Swiss Bank Pushed Offshore Middleman to Skip Anti-Money Laundering Checks for Wealthy Clients

Credit Suisse's Clariden Bank pushed for the "Holy Grail" of banking secrecy.

Clariden, part of Credit Suisse, sought highly secretive structures for some clients.

In December 2006, an official at Switzerland’s Clariden Bank, part of Credit Suisse, contacted the Singapore office of the offshore services firm Portcullis TrustNet to discuss a sensitive question.

The banker wanted TrustNet’s help administering an offshore company based in the British Virgin Islands and owned by a group of wealthy private-equity investors, according to internal TrustNet emails obtained by the International Consortium of Investigative Journalists.

In the sprawling offshore world, it wasn’t unusual for a bank in one country to ask a service provider in a far-off place to oversee a company based in yet another jurisdiction.

But the request came with a wrinkle: Clariden didn’t want to disclose to TrustNet the identities of its clients.

Law requires middlemen like TrustNet to verify the names and backgrounds of their clients — a process called “due diligence” — as a way to deter criminals and terrorists from hiding illicit cash in secret offshore entities, a practice known as money laundering. If shady figures slip through the system despite the checks, law enforcement can use the records to help track down the real owners.

What Clariden officials were asking TrustNet, instead, was to blindly oversee an offshore company for anonymous wealthy individuals and record the bank as the “principal” in those entities, relying on the bank’s assurances that its clients weren’t involved in illicit activities.  The documents trace an intrigue inside TrustNet over whether or how to deal with the Clariden request and the law at the same time.

One of TrustNet’s in-house lawyers, Michael Darwyne, described such a secretive arrangement as “the Holy Grail” — an offshore company so anonymous that “law enforcement officials and the regulators will be met with a blank wall” if they ever tried to discover the identities of the owners. Under this arrangement, he said, “we will have to say we know nothing about who owns the company.”

Clariden officials declined to comment. A spokesman for the bank’s parent, Credit Suisse, said that due to Swiss banking secrecy laws “we are not allowed to provide any information about existing or supposed accountholders” and that Credit Suisse and its affiliated companies “respect all the laws and regulations in the countries in which they are involved.”

Law or business

Clariden’s aggressive effort to shield its clients’ confidentiality was business as usual among Swiss financial institutions in the mid-2000s. In 2008, the United States launched an assault on Swiss banks that had helped thousands of American citizens dodge taxes. Currently, about a dozen Swiss banks are under investigation by the U.S., including Credit Suisse, Clariden’s parent. Wegelin, Switzerland’s oldest bank, folded early this year after admitting it had sheltered U.S. tax evaders.  

Clariden’s December 2006 request triggered a heated debate within TrustNet that shed light on the role big financial institutions play in the offshore economy as well as on the gatekeeping responsibilities of intermediaries that set up secret companies.

Some TrustNet employees believed Clariden could be trusted to make sure its clients were not involved in dirty money. Others argued that following “know-your-customer” rules is a basic anti-money laundering procedure that shouldn’t be brushed aside by business considerations.

To complicate things more, the BVI’s anti-money laundering law had a loophole that allowed for more than one reading of the legislation on due diligence responsibilities. The BVI law explicitly allowed offshore servicers to rely on reputable financial organizations to vouch for their clients under certain conditions. But BVI regulators had in fact started to crack down on service providers who abused this loophole to skirt their know-your-client duties.

“I think we have to rely on the fact that Clariden is a reputable financial institution and will be regulated by AML [Anti-Money-Laundering] provisions in Switzerland,” wrote Felicia Wee, an employee in TrustNet’s Singapore office. “Otherwise we don't do the business.”

Ronnie Summers, senior counsel and compliance officer in TrustNet’s Cook Islands office, disagreed.

“I understand what Clariden would like, but their request does not absolve us from our legal requirements to know who the real principal is,” she wrote. “Sometimes we need to say ‘no.’ ”

As these discussions were going on, another request from Clariden was sitting on TrustNet’s desks. In this case, Clariden officials in Hong Kong and Singapore were exploring an offshore venture for a wealthy American couple living in Tokyo. The husband was a consultant for Airbus, the French aircraft manufacturing giant, who dealt with Taiwanese clients on a regular basis, one Clariden official explained in an email.

The proposed offshore structure included a foundation and a trust. The money involved: $20 million. The wrinkle: The couple didn’t want their offshore holdings to have any connections to the U.S., a possible indication that they weren’t planning to declare it to the IRS.

This time the response from in-house counsel came quickly: “No,” read the one-word email response by TrustNet lawyer Darwyne. Summers said that “there’s no way around” U.S. tax reporting obligations.

Meanwhile, the request from Clariden about administering an offshore company for anonymous private-equity investors was still in works.

After hearing the pros and cons from his employees, TrustNet’s owner, David Chong, made the call: He gave a green light to the deal proposed by Clariden, provided the bank signed a letter vouching that the clients weren’t involved in money laundering.

The letter would require Clariden to inform TrustNet if its clients were criminals or terrorists and to make their identities available to TrustNet upon request. In other words, TrustNet would still not know who the clients were at the onset but could potentially find out if, for example, the company became the focus of a law enforcement investigation.

“Are you surprised?” TrustNet BVI compliance officer, Adam McDonnell, who opposed the idea, asked in an email to lawyer Ronnie Summers.

“Not really,” Summers answered.

TrustNet officials declined to comment for this article.

It is not clear from the documents available to ICIJ whether Clariden signed the proposed letter, but a few months later, in August of 2007, TrustNet employees were still debating the effect of the Clariden “precedent.” Several were discussing, via email, a complaint from a banker with UBS, the Swiss banking conglomerate, who only reluctantly pledged in writing to verify his clients’ identities in accordance with the BVI law.

Felicia Wee, in the Singapore office, believed that, as long as it complied with the law, TrustNet’s requirements should be flexible. “Sometimes the banks have a big-wig client that they will protect,” she wrote. Again, she said, a solution would be for the bank to sign a letter saying the clients weren’t money launderers.

McDonnell had not realized that some of his colleagues were taking this approach. “I was of the understanding that it was merely for Claridan [sic] (but obviously this is a precedent so can [be] and has been extended to other institutions),” he replied.

Wee said that so far TrustNet had made use of the “Clariden precedent” in only two cases. “It simply [is] not possible, in the interest [of] taking on work from some institutions, to take the stance that it is either this or that or we don't do business.”

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