Who Uses the Offshore World? An Investigative Report

[Douglas Caddy]

http://www.icij.org/offshore/who-uses-offshore-world

[Steven Gaal]

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Repost: FTR #531 Interview with Lucy Komisar about Offshore

Posted by FTR ⋅ September 23,

Recorded Octo­ber 30, 2005

REALAUDIO

Fea­tur­ing the bril­liant inves­tiga­tive jour­nal­ist Lucy Komisar, this pro­gram high­lights the use of “Off­shore” enti­ties to evade taxes, max­i­mize cor­po­rate prof­its and finance a vari­ety of crim­i­nal enter­prises. Much of the first side of the pro­gram con­sists of analy­sis and dis­cus­sion of insur­ance giant AIG and its pro­lific use of “off­shore” scams. In addi­tion to pre­sent­ing AIG’s pio­neer­ing devel­op­ment of “cap­tive” rein­sur­ance com­pa­nies to laun­der prof­its and evade taxes, the pro­gram high­lights AIG’s use of Coral Rein­sur­ance for a vari­ety of ille­gal gam­bits. It should be noted that AIG’s ille­gal oper­a­tions have been aided by a num­ber of pow­er­ful and influ­en­tial peo­ple. Much of the sec­ond side of the pro­gram con­sists of review of the piv­otally impor­tant Clearstream net­work, and its use by intel­li­gence agen­cies, cor­po­ra­tions, crim­i­nal syn­di­cates and ter­ror­ist organizations.

Pro­gram High­lights Include: A work­ing def­i­n­i­tion of “Off­shore;” the links of AIG to the intel­li­gence com­mu­nity; assis­tance given to AIG’s scams by lumi­nar­ies such as Henry Kissinger and for­mer Sec­re­tary of the Trea­sury Robert Rubin; Clearstream’s use of unreg­is­tered accounts; the role of the Clearstream net­work in the Banco Ambrosiano, Octo­ber Sur­prise and BCCI scan­dals; the role of the Clearstream net­work in the financ­ing of Al Qaeda and 9/11; the role of the Clearstream net­work in the machi­na­tions of the Russ­ian crim­i­nal net­works of Mikhail Khor­dokovsky; dis­cus­sion of the “Bermuda Inver­sion” gam­bit; dis­cus­sion of “Trans­fer Pric­ing;” dis­cus­sion of an orga­ni­za­tion formed by Lucy Komisar that is work­ing to elim­i­nate cor­po­rate tax eva­sion through the use of “offshore.”

1. In this return appear­ance by the for­mi­da­ble Lucy Komisar, we begin the dis­cus­sion of “Off­shore” with a func­tional def­i­n­i­tion: “DAVE: ‘Define ‘Off­shore’ for us, Lucy.’ LUCY: ‘Off­shore finan­cial cen­ters are, mostly, con­fi­den­tial and par­al­lel finan­cial sys­tems seg­re­gated from the tra­di­tional bank­ing struc­ture of the juris­dic­tion and restricted to non-residents. There are more than 4000 off­shore banks thought to exist in about 70 off­shore juris­dic­tions. They lack the reg­u­la­tion and super­vi­sion of banks found in devel­oped onshore juris­dic­tions. In many OFCs, a bank can be formed, reg­is­tered and its own­er­ship placed in the hands of nom­i­nee direc­tors via the Inter­net. There are few, if any, dis­clo­sure require­ments, bank trans­ac­tions are free of exchange and inter­est rate restric­tions, there are min­i­mal or no cap­i­tal reserve require­ments, and trans­ac­tions are mostly tax-free. Some OFCs per­mit the licens­ing and reg­is­tra­tion of ‘shell banks’ that exist only on paper and do not have a phys­i­cal pres­ence. They gen­er­ally have legal frame­works designed to obscure the iden­tity of the ben­e­fi­cial owner. Some OFCs offer the abil­ity to form and man­age secretly a vari­ety of inter­na­tional busi­ness com­pa­nies (IBCs), trusts, invest­ment funds and insur­ance com­pa­nies, many with nom­i­nee — that is front –direc­tors, nom­i­nee office­hold­ers and nom­i­nee shareholders.’

2. Much of the pro­gram focuses on the scan­dals sur­round­ing the insur­ance giant AIG. We begin with an intro­duc­tory dis­cus­sion of this enor­mous cor­po­ra­tion and its posi­tion in the cor­po­rate land­scape. “DAVE: ‘Now, let’s turn to the sub­ject of insur­ance giant AIG, the focal point of two of your Alter­net arti­cles. Tell us about the company’s size and impor­tance in the indus­try and the cor­po­rate land­scape in gen­eral.’ ‘LUCY: ‘AIG is the world’s sec­ond largest finan­cial con­glom­er­ate and the largest under­writer of com­mer­cial and indus­trial insur­ance. In 2003, AIG reported net income of $10 bil­lion. It has $648 bil­lion in assets, a mar­ket value of $195 bil­lion, $77 bil­lion in sales and $6.5 bil­lion in annual prof­its. It has oper­a­tions in 130 coun­tries and nearly 77,000 employ­ees. It ranks third on Forbes’ list of the world’s biggest com­pa­nies, after Cit­i­group, and Gen­eral Elec­tric.”

(Note that the mate­r­ial on AIG was drawn from Lucy Komsar’s two arti­cles writ­ten for Alter­Net: “The Fall of a Titan” by Lucy Komisar; Alter­Net; 3/17/2005; “Take the Money and Run Off­shore” by Lucy Komisar; Alter­Net.)

3. AIG and its CEO Mau­rice [“Hank”] Green­berg are very closely related with the intel­li­gence com­mu­nity. “DAVE’ ‘Tell us about AIG chief Mau­rice [Hank] Green­berg, and his rela­tion­ship to the intel­li­gence com­mu­nity.’ ‘LUCY: ‘The Amer­i­can Inter­na­tional Group at its ori­gins was linked to the OSS (Office of Strate­gic Ser­vices) the fore­run­ner of the CIA. It grew from the Asia Life/C. V. Starr com­pa­nies founded by Cor­nelius Starr who started his insur­ance empire in Shang­hai in 1919, the first west­erner to mar­ket insur­ance in China. Starr served with the OSS dur­ing World War II, and the Starr Cor­po­ra­tion, located in the same build­ing as the OSS in New York, pro­vided intel­li­gence on ship­ping, man­u­fac­tur­ing and indus­trial bomb­ing tar­gets in Asia and Ger­many. When Casey became CIA direc­tor in the Rea­gan Admin­is­tra­tion, he wanted Green­berg to be his deputy, but Green­berg decided to stay with AIG. After the Ames scan­dal, Sen. Spec­tor floated his name as a replace­ment of Woolsey, but the job went to Tenet.’” (Idem.)

4. AIG fea­tures a num­ber of lumi­nar­ies on its board of direc­tors and inter­na­tional advi­sory boards: “DAVE: ‘Tell us about some of the promi­nent peo­ple on the board of direc­tors and inter­na­tional advi­sory boards of AIG.’ LUCY: ‘Henry Kissinger chairs AIG’s Inter­na­tional Advi­sory Board. Its board of direc­tors includes William S. Cohen, For­mer United States Sec­re­tary of Defense and Sen­a­tor, Caria A. Hills, For­mer United States Trade Rep­re­sen­ta­tive, Richard C. Hol­brooke, For­mer United States Ambas­sador to the United Nations.’’ (Idem.)

5. AIG’s ille­gal and/or uneth­i­cal strat­a­gems fea­ture a pio­neer­ing use of “cap­tives.” “DAVE: ‘Let’s turn to the sub­ject of what AIG does. What are ‘cap­tives’ and how does AIG use them?’ LUCY: ‘A cap­tive is an insur­ance com­pany that is owned by the com­pany it insures — and has that com­pany as its only client. Rein­sur­ance is insur­ance that an insur­ance com­pany buys so that if it has to pay out a claim, it doesn’t take all the risk. I dis­cov­ered and reported on a case where AIG used a rein­sur­ance com­pany secretly owned by its client’s CEO to help him evade taxes, and by the way, to increase AIG prof­its in a way that cheated the client’s stock­hold­ers. I wrote about the case on Alter­net, but it has not been reported in the cor­po­rate press. Vic­tor Pos­ner, who died in 2002, was a crook known as the orig­i­nal ‘cor­po­rate raider,’ famed for engi­neer­ing hos­tile takeovers of com­pa­nies and loot­ing them. He had a his­tory of cor­rupt deal­ings. He owned a Delaware fac­tory called NVF that made Vul­can rub­ber. NVF had a work­ers com­pen­sa­tion pol­icy with an AIG com­pany, which rein­sured it with Chesa­peake, a rein­sur­ance com­pany based in Bermuda, an off­shore cen­ter. It turned out that Chesa­peake was owned by Pos­ner. In the early 90s, a Delaware insur­ance inves­ti­ga­tor dis­cov­ered that NVF was pay­ing twice the mar­ket rate to AIG for the insur­ance. The trans­ac­tion meant all the par­ties came out ahead: AIG would keep a por­tion of the inflated NVF pre­mium before send­ing the rest to Chesa­peake, which meant AIG would have a higher com­mis­sion. Pos­ner would write off the entire amount as a busi­ness expense and enjoy the extra cash in Bermuda, tax free. A for­mer Delaware insur­ance reg­u­la­tor told me, ‘This was not an iso­lated case with Vul­can. AIG did that a lot.’ He said, ‘AIG helped com­pa­nies set up off­shore cap­tive rein­sur­ance com­pa­nies. AIG would then over­charge on insur­ance and pay rein­sur­ance pre­mi­ums to the cap­tives, giv­ing the cap­tive own­ers tax-free off­shore income.’ How­ever, the Delaware Insur­ance Depart­ment took no action against the insurer. When I gave AIG the details of this scam, com­pany spokesman Andrew Sil­ver told me, ‘We don’t have any com­ment on that.’ AIG declares on its web­site that it ‘pio­neered the for­ma­tion of cap­tives almost 60 years ago,’ and it offers man­age­ment facil­i­ties to run the cap­tives in off­shore Bar­ba­dos, Bermuda, Cay­man Islands, Gibral­tar, Guernsey, Isle of Man, and Lux­em­bourg — all places where cor­po­rate and account­ing records are secret and taxes min­i­mal or nonex­is­tent.’’ (Idem.)

6. AIG also used off­shore insur­ance inter­ests to move debt off its books, thereby mak­ing the com­pany appear to be more prof­itable than it actu­ally was. Of course, this did noth­ing to dam­age the price of its stock. “DAVE: ‘What else did [does] AIG engage in that was ille­gal?’ LUCY: ‘In the late 90s, four state insur­ance depart­ments New York, Delaware, Penn­syl­va­nia and Cal­i­for­nia were aware that AIG was mov­ing debt off its books via the use of an off­shore insur­ance com­pany it secretly set up and con­trolled. But despite clear evi­dence of wrong­do­ing, no sanc­tions were ordered. State laws require insur­ance com­pa­nies to keep a cer­tain amount of cap­i­tal avail­able to pay out claims. If they have rein­sur­ance, that amount can drop. The rein­surer, of course, has to be an inde­pen­dent com­pany; the risk isn’t reduced if it’s just moved to another divi­sion of the same com­pany.’” (Idem.)

7. The pro­gram turns to the sub­ject of AIG’s Coral Re gam­bit, and the con­sid­er­able assis­tance pro­vided by invest­ment firm Gold­man Sachs to the fur­ther­ance of this scam: “‘In the mid-80s, two of AIG’s rein­sur­ers failed. AIG now was going to show unac­cept­ably high lev­els of debt on its books from claims it would now have to pay out itself. So Hank Green­berg decided to set up Coral Re, a rein­sur­ance com­pany, to move his bad debts off AIG books. It set up a shell com­pany in Bar­ba­dos, where cap­i­tal require­ments and reg­u­la­tion was min­i­mal com­pared to the U.S., where Amer­i­can reg­u­la­tors couldn’t read­ily dis­cover AIG’s involve­ment and where, as an added incen­tive, it could move money out of reach of U.S. taxes. The scam com­pany was arranged with the help of Gold­man Sachs then headed by Robert Rubin, who would become Pres­i­dent Clinton’s Trea­sury Sec­re­tary and is now chair­man of the exec­u­tive com­mit­tee of Cit­i­group. It got some high-level cor­po­rate exec­u­tives to front for this sup­pos­edly inde­pen­dent com­pany. But I have a con­fi­den­tial mem­o­ran­dum by Gold­man Sachs which told why the com­pany was formed. ‘AIG’s inter­est in cre­at­ing the com­pany is to cre­ate a rein­sur­ance facil­ity which will per­mit its U.S. com­pa­nies to write more U.S. pre­mi­ums. For a U.S.-domiciled com­pany, a high level of sur­plus is required to sup­port insur­ance pre­mi­ums in accor­dance with U.S. statu­tory require­ments. The statu­tory require­ments in Bar­ba­dos are less restric­tive.’ The peo­ple who got this memo were cor­po­rate exec­u­tives who, in exchange for their names, were offered a guar­an­teed return of $25,125 in the first year and $45,225 each sub­se­quent year. They didn’t have to put up any money: they got financ­ing from Sanwa Bank of Chicago secured by the Coral Re shares, a guar­an­tee of enough div­i­dends from Coral Re to cover the inter­est, and agree­ment they could hand off the shares and debt when­ever they chose. Who got this no-lose so-called invest­ment? They included serv­ing or for­mer chair­men of Reynolds Met­als; Kraft; Itel, Men­nen Com­pany; Mor­ton Thiokol. The Arkansas Finance and Devel­op­ment Author­ity, headed by a man who went to work in the Clin­ton White House, became lead investor, although state law banned it from buy­ing stocks. Clin­ton was then gov­er­nor of Arkansas. He would make Rubin his Trea­sury Sec­re­tary. The new com­pany was not a legit­i­mately inde­pen­dent busi­ness. For investors, there was no money at risk; the board of direc­tors never made a deci­sion; and Coral Re had no office of its own but was man­aged by Amer­i­can Inter­na­tional Man­age­ment, a sub­sidiary of none other than AIG. Even­tu­ally, the scheme unrav­eled. In 1992, Delaware exam­in­ers smelled a rat, AIG ini­tially refused to pro­vide Coral Re doc­u­ments to the exam­in­ers, and it took them a cou­ple of years to nail the con­nec­tion. When AIG finally sup­plied Coral Re’s finan­cial papers, the reg­u­la­tor was incred­u­lous. He told me, ‘The books were def­i­nitely cooked.’ But the cow­ardly reg­u­la­tors in Delaware, Penn­syl­va­nia, New York and Cal­i­for­nia, though they agreed in 1996 that AIG owned Coral Re and that there was no trans­fer of risk, did not act to pun­ish AIG, just told it to stop using Coral Re. If Coral Re was an AIG affil­i­ate, it would have to pay taxes on its income. If it was ‘inde­pen­dent,’ that money came tax-free. But the IRS didn’t have the guts to go after them, either. AIG spokesman Andrew Sil­ver sim­ply denied the valid­ity of what all the insur­ance com­mis­sions found. He told me that ‘AIG was not involved in the offer and sale of Coral Re’s shares. That was done by Gold­man Sachs, which approached poten­tial investors with which it had rela­tion­ships. AIG did not con­trol or have an equity inter­est in Coral Re.’ That of course it com­pletely untrue. Gold­man Sachs failed to respond to inquiries about its role in set­ting up Coral Re. In May this year (2005), New York State Attor­ney Gen­eral Eliot Spitzer filed suit against AIG and Green­berg, charg­ing a pat­tern of fraud through the use of ‘sham trans­ac­tions’ that bol­stered the conglomerate’s finan­cial state­ments.” (Idem.)

8. Next, the broad­cast reviews some of the “off­shore” strat­a­gems used by cor­po­ra­tions to inflate prof­its and invade taxes, begin­ning with dis­cus­sion of “the Bermuda Inver­sion.” (For more dis­cus­sion of the Bermuda Inver­sion, see: FTR 458.) “DAVE: ‘Let’s review some of the var­i­ous gam­bits used by cor­po­ra­tions to uti­lize ‘Off­shore’ to their advan­tage, begin­ning with the ‘Bermuda Inver­sion.’ LUCY” ‘In a ‘cor­po­rate inver­sion,’ a U.S. com­pany cre­ates a new par­ent cor­po­ra­tion based in a tax haven like Bermuda. The com­pany and any for­eign sub­sidiaries become sub­sidiaries of the new parent—and the entire cor­po­ra­tion then ben­e­fits from tax report­ing and reg­u­la­tions that are often sig­nif­i­cantly less demand­ing and expen­sive than those in the United States. In the past few years, about two dozen pub­licly traded com­pa­nies have rein­cor­po­rated in Bermuda or announced they would do so. Among them are Tyco Inter­na­tional, McDer­mott Inter­na­tional, Ingersoll-Rand, Nabors Indus­tries, a huge, Houston-based oper­a­tor of oil-drilling rigs. Since they are now for­eign cor­po­ra­tions, they evade bil­lions of dol­lars of US taxes. Share­hold­ers — includ­ing pen­sion funds — lose too. In Bermuda, cor­po­rate laws shift the bal­ance of con­trol from stock­hold­ers to a company’s direc­tors and severely limit investors’ right to sue. There is no treaty with Bermuda guar­an­tee­ing the reci­procity of judgments—meaning stock­hold­ers may have a hard time ensur­ing Amer­i­can court orders are enforced. In addi­tion, stock­hold­ers’ abil­ity to obtain infor­ma­tion about Bermu­dan court deci­sions is lim­ited: the island does not even main­tain an offi­cial court reporter. Leg­is­la­tion to block the tax advan­tages of con­ver­sions was dec­i­mated by the Repub­li­cans, which applied only to future con­ver­sions.”

(For spe­cific doc­u­men­ta­tion, see: FTR 458.)

9. Next, the pro­gram reviews “Trans­fer Pric­ing.” (For more about “Trans­fer Pric­ing”, FTR 458.) “DAVE: ‘How about ‘Trans­fer Pric­ing’? LUCY” ‘Is a way of evad­ing taxes by allo­cat­ing prof­its for tax and other pur­poses among parts of a multi­na­tional cor­po­rate group or to secretly owned com­pa­nies. These front com­pa­nies are always off­shore in tax havens. Off­shore ‘trad­ing’ offices or com­pa­nies han­dle imports and exports, buy­ing a U.S. export from a com­pany at a sharply reduced paper cost and sell­ing it abroad for the real-world mar­ket value, so the export­ing com­pany makes no profit. That stays with the tax haven trad­ing com­pany. In the reverse, a com­pany buys goods at a real price and ‘sells’ to the U.S. firm at a grossly inflated one, so the U.S. firm has a huge cost to deduct when it uses the item in man­u­fac­ture or resells it at a loss. Two US pro­fes­sors used cus­toms data to exam­ine the impact of over-invoiced imports and under-invoiced exports on U.S. fed­eral income tax rev­enues for 2001. The find­ings were stag­ger­ing. Would you buy plas­tic buck­ets from the Czech Repub­lic for $973 each, tis­sues from China at $1,870 a pound, a cot­ton dish­towel from Pak­istan for $154? U.S. com­pa­nies, at least on paper, were get­ting very lit­tle for their exported prod­ucts. If you were in busi­ness, would you sell bus and truck tires to Britain for $11.74 each, color video mon­i­tors to Pak­istan for $21.90, and pre­fab­ri­cated build­ings to Trinidad for $1.20 a unit? After all the deduc­tions, the U.S. com­pany has min­i­mal prof­its. The off­shore cen­ters levy no taxes on ‘prof­its’ claimed there. Com­par­ing all the stated export and import prices to real-world prices, the pro­fes­sors fig­ured the 2001 U.S. tax loss at $53.1 bil­lion.” (Idem.)

10. A bipar­ti­san sen­a­to­r­ial team intro­duced leg­is­la­tion to curb the abil­ity of cor­po­ra­tions to use Off­shore to evade taxes: “DAVE: ‘This past year, there was leg­is­la­tion intro­duced aimed at curb­ing these abuses. Tell us about that.’ LUCY: ‘In July, Repub­li­can Sen­a­tor Cole­man and Demo­c­ra­tic Sen­a­tor Levin intro­duced our ‘Tax Shel­ter and Tax Haven Reform Act of 2005 which would, among other reforms, require eco­nomic sub­stance for trans­ac­tions to be eli­gi­ble for tax ben­e­fits and strengthen the penal­ties for tax trans­ac­tions lack­ing eco­nomic substance.’”

11. Much of the rest of the pro­gram con­sists of review of the use of the Clearstream net­work by cor­po­ra­tions, banks, intel­li­gence ser­vices, crim­i­nal syn­di­cates and ter­ror­ist orga­ni­za­tions, often act­ing in con­junc­tion with one another. Lucy sum­ma­rizes the Clearstream net­work, its func­tions and its history.

“DAVE: ‘Lucy, let’s review the Clearstream net­work and how it was set up. Let’s note in this con­text that ‘Off­shore isn’t sim­ply used by cor­po­ra­tions to amass ille­gal wealth. It’s also used by crim­i­nal orga­ni­za­tions, intel­li­gence ser­vices and ter­ror­ist enti­ties to move finances ille­gally.’ LUCY: ‘Clearstream is a clear­ing­house in Lux­em­bourg called Clearstream, which han­dles bil­lions of dol­lars a year in stock and bond trans­fers for banks, invest­ment com­pa­nies and multi­na­tional cor­po­ra­tions. It oper­ates a secret par­al­lel book­keep­ing sys­tem that allows its clients to hide the money that moves through their accounts. In these days of global mar­kets, indi­vid­u­als and com­pa­nies may be buy­ing stocks, bonds or deriv­a­tives from a seller who is halfway across the world. Clear­ing­houses like Clearstream keep track of the ‘paper­work’ for the trans­ac­tions. Banks with accounts in the clear­ing­house use a debit and credit sys­tem and, at the end of the day, the accounts (minus ‘han­dling fees,’ of course) are totaled up. The clear­ing­house doesn’t actu­ally send money any­where, it just deb­its and cred­its its mem­bers’ accounts. It’s all very effi­cient. But the money involved is mas­sive. Clearstream han­dles more than 80 mil­lion trans­ac­tions a year, and claims to have secu­ri­ties on deposit val­ued at $6.5 tril­lion. It’s also an excel­lent mech­a­nism for laun­der­ing drug money or hid­ing income from the tax col­lec­tor. Banks are sup­posed to be sub­ject to local gov­ern­ment over­sight. But many of Clearstream’s mem­bers have real or ‘vir­tual’ sub­sidiaries in off­shore tax havens, where records are secret and inves­ti­ga­tors can’t trace trans­ac­tions. And Clearstream which keeps the cen­tral records of finan­cial trades, doesn’t get even the cur­sory reg­u­la­tion that applies to off­shore banks. On top of that, it delib­er­ately has put in place a sys­tem to hide many of its clients’ trans­ac­tions from any author­i­ties who might come look­ing. Accord­ing to for­mer insid­ers: Clearstream has a dou­ble sys­tem of account­ing, with secret, non-published accounts that banks and big cor­po­ra­tions use to make trans­fers they don’t want listed on the offi­cial books. Though it is legally lim­ited to deal­ing with finan­cial insti­tu­tions, Clearstream gives secret accounts to multi­na­tional cor­po­ra­tions so they can move stocks and money free from out­side scrutiny.’”

12. Next, the pro­gram reviews how the Clearstream net­work fig­ures in the Banco Ambrosiano scan­dal.

“DAVE: ‘Tell us about the Clearstream net­work and the Banco Ambrosiano scan­dal, cur­rently in the news after the indict­ment of four alleged con­spir­a­tors for the mur­der of its chair­man, for­mer P-2 Lodge mem­ber Roberto Calvi.’ LUCY: ‘By 1980, Ernest Backes had become No. 3 offi­cial of Cedel (the old name for Clearstream), in charge of rela­tions with clients. He was fired in May 1983. He told me the rea­son given for his sack­ing was an argu­ment with an Eng­lish banker, a friend of the CEO. ‘I think I was fired was because I knew too much about the Ambrosiano scan­dal,’ Banco Ambrosiano was once the sec­ond most impor­tant pri­vate bank in Italy, with the Vat­i­can as a prin­ci­pal share­holder and loan recip­i­ent. The bank laun­dered drug-and arms-trafficking money for the Ital­ian and Amer­i­can mafias and, in the ‘80s, chan­neled Vat­i­can money to the Con­tras in Nicaragua and Sol­i­dar­ity in Poland. The cor­rupt man­agers also siphoned off funds via fic­ti­tious banks to per­sonal shell com­pany accounts in Switzer­land, the Bahamas, Panama and other off­shore havens. Banco Ambrosiano col­lapsed in 1982 with a deficit of more than $1 bil­lion. Bank chair­man Roberto Calvi was found hanged under Black­fri­ars Bridge in Lon­don; the death was ruled a sui­cide. Michele Sin­dona, con­victed in 1980 on 65 counts of fraud in the United States, was extra­dited to Italy in 1984 and sen­tenced to life in prison; in 1986, he was found dead in his cell, poi­soned by cyanide-laced cof­fee. (Another sus­pect, Arch­bishop Paul Marcinkus, the head of the Vat­i­can Bank, now lives in Sun City, Ari­zona with a Vat­i­can pass­port; U.S. author­i­ties have ignored a Milan arrest war­rant for him.) Now sev­eral peo­ple are on trial in Italy for Calvi’s mur­der. Backes said that he and a col­league, who was found dead in sus­pi­cious cir­cum­stance, moved all those trans­ac­tions known later in the scan­dal to Lima and other branches. Nobody even knew there was a Banco Ambrosiano branch in Lima and other South Amer­i­can coun­tries.’” (For spe­cific doc­u­men­ta­tion, see: http://www.spitfirelist.com/f458.html.)

13. Much of the wrong­do­ing that sur­rounds Clearstream con­cerns the use of its unpub­lished accounts: “DAVE: ‘Tell us about Clearstream’s unpub­lished accounts, used and abused by major cor­po­ra­tions, as well as crim­i­nal syn­di­cates, ter­ror­ist orga­ni­za­tions and intel­li­gence ser­vices.’ LUCY: ‘Cedel/Clearstream vio­lated its own statutes by set­ting up unpub­lished accounts for indus­trial and com­mer­cial com­pa­nies. With accounts in their own names, com­pa­nies could avoid pass­ing through banks or exchange agents to use the clear­ing­house. They thus skirted man­dated due dili­gence and record-keeping. When Siemens was pro­posed for mem­ber­ship, Backes says, some Cedel employ­ees protested that this vio­lated Lux­em­bourg law. How­ever, man­age­ment told them that Siemens’ admis­sion had been nego­ti­ated at the high­est level. Among the major com­pa­nies with secret accounts, Backes dis­cov­ered the Shell Petro­leum Group and the Dutch agri­cul­tural multi­na­tional Unilever, one of whose accounts was asso­ci­ated with Gold­man Sachs. At the dis­cre­tion of Clearstream, clients can open ‘non-published’ accounts that do not fig­ure in any printed doc­u­ment or record of inter­na­tional finan­cial trans­ac­tions. When law enforcers ask to see records, they don’t exist. Unlike a bank, Clearstream has no effec­tive out­side sur­veil­lance. It is audited by KPMG, one of the ‘big five’ inter­na­tional account­ing firms. KPMG has either been igno­rant of or has over­looked the secret account sys­tem. Major com­pa­nies use the secret accounts. Backes dis­cov­ered non-published accounts of the Dutch agri­cul­tural multi­na­tional Unilever. The Shell petro­leum group had a non-published account in the name Shell Over­seas Trad­ing Ltd. The Ger­man giant Siemens had four non-published accounts. Siemens has just been accused of involve­ment in oil for food kick­backs to Sad­dam Hus­sein. Among the inter­na­tional banks with the most secret accounts are: Citibank (271); Bar­clays (200); Credit Lyon­nais (23); and Japan­ese com­pany Nomura (12).’”

14. Con­tin­u­ing analy­sis of Clearstream’s role in major intel­li­gence scan­dals, the pro­gram reviews the use of the net­work by the con­spir­a­tors in the “Octo­ber Sur­prise.” “DAVE: ‘In addi­tion to the Banco Ambrosiano and Iraq­gate scan­dals, the Clearstream net­work fea­tured in many of the other major intelligence-related scan­dals of the last quar­ter cen­tury or so. Tell us about Clearstream and the ‘Octo­ber Surprise’—the sab­o­tage of the Carter cam­paign by the Reagan/Bush forces’ col­lab­o­ra­tion with the Iran­ian fun­da­men­tal­ist regime.’ LUCY: ‘In Novem­ber 1979, the U.S. Embassy in Iran was seized, and 52 Amer­i­cans were taken hostage. Their cap­ture, and the Carter administration’s fail­ure to win their release, became a major issue in the 1980 pres­i­den­tial cam­paign. Carter had frozen $12 bil­lion in Iran­ian assets in U.S. banks, which was being claimed by Amer­i­can firms and indi­vid­u­als who had lost prop­erty in the Islamic rev­o­lu­tion. Amer­i­can and Iran­ian offi­cials were nego­ti­at­ing the amount of funds to be released in return for free­ing the hostages, and the amount to be kept to set­tle claims. The Ira­ni­ans also wanted Carter to release arms that had been ordered and paid for by the deposed Shah. Accord­ing to numer­ous cred­i­ble reports-many of which first appeared in In These Times-Reagan cam­paign offi­cials allegedly met with Iran­ian rep­re­sen­ta­tives sev­eral times dur­ing the 1980 cam­paign, promis­ing arms and money if Iran delayed release of the hostages until after the Novem­ber elec­tion. This scan­dal would become known as the ‘Octo­ber Sur­prise.’ Rea­gan won the elec­tion, but Carter offi­cials con­tin­ued to nego­ti­ate with the Ira­ni­ans. Finally, around the turn of the year, an accord was reached under which the United States would release $4 bil­lion but no arms. How­ever, the Ira­ni­ans did not release the hostages imme­di­ately. A few days before Reagan’s inau­gu­ra­tion, Ernest Backes recalls, Cedel got an urgent joint instruc­tion from the U.S. Fed­eral Reserve Bank and the Bank of Eng­land to trans­fer $7 mil­lion in bearer bonds-$5 mil­lion from an account of Chase Man­hat­tan Bank and $2 mil­lion from an account of Citibank-both in off­shore secrecy havens. The money was to go to the National Bank of Alge­ria, and from there to an Iran­ian bank in Teheran. Backes was informed that the $7 mil­lion was part of sums being sent from around the world and con­cen­trated in the Alger­ian bank. He was told the trans­fers were linked to the fate of the hostages. The Fed and the Bank of Eng­land were not mem­bers of Cedel, and by its rules had no right to order the trans­fers. Backes’ two supe­ri­ors were absent. He informed the pres­i­dent of the Cedel admin­is­tra­tive coun­cil, Edmond Israel, then acted to exe­cute the order. (Israel, now hon­orary chair­man, did not respond to phone and e-mail mes­sages.) On Jan­u­ary 20, 1981, about 15 min­utes after Rea­gan took the oath of office, the hostages were finally freed. Rea­gan and Vice Pres­i­dent George Bush have always denied the pay­off happened.’”

15. The Clearstream net­work was also uti­lized by the BCCI. Note that the milieu of the BCCI fig­ures promi­nently in the inves­ti­ga­tion of 9/11, and that FBI chief Robert Mueller was in of the badly atten­u­ated “inves­ti­ga­tion” of BCCI by Con­gress. “DAVE: ‘Tell us about Clearstream and BCCI.’ LUCY: ‘When Mayor Giu­liani was assis­tant pros­e­cu­tor in the inves­ti­ga­tion of the Bank of Credit and Com­merce Inter­na­tional (BCCI) in the early 1990’s, he received doc­u­ments from Backes. BCCI was a Pakistani-run bank reg­is­tered via shell com­pa­nies in the Cay­man Islands that used secret accounts to effect an $8 bil­lion global money-laundering fraud. Before it was shut down in 1991, BCCI was used by U.S. and Saudi intel­li­gence to fund the mujahideen, then fight­ing the Soviet-supported gov­ern­ment of Afghanistan.” (See more on BCCI-Clearstream connection.)

16. Clearstream appears to have been involved in the financ­ing of Al Qaeda through the Bank Al Taqwa and SICO.

“DAVE: ‘You’ve also writ­ten about the Clearstream involve­ment with the Bank Al Taqwa, the main finan­cial insti­tu­tion of the Mus­lim Broth­er­hood and a major source of funds for Al Qaeda, accord­ing to many intel­li­gence sources.’ LUCY: ‘Fol­low­ing the Sep­tem­ber 11 attacks on the World Trade Cen­ter and the Pen­ta­gon, the U.S. started focus­ing its inves­ti­ga­tion on the finan­cial trail of Osama bin Laden and the al-Qaeda net­work. Like any other large, global oper­a­tion, inter­na­tional ter­ror­ists need to move large sums of money across bor­ders clan­des­tinely. In Novem­ber, U.S. author­i­ties named some banks that had bin Laden accounts, and it put them on a black­list. One was Al Taqwa-’Fear of God’-registered in the Bahamas with offices in Lugano, Switzer­land. Al Taqwa had access to the Clearstream sys­tem through its cor­re­spon­dent account with the Banca del Got­tardo in Lugano, which has a pub­lished Clearstream account No. 74381. But Bin Laden may have other access to the unpub­lished sys­tem. In what he calls a ‘spec­tac­u­lar dis­cov­ery,’ A series of 16 unpub­lished accounts had been opened under the name of the Saudi Invest­ment Com­pany, or SICO, the Geneva hold­ing com­pany of the bin laden family’s Saudi Bin­laden Group it is run by Bin Laden’s brother, Yeslam Bin­laden. SICO is asso­ci­ated with Dar AI-Maal-AI-lslami (DMI), an Islamic finan­cial insti­tu­tion also based in Geneva and presided over by Saudi Prince Muhammed Al Faisal Al Saoud, and which directs mil­lions a year to fun­da­men­tal­ist move­ments. DMI holds a share of the Al Shamal Islamic Bank of Sudan, which was set up in 1991 and partly financed by $50 mil­lion from Osama bin Laden.” (For more spe­cific doc­u­men­ta­tion, see: http://www.spitfirelist.com/f356.html; http://www.spitfirelist.com/f357.html.)

17. The Clearstream net­work has been uti­lized by the bur­geon­ing Russ­ian orga­nized crime/oligarch net­works. “DAVE: ‘Lucy, you’ve also writ­ten about the use of Clearstream by the inter­ests of crim­i­nal Russ­ian oli­garch Mikhail Khodor­kovsky. This scan­dal has been por­trayed in the media as a rever­sion by Rus­sia to the bad old days of the Soviet Union, with the author­i­tar­ian cen­tral gov­ern­ment repress­ing the bud­ding flower of Russ­ian free enter­prise. In fact, the Khor­dovsky case could be described as a ‘Russ­ian Enron,’ with Amer­i­can investors among the main losers. Enlarge on that, if you would.’ ‘LUCY: ‘The Russ­ian bank Menatep is on the year 2000 list even though it offi­cially failed in 1998. Menatep is impli­cated in a Russ­ian Audit Cham­ber report in the diver­sion of $4.8 mil­lion lent to Rus­sia by the Inter­na­tional Mon­e­tary Fund in 1998. Clearstream’s deal­ings with Russ­ian banks are another area of con­cern. Menatep Bank, which had been bought in a rigged auc­tion of Soviet assets and has been linked to numer­ous inter­na­tional scams, opened its Cedel account (No. 81738) on May 15, 1997, after Lussi vis­ited the bank’s pres­i­dent in Moscow and invited him to use the sys­tem. It was a non-published account that didn’t cor­re­spond to any pub­lished account, a breach of Clearstream’s rules. Menatep fur­ther vio­lated the rules because many trans­fers were of cash, not for set­tle­ment of secu­ri­ties. ‘For the three months in 1997 for which I hold micro­fiches,’ Backes says, ‘only cash trans­fers were chan­neled through the Menatep account.’ ‘There were a lot of trans­fers between Menatep and the Bank of New York,’ Backes adds. Natasha Gurfinkel Kagalovsky, a for­mer Bank of New York offi­cial and the wife of a Menatep vice pres­i­dent, stands accused of help­ing laun­der at least $7 bil­lion from Rus­sia. U.S. inves­ti­ga­tors have attempted to find out if some of the laun­dered money orig­i­nated with Menatep, which they believed had looted Russ­ian assets. (The Jus­tice Depart­ment declined to com­ment on the inves­ti­ga­tion.) Even though Menatep offi­cially failed in 1998, it oddly remained on the non-published list of accounts for 2000. (Clearstream also lists 36 other Russ­ian accounts, more non-published than published.)’”

18. The pro­gram con­cludes with pre­sen­ta­tion of the web­site for an orga­ni­za­tion Lucy has founded (in part­ner­ship with oth­ers) that is work­ing to elim­i­nate the off­shore tax eva­sion by cor­po­ra­tions. “DAVE: ‘We’re almost at the end of the inter­view, Lucy. Many lis­ten­ers will be ask­ing them­selves what can be done about this sit­u­a­tion. You have formed an orga­ni­za­tion to deal with the use of ‘Off­shore’ to evade taxes. Tell us about that group and how peo­ple can find out more about it.’ LUCY: ‘I’ve worked with some asso­ciates to form The Tax Jus­tice Net­work.”