Brazil arrests 2 bank employees for AML compliance failures that allowed $249 million to be laundered and says its considering suing the bank for not stopping money laundering

By Christine Duhaime | June 2nd, 2019

Two bank employees arrested over AML failures

Brazil’s chief prosecutor, Eduardo El Hage, who is in charge of Operation Car Wash, obtained an order from Brazil’s federal court for the arrest of two bank employees with Banco Bradesco SA this week, arguing that they were lax on applying anti-money laundering law. Their alleged AML compliance failures, the prosecutor says, contributed to a vast money laundering scheme where proceeds of corruption flowed through the banks and the financial system.

The two employees, Tânia Maria Aragão de Souza Fonseca and Robson Luiz Cunha Silva, are described as co-conspirators who helped former governor of the state of Rio, Sérgio Cabral, launder the proceeds of corruption through that bank. Cabral is serving a jail sentence of 100 years for money laundering and state corruption.

Ex-governor was paid $249 million from infrastructure firms

Ex-governor, Sergio Cabral, serving a 100 year jail sentence for financial crime, on his way to Federal Court in Brazil.

Cabral’s bribes were for large infrastructure projects and were from asset managers and construction companies who paid for infrastructure deals while he was governor. Cabral was a politically exposed person (PEP) at the bank, which meant in additional to all the other AML requirements, he was to be flagged for high risk for money laundering. Cabral fit the typology of many AML red flags – his lifestyle far exceeded his salary – for example, despite earning less than $100,000 per year, he had an 80-foot luxury yacht, six fast luxury cars, six expensive watches from Cartier, Bulgari and Tag Heuer, a beach-front mansion, five upscale apartments and a jet ski.

By turning a blind eye to shell companies and financial crime, the bank employees are alleged to have helped him launder $249 million. One such payment was from a billionaire in Brazil, Eike Batista, also a PEP, who gave Cabral a $16 million bribe. Batista was given a 30 year sentence for bribery.

The prosecutor said: “The evidence doesn’t leave any doubt that financial institutions did not apply compliance standards.”

Brazil may sue bank for society’s losses from AML failures

Earlier in the week, the prosecutor said he was considering launching a separate lawsuit against the bank for damages, over its AML compliance failures generally because it did not prevent money laundering, and he said that he believes that banks should have detected money laundering from the proceeds of corruption in Cabral’s case.

This may be the first case where a bank is sued by a government over AML failures that harmed society. The harm was, inter alia, that the financial system was harmed, Brazil’s reputation was harmed, the public was ripped off due to the additional costs of building Olympic infrastructure in Brazil much of which is now falling apart and the public was also ripped off because state funds went to the governor instead of to the people. Brazil was also harmed by the fact that the costs of lending is higher because of the risks of financial crime. The bank, meanwhile, charged fees for providing services that included, perhaps unbeknownst to it, money laundering services and did not perform its gate-keeping function but it was also harmed with reputational risk damages.

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