The untold story of Asif Zardari’s Citibank Dollar Accounts: But Benazir still continues to deny everything

How Zardari was made a “Case History” for US

Senate by the Citibank

                                                        

Special SA Tribune Report

 

WASHINGTON: The big question about this story is why it has not been out so far. Despite so many cases tried in Pakistani courts against former prime minister Benazir Bhutto and her jailed husband Asif Ali Zardari, no body knows how much money did the couple make or what was the exact size of the accounts. Government of Pakistan claims they made over one billion dollars, which appears to be an exaggeration.

   Ironically, Citibank, which hosted some of these accounts, officially released detailed information about the amount parked with it, a figure well over $60 million, accumulated between 1995 and 1997, the prime time of Benazir Bhutto’s second tenure as prime minister. Some patchy details of these accounts have emerged in various cases, but nothing credible, coming from neutral third parties had surfaced, until the Citibank revealed it all.

   Benazir Bhutto staunchly defends her husband and denies there existed any Zardari accounts with Citibank. “The (Pakistani) regime has alleged that some companies belong to my husband,” she told the SA Tribune. “There’s a difference between company accounts and Senator Zardari’s accounts. So, I have still to see a statement where it has been said Senator Zardari has 60 million dollars. But, even if Senator Zardari had 60 million dollars, I would put the question, where is the corruption? from where did the proceeds come? But that is a separate issue..”

   The facts which emerge from the Citibank statements to the Senate Sub-Committee, however, establish that Asif Zardari was the beneficial owner of these company accounts, according to Swiss government records. But Benazir says it is all baseless. “Its incorrect, its baseless and its incorrect. I have seen the Citibank and nowhere has it been said. The Pakistani regime has alleged that certain companies belonged to Senator Zardari and in the period that we were…these accounts were started…not when we were there…the period when these accounts were opened were times when laws were different. The beneficial owners were not there. Ok? So, there was an absolute lack of evidence linking Senator Zardari to the disputed accounts. These are disputed accounts, they are disputed properties.”

   She continued: “ I go further and say that even if the regime alleges that Senator Zardari to 60 million dollars, they should be able to come up with a contract from which he took it. After all, it’s a huge amount of money. These are baseless stories, and they have been deliberately spread because I believe that military hardliners saw the Pakistan Peoples Party and myself as a threat to their ambitions, to take on the West, after they took on the Soviet Union and that’s why they destabilized both my governments.” (Listen to BB's response in Real Audio).

   In an interview with the Senate Sub-committee, Citigroup Co-Chair John Reed said he had been advised by Citibank officials in preparation for a trip to Pakistan in February 1994, that there were troubling accusations concerning corruption surrounding Mr. Zardari, that he should stay away from him, and that he was not a man with whom the bank wanted to be associated. Yet one year later, the private bank opened three accounts for Mr. Zardari in Switzerland.

  Mr. Reed told the Sub-committee staff that when he learned of the Zardari accounts he thought the account officer must have been "an idiot."

  Citibank has been unable to confirm that bank employees verified that Mr. Zardari had a level of wealth sufficient to support the size of the accounts that he was opening. In addition, the Swiss private banker took no action to validate the legitimacy of the source of the funds that were deposited into the account. For example, there was no effort made to verify the claims that some of the funds derived from the sale of sugar mills.

    The salient features of this story are:

-         Asif Ali Zardari had at least three company accounts with the Citibank.

-         Citibank was reluctant to open these accounts and interestingly put a cap of $40 million, saying the deposits should not exceed the ceiling. This cap was, however, violated.

-         Requests were made by Zardari’s account handlers to raise that cap to $60 million.

-         Citibank revealed that many more millions went back and forth in these accounts until they were frozen in 1997.

-         The information was given not to any Pakistani accountability court or officials but to the US Senate Permanent Subcommittee on Investigations, supervised by Senator Carl Levin of Michigan, which was probing international money laundering activities. (http://levin.senate.gov/issues/psireport2.htm).

-         Citibank presented four “Case Histories” before the Sub-Committee giving details of money laundering by world “public figures”.  (Full Text of Sub-Committee Report).

-         One of these case histories was of Asif Ali Zardari. (Full text).

-         Chairman of the Citibank gave statements before the Committee.

-         Benazir Bhutto also spoke to the Committee staff, and thus knew well about what they were doing.

-         Pakistan Finance Minister Shaukat Aziz gave written testimony before the Committee staff as he was handing the Citibank private bank shortly before he came to Pakistan as Finance Minister.

-         On February 27, 1995 three company accounts were opened at the Citibank Switzerland private bank. The accounts were opened in the name of M.S. Capricorn Trading, which already had an account at Citibank's Dubai branch, as well as Marvel and Bomer Finance, two other British Virgin Island PICs. Each private bank account listed one, Mr. Schlegelmilch,  as the account contact and signatory.

-         Citibank informed the Sub-committee that the Swiss Form A, a government-required beneficial owner identification form, identified Mr. Zardari as the beneficial owner of each PIC.

-         On December 11, 1997, Citicorp's Chairman John Reed wrote the following to the Board of Directors: "We have another issue with the husband of Ex-Prime Minister Bhutto of Pakistan. I do not yet understand the facts but I am inclined to think that we made a mistake. More reason than ever to rework our Private Bank."

-         When questioned about these accounts and the Citibank testimony before the Sub-Committee, Benazir Bhutto insisted it was all fabricated and incorrect.

 

    By late 1999 the Subcommittee staff had conducted almost 100 interviews and reviewed tens of thousands of pages of documents. The interviews included meetings with almost 50 private bank personnel, including private bankers, their supervisors, compliance personnel, auditors, senior bank management and board members.

The staff had interviewed and obtained information from more than two dozen government agencies and organizations, including the United States Departments of State, Treasury and Justice, the Federal Reserve, Securities and Exchange Commission, International Monetary Fund, World Bank, and law enforcement personnel in Mexico, France and other countries. The Subcommittee staff had also spoken with private bank clients, and with banking and anti-money laundering experts in academic, regulatory and law enforcement circles.

   The documents reviewed by the Subcommittee staff included a wide range of materials, from reports on the private banking industry, to reports on money laundering trends, to SEC filings, legal pleadings, private bank audits, bank examination materials, and numerous documents related to specific private bank accounts and transactions. The Subcommittee had issued subpoenas to over half a dozen financial institutions and entities.

It was part of this probe that Citibank executives were called to testify before the sub-committee. The Citibank’s  case histories illustrated the vulnerability of private banks to money laundering.

   The Sub-committee report said the case histories were drawn from Citibank, the largest bank in the United States with over $700 billion in assets. Citibank operates one of the country's largest private banks. It has over $100 billion in client assets in private bank offices in over 30 countries, which is the largest global presence of any U.S. private bank. It is continuing to expand. Citibank's private bank is also no stranger to controversy.

   “From the Salinas scandal in 1995, to the Zardari scandal in 1997, to the Carlos Gomez fraud in 1998, if any private bank has had reason to review its anti-money laundering controls, Citibank has. Of the 40 private banks reviewed by the Federal Reserve during its industry wide examination of private banking, only one -- Citibank -- was reviewed in detail by Federal Reserve examiners three years in a row. It is a private bank that has struggled with a wide range of anti-money laundering issues.”

   Movement of Zardari Funds. Citibank told the Subcommittee staff that, once opened, only three deposits were made into the M.S. Capricorn Trading account in Dubai. Two deposits, totaling $10 million were made into the account almost immediately after it was opened. Citibank records show that one $5 million deposit was made on October 5,1994, and another was made on October 6, 1994. The source of both deposits was A.R.Y. International Exchange, a company owned by Abdul Razzak Yaqub, a Pakistani gold bullion trader living in Dubai.

   The Sub-Committee report said: “According to the New York Times, in December 1994, the Bhutto government awarded Mr. Razzak an exclusive gold import license. In an interview with the New York Times, Mr. Razzak acknowledged that he had used the exclusive license to import more than $500 million worth of gold into Pakistan. Mr. Razzak denies, however, making any payments to Mr. Zardari. Citibank could not explain the two $5 million payments. Ms. Bhutto told the Subcommittee staff that since A.R.Y. International Exchange is a foreign exchange business, the payments did not necessarily come from Mr. Razzak, but could have come from a third party who was merely making use of A.R.Y.'s exchange services. The staff invited Ms. Bhutto to provide additional information on the M.S. Capricorn Trading accounts, but she has not yet done so.

   “On February 25, 1995, a third deposit of $8 million was made into the Dubai M.S. Capricorn Trading account. Records show that the payment was made through American Express, with the originator of the account listed as "Morgan NYC." Citibank indicated it does not know who Morgan NYC is, nor does it know the source of the $8 million.

   “All of the funds in the Dubai account of M.S. Capricorn Trading were moved to the Swiss accounts in the Spring of 1995. On March 6, 1995, $8.1 million was transferred; and on May 5, 1995, another $10.2 million was transferred. Both transfers involved U.S. dollars and were routed through Citibank's New York offices. Citibank informed the Subcommittee staff that M.S. Capricorn Trading closed its Dubai account shortly after the last transfer was completed.

   “Citibank has indicated that significant amounts of other funds were also deposited into the Swiss accounts. As described below, the $40 million cap was reached, and millions of additional dollars also passed through those accounts. However, Swiss bank secrecy law has prevented the Subcommittee from obtaining the details on the transactions in the Zardari accounts.

   Citibank told the Subcommittee staff that, in 1996, the Swiss office of the private bank conducted a number of reviews of the Zardari Swiss accounts, finally deciding in October to close them.

   The first review was allegedly in early 1996, triggered by increasing publicity about allegations of corruption against Mr. Zardari. Citibank told the Subcommittee staff that Messrs. Holderbeke, Raza, Sharma and Amouzegar participated in the review, and apparently concluded that the allegations were politically motivated and that the accounts should remain open. The Subcommittee staff was told that the review did not include looking at the accounts' transaction activity.

   In March or April, 1996, Mr. Amouzegar asked that the overall limit on the Zardari accounts be increased from $40 million to $60 million, apparently because the accounts had reached the previously imposed limit of $40 million. Citibank told the Subcommittee staff that Mr. Holderbeke considered the request, but declined to increase the $40 million limit.

   In June, press reports in the United Kingdom that Mr. Zardari had purchased real estate in London triggered still another review of the Zardari accounts. Citibank private bank told the Subcommittee staff that its Swiss office internally discussed the source of the funds for the property purchase. Mr. Amouzegar and Mr. Raza then met with Mr. Schlegelmilch, who allegedly informed them that funds had been deposited into the Citibank accounts, transferred to another PIC account outside of Citibank and used to purchase the property. Mr. Schlegelmilch allegedly indicated the funds had come from the sale of some sugar mills and were legitimate. Citibank told the Subcommittee staff it is not sure if anyone at the private bank attempted to validate the information about the sale of the sugar mills. In addition, even though this account activity violated the condition imposed by Citibank that the accounts were not to be used as a pass through for funds, the accounts were kept open.

   In October, Mr. Grant, a new Citibank executive, completed his review of the Zardari accounts and provided a written analysis to Messrs. Holderbeke, Sharma and Raza, according to Citibank. Mr. Grant had found numerous violations of the account restrictions imposed by Citibank, including multiple transactions and funding pass-throughs. Citibank told the Subcommittee staff that the accounts had functioned more as checking accounts than passive investment accounts, directly contrary to the private bank's restrictions. Apparently, well over $40 million had flowed through the accounts, though Subcommittee staff were unable to ascertain the actual amount because Swiss bank secrecy law prohibits Citibank from sharing that information with the Subcommittee. Citibank indicated that Mr. Amouzegar had either ignored or did not pay attention to the account activity. Mr. Grant recommended closing the accounts, and they were closed by January 1997.

 

   Legal Proceedings. On September 8, 1997, the Swiss government issued orders freezing the Zardari and Bhutto accounts at Citibank and three other banks in Switzerland at the request of the Pakistani government. Since Citibank had closed its Zardari accounts in January 1997, it took no action nor did it make any effort to inform U.S. authorities of the accounts until late November 1997. Citibank contacted the Federal Reserve and OCC about the Zardari accounts in late November, in anticipation of a New York Times article that eventually ran in January 1998, alleging that Mr. Zardari had accepted bribes, and that he held Citibank accounts in Dubai and Switzerland. On December 8 and 11, 1997, Citibank briefed the OCC and the Federal Reserve, respectively, about the accounts and the steps it had taken as a result of the Zardari matter. These steps included: closing all of the accounts that had been referred by Mr. Schlegelmilch to the private bank and terminating his referral agreement; reviewing all of the accounts opened in the Dubai office; and tightening up account opening procedures in Dubai, including requiring the Dubai office to identify the beneficial owner of all Dubai accounts. Citibank did not identify any changes made or planned for the Swiss office, even though the majority of the activity with respect to the Zardari accounts had taken place in Switzerland.

    On December 5, 1997, Citibank prepared a Suspicious Activity Report on the Zardari accounts and filed it with the Financial Crimes Enforcement Network at the U.S. Department of Treasury. The filing was made fourteen months after its decision to close the Zardari accounts; thirteen months after Mr. Zardari was arrested a second time for corruption in November 1996; and nearly two months after the Swiss government had ordered four Swiss banks (including Citibank Switzerland) to freeze all Zardari accounts.

    In June 1998, Switzerland indicted Mr. Schlegelmilch and two Swiss businessmen, the former senior executive vice president of SGS and the managing director of Cotecna, for money laundering in connection with kickbacks paid by the Swiss companies for the award of a government contract by Pakistan. In July 1998, Mr. Zardari was indicted for violation of Swiss money laundering law in connection with the same incident. Ms. Bhutto was indicted in Switzerland for the same offense in August 1998. A trial on the charges is expected.

     In October 1998, Pakistan indicted Mr. Zardari and Ms. Bhutto for accepting kickbacks from the two Swiss companies in exchange for the award of a government contract. On April 15, 1999, after an 18-month trial, Pakistan's Lahore High Court convicted Ms. Bhutto and Mr. Zardari of accepting the kickbacks and sentenced them to 5 years in prison, fined them $8.6 million and disqualified them from holding public office. Ms. Bhutto, who now lives in London, denounced the decision. Mr. Zardari remains in jail. Additional criminal charges are pending against both in Pakistani courts.

   Recently a Pakistani court convicted Benazir Bhutto for absenting herself from the trial and awarded her 3 years jail and disqualification from the political process.