NEW YORK – A former employee of one of the world’s largest international banks who has provided WND with more than 1,000 pages of evidence alleges the Internet giant PayPal and American Express are implicated in an international money-laundering scheme involving hundreds of billions of dollars.
The whistleblower, John Cruz, was a relationship manager in the southern New York region for the London-based global bank HSBC.
“I found many accounts where PayPal and American Express were used as conduits through which hundreds of thousands of dollars were deposited or withdrawn from HSBC customer accounts in a pattern of suspicious transactions that should have been reported to legal authorities under various banking statutes, including the Patriot Act,” Cruz told WND.
Neither PayPal nor American Express responded to WND email and telephone requests for comment.
As WND reported, Cruz has a raft of customer account records he claims are evidence of an international money-laundering scheme by HSBC, which reportedly is under investigation by a U.S. Senate committee.
To illustrate his point, WND and Cruz selected the bank checking account for a particular HSBC commercial account, called “Company XYZ” for the sake of this article, for the time period July 21 through Aug. 20, 2009.
In the exhibits below, WND has redacted all information that might be used to identify the account holder, including removing the account number from the bank statements.
Company XYZ was identified in HSBC records with the following information:
- It operated out of a private residence in West Hempstead, New York.
- The account owner was identified as being 100 percent owned by a person from Malaysia who had non-resident status in the United States and a permanent address in Malaysia.
- The president of the company was identified being a U.S. citizen, born in Malaysian.
- The account registration was deficient in any meaningful “Know Your Customer” information except to list for the president of the company the numbers of his national identity card, his New York drivers’ license and his U.S. Passport.
- The file described the business as: “WELL KEPT HOME OFFICE, COMPUTER, PHONES, FAX, FILES.”
- The file noted that the business was last paid a site visit on 12/17/2008 by the HSBC branch manager in E. Northport, Long Island.
- The file listed the annual revenue of the company as $1 million.
“When I went to see this business, the address was a two-story house in Wwst Hempstead,” Cruz said. “I knocked on the door, and an Asian gentleman answered the door. In the house there was a wood coffee table in the living room, a red couch and a metal folding chair – nothing else. In the dining room there was a desk, a chair and a phone.”
Cruz said it was difficult to learn anything about the business, because the Asian gentleman did not speak much English.
“My immediate impression was that this was a fake business,” he said.
“I thought there was something really wrong here. For the amount of transactions I saw going through the account, there no evidence of any business taking place here – no packages, no envelopes, no files, no nothing – just an empty desk with nothing on it. There should have been something going on, and all I found was an Asian gentleman who didn’t speak English.”
As seen in Exhibit 1, for the month from July 21 through Aug. 20, 2009, Company XYZ’s revenue was $1,338,151.21, with withdrawals totaling $1,244,632.35, and an ending balance of $261,170.63.
“These figures made no sense to me,” Cruz said, “unless Company XYZ was a shell company set up fraudulently with the only goal of passing money through the account, with the money received from unspecified sources and dispersed from the account to unspecified sources.”
Exhibit 2 details Company XYZ’s account activity for the month in question.
In the period July 22 through Aug. 3, 2009, seven different deposits were received from PayPal – all in even amounts, all in multiples of ten thousand dollars.
The account also lists three deposits from “41 BOOK CREDIT” – a line item Cruz said he believes was related to proceeds being deposited into the account from a loan Company XYZ had with HSBC, even though he was never able to confirm the exact nature of the line item.
“The pattern with this account suggest to me that HSBC made a loan to Company XYZ that was deposited into the account, without any indication any of the loan was ever repaid,” Cruz pointed out.
“In other words, the loan functioned basically as a way for criminals within the bank to syphon off bank income to a fradulent company like this, with the intent to let the loan default. The loss on the defaulted loan would then be written off by the bank, despite the adverse impact the fraudulent loan would have on bank earnings and on the bank’s capital ratios.”
In this period only one transaction involved a debit on the account – an online transfer out of the account of $100,000 on July 22, 2009.
“This pattern of deposits from PayPal looks suspiciously like structured transctions, broken up into several different deposits of almost equal amounts, rather than one or two large deposits that might have drawn more bank regulatory attention,” he noted.
Exhibit 3 shows that the pattern of transfers into the account from PayPal continued in the period Aug. 3-10, 2009.
On Aug. 5, 2009, the account shows $428,000 was paid out of the account to American Express and that on Aug. 7, 2009, American Express was paid another $76,623.35.
Note also that on Aug. 4, 2009, a credit of $427,000 was deposited into the account by an online transfer, the day before the payment on Aug. 5, 2009, was made to American Express in an almost identical amount, $428,000.
Exhibit 4 shows an opening balance on Aug. 10, 2009, of $266,215.63.
On the same day, Aug. 10, 2009, $300,000 was transferred out of the account, reducing the balance in the account to $66,215.63.
In the remaining nine days ending on Aug. 19, 2009, a series of four deposits from PayPal – again, each in even multiples of $10,000 – rebuilt cash in the account, topped off by two additional credits into the account from “41BOOK CREDIT.”
As a result, Company XYZ ended the statement period on Aug. 19, 2009 with a balance of more than a quarter million dollars – $261,170.63.
Cruz reported the account to senior bank security to no avail.
“The operations manager in East Northfork, New York, told me this account was to stay open per ‘the instructions of senior management,’ and that I should stop worrying about this account because I had nothing to do with it.”
After this, Cruz was blocked from accessing the HSBC bank computer system to view Company XYZ’s account.
“Unfortunately at HSBC, I saw more fraudulent accounts like Company XYZ than I saw real accounts with legitimate companies transacting actual business,” he said.
“In all the months I examined Company XYZ’s account, I never saw a single business check go through the account that I can remember. All I saw was wire transfers comining in from PayPal and a bank source that looked like a loan, and wire transfers going out, with six-figure payments to American Express.”
Cruz stressed that the account statements of Company XYZ had the profile of a money-laundering conduit, not a legitimate company doing actual business.
“This is the kind of account that should have been reported to the legal authorities, with suspicious transaction reports filed on every transaction,” he said. “But, instead, HSBC did nothing but block me from reporting what I suspected was illegal activity.”