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Saturday, 10 February 2018

Rabobank now understands once more that “playing international bank successfully” is not without risks. Pt II, the judge strikes back!


Almost one year ago, I wrote an article upon Rabobank RNA, the Californian branche of the Dutch cooperative bank Rabobank and the fact that it had been involved in a criminal investigation for acts perpetrated via its branches in Calexico and Tecate. Rabobank, a globally operating bank, is the second biggest bank in The Netherlands based upon the size of its balance sheet.

Rabobank RNA was investigated by the Californian OCC (i.e. Department of the Treasury’s Office of the Comptroller of the Currency) on the allegation of being heavily involved in money laundering via its branches in Calexico and Tecate. 

These branches – both very close to the Mexican border – were receiving so much cash money out of Mexico that they were forced to bring in several money trucks per week to ship this stockpile off. This money was probably coming from drugs trafficking and felonious money laundering, perpretrated by the drugs gangs over the Mexican border.

In that article I suspected that this Californian case would just be as harmful – or even more – as the earlier Libor fraud, for which Rabobank was found guilty earlier:

When these allegations are true, this is a serious situation for this Dutch bank that traditionally prides itself in doing business cleanly, transparently and responsibly. And it seems that the allegations came with a stockpile of circumstantial evidence, as it isn’t normal that a normal bank in the agricultural industry has to deal with (litterally) truckloads of cash money from suspicious sources coming in every week. On top of that the executives are seemingly hampering the investigation into the origin of this money.

As far as I know, the investigation did not lead to a court case yet. This makes sense, as such financial/administrative probes are always notoriously time consuming in the preparation phase, before they can even come to trial. And the more evidence is lying around to be collected and investigated, the more time it takes to inventorise it. This does not mean, however, that it will never come to a trial or a verdict in this case. Especially not as the American financial authorities are always extremely vigilant against foreign bank organizations.

I was right about this trial.

Last week the Dutch bank pleaded guilty to a felony conspiracy charge and was convicted to payment of a penalty to the tune of $368 million.

And even though the penalty itself for this Californian conspiracy was not as high as the huge €774 million penalty for “Liborgate”, it was especially the text of the Californian court’s press release that is so devastating for the cooperative bank for farmers and agricultural companies “that wants to grow a better world together”, according to its boasting adverts and commercials.

Here are the pertinent snippets of this press release:

Rabobank National Association (Rabobank), a Roseville, California subsidiary of the Netherlands-based Coöperatieve Rabobank U.A., appeared today before U.S. Magistrate Judge Jill L. Burkhardt and pleaded guilty to a felony conspiracy charge for impairing, impeding and obstructing its primary regulator, the Department of the Treasury’s Office of the Comptroller of the Currency (the OCC) by concealing deficiencies in its anti-money laundering (AML) program and for obstructing the OCC’s examination of Rabobank.  Rabobank will forfeit $368,701,259 as a result of allowing illicit funds to be processed through the bank without adequate Bank Secrecy Act (BSA) or AML review.

At today’s hearing, Rabobank pleaded guilty to conspiracy to defraud the United States and to corruptly obstruct an examination of a financial institution. In pleading guilty, Rabobank admitted to conspiring with several former executives to defraud the United States by unlawfully impeding the OCC’s ability to regulate the bank, and to obstruct an examination by the OCC of its operations throughout California, including its Calexico and Tecate bank branches.

“When Rabobank learned that substantial numbers of its customers’ transactions were indicative of international narcotics trafficking, organized crime, and money laundering activities, it chose to look the other way and to cover up deficiencies in its anti-money laundering program,” said Acting Assistant Attorney General Cronan. “Worse still, Rabobank took steps to obstruct an examination by its regulator into those same deficiencies.  

“Rabobank had an obligation to shine light on suspected drug traffickers, money launderers and organized crime,” said U.S. Attorney Braverman. “Instead, this bank deliberately allowed hundreds of millions of dollars of suspicious cash transactions and wire transfers to flow through its branches and took measures to hide this activity from regulators.

According to court documents, Rabobank also created and implemented policies and procedures to prevent adequate investigations into these suspicious transactions, customers, and accounts.  Among those policies and procedures was Rabobank’s “Verified List” – a policy that effectively resulted in Rabobank executing an end-run the BSA/AML and SAR requirements.  In particular, Rabobank instructed its employees that if a customer was on the “Verified List,” no further review of that customer’s transactions was necessary -- even if the transactions generated an internal alert, or the customer’s activity had changed dramatically from when it was “verified.”  

Rabobank knew that millions of dollars in cash deposits at these branches were likely tied to illicit conduct.  In particular, the Calexico branch, located about two blocks from the U.S.-Mexico border, was the “highest performing” branch in the Imperial Valley region due to the cash deposits from Mexico.  Throughout

When the OCC began conducting its periodic examination of Rabobank in 2012, Rabobank, acting through three of its executives, agreed to, among other things, knowingly obstruct the OCC’s examination.  Rabobank responded to the OCC’s February 2013 initial report of examination with false and misleading information about the state of Rabobank’s BSA/AML program.  Rabobank also made false and misleading statements to the OCC regarding the existence of reports developed by a third-party consultant, which detailed the deficiencies and resulting ineffectiveness of Rabobank’s BSA/AML program.

To further conceal the inadequate nature of its BSA/AML program and to avoid “others contradicting our findings” and statements to the OCC, Rabobank demoted or terminated two RNA employees who were raising questions about the adequacy of Rabobank’s BSA/AML program.

This Californian press release leaves little to be desired, when it comes to exposing the erratic and condemnable behaviour of the Rabobank in this matter. Especially when you let the red and bold texts sink in, you understand how outrageous the facts were that played in California and how conspicuously the Rabobank RNA acted to hide these facts from the American authorities. Especially the fact that Rabobank RNA fired two employees, who thought to do the right thing, sheds a very unfavourable light on the bank; not only on the Californian Rabobank RNA, but on the Rabobank Group as a whole.

Rabobank RNA, as a full subsidiary of Utrecht, The Netherlands-based Rabobank International (in those days), was not operating in a vacuum in California. Either it was or it should have been under close scrutiny of both Rabobank and Rabobank International, the two headoffices of the global Rabobank organization in Utrecht, The Netherlands.   

This means that both the head offices either have been or should have been aware that those branches in Calexico and Tecate created traffic jams of their own with money trucks, filled to the brim with Mexican drugs cash. 

Personally, I would be very surprised when the Dutch offices would NOT have been aware of these events. Even if the Dutch accountants and controllers just would “go through the motions” in their continuous assessments of the Californian bank data, some events must have been too conspicuous! And I am very sure that these accountants and controllers did not just go through the motions!

There would have been simply too many cash transactions around the thresholds for money-laundering reporting and too many truckloads of cash on behalf of those two Californian branches close to Mexico to NOT be conspicuous for those accountants.

This trial and especially the judge’s brutal verdict is something that Rabobank should take into consideration very much. Otherwise the bank could become an organization of ill-repute, with a sanctimonious charisma coming from their bragging commercials and their carefully preserved cooperative farming image, but with actual conduct that is well below par. 

Perhaps, Liborgate was just an unfortunate, albeit very expensive incident. And also Calexico might be nothing more than a local fraud and deception case of the Californian branch alone. But in this case it will definitely be “three strikes, your out”. One more incident and the reputation of the Rabobank is gone for a long, long time. Look for instance at Deutsche Bank and its enduring battle against its own ill reputation nowadays.    

And even though the American criminal case against Rabobank is now history with this verdict, the whole impact of these events is far from over yet. A Dutch sollicitor, Göran Sluiter, is planning to start a private court case against Rabobank in The Netherlands, on behalf of Mexican victims of the ruthless drugs mafia at the Mexican-American border.

On top of that, I have personal contact with an American customer of Rabobank, who wants to start a legal battle against the bank, based upon the fact that Rabobank hid their “criminal behaviour” from their American customers, thus making a better than deserved impression on their investors and private and corporate lenders. Probably this customer is not the only one, who wants to start a court case against the bank.

As far as I’m concerned, there is only one thing that the Rabobank could and should do. Not continuing with their boasting commercials and their ‘holier than thou’ charisma, without admitting to the general public how terribly wrong they have been a few years ago.

No, they have to sincerely apologize for these reprehensible events and prove that they are worthy of the confidence of their millions of customers in The Netherlands and far, far outside. This confidence won’t come for free and once lost, it will be gone for a long time.

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