Global Policy Forum

By Tim Golden

At the climax of one of the biggest undercover money-laundering investigations in United States history, federal agents seized $1.8 million in 1998 from Citibank accounts in New York that were held by a mysterious Cayman Islands bank that had no corporate offices anywhere in the world.

But despite indications that the money had come from drug dealers in Mexico, Citibank continued to do business with the Caymans bank for almost two years, moving another $300 million through the accounts before they were finally closed by Citibank.

Officials of Citibank and its parent company, Citigroup Inc., said they had not realized that anything might be amiss with the Caymans bank, which was tied to a financial group in Argentina led by the former treasury secretary there. And they emphasized that they have since developed a system for processing official seizures to avoid such mistakes.

Yet interviews with government investigators and a new study of the case by the Democratic staff of a Senate subcommittee raise questions about Citibank's slow response to the indications that something was wrong with the operations of the Caymans bank, M. A. Bank Ltd.

"They weren't just asleep at the switch — they were in a deep sleep on this one," Senator Carl Levin, a Michigan Democrat who oversaw the Senate inquiry, said of Citibank. "Even after the seizure warrant, they continued to accept deposits from M. A. Bank without due diligence."

Both the government investigators and money-laundering experts said the case was striking evidence of how criminals have been able to move illicit funds surreptitiously through accounts that offshore banks keep at big institutions in the United States.

Those so-called correspondent accounts provide tiny foreign banks that are subject to little government regulation with access to the American financial system. As many as 2,000 such banks are scattered around the world, mostly in small island nations in the Caribbean, the South Pacific and elsewhere.

M. A. Bank, which was licensed in 1991, was a classic shell: It never had so much as an office in the Caymans, and its supposed administrative headquarters in Uruguay was nothing more than the address of an accounting firm that processed its correspondence, the Senate report said. At least part of the millions of dollars wired into its accounts in New York were then paid out in cash in Argentina to a local real estate agent later identified by American officials as a representative of the Mexican drug traffickers.

To bankers at Citigroup, however, M. A. Bank drew legitimacy from being part of the Mercado Abierto Group, a financial group based in Buenos Aires that had been a Citibank client since 1989. The group is owned by three well-known economic officials of the military governments that ruled that country until the early 1980's, the most prominent of whom, Aldo Luis Ducler, served as treasury secretary then and is now the group's president.

Federal and Senate investigators suggested that Citibank officials had considerable reason to grow suspicious of M. A. Bank after May 18, 1998, when they were ordered to seize the $1.8 million — all that was left of $7.7 million that Mexican drug traffickers had funneled through the account. The warrant presented to Citibank cited federal money-laundering laws as grounds for the confiscation.

The warrant was also delivered just as the Clinton administration was presenting what it called Operation Casablanca, in which Customs agents uncovered a network of Mexican and Venezuelan banks that were helping Mexico's biggest drug traffickers to hide their profits.

The affidavit filed in federal court in Los Angeles in support of the Citibank seizure clearly tied it to the undercover investigation. Nonetheless, Citibank officials told Senate staff members that it was only when the investigators approached them with questions about their handling of the M. A. Bank account — 17 months after the seizure — that they finally linked the seizure to drug trafficking.

Several American officials asserted that the Customs agents who ran the Casablanca investigation could have been more aggressive in pursuing the Argentine connection. The Argentine real estate agent to whom Citibank paid the money in Buenos Aires had been put in touch with undercover agents by the man then considered Mexico's biggest drug trafficker, Amado Carrillo Fuentes, the American officials said. And according to a forfeiture complaint filed by the federal government, the real estate agent and Mr. Ducler, of the Mercado Abierto Group, set up the accounts on behalf of a former Mexican federal police official convicted in the United States of drug smuggling.

In a telephone interview from Buenos Aires, Mr. Ducler denied ever having met the former police official, and said he never had any clue that the real estate agent, now a fugitive from Argentine justice, was representing Mexican traffickers. He emphasized that about one- third of the $1.8 million seized was later returned in a settlement, and that the illegal funds wired to M. A. Bank's account with Citibank had originated in an undercover Customs Service account at Bank of America. "No illicit money could ever have come into our bank had it not come in an undercover operation, and from an institution of the first rank, like the Bank of America," he said. "Not only did we not infect the financial system of the United States, but it was the United States' undercover operation that infected us with illicit funds."