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  • Case History No. 8 SWISS AMERICAN BANK

    SWISS AMERICAN NATIONAL BANK

    Swiss American Bank Ltd. (“SAB”) and Swiss American National Bank Ltd. (“SANB”) are two banks with the same ownership that were licensed in Antigua and Barbuda in the early 1980's. Throughout their history, these banks have been troubled by controversial leadership, questionable practices by bank officials, and accounts that were repositories of funds from major financial frauds and other illegal activities. This case study shows how major U.S. banks that served as correspondents to these institutions were at times unaware of even high profile frauds and controversies associated with the banks and were slow to take action on the accounts, at times maintaining the accounts for years after they knew and were concerned about suspicious account activities and management problems that afflicted the SAB and SANB.

    The following information was obtained from documents provided by the government of Antigua and Barbuda, Bank of America, Bank of New York, Chase Manhattan Bank, court pleadings, interviews of government officials and other persons in Antigua and Barbuda, the United Kingdom, and the United States, and other materials. Key sources of information were interviews with John Greaves, former General Manager of Swiss American Banking Group (1988-1995), conducted on July 24 and 25, 2000; Brian Stuart-Young, Chairman and Managing Director of Swiss American Bank, conducted on October 11, 2000; relationship managers and other officials from Bank of America (conducted July 10, 11 and 31 and October 24, 2000), Bank of New York (conducted August 10 and 30, 2000), and Chase Manhattan Bank (conducted August 2, 3, and 4, 2000). The investigation greatly benefitted from the cooperation and assistance provided by a number of officials of the Government of Antigua and Barbuda, particularly the Executive Director of the International Financial Sector Regulatory Authority and the Director of the Office of Drugs and Narcotics Control Policy.

    A. THE FACTS

    (1) Ownership and Management

    SAB and SANB were part of a financial group in Antigua and Barbuda called the Swiss American Banking Group. It included the two banks and a trust company, Antigua International Trust. SAB is an offshore bank with a physical presence in Antigua and Barbuda. It was licensed to do business as an offshore bank in April 1983; as an offshore bank it is prohibited from doing business with citizens of Antigua and Barbuda. SANB is a domestic Antiguan bank, licensed in May 1981 to do business with citizens of Antigua. All three entities had the same ownership, the same board, a common General Manager and for many years both banks shared the same facilities and the same staff.

    When they were licensed, the owner of both SAB and SANB was listed as Swiss American Holding Company, a Panamanian company. The license application for SAB noted that Swiss American Holding Company was wholly owned by Inter Maritime Bank of Geneva, Switzerland, and Home State Financial Services, Inc. of Cincinnati, Ohio. Each entity is listed as

  • 1 It is uncertain whether Rappaport was the sole owner of Inter Maritime when SAB and SAN B were

    formed. In 1978, two internal memoranda of the Bank of New York, which established a relationship with Inter

    Maritime in 1969, reported that Inter Maritime officials stated that the Gokal brothers, Pakistani businessmen who

    later became heavily involved in the BCCI scandal, invested between $6 million and $8 million Swiss Francs in Inter

    Maritime for 20% of the bank. Subsequent memos about Inter Maritime and the Swiss American banks do not

    mention the Gokal brothers, and a memo in 1983 states that “almost all shares [of Inter Maritime] are owned or

    controlled by Bruce Rappaport.”

    2 According to a 1983 internal Bank of New York memorandum, Rappaport held 7.5% of Bank of New

    York sto ck and incre ased that pe rcentage o f ownership th rough the p urchase of a dditional sha res in 1983 .

    3 BNY-IMB’s ownership interest in Swiss American Holding Company remains uncertain. Recently BNY-

    IMB wa s dismissed from a case bro ught against it, SAB, and SA NB by the U .S. government to reco ver drug/terrorist

    related assets th at had bee n forfeited to the U.S. gove rnment. BN Y-IMB was dismissed due to lack o f jurisdiction.

    BNY-IMB claimed it had divested itself of Swiss American Holdings in 1988:

    “On December 28, 1987, BNY-IMB sold all of its shares of SAHC to an unrelated entity in which BNY-

    2

    controlling a 50% share of the holding company and the banks.

    Inter Maritime Bank in Geneva, founded in 1966, was part of a group of companies active in banking, shipping and the petroleum industry. It was initially created to serve as the in-house bank for shipping and other financial activities undertaken by its affiliates. The founder and owner of Inter Maritime Bank is Baruch (“Bruce”) Rappaport.1 Rappaport is an Israeli citizen who became very active in the economic and political life of Antigua. He also owned 50% of the West Indies Oil Company which owned a refinery in Antigua. In December 1997, Rappaport was named as Antiguan Ambassador to the Soviet Union. In 1989, the Bank of New York purchased 19.9% of Inter Maritime Bank. At that time, Inter Maritime’s name was changed to Bank of New York-Inter Maritime Bank. In July 1996 Bank of New York increased its ownership of Inter Maritime to 27.9%. Bank of New York reported in February 2000 that Rappaport continued to hold the remaining shares Inter Maritime.2 The remainder of this report, except when quoting material, will refer to Inter Maritime Bank by its current name, Bank of New York-Inter Maritime Bank (“BNY-IMB”).

    Home State Financial Services, Inc. was owned by Marvin Warner, who served as U.S. Ambassador to Switzerland in the mid-late 1970's. In 1986, Home State Financial Services, Inc. was placed in bankruptcy due to financial problems encountered by one of its subsidiaries, Home State Savings Bank. Warner pleaded guilty to misapplication of funds and securities violations for the role he played in the financial downfall of Home State Savings Bank. As part of the bankruptcy proceedings, the state of Ohio assumed control of Home State Financial Services, Inc. and, as a result, its holdings in the Swiss American entities. BNY-IMB subsequently purchased Home State’s holdings in the Swiss American entities from the state of Ohio.

    Documents made available to the Subcommittee suggest that BNY-IMB owned Swiss American Holding Company and controlled SAB and SANB at least until 1993.3 The current

  • IMB had no interest or control, in a transaction in which all of the obligations of the parties were completed

    by Decemb er 15, 1988 . ... Since the end of 1988, B NY-IM B has not owned any shares or held any interest

    in SAHC.” USA v. Swiss American Bank, L., Swiss American Holding Company S.A. of Panama, and

    Inter Maritime Bank, Geneva (U.S. District Court for the District of Massachusetts, C.A. No. 97-CV-12811

    (RWZ)), Motion of Bank of New York-Inter Maritime Bank, Geneva to Dismiss or, in the Alternative, for

    Summar y Judgme nt, April 1, 19 98.

    Yet, in corr espond ence subm itted to both B ank of Am erica and N ations Ban k in Marc h of 1993 , David

    McManus, the Deputy General Manager of the Swiss American Banking Group wrote that BNY-IMB

    controlled the Swiss American Banking Group, which directly contradicts what was reported in the BNY-

    IMB filing in April 199 8: “Swiss Am erican Ba nking Gro up consists o f Swiss Amer ican Hold ings, SA, a

    Panamanian company which owns 100% of Swiss American Bank Ltd., Swiss American National Bank of

    Antigua Ltd. and Antigua International Trust Ltd. Swiss American Holdings SA is wholly owned by the

    Inter Maritime Group in Geneva.”

    3

    ownership of the Swiss American entities is structured through a series of International Business Corporations (IBCs) and trusts. Swiss American Holding Company is currently owned by Carlsberg (or Carlsburg), S.A, a Bermuda corporation, which in turn is owned by a charitable trust controlled by Rappaport. Two of the U.S. correspondents of SAB and SANB that were interviewed by the Minority Staff did not know the name of the charitable trust, and the Bank of New York thought the name of the charitable trust is the Inter Maritime Foundation, but it was not certain. The Chairman and Managing Director of SAB was not able to tell the Minority Staff the name of the charitable trust, either. The lack of information by the correspondent U.S. banks with respect to the details of the ownership of SAB and SANB is troubling.

    (2) Financial Information and Primary Activities

    SAB has about 4000 clients with 5000 accounts and total assets of $111 million (of which $103 million are deposits). The bank’s main function is private banking, providing wealth management services to its clients. According to SAB officials, approximately 4500 of its 5000 accounts currently have less than $50,000 in value. Its customers are largely from Europe, and bank officials estimate that less than 15% of their customers are from the United States. Bank officials have told Minority Staff that they are attempting to phase out their business in the United States Bank records indicate that in recent years a significant portion of SAB’s business has been generated by Internet gambling companies or entities that provided cash transfer services for Internet gambling facilities. This issue is discussed in more detail later in the

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