activity in the Benex and BECS accounts required either a money
transmitting license or a license to operate as a branch or agency of a
foreign bank under New York or federal law.
BNY's Agreement to Adopt Various Remedial Measures
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5. BNY's acceptance of responsibility is further
evidenced by, among other things: (1) its agreement to adopt the
Remedial Actions, Policies and Procedures as described in paragraph 10
below; (2) its agreement to adopt the Enhanced Remedial Measures
described in paragraph 11 below; (3) its continuing commitment of full
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cooperation with the USAOs, the Federal Bureau of Investigation, the
Internal Revenue Service and any other agency designated by the USAOs
(the "Investigative Agencies") as described in paragraph 6 below; and
(4) the other undertakings it has made as set forth in this Agreement.
6. In March 2003, in connection with the EDNY USAO
investigation, BNY retained the law firm of Xxxxxxxx & Xxxxxxxx, LLP to
conduct an internal investigation into the issues surrounding the
issuance of the Escrow Agreements and BNY's response to information
about the Escrow Agreements that was disclosed in early 2002. Pursuant
to the Confidentiality and Limited Waiver Agreement between BNY and the
EDNY USAO, dated May 27, 2003 and annexed as Exhibit C (the
"Confidentiality Agreement"), BNY has shared the results of its
investigation, including documents that could have otherwise been
withheld under the attorney-client privilege and the work product
doctrine, with the Investigative Agencies. In addition, in early 1999,
in connection with the SDNY USAO investigation, BNY retained Xxxxxxxx &
Xxxxxxxx to conduct an internal investigation into the issues
surrounding the deposits into, and wire transfers out of, the Benex and
BECS accounts, and shared the results of that investigation with the
SDNY USAO and the Investigative Agencies. BNY acknowledges that its
prior, ongoing and future cooperation are important factors in the
USAOs' decision to enter into the Agreement, and therefore, BNY agrees
to continue to cooperate fully with the USAOs and the Investigative
Agencies regarding any matter about which BNY has knowledge, which
cooperation shall include providing privileged information to the
extent described in paragraph 7(c) below.
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7. BNY agrees that its cooperation, as agreed to in
paragraph 6 above, shall include, but is not limited to the following:
a. Completely and truthfully disclosing all
information with respect to the activities of
BNY and present and former members of the Board
of Directors, agents, officers and employees,
concerning any Bank Secrecy Act (31 U.S.C.
Sections 5311 through 5332) matters about which the
USAOs or the Investigative Agencies, may
inquire, including, but not limited to, the
conduct described in Exhibits A and B.
b. Assembling, organizing and providing all
documents, records, or other tangible evidence
in BNY's possession, custody, or control as may
be requested by the USAOs or any Investigative
Agency concerning any Bank Secrecy Act matters,
including, but not limited to, documents
related to the conduct described in Exhibits A
and B. Whenever such data is in electronic
format, BNY shall provide access to such data
and assistance in operating computer and other
equipment as necessary to retrieve the data.
If such documents, data or other objects are in
overseas locations, BNY will make reasonable
efforts to make the items available to the
USAOs;
c. Waiving claims of the attorney-client privilege
or work-product doctrine as to any documents,
records, information, or testimony requested by
the USAOs related to factual internal
investigations or contemporaneous advice given
to BNY concerning the conduct described in
Exhibits A and B (the "Confidential
Materials"). Production of the Confidential
Materials shall be governed by the
Confidentiality Agreement;
d. Using its best efforts to make available its
present and former employees to provide
information and/or testimony as requested by
the USAOs or any of the Investigative Agencies,
including sworn testimony or in court
proceedings, as well as interviews with law
enforcement authorities. Cooperation under
this paragraph will include identification of
witnesses who, to BNY's knowledge, may have
material information regarding the conduct
described in Exhibits A and B;
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e. Providing testimony and other information
deemed necessary by the USAOs or a court to
identify or establish the original location,
authenticity, or other evidentiary foundation
necessary to admit into evidence documents in
any criminal or other proceeding as requested
by the USAOs or any of the Investigative
Agencies;
f. Completely, fully and timely complying with all
legal obligations, record keeping and reporting
requirements imposed upon it by the Bank
Secrecy Act and all Bank Secrecy Act
implementing regulations, including, but not
limited to: 12 C.F.R. Sections 208.60-64 and 31
C.F.R. Sections 103.11, 103.18; and
g. With respect to any information, testimony,
document, record or other tangible evidence
provided by BNY to the USAOs, or a grand jury,
other than the Confidential Materials the use
of which is governed by the Confidentiality
Agreement described in paragraph 6 above, BNY
consents to any and all disclosures of such
materials to such Investigative Agencies as the
USAOs, in its sole discretion, deems
appropriate. With respect to any such
materials that constitute "matters occurring
before the grand jury" within the meaning of
Rule 6(e) of the Federal Rules of Criminal
Procedure, BNY further consents to (i) any
order sought by the USAOs permitting such
disclosures; and (ii) the USAOs' ex parte or in
camera application for such orders.
8. BNY agrees to pay a total of twelve million dollars
($12,000,000.00) ("the Funds") into a fund established to make
restitution to any banking institutions that suffered losses in
reliance on BNY Escrow Agreements (the "Victim Banks"), as described in
Exhibit A. The Funds will be paid by BNY within thirty (30) days of
the execution of the Agreement. The distribution of these Funds to
Victim Banks shall be administered by the EDNY USAO, and the EDNY USAO
shall verify the amount and validity of the claims of the Victim Banks.
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To the extent any Victim Bank has been reimbursed for a portion of its
losses as part of any civil settlement reached with BNY, the amount of
such reimbursement will be subtracted from the restitution amount
payable to that Victim Bank. All claims shall be submitted by Victim
Banks within one year following the signing of this Agreement. Any
Funds on which valid claims have not been filed within this one-year
period shall be refunded to BNY.
9. BNY agrees to forfeit to the United States all of its
right, title and interest in the sum of twenty-six million dollars and
no cents ($26,000,000.00) (the "Forfeited Assets"), which shall be
payable to the United States Marshals Service within thirty (30) days
of the execution of the Agreement. BNY further agrees to execute a
Stipulation of Settlement and Decree of Forfeiture in each of two civil
forfeiture actions to be filed in the United States District Courts for
the Eastern and Southern Districts of New York. In the action to be
filed in the Xxxxxxx Xxxxxxxx xx Xxx Xxxx, XXX shall forfeit
$12,000,000.00. In the action to be filed in the Xxxxxxxx Xxxxxxxx xx
Xxx Xxxx, XXX shall forfeit $14,000,000.00.
10. BNY represents that its Board of Directors and
current Senior Management have already taken or have agreed to take
numerous remedial steps to address the concerns raised by the USAOs and
others. These remedial steps (collectively, the "Remedial Actions,
Policies and Procedures") include:
a. the formation of a management committee, headed
by BNY's President, to review the actions of 67
employees who had some involvement in the
matters relating to PLS, resulting in
disciplinary action against 19 employees,
including the dismissal of 5 employees. BNY
agrees that it will not rehire any employee who
was dismissed or any other disciplined employee
who has since resigned from BNY;
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b. the creation of a new senior-level position
within the Legal Division called Head of Law
Enforcement and Investigations, with
responsibility for responding to all law
enforcement inquiries and coordinating the
preparation of Suspicious Activity Reports
throughout BNY. This position currently has a
staff of seven attorneys, with plans to hire
additional personnel, and reports directly to
the General Counsel. However, at the
discretion of the Head of Law Enforcement in
appropriate circumstances, he may communicate
in confidence directly with BNY's CEO.
c. the introduction of new policies and
procedures for the auditing of retail branches,
including: (i) the review by Internal Audit of
the most profitable and active customers at
each retail branch; (ii) the deployment of
specialists to review retail branch compliance
with proper "Know Your Customer" procedures;
(iii) increased attention in auditing retail
branches to the level of personnel training,
proficiency and turnover; (iv) a shift in
emphasis in branch auditing to a "risk based"
approach and the use of new software to measure
and track that risk; (v) an increased role by
the Global Compliance Department in questioning
branch personnel about adherence to and
understanding of BNY policy, including
questions designed to expose any unusual
services being provided to customers; (vi)
regular meetings between Corporate Security and
branch managers to identify and resolve
problems at an early stage; (vii) the targeting
of problem branches for improvement and follow-
up reviews; and (viii) the formation of a
Retail Banking Task Force to oversee
improvement efforts in this area;
d. the institution of monthly meetings between
representatives of the Legal Division,
Corporate Security and Global Compliance to
enhance the coordination of investigations and
the reporting of suspicious activity, and the
clarification of bank policies to eliminate any
jurisdictional ambiguity that could delay or
prevent the timely filing of SARs;
e. the improvement of training for branch managers
with an increased focus on risk management,
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identifying personnel problems and identifying
and reporting suspicious activities. This
includes training of branch managers on the
signing of non-bank forms and the review of new
business accounts;
f. the training of Legal Division employees on
detecting and reporting suspicious activities;
g. the publication of new bank wide policies that
address: (a) identifying, investigating and
reporting illegal, suspicious or unusual
activity; (b) using and signing of forms for
customers; (c) file maintenance and retention;
(d) reviewing new business accounts; (e)
documentation approval; and (f) civil and
criminal incident reporting and investigations;
h. the settlement of civil lawsuits brought
against BNY by other financial institutions who
were victimized by the conduct described in
Exhibit A for approximately $5.9 million;
i. the implementation of enhancements to the Legal
Division, including the hiring of additional
personnel, and changes in reporting structure,
to address the growing need for legal and
regulatory expertise among financial
institutions; and
j. the implementation of an enhanced process for
reporting suspicious activity, including: (i)
the creation of a Suspicious Activity Response
Team (within the Legal Division) to draft and
file all SARs generated by the Bank; and (ii)
the creation of a SAR Control unit which will
centrally receive all reports of suspicious
activity from anywhere within the Bank and
track these reports of suspicious activity from
receipt to final disposition (through a SAR
filing or a decision not to file a SAR) for the
purpose of ensuring timely filing of SARs.
11. BNY further agrees to enhance its suspicious activity
detection and reporting capability by adopting and instituting programs
(collectively, the "Enhanced Remedial Measures") designed to ensure
that:
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a. BNY's Anti-Money Laundering Oversight Committee
("AMLOC"), when conducting an AMLOC review of
accounts held by individuals or entities other
than commercial banks, will investigate certain
counterparties to the account holder under
AMLOC review as follows: For the top three
counterparties during the period selected for
review, as determined by the amount of funds
exchanged between the account holder and
counterparty through wire transfers and checks,
BNY shall undertake appropriate procedures,
including but not necessarily limited to an
Internet and public database search, to check
whether the counterparty is a real entity;
b. BNY will enhance its review of the top five
client relationships for each branch to include
a review of each client relationship's account
activity, with a primary focus on funds-
transfer activity. In addition to reviewing
these accounts regularly for unusual and
unexpected volume, on an annual basis, in
connection with each of the top three funds
transfer counterparties, BNY shall undertake
appropriate procedures, including but not
necessarily limited to an Internet or public
database search, to check whether the
counterparty is a real entity;
c. BNY's Legal Division will share all information
that may evidence criminal activity by filing
an Incident Report with the SAR Control unit
immediately upon learning of such information
so that appropriate steps can be taken, as
necessary, by that unit to comply with BNY's
obligations under the Bank Secrecy Act and all
Bank Secrecy Act implementing regulations. The
Legal Division will copy the Independent
Examiner, described in paragraph 12 below, on
all such communications;
d. BNY will timely report known or suspected
criminal activity to law enforcement and
supervisory authorities as required by the
suspicious-activity reporting provisions of
Regulation H of the Board of Governors of the
Federal Reserve System (12 C.F.R. Sections 208.60-
64). Management information reports or Key
Risk Indicators should be developed to track
the dates of initial detection of facts that
may constitute a basis for suspicious activity,
through the ultimate filing of a SAR, to
determine compliance;
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e. BNY will develop procedures to monitor the
accuracy, completeness and timeliness of
responses to subpoenas. This program should be
designed to ensure timely responses, especially
in serious criminal cases, to law enforcement
and supervisory authorities. Key Risk
Indicators should be developed to: (i) track
the date of initial receipt of the subpoena
through the return of information to the
requesting party, and note whether law
enforcement makes further requests, such as
copies of checks after receiving copies of
statements; (ii) determine whether the
information provided to law enforcement was
sufficient to cause the bank to file a SAR or
take measures to exit the client relationship;
and (iii) determine whether staffing levels are
adequate to complete subpoena compliance tasks
in a timely manner;
f. All BNY branch and supervisory employees will
receive expanded training relating to the
identification and reporting of suspicious
activities involving the dissemination of false
and/or misleading statements to financial
institutions;
g. All BNY branch and supervisory employees will
comply with BNY policies concerning the
execution of agreements and the issuance of
obligations, and that the risk of unauthorized
conduct in this area is minimized; and
h. Except as otherwise provided in this paragraph,
written Incident Reports relating to possible
criminal activity will be prepared and
forwarded to BNY's SAR Control unit within
seventy-two (72) hours after evidence of such
activity is uncovered by any BNY employee.
12. BNY agrees to retain an independent examiner (the
"Independent Examiner"), who shall be selected as follows: at BNY's
expense, an advertisement shall be placed in an appropriate
publication(s) publicizing the search for an Independent Examiner, and
requiring applications to be sent to the EDNY USAO; the list of
potential candidates will be shared by the USAOs with BNY, the Federal
Reserve, and NYSBD, all of which will have an opportunity to comment
upon the candidates; the USAOs (after considering the views of BNY, the
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Federal Reserve, and NYSBD) shall select the Independent Examiner from
among these candidates. The Independent Examiner shall review BNY's
suspicious activity reporting practices, its Anti-Money Laundering
Procedures relating to those practices, and its compliance with this
Agreement. BNY agrees to pay all costs associated with the retention
of an Independent Examiner for these purposes. The Independent
Examiner will also:
a. review BNY's practices and procedures relating
to the reporting of suspicious activities;
b. review BNY's implementation of, and compliance
with, the Remedial Actions, Policies and
Procedures and the Enhanced Remedial Measures;
and
c. report on a semi-annual basis to the General
Counsel of BNY, with copies to the USAOs, the
Federal Reserve and the NYSBD, as to BNY's
state of compliance with the statutory and
regulatory requirements for reporting of
suspicious activities and the efficacy of the
Remedial Actions, Policies and Procedures and
Enhanced Remedial Measures (each such report
being referred to as the "Report"). At the
discretion of the Independent Examiner and the
USAOs, the Independent Examiner may file
additional reports with the General Counsel or,
without notice to BNY, the USAOs.
After receiving the Report, BNY's General Counsel will present the
Report to BNY's Board of Directors, including its Audit Committee, for
its review. BNY agrees that the Independent Examiner will have access
to any and all materials relating to the matters described above in
this paragraph, and that all BNY employees will be directed to
cooperate fully with the Independent Examiner. Any refusal by BNY, its
attorneys, Board of Directors, agents, officers or employees to render
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full cooperation to the Independent Examiner will constitute a breach
of this Agreement, and BNY would thereafter be subject to prosecution
as set forth in paragraph 14 below. The USAOs, in their sole
discretion, may terminate this Agreement prior to the expiration of
three years if the USAOs determine, in consultation with the
Independent Examiner, that the purposes of this Agreement have been
fully achieved, and that further monitoring of BNY's suspicious
activity reporting procedures and AML practices is no longer required.
The USAOs' Agreement Not to Prosecute BNY
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13. In consideration of BNY's remedial actions to date
and its willingness to: (a) acknowledge responsibility for the conduct
of its employees, as set forth in Exhibits A and B; (b) cooperate to
date and its agreement to continue to cooperate with the USAOs and the
Investigative Agencies; (c) demonstrate its future good conduct and
full compliance with the statutory and regulatory requirements for
reporting of suspicious activities; (d) make the payments set forth in
paragraphs 8 and 9 above; (e) implement the Remedial Actions, Policies
and Procedures and the Enhanced Remedial Measures described in
paragraphs 10 and 11 above; and (f) otherwise comply with all of the
terms of this Agreement, the USAOs agree that, except as provided in
paragraph 14 below, BNY will not be prosecuted for the conduct
described in Exhibits A and B.
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14. BNY understands and agrees that should the USAOs, in
their sole reasonable discretion, determine that BNY or BNY Employees,
(a) have deliberately given false, incomplete, or misleading
information under this Agreement, (b) have otherwise materially
violated any provisions of the Agreement, or (c) have (acting within
the scope of their employment and for the benefit of BNY) committed, or
attempted to commit, after January 1, 2004 any crimes other than any
crimes arising from the conducted described in Exhibits A and B, BNY
shall thereafter be subject to prosecution for any federal criminal
violation of which the USAOs have knowledge, including a prosecution
relating to the conduct described in Exhibits A and B. BNY agrees that
any such prosecutions may be premised on any information provided by or
on behalf of BNY to the USAOs or the Investigative Agencies at any
time. Moreover, BNY agrees that any prosecutions relating to the
conduct described in Exhibits A and B that are not time-barred by the
applicable statute of limitations as of the date of this Agreement may
be commenced against BNY in accordance with this Agreement,
notwithstanding the expiration of any applicable statute of limitations
between the signing of this Agreement and the expiration of this
Agreement. By this Agreement, BNY expressly intends to and does waive
any rights in this respect. Such waiver is knowing, voluntary and in
express reliance on the advice of BNY's counsel.
For the purposes of paragraphs 14 and 17 of this Agreement, the term
"BNY Employees" will be defined as any employee at the Vice President
level and above, Branch Managers, and non-clerical employees of the
Legal Division.
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15. BNY agrees that in the event that the USAOs, in their
sole reasonable discretion, determine that BNY has materially violated
any provision of this Agreement, (a) all statements made by or on
behalf of BNY to the USAOs or any of the Investigative Agencies, or any
testimony given by BNY before a grand jury, or elsewhere, whether
before or after the date of this Agreement, and any leads derived from
such statements or testimony, shall be admissible in evidence in any
and all criminal proceedings brought by the USAOs against BNY; and (b)
BNY shall not assert any claim under the United States Constitution,
Rule 11(f) of the Federal Rules of Criminal Procedure, Rule 410 of the
Federal Rules of Evidence, or any other federal rule, that statements
made by or on behalf of BNY before or after the date of this Agreement,
or any leads derived therefrom, should be suppressed.
16. The decision as to whether conduct and/or statements
of any individual will be imputed to BNY for the purpose of determining
whether BNY has violated any provision of this Agreement shall be in
the sole reasonable discretion of the USAOs. The parties further
understand and agree that the exercise of discretion by the USAOs or
their designees under this paragraph is not subject to review in any
court or tribunal outside the Department of Justice.
17. Should the USAOs determine that BNY has committed a
breach of any provision of this Agreement as described in paragraph 14,
the USAOs shall provide written notice to BNY of the alleged breach and
provide BNY with a four-week period in which to make a presentation to
the USAOs, or its designee, to demonstrate that no breach has occurred,
or, to the extent applicable, that the breach was not material, or has
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been cured. The parties to this Agreement expressly understand and
agree that should BNY fail to make a presentation to the USAOs, or
their designee, within a four-week period, it shall be conclusively
established that BNY is in material breach of this Agreement. During
this four-week period, the term of this Agreement shall be tolled. The
USAOs agree that in the event that BNY discovers criminal conduct by
its employees, the USAOs shall give full and fair consideration to
whether the conduct was promptly reported to law enforcement
authorities and whether BNY has taken prompt remedial action in
determining whether criminal conduct by BNY personnel constitutes a
material breach.
Other Provisions
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18. BNY expressly agrees that it shall not, through its
attorneys, Board of Directors, agents, officers or employees, make any
public statement, in litigation or otherwise, contradicting its
acceptance of responsibility or Exhibits A and B. Any such
contradictory public statement by BNY, its attorneys, Board of
Directors, agents, officers or employees, shall constitute a breach of
this Agreement, and BNY would thereafter be subject to prosecution as
set forth in paragraph 14 above. The decision as to whether any such
contradictory statement will be imputed to BNY for the purpose of
determining whether BNY has breached this Agreement shall be in the
sole reasonable discretion of the USAOs. Upon the USAOs' notifying BNY
of any such contradictory statement, BNY may avoid breach of this
Agreement by publicly repudiating such statement within 72 hours after
notification by the USAOs. This paragraph is not intended to apply to
any statement made by any BNY employee or former employee who has been
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charged with a crime or other wrongdoing by the government or an agency
thereof. BNY agrees that in the event that future criminal proceedings
are brought in accordance with this Agreement, BNY will not contest the
admissibility of Exhibits A and/or B in any such proceedings.
19. BNY agrees that, if it sells or merges all or
substantially all of its business operations as they exist as of the
date of this Agreement to a single purchaser or group of affiliated
purchasers during the term of this Agreement, it shall include in any
contract for sale or merger a provision binding the purchaser/successor
to the obligations described in this Agreement. In the event of such a
sale or merger, the USAOs, in their sole discretion, may elect to apply
the terms of this Agreement to certain business units of any new entity
rather than the entire new entity.
20. BNY agrees that, following expiration of this
Agreement, BNY will continue to cooperate with the USAOs and
Investigative Agencies, in accordance with the provisions of paragraphs
6 and 7 above, in connection with any proceeding relating to the
conduct described in Exhibits A and B. BNY's obligation to cooperate
is not intended to apply where BNY is a defendant in any such
proceeding.
21. BNY agrees that this Agreement, including Exhibits A
and B, may be released to the public.
22. It is understood that this Agreement is binding only
on BNY and the USAOs, and specifically does not bind any other federal
agencies, any state or local law enforcement agencies, any licensing
authorities, or any regulatory authorities. The USAOs, however, will
bring the Agreement and BNY's cooperation and the Remedial Actions,
Policies and Procedures and the Enhanced Remedial Measures to the
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attention of other federal agencies, state or local law enforcement
agencies, and any licensing or regulatory authorities if BNY so
requests. It is the intent of the parties to this Agreement that the
Agreement does not confer or provide any benefits, privileges or rights
to any individual or any entity other than the parties to this
Agreement, and that nothing in the Agreement shall be construed as
acknowledging that the Agreement, including Exhibits A and B and the
evidence underlying the Agreement and Exhibits A and B, shall be
admissible in any proceeding other than a proceeding brought by the
USAOs. No promises, agreements or conditions have been entered into
other than those set forth in this Agreement, and none will be entered
into unless memorialized in writing and signed by all parties. Apart
from the Confidentiality Agreement, this Agreement supersedes any
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prior promises, agreements or conditions between the parties. To
become effective, this Agreement must be signed by all signatories
listed below.
Dated: Brooklyn, New York
November 4, 2005
XXXXXXX X. XXXXXXXX XXXXXXX X. XXXXXX
United States Attorney United States Attorney
Eastern District of New York Southern District of New York
By: /s/ Xxxxxxxx X. Xxxxxx By: /s/ Xxxxxxx X. Xxxxxxxxx
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Xxxxxxxx X. Xxxxxx Xxxxxxx X. Xxxxxxxxx
Assistant United States Attorney Assistant United States Attorney
Approved: Approved:
/s/ Xxxxxxx Xxxxx /s/ Lev. X. Xxxxxx
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Xxxxxxx Xxxxx Xxx X. Xxxxxx
Acting Chief, Criminal Division Chief, Criminal Division
AGREED AND CONSENTED TO BY:
/s/ Xxxxxx X. Renyi /s/ Xxxxxxx X. Xxxxxxxx
------------------- -----------------------
Xxxxxx X. Renyi Xxxxxxx X. Xxxxxxxx, Esq.
Chairman and Debevoise & Xxxxxxxx LLP
Chief Executive Officer, Counsel to THE BANK OF NEW YORK
THE BANK OF NEW YORK
/s/ Xxxxxx X. Xxxxxxx
---------------------
Xxxxxx X. Xxxxxxx, Esq.
Xxxxxxxx & Xxxxxxxx LLP
Counsel to THE BANK OF NEW YORK
20
EXHIBIT A
---------
In any criminal proceeding brought by the United States, the
following statement by The Bank of New York ("BNY"), shall be
admissible against BNY:
BNY
---
1. BNY is a New York chartered banking corporation that
provides global financial services and is a leading participant in
capital markets throughout the world. BNY services its clients through
five primary businesses: Securities Servicing and Global Payment
Services, Private Client Services and Asset Management, Corporate
Banking, Global Market Services, and Retail Banking. Founded in 1784
by Xxxxxxxxx Xxxxxxxx, BNY is the oldest bank in the United States, and
the principal subsidiary of The Bank of New York Company, Inc., a
publicly traded corporation the common stock of which is traded on the
New York Stock Exchange under the trading symbol "BK." BNY maintains
retail branch locations across the United States, including a retail
branch in Island Park, New York (the "Island Park Branch").
A. The Escrow Agreements and the SAR Filing
-----------------------------------------
2. From in or about 1991 to in or about 2002, BNY Branch
Managers and employees working at the Island Park Branch executed
unauthorized and materially false and misleading escrow agreements (the
"Escrow Agreements") for one of BNY's customers, RW Professional
Leasing Services Corp. ("PLS"). PLS was engaged in the business of
arranging financing for medical providers, ostensibly for the leasing
of medical equipment. Under the Escrow Agreements, BNY agreed to act
as an escrow agent for other banks that were financing medical
equipment leases for PLS (the "Bank Funding Institutions"). BNY Branch
Managers and employees had reason to believe the Escrow Agreements
would be presented to the Bank Funding Institutions in support of lease
financing applications. The conduct of the BNY Branch managers and
employees in executing Escrow Agreements they had no intention of
performing was misleading and deceptive.
3. From in or about February 2002 to in or about June 2002,
after managerial employees and senior executives in BNY's Legal
Division, Audit Division, Retail Banking Division and Regional
Commercial Banking Division became aware of misconduct committed by PLS
and Island Park Branch employees relating to the execution of
unauthorized escrow agreements and the proffering of such agreements to
Bank Funding Institutions in support of financing, the managerial
employees and senior executives consciously failed to take the actions
required to timely file a Suspicious Activity Report ("SAR") or timely
notify law enforcement authorities.
21
B. Issuance of Unauthorized Escrow Agreements
------------------------------------------
4. In 1990, Xxxxxxxx Xxxxxx of PLS contacted former Island
Park Branch Manager Xxxxx Xxxx to discuss establishing accounts at the
Island Park branch. In or about July 1990, Xxxxx Xxxx and other BNY
supervisory personnel from the Retail Banking Division, including a
District Manager and a District Sales Manager, met with Besser to gain
an understanding of PLS's business and to present PLS with a proposal
for account services. On July 31, 1990, the District Sales Manager
faxed a form escrow agreement (the "Form Agreement"), ostensibly used
by PLS in prior dealings with European American Bank, to an attorney in
BNY's Legal Department and asked for an "opinion." There is no
evidence that the attorney or anyone else from the Legal Department
offered an "opinion" or otherwise responded to the District Manager's
inquiry concerning the Form Agreement. BNY policy prohibited retail
branches from establishing the type of escrow account contemplated by
the Form Agreement.
5. Accounts for PLS were opened at the Island Park Branch in
or about December 1990; PLS denominated one of those accounts the "E"
account. In or about early 1991, Xxxxxxxx Xxxxxx began bringing the
Escrow Agreements to the Island Park Branch for signature, and former
Island Park Branch Manager Xxxxx Xxxx began signing, and directing
other Island Park Branch employees to sign, the Escrow Agreements.
6. Each Escrow Agreement required the establishment of an
escrow account ("Escrow Account") in which lease payments would be
deposited and held in escrow by BNY, to be disbursed by BNY to the Bank
Funding Institutions identified in the Escrow Agreement pursuant to an
attached schedule (the "Payment Schedule"). The leases covered by the
Escrow Agreement were identified in a separate schedule (the "Lease
Schedule"). The Escrow Agreements also obligated BNY to notify PLS if
there were insufficient funds in the Escrow Accounts to make required
payments as they came due. Hundreds of Escrow Agreements, Lease
Schedules and Payment Schedules were signed by BNY employees at the
request of PLS between 1991 and 2002, but no Escrow Accounts were
established and none of the terms of the Escrow Agreements were
performed.
7. BNY employees knew or had reason to believe the Escrow
Agreements were being presented by PLS in the course of its business to
the Bank Funding Institutions in order to obtain medical equipment
financing. Call reports summarizing meetings between BNY managerial
employees and PLS in 1990 and 2000 recite BNY employees' understanding
that the leases entered into by PLS were being assigned to Bank Funding
Institutions. The name of the Bank Funding Institution entitled to
receive the escrow payments, moreover, was identified in bold on the
first page of the Escrow Agreement and Payment Schedule. Further,
after PLS began presenting the Escrow Agreements to the Island Park
Branch for signature, former Island Park Branch Manager Xxxxx Xxxx
22
received inquiries from Bank Funding Institutions concerning PLS's
credit worthiness.
8. The Escrow Agreements were always presented to the Island
Park Branch in triplicate, with two executed copies returned to PLS and
one copy retained by the Island Park Branch. Between 1991 and 1998,
former Island Park Branch Manager Xxxxx Xxxx signed, and directed
others to sign, more than 200 Escrow Agreements. Those Escrow
Agreements are now missing from BNY's archives and BNY is unable to
explain their absence. When Xxxxx Xxxx transferred to another BNY
retail branch in or about 1998, Xxxx instructed her successor, to
continue the practice of signing the Escrow Agreements as a courtesy to
PLS, the most important customer of the Island Park Branch. When the
successor Branch Manager transferred to Regional Commercial Banking in
or about September 1999, he likewise instructed his successor to
continue the practice of signing the Escrow Agreements. In all, more
than 400 Escrow Agreements were executed for PLS between 1991 and 2002.
In executing these agreements, the branch managers were acting within
the scope of their employment (as that term is defined by case law) and
BNY derived fees from the PLS BNY accounts.
9. The Escrow Agreements were presented by PLS to Bank Funding
Institutions in support of medical equipment financing applications.
The Bank Funding Institutions, in reliance on the Escrow Agreements,
loaned PLS a total of at least $92 million between 1996 and 2002, of
which at least $18 million was never repaid.
10. The conduct surrounding PLS's use of sham Escrow Agreements
to obtain financing is the subject of a superseding indictment,
captioned United States v. RW Professional Leasing Services Corp., et
al., 02 Cr. 767 (S-2) (ADS), charging PLS, its principals Xxxxxxxx
Xxxxxx and Xxxxx Xxxxxx, and others, including former Island Park
Branch Manager Xxxxx Xxxx, with federal crimes, including conspiracy to
commit bank and wire fraud.
C. Failure to Timely File an Adequate SAR
--------------------------------------
11. In 2002, BNY policy required all employees to report
suspicious and criminal activities coming to their attention in the
performance of their duties. BNY policy required department heads and
officers-in-charge of banking offices to prepare written Incident
Reports summarizing all matters relating to crimes and liability
exposures, and to forward those reports to the Corporate Security
Department for review. All BNY employees were also required to report
suspicious activities to management within their divisions. Management
was charged with the responsibility of immediately reporting such
suspicious activities to the Global Compliance Division. The Global
Compliance Division and the Corporate Security Department were charged
with reviewing the information presented and determining whether to
notify law enforcement and/or file a SAR under the Bank Secrecy Act.
If the Corporate Security Department and Global Compliance Division
were not notified as required by BNY's own reporting policies, BNY
23
lacked any other formal mechanism to ensure that suspicious activity
was reported under the provisions of the Bank Secrecy Act. Information
concerning the wrongful execution and dissemination of the sham Escrow
Agreements was not timely reported by BNY senior employees as required
by BNY policy and the Bank Secrecy Act.
12. In or about February 2002, representatives of Bank Funding
Institutions began contacting BNY to complain about PLS loan defaults
and BNY's failure to adhere to the terms of the Escrow Agreements. The
initial calls were fielded by the Island Park Branch Manager. The
Branch Manager referred the callers to her immediate predecessor in the
position, who at that time worked in Regional Commercial Banking as a
Relationship Manager assigned to handle the PLS account. The Branch
Manager did not prepare an Incident Report summarizing the complaints
she received from the Bank Funding Institutions, or take any other
action to cause BNY to file a SAR or notify law enforcement about the
Escrow Agreements.
13. On or about March 1, 2002, a loan officer for Northwest
Bank, a Bank Funding Institution, contacted the PLS Relationship
Manager by telephone to complain about PLS loan defaults and to request
a report of escrow account activity for the outstanding PLS loans
approved by his bank. Following this phone call, the loan officer
faxed the Relationship Manager a copy of an Escrow Agreement covering
leases financed by Northwest Bank and executed by BNY employees,
including the current Island Park Branch Manager. The Relationship
Manager immediately suspected criminal activity and forwarded the
Escrow Agreement to his supervisor, the Vice President-Group Head
Regional Commercial Banking, who in turn forwarded the document to the
Vice President of the Retail Banking Group. The Vice President of
Regional Commercial Banking also brought the Escrow Agreements to the
attention of the Head of Regional Commercial Banking, who became
personally involved in reviewing the matter. Both the Vice President
and the Head of Regional Commercial Banking expressed concern about
BNY's potential liability to the Bank Funding Institutions under the
Escrow Agreements. Within a few weeks, the Head of Regional Commercial
Banking received a report from the Vice President of Regional
Commercial Banking that BNY had, to that point, collected 198 Escrow
Agreements implicating 62 different Bank Funding Institutions.
14. By early March 2002, the PLS Relationship Manager, the Head
of Regional Commercial Banking, the Vice President of Regional
Commercial Banking and the Vice President of the Retail Banking Group,
among other BNY executives, were aware that Island Park Branch
employees had been signing sham Escrow Agreements for at least a
decade, that the Escrow Agreements had been submitted by PLS to various
Bank Funding Institutions in support of applications for lease
financing, and that the Bank Funding Institutions were demanding
specific performance of the Escrow Agreements in the wake of PLS loan
24
defaults. None of these employees prepared or directed the preparation
of an Incident Report, or took any other action to cause BNY to file a
SAR or notify law enforcement about the Escrow Agreements.
15. By no later than March 18, 2002, a Vice President in the
Legal Division had been consulted by Regional Commercial Banking and
Retail Banking about the Escrow Agreements. The Legal Division Vice
President expressed the concern that the Island Park Branch had
rendered a service outside its area of expertise for which it had not
been paid. The Legal Division Vice President did not prepare or direct
the preparation of an Incident Report, or take any other action to
cause BNY to file a SAR or notify law enforcement about the Escrow
Agreements.
16. On March 19, 2002, People's Bank, a Bank Funding
Institution, sent a fax to a Senior Counsel in BNY's Legal Division
attaching a copy of an Escrow Agreement covering leases financed by
People's Bank. The fax demanded an explanation for why BNY was not
disbursing funds as provided in the Escrow Agreement and expressed the
understanding of People's Bank that "over $50 million of leases flow
through similar arrangements." The Senior Counsel did not respond to
the fax, but instead sent the fax to the Island Park Branch Manager,
asking that the Branch Manager forward it to whomever "handled the
transaction" with People's Bank. The Senior Counsel did not prepare or
direct the preparation of an Incident Report, or take any other action
to cause BNY to file a SAR or notify law enforcement about the Escrow
Agreements.
17. By no later than March 22, 2002, a BNY Legal Assistant and
a Managing Counsel in the Legal Division learned of the situation
involving the sham Escrow Agreements. Neither the Legal Assistant nor
the Managing Counsel prepared or directed the preparation of an
Incident Report, or took any other action to cause BNY to file a SAR or
notify law enforcement about the Escrow Agreements at that time.
Instead, the Managing Counsel directed BNY personnel to limit their
communications about the Escrow Agreements by communicating only with
the Legal Department on that subject, and to refrain from writing
anything discussing or speculating about BNY's culpability or liability
to third parties. As a result of the Managing Counsel's direction to
BNY employees, information about the Escrow Agreements required for the
preparation and filing of a SAR was not shared with the only two BNY
groups with SAR-filing authority, the Corporate Security Department and
the Global Compliance Division, neither of which learned of any
misconduct before late June 2002. In late June 2002, when asked by a
Corporate Security employee about the need to file a SAR, the Managing
Counsel advised that the Legal Division, and not Corporate Security,
would assume responsibility for preparing the SAR for filing.
18. On or about March 25, 2002, the Managing Counsel sent an e-
mail notifying BNY's General Counsel-Executive Vice President of the
situation involving PLS and the Escrow Agreements. The Managing
Counsel informed the General Counsel of the fax from People's Bank
25
stating that funds were not being disbursed to People's Bank as
provided in the Escrow Agreements, and that over $50 million in lease
financing "flow through similar arrangements." The Managing Counsel
estimated the amount of funds covered by the Escrow Agreements at $60
million. The General Counsel thereafter continued to receive regular
updates (both written and oral) from the Managing Counsel concerning
the Escrow Agreements, and various civil lawsuits brought against BNY
by Bank Funding Institutions based on the Escrow Agreements. On
April 24, 2002, BNY's outside counsel sent BNY's General Counsel a memo
summarizing the facts leading to the unauthorized issuance of Escrow
Agreements by the Island Park Branch. Neither the General Counsel nor
anyone else in the Legal Division prepared or directed the preparation
of an Incident Report or ensured that a SAR was filed or law
enforcement was notified concerning the Escrow Agreements.
19. Before the end of March 2002, efforts were made to
determine the potential dollar exposure to BNY for failing to implement
the Escrow Agreements. On or about March 29, 2002, the Vice President
of Retail Banking Group sent a fax to the Managing Counsel estimating a
total potential exposure of $72 million based on loan amounts covered
by the Escrow Agreements. The Managing Counsel took no steps to ensure
the preparation of an Incident Report, the notification of law
enforcement or the filing of a SAR.
20. By no later than early April 2002, the following additional
BNY personnel were aware of the situation involving the Escrow
Agreements: Retail Banking - Senior Vice President-Division Head-Long
Island/Queens; Senior Vice President; Vice President-Regional Sales
Manager; Regional Commercial Banking - Senior Vice President-Division
Head; Commercial Loan Officer; Funds Transfer Division - Vice
President-AMLOC Member; Audit Department - Vice President-Financial
Controls; Assistant Vice President-Long Island Group. No steps were
taken to prepare an Incident Report, or to ensure that a SAR was filed
or law enforcement notified about the Escrow Agreements.
21. On April 10, 2002, outside counsel sent an e-mail to BNY's
Managing Counsel referencing a report in an industry newsletter
discussing allegations of "fraud" against PLS in connection with its
lease financing business. On or about April 18, 2002, outside counsel
sent the Managing Counsel an "updated and revised" chart summarizing
complaint letters received to date from Bank Funding Institutions. The
chart reflected demands by Bank Funding Institutions that BNY remit any
funds then being held in escrow pursuant to the Escrow Agreements, and
also summarized allegations leveled against PLS involving the
misapplication of funds. No steps were taken by the Managing Counsel
or any other BNY employee to prepare an Incident Report, or to refer
the matter to BNY's Corporate Security Department or Global Compliance
Division for the filing of a SAR.
22. BNY personnel twice directed the preparation of reports by
its anti-money laundering oversight committee ("AMLOC") summarizing
wire activity for PLS, once on February 24, 2000 and a second time, at
26
the Managing Counsel's request, on April 1, 2002. On each occasion,
the wire transfer recipient listed first on the report as having
received the most funds during the period covered by the report
($690,000 in the February 24, 2000 report and $993,458 in the April 1,
2002 report), was an entity called Medpro Equipment Co. of Huntington
Beach, California ("Medpro"). BNY personnel took no steps on either
occasion to determine whether Medpro was a genuine company, accepting
at face value that Medpro was selling medical equipment to PLS as part
of PLS's equipment leasing business. In fact, Medpro was a shell
company that rendered no services to PLS. Over a five year period
between 1997 and 2002, approximately $24 million was transferred from
PLS's BNY account to Medpro's account at Bank of America.
23. Despite the Legal Division's awareness of the facts
described above, BNY denied any wrongdoing relating to the Escrow
Agreements in communications with various Bank Funding Institutions
that complained to BNY concerning, inter alia, BNY's failure to abide
by the terms of the Escrow Agreements. BNY took no steps to notify any
Bank Funding Institution about the misconduct that caused the Escrow
Agreements to be issued by BNY employees at the Island Park Branch.
24. BNY personnel did not prepare an Incident Report on the
Escrow Agreements until June 20, 2002, almost three months after the
incident "discovery date" of March 25, 2002 appearing on the Incident
Report. The Incident Report reflected a potential liability of $72
million that had been "zeroed out" before the report was filed.
Following the indictment and arrests of PLS principals Xxxxxxxx Xxxxxx
and Xxxxx Xxxxxx on bank fraud charges on June 21, 2002, the day after
the Incident Report was filed, BNY filed a SAR on July 10, 2002. The
SAR filed contained incomplete information and inaccurately characterized
27
the underlying activity. No effort was made to notify law enforcement
about the misconduct of BNY personnel relating to the Escrow Agreements
prior to that date.
/s/ Xxxxxx X. Renyi
-------------------
Xxxxxx X. Renyi
Chairman and Chief Executive
Officer
THE BANK OF NEW YORK
/s/ Xxxxxxx X. Xxxxxxxx
-----------------------
Xxxxxxx X. Xxxxxxxx, Esq.
Debevoise & Xxxxxxxx LLP
Counsel to THE BANK OF NEW YORK
Dated: November 7, 2005
28
EXHIBIT B
---------
In any criminal proceeding brought by the United States,
the following statement by The Bank of New York ("BNY"), which is
incorporated by reference into the Non-Prosecution Agreement between
the Bank of New York and the United States Attorney's Offices for the
Eastern and Southern Districts of New York, entered into on November 4,
2005 shall be admissible against BNY:
A. Overview
--------
1. BNY is a New York-chartered banking corporation that
provides global financial services, and it is a leading participant in
capital markets throughout the world. BNY is the oldest bank in the
United States and the principal subsidiary of The Bank of New York
Company, Inc., a publicly traded corporation, the common stock of which
is traded on the New York Stock Exchange under the trading symbol "BK."
2. In 1996, Xxxxx Xxxxxx, a Russian emigre, opened
accounts at a retail branch of BNY in the names of Benex International
Co., Inc. ("Benex") and BECS International LLC ("BECS"). Berlin did so
with the assistance of his wife, Xxxx Xxxxxxx, also a fellow Russian
emigre, who was a BNY Vice President until August 27, 1999, when she
was terminated. The address for Benex and BECS listed on their BNY
account statements was 000-00 Xxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxx
Xxxxx, Xxx Xxxx, an office (the "Queens Office") occupied by an entity
named Torfinex Corp. ("Torfinex").
3. During the next three and one-half years, billions of
dollars in funds originating in Russia flowed through the Benex and
BECS accounts at BNY. Specifically, from February 1996 through July
1999, the Benex and BECS accounts received approximately $7 billion in
29
deposits. From April 1999, these accounts remained open and active at
the request of the U.S. Attorney's Office. BNY agreed to the
government's request to maintain the accounts as part of its
cooperation in the government's investigation. The deposits were made
to the accounts in bulk amounts on almost a daily basis. The funds
were then transferred out of the Benex and BECS accounts, generally on
the same day or within days, to a large number of third-party
transferees located around the world. Typically, there were hundreds
of wire transfers per day from the Benex and BECS accounts.
4. Benex, BECS, and Torfinex operated as front companies
on behalf of Depozitarno Kliringovy Bank ("DKB"), a Russian bank, and
principals of DKB. The Benex and BECS accounts were part of an
underground money transfer business that was operated by DKB from
Moscow and the Queens Office without being licensed either as a money
transmitting business or as a branch or agency of a foreign bank.
5. On February 16, 2000, Berlin and Xxxxxxx pled guilty
to, among other things, conspiracy to conduct unauthorized and
unregulated banking activities, to establish an unlicensed branch of a
foreign bank in the United States, to operate an illegal money
transmitting business, and to launder money to promote wire fraud, in
connection with the operation of the Benex and BECS accounts at BNY.
Berlin and Xxxxxxx admitted that the Benex and BECS accounts were used,
among other things, to launder money on behalf of individuals and
companies in Russia. Xxxxxxx further admitted during her plea
allocution that, in undertaking these unlawful activities in connection
with the Benex and BECS accounts, she acted, in part, with the intent
to benefit BNY by helping the bank to expand its business in Russia.
Xxxxxxx also acted with the intent to benefit herself and her husband.
30
6. As demonstrated by the activity in the Benex and BECS
accounts during the period from February 1996 through April 1999, BNY
did not have an effective anti-money laundering program, did not carry
out its anti-money laundering obligations with respect to the Benex and
BECS accounts, and did not, as an institution, pay sufficient attention
to anti-money laundering and compliance issues. Among other things,
BNY (1) failed to put in place an effective system for analyzing wire
transfer activity by its customers for potential money laundering; (2)
failed to conduct adequate due diligence on Benex and BECS in order to
understand the true nature of their business and the activity in the
Benex and BECS accounts; (3) failed to monitor or scrutinize the wire-
transfer activity in the Benex and BECS accounts from an anti-money
laundering perspective; and (4) failed to make any effort to determine
whether the activity in the Benex and BECS accounts required either a
money transmitting license or a license to operate as a branch or
agency of a foreign bank under New York or federal law.
B. BNY's Expansion of Its Russian Banking Business in the 1990s
------------------------------------------------------------
7. In the early 1990s, following the collapse of the
Soviet Union, BNY courted new business in the emerging Russian market.
BNY created an Eastern European Division ("EED"), staffing it primarily
with Russian emigres, including Xxxxxxx, and opened a Representative
Office in Moscow. As a result of these efforts, BNY quickly acquired a
leading position among U.S. banks in handling correspondent accounts
for Russian banks. By the late 1990s, the EED was generating more than
$40 million in annual revenues for BNY, and Russia had become the
single largest producer of funds transfer revenues among BNY's foreign
operations.
31
8. In 1997, an internal audit of BNY's London office,
where Xxxxxxx was stationed beginning in or about 1996, revealed
irregularities and violations of bank policy in Xxxxxxx' travel and
entertainment expense reports. The audit found, among other things,
that Xxxxxxx had, without obtaining proper approvals, purchased
thousands of dollars worth of gifts for bank clients; gone over budget
for a client reception; and allowed her husband, Xxxxx Xxxxxx, to stay
with her on a business trip to Moscow and sign for business expenses on
her BNY American Express card. Although the head of BNY's Audit
Department recommended that Xxxxxxx be fired as a result, BNY did not
terminate Xxxxxxx. Instead, Xxxxxxx was promoted to Vice President in
the EED.
9. Following the collapse of the Soviet Union, BNY also,
through its retail branches, opened a number of other accounts, in the
names of various Russian nationals, that engaged in heavy wire transfer
activity with Russia. Certain BNY retail branch managers were
concerned that they lacked information about the activity in the
accounts and the ability to verify the bona fides of the account
holders, and voiced these concerns to BNY's Bank Secrecy Act compliance
officer.
10. At an internal meeting in October 1995, top officials
from the EED assured executives from the retail branch network that
they should not be afraid to open Russia-related accounts. The EED
officials explained that these accounts represented a significant
business opportunity for BNY and fit into the bank's objective to
expand into the Russian market. Even though BNY's anti-money
laundering policy at the time identified Russia as a "high-risk"
jurisdiction for money laundering, there was little, if any, discussion
at the meeting about the money laundering risks presented by these new
32
accounts, and no additional procedures were put in place to monitor
activity in these accounts.
C. BNY's Failure to Develop Anti-Money Laundering Procedures
for Monitoring Wire Transfer Activity
----------------------------------------
11. During the 1990s, BNY developed and brought to market
a proprietary electronic banking software product known as "micro/CA$H-
Register." Similar products were, and continue to be, available from
all major commercial banks. BNY's micro/CA$H software enabled
customers to effect wire transfers by themselves, without the
assistance or supervision of BNY employees. Using the micro/CA$H
software, customers were able to enter the necessary information on
his/her computer screen and then transmit the information, via modem,
to a computer at BNY. If the customer had entered all the necessary
information in the appropriate fields correctly, the funds would be
transferred automatically by BNY's computer system, without any BNY
employee becoming involved with the transfer.
12. The micro/CA$H software created obvious enhanced
risks for money laundering. BNY's anti-money laundering policy at the
time cited unusual or unexplained wire transfer activity as an example
of "suspicious conduct" that "should be scrutinized carefully." Yet
BNY personnel involved in the development of the micro/CA$H product
failed to appreciate or to analyze the increased money laundering risks
associated with the micro/CA$H product.
13. During the period that the Benex and BECS accounts
were open and were generating substantial wire transfer revenues for
BNY, BNY had no anti-money laundering policies, procedures, or
standards restricting who could get access to and use BNY's micro/CA$H
software. Once approved by Cash Management, micro/CA$H was available
to any customer with an ostensible business need and the technical
33
capability to operate it. BNY failed to establish any system or
procedure to monitor activity in accounts with micro/CA$H software.
14. Throughout the period that the Benex and BECS
accounts were open and operating, BNY did not have an effective
automated system for reviewing wire transfer activity of any kind for
potential money laundering. In or about 1997, BNY signed an agreement
to install such an automated system, "Comply" by Xxxxxxx Systems, Inc.
A test or "beta" version of the Xxxxxxx system was installed in 1997,
but the system was not operational at BNY until after the Government's
investigation commenced. In the meantime, BNY failed to establish an
effective alternative system of monitoring wire transfer activity.
D. The Opening of the Benex and BECS Accounts
------------------------------------------
15. In or about late 1995, General Forex Corp. ("General
Forex"), a predecessor of Torfinex likewise located at the Queens
Office, maintained an account at BNY's International Retail Banking
Department in midtown Manhattan. On behalf of DKB, General Forex asked
to obtain micro/CA$H software for its account. The manager of the
International Retail Banking Department was uncomfortable with giving
micro/CA$H to General Forex, and so declined this request.
16. The DKB bankers then sought Xxxxxxx' help in
obtaining micro/CA$H to assist with its underground money transfer
system. Xxxxxxx believed that the best way to do this was for her
husband, Xxxxx Xxxxxx, to open a new account for Benex at BNY's retail
branch at One Wall Street in lower Manhattan.
17. In early 1996, Berlin opened the Benex account at the
One Wall Street branch. Shortly thereafter, Berlin successfully
applied to BNY's Cash Management Division to obtain micro/CA$H software
34
for the Benex account. This software was installed by Xxxxxxx at the
Queens Office.
18. In or about July 0000, Xxxxxx and Xxxxxxx opened the
BECS account at the One Wall Street branch. They also obtained
micro/CA$H software for the BECS account, which was installed at the
Queens Office.
19. The Benex and BECS accounts rapidly became - by far -
the most active accounts at the One Wall Street branch. Because BNY
charged a fee for each wire transfer executed by means of its
micro/CA$H software, the extraordinary amount of wire-transfer activity
conducted through the Benex and BECS accounts generated hundreds of
thousands of dollars in wire-transfer revenue to BNY on an annual
basis. From February 1996 through April 1999, the wire-transfer
revenues from the Benex and BECS accounts totaled approximately $1
million.
20. As the highest fee-producing accounts in the One Wall
Street branch, the Benex and BECS accounts were well known to senior
executives in BNY's Retail Banking and Cash Management Divisions. The
accounts also attracted attention outside these areas. For example,
during a quarterly review of BNY's funds transfer business in May 1996,
attended by senior executives from several BNY units, Benex was listed
as among the top ten domestic customers in terms of funds transfer
revenue growth. The other customers on the list included very
prominent, well-established financial services companies.
21. At a meeting of retail branch managers in late 1996
or early 1997, the head of BNY's Manhattan retail branch network
singled out the manager of the One Wall Street branch for praise
because of the large volume of wire transfer fees produced by the Benex
35
and BECS accounts. In attendance at the meeting, the manager of BNY's
International Retail Banking Department - the same individual who had
declined to provide micro/CA$H to General Forex - was surprised that no
one seemed concerned about the nature of the wire transfers, but she
did not report these concerns to supervisors.
22. In September 1997, Torfinex submitted an application
to the New York State Banking Department ("NYSBD") for a money
transmitting license. The application was supported by a letter from
DKB to the NYSBD promising to pledge up to $1 million to guarantee
Torfinex's obligations as a money transmitter. On or about October 1,
1997, the NYSBD directed Torfinex to cease engaging in the business of
transmitting money while its application was pending. Notwithstanding
this directive, and notwithstanding the fact that its application for a
money transmitting license was never approved, DKB and Torfinex
continued to regularly transmit money through the Benex and BECS
accounts.
E. BNY's Failure to Conduct Adequate Due Diligence on the Benex and
----------------------------------------------------------------
BECS Accounts
-------------
23. Despite the extraordinary size of the activity in the
Benex and BECS accounts, BNY failed to conduct adequate due diligence
or "know your customer" inquiries regarding Xxxxx Xxxxxx or the Benex
and BECS accounts. Although personal identification information and
corporate resolutions were obtained by BNY at the time the accounts
were opened, no BNY employee obtained reference letters or sought any
information concerning Berlin's companies from any source outside BNY.
In 1996, BNY employees questioned Berlin about the nature and volume of
his business and Berlin gave false, misleading and inconsistent
answers. No BNY employee ever asked Berlin to identify any of his
business partners or attempted to learn the names of any of the
companies, either in Russia or in the United States, that Berlin,
36
Benex, and BECS were doing business with. Nor did any BNY employee
ever visit the small, single-room Queens Office, which was listed with
BNY as the business address of Benex and BECS, and from which it was
conducting millions of dollars in wire transfers on a daily basis.
24. Under then-existing bank policy, an employee had to
obtain the written permission of BNY's Chairman to serve as a signatory
on a business account. BNY employees also were required to disclose
any outside business affiliations on annual Code of Conduct forms. Even
though Xxxxxxx' relationship to the Benex and BECS accounts posed
conflict-of-interest risks recognized by BNY, Xxxxxxx failed to seek or
obtain the required permission of BNY's Chairman, and she falsified her
annual Code of Conduct forms by not disclosing her affiliation with
Benex or BECS.
25. Moreover, even though some BNY employees knew that
Berlin was the husband of Xxxx Xxxxxxx, a BNY employee, and even though
Xxxxxxx was a signatory on the BECS account, no BNY employee ever spoke
to Xxxxxxx about her role in those companies or ever attempted to
verify whether Xxxxxxx had complied with the bank policies and
procedures regarding conflicts of interest.
26. As a result of BNY's failure to conduct adequate due
diligence, the BNY branch manager and other personnel at the One Wall
Street branch incorrectly believed, based on the limited information
the Berlin provided, that Berlin was in the "import/export" business
and that the transactions through the Benex and BECS accounts
represented payment for goods sold by or through Benex and BECS. In
fact, the business of Benex and BECS consisted exclusively of receiving
transfers to the Benex and BECS accounts at BNY and then, with the help
of BNY's micro/CA$H software, wire-transferring those funds to other
37
parties around the world. Neither Benex nor BECS engaged in the
manufacture, distribution, purchase, sale, or shipping of any goods.
Indeed, Benex and BECS conducted no actual commercial activity
whatsoever.
27. BNY's Retail Banking executives were aware that money
transmitters operating in New York State needed to be licensed, but
because of their inaccurate understanding of the nature of Benex's and
BECS's business, never put together the fact that Benex and BECS were
operating as unlicensed money transmitters. If the Retail Banking
executives had understood the true nature of Benex's and BECS's
businesses, they likely would have subjected Benex and BECS to
additional due diligence and questioned whether the company was
unlawfully operating without a money transmitting license. Further,
because money transmitters were disfavored as Retail Banking clients,
the branch executives likely would not have allowed Benex or BECS to
maintain accounts for that purpose at the One Wall Street branch.
28. In contrast, the Cash Management employees involved
with the Benex and BECS accounts had an accurate understanding of what
Benex and BECS did. They believed Benex and BECS acted essentially as
payment brokers or money transmitters, whose businesses consisted
solely of transferring funds on behalf of other parties. BNY's Cash
Management executives, however, did not have the same sensitivity to
money transmitters. Several executives with responsibilities for the
Benex and BECS accounts were unaware of New York State's licensing
requirement for money transmitters; others aware of the requirement did
not view it as within the division's responsibility to determine
whether Benex and BECS were properly licensed. Accordingly, Cash
Management did not make any inquiries as to whether Benex and BECS were
properly licensed as money transmitters.
38
29. Because of the failure to communicate between
divisions and the failure to share information regarding the banking
activities of Benex and BECS, no single BNY employee fully understood
that Benex and BECS were operating as money transmitters without being
licensed to do so. Nor did BNY determine whether Benex and BECS were
required to obtain a money transmitting license under New York or
federal law.
F. BNY's Failure to Monitor Activity in the Benex and BECS Accounts
----------------------------------------------------------------
30. The Benex and BECS accounts each processed hundreds
of wire transfers per day and several thousand wire transfers per
month. In the aggregate, there were more than 150,000 wire transfers
from and to the Benex and BECS accounts from in or about February 1996
through July 1999. Although BNY's anti-money laundering policy at the
time required, for business accounts, "periodic monitoring or reviewing
of transactions to determine if account activity is consistent with the
customer's normal and expected activity," BNY, which as noted above had
no effective systems in place to carry out this policy, failed to
implement this policy with respect to the Benex and BECS accounts.
31. Had BNY monitored activity in the Benex and BECS
accounts, it would have discovered a number of highly suspicious
circumstances. For example, the ordering parties for most of the
incoming transfers to the Benex and BECS accounts were supposed "banks"
located in South Pacific islands that had been identified by the
Financial Action Task Force on Money Laundering ("FATF") as having a
high risk of money laundering activity. The principal ordering party
was "Xxxxx Bank Inc.," which was listed as the ordering party on more
than $3 billion worth of transfers into the Benex and BECS accounts
from 1996 to 1999. As a result of the Government's investigation, BNY
learned that "Xxxxx Bank" was not a bona fide bank at all; indeed,
39
"Xxxxx Bank" was not listed in any directory of worldwide banks.
Rather, it was a shell bank registered in the South Pacific island of
Nauru that was controlled by principals of DKB and existed solely to
facilitate their illegal money transfer operation. Similarly, the
beneficiaries of many of the outgoing transfers of funds from the Benex
and BECS accounts were companies and individuals located in offshore
banking jurisdictions or other jurisdictions which were considered by
FATF to have a high risk of money laundering activity.
32. Despite the activity in the Benex and BECS accounts,
BNY failed to undertake any effort to review or monitor periodically
the dollar volume of activity taking place in the accounts, as required
by BNY's anti-money laundering policy. There was no formal procedure
for unusual wire transfer activity to be brought to the attention of
BNY's Compliance Department, and the Benex and BECS accounts were never
brought to the attention of the Compliance Department until after the
commencement of the Government's investigation.
33. The regular reporting on the accounts showed only the
number of wire transfers Benex and BECS were conducting and the
corresponding amount of revenues the accounts were generating for BNY.
The reports did not show that millions of dollars were passing through
the accounts on a daily basis. As a result, the manager of the One
Wall Street branch and other BNY executives directly responsible for
the Benex and BECS accounts were not aware until after the Government's
investigation began that billions of dollars had flowed through the
accounts.
34. When BNY's Audit Department conducted a full-scope
audit of the One Wall Street branch in March 1998, it obtained
information regarding the volume of wire transfers conducted through
the Benex and BECS accounts, and yet failed to conduct any further
inquiry. As part of the audit, the auditors were required to randomly
40
review wire transfer activity. In preparation for this aspect of the
audit, a computer print-out of all the wire transfer activity at the
One Wall Street branch was obtained. The report reflected the large
volume of Benex and BECS wire transfers. Yet the auditors did not
review the Benex and BECS wire transfers, because, under BNY's audit
procedures, the auditors were instructed to review only wire transfers
that were initiated manually at the One Wall Street branch. Micro/CA$H
transfers were outside the scope of the audit, because branch personnel
were not involved in processing such transfers. Wire transfers
effected through micro/CA$H thus received less scrutiny than wire
transfers conducted by branch personnel.
35. Even when BNY employees sought to have a money
laundering analysis done of the Benex and BECS accounts, BNY proved
incapable of performing one. In 1998, a new sales representative from
the Cash Management Division was assigned to the Benex and BECS
accounts. The sales representative, noting the huge volume of wire
transfer activity, decided that an analysis of the accounts should be
conducted to determine whether there was reason to suspect money
laundering or other illegal activity in the accounts. At around the
same time, a manager in the Cash Management Division independently
decided to obtain a money laundering review of the Benex and BECS
accounts. When the sales representative and the manager each contacted
BNY's Funds Transfer Division in Utica, New York, however, the Funds
Transfer manager (who consulted with his supervisor about the issue)
told both the Cash Management sales representative and the Cash
Management manager that the bank did not have an automated system for
reviewing account activity and that it would be impractical to conduct
a manual review of the Benex and BECS accounts, given the tremendous
volume of activity.
41
36. As a result of BNY's ineffective anti-money
laundering controls in the area of wire transfers, no review of the
activity in the Benex and BECS accounts took place, and BNY did not
file a Suspicious Activity Report with respect to the Benex and BECS
accounts until after the Government's investigation of this case
commenced.
37. Although some of BNY's initial responses to the
Government's investigation in 1998 were flawed, BNY has fully
cooperated in the investigation since April 1999. In addition, BNY has
satisfied remedial measures specified in a Written Agreement entered
into with the Federal Reserve Bank of New York and the New York State
Banking Department on February 8, 2000.
42
EXHIBIT C
---------
CONFIDENTIALITY AND LIMITED WAIVER AGREEMENT
--------------------------------------------
WHEREAS the United States Attorney's Office (the "USAO")
has requested, as part of the Bank of New York's ("BNY") cooperation
in an investigation being conducted by the USAO that BNY produce
certain documents and information in BNY's possession that BNY contends
are protected by the attorney-client and work product privileges held
by BNY (the "Privileged Information"); and
WHEREAS BNY wishes (a) not to effect a general waiver of any
applicable privilege other than for the purpose of complying with the
USAO's request and (b) to keep the Privileged Information confidential
to the maximum extent possible;
IT IS HEREBY AGREED, by and between the undersigned counsel for BNY
and the USAO, that the following provisions shall apply to Privileged
Information, in whatever form it is furnished to the USAO or any agencies
participating with the USAO in its investigation (collectively,
the "Investigating Agencies").
PROCEDURES
----------
1. BNY will specifically designate all Privileged Information that
it provides to the USAO and the Investigating Agencies in documents,
and statements or testimony.
2. The USAO agrees that any notes, extracts, summaries or memoranda
that the Investigation Agencies create referring to, incorporating, or
based on Privileged Information will be treated as Privileged Information.
CONFIDENTIAL TREATMENT
----------------------
3. The USAO agrees not to disclose any Privileged Information, except
to the extent that, consistent with the requirements of Fed. X. Xxxx.
P. 6(e), it determines, in good faith and in the exercise of its sole
discretion, that such disclosure is necessary in the course of its
43
investigation and/or any ensuing prosecution, and otherwise agrees to use
its best efforts to preserve the confidentiality of the Privileged
Information. Further, the USAO shall not disclose the Privileged Information
to any third party not participating with the USAO in its investigation
without BNY's consent unless (i) required to do so by a court of competent
jurisdiction; or (ii) otherwise required by law. If BNY or the USAO becomes
involved in any litigation with respect to the enforcement of a subpoena or
discovery request for such Privileged Information, it is BNY's position that
any privilege that would otherwise validly attach to the Privileged
Information was not waived as a result of the provision of the Privileged
Information to the USAO and the Investigating Agencies.
4. The USAO shall give BNY notice of any request by a third party not
participating with the USAO in its investigation for access to Privileged
Information within five business days of receipt of the request. BNY shall
promptly, but in all cases, within ten business days of notice, submit
written objection to the disclosure of the Privileged Information. The
USAO shall promptly give BNY notice of commencement of any legal
action, application or motion to compel the disclosure of the Privileged
Information.
WAIVER OF PRIVILEGE
-------------------
5. By its production of Privileged Information to the USAO and the
Investigating Agencies, BNY intends to waive BNY's attorney-client and
work product privileges only with respect to the specific Privileged
Information furnished, and any other attorney-client communications
concerning or relating to RW Professional Leasing Services Corp.,
through and including July 31, 2002, for the purpose of permitting the
USAO and the Investigating Agencies to use such Privileged Information
in their investigation and any ensuing prosecution. The USAO and BNY
44
agree that this Agreement shall constitute an express reservation of BNY's
claim of privilege with respect to the Privileged Information for all
other purposes.
NOTICE
------
6. Any notice required or permitted pursuant to this Agreement
shall be made to the undersigned counsel for BNY. Nothing in this
Agreement shall be construed to require any of the parties to give any
notice or take any action that would violate any laws or regulations,
including specifically Fed. X. Xxxx. P. 6(e), pertaining to the secrecy
of grand jury proceedings.
Dated: New York, New York
May 27, 0000
XXXXXXXX & XXXXXXXX, XXX XXXXXX XXXXXX ATTORNEY'S OFFICE
BY /s/ Xxxxxx X. Xxxxxxx By /s/ Xxxxxxxx X. Xxxxxx
--------------------- ----------------------
Xxxxxx X. Xxxxxxx Xxxxxxxx X. Xxxxxx
000 Xxxxx Xxxxxx Xxxxxxxxx Xxxxxx Xxxxxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000 000 Xxxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxx Xxxx 00000
Attorneys for The Bank of New York
