• US Secret Service swoops on Deltec facility

• Bank ‘co-operating’ on fraud/launder probe

• Plans to ‘claim’ for return of seized $5.64m

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian financial institution yesterday asserted it “has been proactively co-operating” with a US Secret Service probe that seized its bank account on the basis that $58.465m in fraud proceeds were laundered through it.

Deltec Bank & Trust, in a statement responding to Tribune Business inquiries, also revealed it will seek to recover the $5.643m taken from the same US-based account by the federal authorities after the seizure was authorised by the eastern Virginia district court via warrants executed between June 12 and June 28, 2023.

The Lyford Cay-based institution said its account, held with US-based Mitsubishi UFJ Trust and Banking, was among multiple facilities opened with a variety of US-based banks - none of whom were aware of or played an active role in the scheme - to launder funds from a crypto currency investment scam commonly known as “pig butchering”.

Stating that it has been working with the federal probe, Deltec Bank & Trust said: “Deltec Bank has been proactively co-operating with the related investigation of the US Attorney’s Office for the eastern district of Virginia in order to provide information and assistance consistent with applicable laws.

“We believe that Deltec Bank has a legitimate claim, under US laws, that the cash seized from its account at Mitsubishi UFJ Trust and Banking should be returned, and it intends to assert such claim as part of the forfeiture process defined under US law.” There is nothing to suggest that Deltec, its executives, staff and agents have done anything wrong in relation to the account’s seizure.

However, Deltec Bank & Trust’s “proactive co-operation” assertion is contradicted by Christopher Saunders, the US Secret Service agent who supplied the affidavit evidence to support the account’s seizure. For he branded the Bahamian institution as “an overseas bank known not to be co-operative with foreign law enforcement requests”.

Other serious allegations in the Saunders affidavit are that Deltec Bank & Trust “misrepresented” to Mitsubishi UFJ Trust and Banking the nature and purposes for which the account would be used. According to the latter, the account was supposed to be a “custodial account” where all transactions were to be for the Bahamian institution’s benefit only.

However, the US Secret Service agent said the account - which was only opened in September 2021 - appeared to be used for services more commonly associated with correspondent banking activities. These facilitate transactions for third-party clients, and the Saunders affidavit alleged that this misrepresentation by Deltec effectively enabled the “pig butchering” scam’s perpetrators to “avoid the scrutiny” their dealings would otherwise attract.

And the US secret service agent also asserted that Deltec Bank & Trust failed to provide Know Your Customer (KYC) documents on two “shell companies” purportedly associated with the scam despite these being requested by Mitsubishi UFJ Trust and Banking.

The account’s freezing, and subsequent multi-million dollar seizure, represent a further regulatory headache for Deltec Bank & Trust just months after it was caught up in the FTX crypto exchange’s multi-billion dollar collapse. It was named as a defendant in at least one FTX-related ‘class action’ lawsuit by the exchange’s former clients, and was also forced to deny that its Ansbacher (Bahamas) purchase in early 2022 was financed by FTX or Alameda Research.

The Lyford Cay-based institution, which has aggressively embraced the digital assets evolution by setting up its Delchain subsidiary to target this area, refuted any “credit or asset exposure by the bank to FTX”. However, it later confirmed that its parent was attempting to repay a $50m loan received from FTX while Jean Chalopin, Deltec’s chairman and creator of the Inspector Gadget cartoons, also came under scrutiny over his US bank, Moonstone’s, links to the crypto exchange.

Mr Saunders, the US secret service agent, explained in his June 28, 2023, affidavit that was recently unsealed that the laundered fraud proceeds were generated by a scam known as “pig butchering”. This involves scammers and con artists setting up “spoofed” domains and websites, with addresses and features similar to those of legitimate crypto currency trading and investment platforms.

They then target victims with “unsolicited” phone calls, using techniques common to those employed in so-called ‘romance’ frauds to groom them, develop a relationship and gain their confidence. Finally, the victims are fooled into investing in crypto currency via the fake platforms that have been created, with the fraudsters stealing all their money.

Justifying the seizure of Deltec’s US account, and the funds it contained, Special Agent Saunders alleged: “Law enforcement has been investigating organised, international criminal money laundering syndicates operating crypto currency investment and other wire fraud scams.

“Victims were fraudulently induced to transfer money into shell companies, at which point the money underwent a series of transfers, generally ending overseas, designed to conceal the source, nature, ownership and control of the funds.”

Referring to the role played by the Deltec bank account, Special Agent Saunders asserted: “Specifically, 74 different shell companies received wire fraud proceeds and subsequently transferred those proceeds to and through the subject account [Deltec account] to ultimate beneficiaries overseas.

“The subject account received at least $58.465m from these shell companies since June 2022. As will be discussed in more detail herein, the criminal enterprise used the subject account to send wire fraud proceeds indirectly to accounts in The Bahamas and structured the transfers in such a way as to avoid scrutiny that typically applies to international wire transfers.

“Law enforcement identified approximately 157 victims who had transferred money to 63 of these shell companies and interviewed approximately 43 of them. Approximately $13.4m from the 43 victims interviewed by law enforcement flowed through the subject account,” the US secret service agent continued.

“Approximately $50.2m from the 63 victim-associated shell companies flowed through to the subject account. Law enforcement also identified another 11 companies that had similar characteristics and money transfer patterns to the 63 victim-associated entities. These 11 companies transferred an additional $8.2m to the subject account.

“The evidence indicates there is probable cause to believe that the $58.465m that has passed through these shell companies and into the subject account represents the proceeds of wire fraud and/or is property involved in money laundering.”

Tribune Business was last night told by sources familiar with the matter that “Deltec is not a target of the investigation”. They added that neither of the two individuals formally indicted over the “pig butchering” scheme were Deltec clients or were the beneficial owners of bank accounts with the Bahamian institution.

Suggesting that the $58.465m figure was inflated and/or exaggerated, some contacts even suggested that the Deltec account’s seizure had been unsealed in a bid to draw media and other attention away from the nine-ten US banks that also provided accounts for the scheme. They suggested the move was intended to place the focus on both Deltec and The Bahamas given the FTX links.

Special agent Saunders’ affidavit said accounts at JP Morgan Chase and Bank of America were also used in the scheme, and this newspaper understands that facilities at M&T Bank, Choice Financial Group, Evolve Bank & Trust and Lakeland Bank were also employed by the fraudsters.

However, Bahamian financial services executives, speaking on condition of anonymity, yesterday voiced fears that the situation threatens to cause a further reputational hit for this nation so soon after FTX’s collapse. “I have clients who bank with Deltec. This is a very serious concern to me,” said one. “I’d be surprised if Deltec can find intermediaries in the US to conduct correspondent banking.

“The Bahamas’ ambitions as the new crypto centre in the western world have basically taken the financial services industry down the drain. The Bahamas is attracting the reputation of being a regulatory free zone for crypto.” Another contact questioned whether there was sufficient oversight and due diligence by Deltec of the entities and individuals involved given the sheer volume of transactions that took place. The situation is almost certain to attract Central Bank of The Bahamas scrutiny.

And special agent Saunders raised further concerns. “Additionally, it appears that Deltec Bank & Trust has misrepresented the purpose and use of the subject account to Mitsubishi UFJ Trust and Banking (MUFJ),” he alleged. “According to MUFJ, the subject account is intended to be a ‘custody account’, which means that all transactions are for the benefit of Deltec.

“MUFJ noted that the stated purpose of the subject account is for custodial services, including but not limited to the safekeeping of securities; receipt and delivery of securities; funds transfer and corporate action processing. However, it appears that in addition to the money laundering transactions discussed above, Deltec has also allowed the account to be used by other third parties, in activity that would not reasonably be anticipated in a custody account and that has allowed individuals to avoid the scrutiny and vetting that international transactions might otherwise receive.”

Deltec, in its reply to Tribune Business, did not respond to questions on the “misrepresentation” allegations, whether the necessary KYC and due diligence processes were followed, and if it became aware of any concerns regarding the funds flow generated by the “pig butchering” scam.

Acknowledging that the seized funds “were under the control of Deltec Bank”, it added: “The seizure warrants relate to fraud charges against two individual defendants. According to the documents made public by the Eastern District of Virginia, the individual defendants directed the fraudulently obtained money into a number of bank accounts including, among others, a Deltec Bank account at Mitsubishi UFJ Trust and Banking, from which money was seized....

“Deltec Bank is committed to abiding by all relevant anti-money laundering laws and maintains that all actions taken by the bank are in line with applicable policies and regulatory requirements... Deltec Bank takes its responsibility to clients and the financial centre as a whole very seriously, and ensures that the highest standards of conduct are upheld. As a matter of practice, Deltec Bank continuously enhances its compliance and control framework, which is evident in our ability to proactively work with the authorities.”

Special agent Saunders named one of the alleged fraudsters as Hailong Zhu, was said to have confessed to his role in the scam, and his affidavit also refers to an “Asian woman” as one of the unsolicited callers who targeted victims. He revealed that tracing techniques ultimately tracked the fraud proceeds, representing victim monies, via a series of transactions to the Deltec Bank & Trust account.

Several payments, representing tens of thousands of dollars, were allegedly made to Deltec bank accounts beneficially owned by two companies, Axis Digital and GTAL. Special agent Saunders said these entities were used to “send money overseas without complying with the regulatory scrutiny and requirements that normally accompany international transfers”.

He added: “MUFJ informed law enforcement in April 2023 that they learned that Deltec appeared to be treating the subject account in part as a correspondent account, which is not the original purpose established at the time of account creation. Custodial services generally do not include receiving funds from third parties for the benefit of another customer.”

MUFJ then conducted its own investigation which revealed “the high volume” of wire transfers to Axis Digital and GTAL. “MUFJ reported that they found these transactions suspicious because the source of funds was unknown and an economic business purpose could not be determined,” Special agent Saunders alleged.

“Additionally, MUFJ conducted open-source research on the companies originating the suspicious transactions and concluded they appeared to be shell companies. Separately, MUFJ was unable to obtain KYC documentation related to Axis Digital or GTAL from Deltec.”

This left MUFJ in breach of US law, and Special agent Saunders added: “Law enforcement has also not yet been able to identify the registered agents, business locations or business purposes of Axis Digital and GTAL. MUFJ records revealed 224 wire transfers from June 2022 to the present into the subject account, totalling approximately $29.5m, that records clearly show were transferred to either Axis Digital or GTAL.

“Law enforcement then analysed the other transfers into the subject account and identified approximately 253 additional wire transactions totaling approximately $29m. Although the records do not clearly show the direction further transferring funds to Axis Digital or GTAL, I submit that they were made as part of the same fraud and money laundering scheme.......

“The use of the custody account reduced transparency by routing the funds through a large central account where they became ‘mixed’ with Deltec’s own funds. Only Deltec - an overseas bank known not to be co-operative with foreign law enforcement requests - has records detailing the breakdowns of funds within its own accounts. As a result, it became more difficult to track the proceeds of the fraud once they entered the subject account.”