Tree Trimmer UPDATE uncovered by A@P & Pluvia !!!
By John R. Emshwiller
Staff Reporter of The Wall Street Journal
VANCOUVER, British Columbia -- In pursuit of a fugitive tree trimmer accused
of stock fraud, regulators have stumbled across a bank account here that could
open a window into an increasingly worrisome corner of the international
banking world.
The account is at the main Vancouver office of Bank of Montreal, one of North
America's oldest financial institutions, operating since 1817. But this
account, which has been frozen by British Columbia regulators because of its
links to at least three alleged stock frauds, doesn't belong to Bank of
Montreal itself. It belongs to a less-venerable bank: Exchange Bank & Trust.
Exchange Bank, it turns out, is one of a group of entities known as
"brass-plate" banks. These once-obscure banks exist mainly on paper, and use
other, established banks to do their transactions for them. While many
brass-plate banks are legitimate, law-enforcement authorities say such banks
can play a significant role in various financial frauds.
There are hundreds of brass-plate banks around the world, government
officials and others estimate. And the Exchange Bank case provides among the
most extensive public details yet available on these kinds of bank-to-bank
accounts. Incorporated in 1997 on the Pacific island of Nauru, Exchange Bank operates
out of the two-island Caribbean nation of St. Kitts and Nevis. Terry L. Neal,
Exchange Bank's founder, says hundreds of wealthy individuals have used the
bank as part of perfectly legitimate efforts to reduce taxes and protect assets
by moving them offshore.
The bank's clients include businessmen, Hollywood figures, 22 professional
basketball players and a U.S. State Department official, he says. Exchange Bank
officials have declined to give client names to regulators, citing bank-secrecy
laws in Nauru and Nevis. The bank "never had any dealings with anyone who it
thought would be nefarious," Mr. Neal says. Exchange Bank has tried,
unsuccessfully, to get the freeze lifted on the grounds that it is hurting
innocent customers.
But regulators say some individuals have used the bank as they have
manipulated the price of small-company U.S. stocks and then moved some of the
proceeds into the Vancouver bank account. Once money moves into such an account
it becomes "much harder" to track down, says Sasha Angus, enforcement director
for the British Columbia Securities Commission. The BCSC instituted the account
freeze. In a series of orders beginning in April, the BCSC said the freeze was
necessary because of concerns about the account's connection to alleged illegal
stock-trading activities in the U.S. and Canada.
The relationships between brass-plate banks and more-established ones,
sometimes known as "correspondent" accounts, can provide cover for money
laundering and other crimes, say government officials. Once an account is
opened at an established institution, that account can be used by hundreds of
individuals whose identities are known only to the offshore bank's officials.
While the U.S. and other governments are working to improve regulation in
offshore locales, some people argue that major banks also need to toughen their
own account-opening criteria before allowing offshore entities to plug into the
international financial system. An offshore bank "only becomes a vehicle for
criminal activity if you have banks willing to open accounts for it," says Jack
Blum, a Washington, D.C., attorney who specializes in international
financial-crime issues.
A Bank of Montreal spokesman says his institution couldn't comment for this
article because the Exchange Bank matter is part of a continuing investigation.
The U.S. Senate Permanent Subcommittee on Investigations is preparing a
report on abuses in such bank-to-bank relationships and plans to hold hearings
early next year. This type of banking relationship "can be used as a tool for
money laundering. The questions are who is using it, how are they using it, and
what can be done to stop it," says Sen. Carl Levin, a Michigan Democrat who has
been leading the inquiry.
The Vancouver account in the Exchange Bank case was opened in August 1997 but
was only discovered by law-enforcement officials earlier this year. While the
account contained about $14.6 million when it was frozen, "a heck of a lot more
money ran through the account," says the BCSC's Mr. Angus. How much went
through is still part of the continuing investigation, he says.
The Securities and Exchange Commission first came across the account as part
of a lawsuit it filed in a Los Angeles federal court against Stephen Sayre, who
ran a tree-trimming business before becoming an Internet stock picker. The suit
alleged that Mr. Sayre made $1.4 million manipulating the stock of a small
Internet company. Federal criminal charges were later filed against Mr. Sayre,
who left the country. In a recent phone call from an undisclosed location, Mr.
Sayre denied wrongdoing and says he is working to clear up the charges. He said
that he left the U.S. for business reasons to work on a movie project and not
to avoid the federal charges.
While going through Mr. Sayre's U.S. bank records, SEC officials say they
found about $1 million in allegedly illegal profits had been wired to the
Exchange Bank account. With the help of the British Columbia authorities, the
account was frozen.
Regulators then came upon the name of Exchange Bank's Mr. Neal, who had
signatory power on the account. In September 1999, the SEC had sued Mr. Neal in
Portland, Ore., federal court for allegedly reaping more than $6 million from a
"broad-ranging" stock-fraud scheme. Without admitting or denying wrongdoing,
Mr. Neal recently agreed to an injunction and $2.5 million in penalties. In a
phone interview from St. Kitts, Mr. Neal says the settlement precludes him from
discussing the SEC case.
In a Portland federal-court filing supporting the freeze, the SEC said that
it previously wasn't aware of any of Mr. Neal's bank accounts "containing any
appreciable amounts." The filing said some of the millions of dollars in the
account "may ultimately be linked" to Mr. Neal's alleged stock fraud.
Among others with alleged ties to the Exchange Bank account is Edward
Durante. Mr. Durante has twice been convicted of fraud-related felonies,
according to a pending SEC lawsuit in a San Francisco federal court that
accuses him of taking part in an "egregious" stock manipulation. Vancouver
brokerage accounts connected to Mr. Durante traded in the stock that is part of
the SEC case, according to an order related to the freeze from the BCSC. Funds
were moved between those brokerage accounts and the Exchange Bank account, the
order said.
In court filings, Mr. Durante has denied the SEC's charges. He couldn't be
reached for comment.
Curiously, more than $2 million has flowed into the Exchange Bank account
since the freeze. "You'd think they would advise clients that putting money
into the account wasn't the wisest thing to do," says Mr. Angus, the regulator.
Mr. Neal says the flow of funds from some asset-protection plans is automatic
and "we can't stop it." |
