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Banco Popular Settles U.S. Money Laundering Case…Hard Blow To One Of Puerto Rico's Premier Business Institutions

Banco Popular Settles U.S. Money Laundering Case


January 17, 2003
Copyright © 2003 THE NEW YORK TIMES. All rights reserved.

WASHINGTON, Jan. 16 – The Justice Department said today that Banco Popular de Puerto Rico, the island's largest bank and a company with a major presence in the continental United States, would pay $21.6 million in penalties to settle accusations that it laundered millions of dollars in drug money. Under the agreement, the bank will avoid criminal prosecution.

The deposits, totaling $20 million, were often brought to the Old San Juan branch of the bank in "paper bags or gym bags filled with small-denomination bills" from June 1995 to September 1998, legal papers said.

Banco Popular, which is based in San Juan and has 100 branches in the United States and 200 in Puerto Rico, admitted that it did not file the "suspicious activity" reports required by federal antilaundering rules, or filed untimely or inaccurate reports, investigators said.

"Banks are our first defense against money launderers, drug dealers and even terrorists who would attempt to abuse our financial institutions," said Michael Chertoff, an assistant attorney general who heads the Justice Department's criminal division. "Today's agreement recognizes that Banco Popular has been forthright in accepting its responsibility."

In a statement, Banco Popular's chief executive, Richard L. Carrion, said, "It is our firm belief that accepting the agreement is the preferred course of action – one that avoids potentially protracted litigation that could have had a negative impact on the bank, our clients, our employees and the communities we serve.

The Justice Department agreed to delay prosecution for a year and eventually to recommend dismissing charges if the bank complies fully with the agreement, which was a result of a four-year investigation.

The bank has branches in 30 states, catering to what Mr. Carrion called – in 2001 testimony before Congress – the "unbanked segment," which includes immigrant laborers who regularly send money home. Mr. Carrion is a former governor of the Federal Reserve Bank of New York.

Investigators with the Internal Revenue Service and the United States Customs Service said that over a three-year period, Roberto Ferrario Pozzi and some of his employees deposited about $20 million in small bills at the bank's Old San Juan branch. The cash, which totaled hundreds of thousands of dollars each day starting in 1997, was in small bills so the tellers spent considerable time counting it by hand. This tied up teller lines and required additional armored car pickups.

Puerto Rico To Investigate Bank

By Iván Román | San Juan Bureau Chief

January 18, 2003
Copyright © 2003. All rights reserved.


    *Parent company: Popular Inc. is the bank holding company for Banco Popular de Puerto Rico, the largest bank on the island.

    *Operations: The bank has about 200 branches in Puerto Rico, as well as about 25 mortgage offices and more than 50 Popular Finance locations that offer small consumer loans.

    *In the U.S.: Banco Popular North America has nearly 100 branches in six states, including Florida.

    *In Central Florida: Banco Popular, which has nine branches in the Orlando area, is the 18th-largest bank in the region by assets.

    SOURCE: Sentinel research

SAN JUAN, Puerto Rico -- Local authorities said Friday they will investigate one of the commonwealth's most powerful businesses, Banco Popular de Puerto Rico, which agreed to pay a record $21.6 million federal fine to avoid criminal prosecution for laundering drug money.

The transactions that led to the massive fine against Banco Popular -- the island's largest financial institution and the nation's largest Hispanic bank -- show just how deep and brazen the island's drug industry has grown.

More than $20 million in drug money -- mostly in small bills, sometimes toted in paper sacks and gym bags -- was deposited at two of the bank's branches in the San Juan metropolitan area from 1995 to 1999, federal authorities said. On one day, operations at the Old San Juan branch nearly came to a halt when tellers were forced to count out about $1 million in small bills.

"We now have to assure ourselves that the bank's systems of internal control are really functioning and that they comply with what has been agreed," said Alfredo Padilla, Puerto Rico's commissioner of financial institutions.

Puerto Rico's Justice Department will wait for a report from Padilla to determine whether other legal action is necessary, department spokeswoman Zulma Raices said.

Bank officials say they intend to fully cooperate.

"It's a situation that we wouldn't have wanted to happen and I think we've taken the right measures to make sure this doesn't happen again," said Brunilda Alvarez, the bank's general counsel.

Government and bank officials in Washington and San Juan signed the agreement Thursday for the bank to pay $21.6 million within a year, most of it a forfeiture of $20 million that two convicted money launderers deposited into three accounts.

In these transactions, bank officials failed to alert federal regulators of suspicious activity as required by law or submitted incomplete reports that threw investigators off track.

It's a hard blow to one of Puerto Rico's premier business institutions, which in its 102-year-old history has developed a trusted brand name that has few equals and through its growth with various companies, holds $33 billion in assets. Banco Popular de Puerto Rico, which has 200 branches on the island, is its largest subsidiary.

Agreement avoids trial

The bank also has 100 branches in six states on the mainland, including nine in Central Florida.

"Banco Popular is an icon in Puerto Rico, but in the manner in which they can communicate that there is a plan to correct this, this negative stain will go away," economist Heidi Calero said. "Images can be smeared, but behind this there is an institution that has a long history of true commitment to this country."

Bank officials signed the agreement to avoid a lengthy and risky trial and, in an unusual move for most institutions fined by federal banking regulators, admitted to the violations of federal anti-money laundering rules.

From 1995 to 1999, Roberto Ferrario Pozzi and Jairo de Jesús Vallejo, who have since been convicted of money laundering, deposited more than $20 million in several accounts, sometimes in large amounts of cash in small bills, other times in transactions of less than $10,000 to avoid detection. Sometimes the deposits were made to the night deposit box.

Federal law requires banks to report transactions of $10,000 or greater.

In the agreement, the bank acknowledges that its employees were late in filing reports on many of these transactions or didn't file reports at all despite the unexplained spike in monthly deposits. Bank employees often walked by Ferrario Pozzi's business, called Gilligan's, just a block away from the Old San Juan branch and commented how the deposits seemed unusual for a shop that seemed to attract so little traffic.

'First line of defense'

Federal officials said the bank failed to do "due diligence" to verify the businesses under which accounts were opened. Ferrario Pozzi claimed to get his money from overseas calls, a gas station and money transfers, which were inconsistent with the large cash transactions in small bills. Extradited last year from Colombia, where he had fled after he was originally indicted in 1998, Ferrario Pozzi was sentenced in December to 10 years in prison.

De Jesús Vallejo, a Colombian national, told the bank his businesses distributed hydraulic equipment and imported and exported beer and leather goods. He kept deposits lower than $10,000 to avoid detection and had the bank do dozens of wire transfers, most to Panama, the Cayman Islands and the Bahamas.

The bank also failed to investigate and allowed transactions to the Dominican Republic to continue after law enforcement authorities put them on notice that certain accounts might have involved criminal activity. The agreement states that the Dominican Republic is known to be a high-risk area for narcotics-related money laundering.

"Banks are our first line of defense against money launderers, drug dealers and even terrorists who would attempt to abuse our financial institutions," said Assistant Attorney General Michael Chertoff, when announcing the agreement. "Banks that disregard their duty to conduct adequate due diligence and report suspicious financial activities allow themselves to be exploited for criminal purposes."

Federal officials told The Associated Press that other drug-money laundering investigations are under way on the island.

Banco Popular's president, Richard Carrion, a former governor of the Federal Reserve Bank of New York, said bank officials cooperated fully with the investigation and noted that no bank employee had been charged with a crime.

"We believe strongly that our acceptance of the agreement is the preferred course of action -- one that avoids potentially protracted litigation that could have a negative impact on the bank, our clients, our employees and the communities we serve," Carrion said in a statement.

Bank is taking action

The Treasury Department's Financial Crimes Enforcement Network, known as FinCen, which will receive $20 million as a civil penalty from the total paid by the bank, said it was one of the largest such penalties it had assessed.

Alvarez said Banco Popular has already begun putting in place several safeguards to comply with federal rules -- installation of new software to detect suspicious transactions, train employees on how to watch for suspicious activity, create "hot lists" of people in the news suspected of criminal wrongdoing to monitor their accounts.

Local economists say that to counter the bad publicity from the agreement and the fine, the bank must be very public and candid about the matter and clearly tell customers what it will do to ensure the bank is not being used by drug traffickers.

"It's going to have an adverse effect on their image," economist Francisco Catalá said. "If that adverse effect will translate into their business, that remains to be seen. I really doubt it."

Wire services contributed to this report..

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