Last year, Spanish authorities raided the Madrid offices of the Industrial and Commercial Bank of China. Police say the bank was at the center of a European money laundering operation. ICBC is billed as the world’s largest bank with approximately $3.5 trillion in assets. That story is back in the news as new details are emerging that suggest that senior bank officials had knowledge of the wrongdoing. While that story is certainly newsworthy, there is an even bigger story behind the story.
Spanish authorities say a group of Chinese businessmen were importing goods into Europe and evading customs tariffs and duties. The profits of those schemes were then laundered through ICBC bank.
Customs duty evasion is nothing new. Nor is money laundering or bank fraud. But the link between banks and the criminals evading taxes or customs duties is rarely explored.
If the company evading a customs duty is American and the profits are staying in the U.S., there may not be the need for a bank. But when tax evasion or customs duty evasion crosses international boundaries, there is probably a bank involved.
Small time mobsters may be able to launder a few thousand dollars through a cash business like a pizza shop but today’s financial fraudsters need banks to launder their millions.
Catching these fraudsters is difficult. Spanish police used wiretaps. They were also on to ICBC fairly quickly. Reuters reports that within a few months of opening, 95 percent of the business of ICBC’s Madrid branch involved money transfers to China. Of course, it helped that the cops were already watching the suspected criminals when they opened their accounts there.
From what we understand, the Spanish cops were in the right place at the right time. Unfortunately, authorities are not always so lucky. In fact, most financial crimes are unearthed not by audits but by whistleblowers.
Under U.S. law, whistleblowers who report money laundering, bank fraud or customs duty evasion may be eligible for large cash awards. That means insiders at either the bank or the company cheating U.S. Customs are eligible for awards.
Whistleblower Awards for Customs Duty Evasion
Over 20 million containers come into the United States each year. Some by ship and some by rail and truck from Canada and Mexico. Only a tiny fraction of those containers will be inspected and most of those inspections are looking for drugs, weapons or human smuggling. Diamonds and smaller goods cross the border daily through a variety of methods.
Products coming into the United States are supposed to be labeled by country of origin and are often subjected to various duties and tariffs. U.S. Customs and Border Protection relies on shippers and importers to properly label goods. That doesn’t always happen, however.
Catching these schemes is difficult. Can the average customs agent who must inspect hundreds of tons of cargo each day know whether a circuit board is made in China or Korea? Can she know if that board contains three transistors or four? (It may make a difference for purposes of import duties.) Can the agent spot a piece of unmarked steel rebar that was made in China but transshipped from Taiwan?
The answer to these questions is almost always, “no.”
Whistleblowers, then, become the eyes and ears for customs enforcement. Only someone inside the company knows how many products are being imported and from where and whether proper import duties have been paid.
Sometimes unscrupulous companies attempt to import goods in violation of OFAC rules. The Office of Foreign Asset Control limits imports and exports to companies on a US or international sanctions list.
According to OFAC,
“The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.”
Taken together, Customs insures that goods coming in to the United States have paid the proper duties and tariffs. OFAC insures that goods aren’t imported or sent to countries who may be harboring terrorists or engaged in certain human rights violations.
When a company imports (and sometimes exports) goods, it certifies that it complies with all federal laws and that any duties were paid. Making a false certification is both a crime and civilly actionable.
Under the federal False Claims Act, a company that falsely certifies compliance to the government is subject to triple damages and huge fines.
The False Claims Act was born during the Civil War when the federal government was broke. The law contains a unique provision that allows people with inside information about fraud to file a lawsuit on behalf of the United States and collect an award if that suit is successful.
That means that workers in the shipping department, buyers and customs specialists with inside knowledge of OFAC or Customs violations are eligible for cash awards. (Recently, we helped a woman who worked as a project expediter collect a large award for blowing the whistle on a scheme to falsely label Chinese and Turkish steel as being made in America.)
Customs Duty evasion comes in many forms. Common schemes include:
- Misclassification of the Goods Being Imported
- Miscalculation of the Number of Goods Being Imported
- Misidentification of the Country of Origin
- Undervaluation of the Goods
- Evasion of Specialty Tariffs, Anti Dumping and Countervailing Duties
- Evasion of OFAC Sanctions
FIRREA Bank Whistleblower Awards
Folks that work inside banks may also be eligible for an award if they have inside information about a bank actively assisting customers evading customs duties, evading taxes or laundering money.
The largest whistleblower award to date was a $103 million award to a former manager of USB. The award was based on a tax evasion case. Swiss bank USB, was actively helping wealthy Americans evade taxes and hide their money offshore.
Congress and the FDIC are concerned about banks that help money launders place. Their actions place the bank and its depositors at risk. In response to the savings and loan crisis, Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act in 1989 as a way of reigning in bad bank behavior. Today, that law pays whistleblowers awards of up to $1.6 million.
In today’s regulatory and compliance environment, banks should be very concerned about anti-money laundering violations. ICBC is largely beyond the reach of US regulators, although the bank does have thirteen branches in the United States including New York City, Seattle and San Francisco. Of more concern to ICBC is the fear that the EU could pull the bank’s European banking license.
Looking for Whistleblowers
The four largest banks in the world are all based in China. Industrial and Commercial Bank of China (ICBC) is the largest followed by the China Construction Bank, Agricultural Bank of China and the Bank of China. The Chinese government is pushing hard to become an even bigger world power in the banking arena while at the same time trying to crack down on corruption by some bank officials.
Outside China, there are many other banks holding a trillion dollars or more in assets. Many of these banks have their own problems connected to money laundering and / or fraud; JP Morgan Chase, HSBC, Bank of America, BNP Paribas, Wells Fargo, Citi, Banco Santander, Barclays and Deutsche and Societe Generale.
The list of companies that may be evading taxes or engaging in customs duty evasion is simply to huge to quantify. Suffice it to say, there are many opportunities for whistleblowers. Because Chinese banks are typically state owned, there may even be opportunities to earn an award under the Foreign Corrupt Practices Act.
None of these whistleblower programs requires that the recipient of the award be a U.S. citizen or resident.
If you are interested in learning whether you may qualify for an award, give us a call. Some folks have called simply to provide information, that is okay too. All inquiries are protected by the attorney –client privilege and kept strictly confidential. In many cases, we can protect your identity if you do decide to pursue an award.
For more information, contact attorney Brian Mahany at or by phone at (414) 704-6731. You can also visit our FIRREA , Customs Duties whistleblower and Bank Secrecy Act / AML information pages.