Bank’s Dealings May Have Helped Castro Accounts

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The New York Sun

WASHINGTON – Concern is mounting over improper financial dealings between the world’s largest “wealth management” company, UBS, and Cuba, as American officials probing the transactions said yesterday that $3.9 billion in laundered American currency may have landed in personal accounts controlled by the Cuban dictator, Fidel Castro.


The possibility arises as Congress prepares to investigate whether the Swiss bank, which operates a large financial services business in America, laundered more than $5 billion in American currency for countries against which America maintains sanctions.


The transfers occurred under the Extended Custodial Inventory Program run by the Federal Reserve Bank of New York. The Federal Reserve program, in cooperation with international banks, allowed clients to exchange old banknotes for new ones. One condition of the program was that the international banks were not allowed to accept cash from countries against which America maintains sanctions. They also were not allowed to transfer cash to such countries.


After American troops liberating Iraq in 2003 found $762 million belonging to Saddam Hussein, the cash was traced to UBS and the Federal Reserve program. American investigators subsequently discovered that the firm had conducted transactions with Cuba, Iran, Libya, and Yugoslavia, in violation of the Federal Reserve’s requirements.


Cuba, Iran, and Libya are on the State Department’s official list of state sponsors of terrorism.


According to UBS, employees of the bank had filed false accounting reports with the Federal Reserve to conceal the prohibited transactions. The bank was disciplined by the Swiss Federal Banking Commission and by the Federal Reserve, which imposed a $100 million fine.


Over the weekend, Rep. Ileana Ros-Lehtinen, Republican of Florida, announced that the House International Relations Committee will open inquiries into the UBS transactions, citing UBS’s reluctance to provide details.


One of several lingering questions is who controls the Cuban accounts to which UBS credited $3.9 billion over the course of 1,900 transactions between 1996 and 2003.


According to a scholar of the Cuban economy and a former banker, Maria Werlau, it is “highly unlikely” that the account is operated exclusively by the Cuban National Bank. Based on accounts from former top Cuban government officials who defected from the island, Ms. Werlau said, it was probable that the UBS account is part of the Fidel Castro’s vast network of overseas bank accounts used for his private business interests, a system known as the “Comandante’s reserves.” According to Ms. Werlau, who has been researching Mr. Castro’s personal fortune – estimated by Forbes magazine at around $500 million – the reserves also consist of fleets of automobiles and trucks, stored food, and luxury items.


The Comandante’s reserves, according to Ms. Werlau’s research, are fed by a web of enterprises run by the dictator. They include assigned percentages of revenues from tourism, of remittances sent by Cuban-Americans to their relatives on the island, and from illegal activities such as drug trafficking, money laundering, and terrorism. That cash flow, according to Ms. Werlau, is systematically deposited in bank accounts in Switzerland, Grand Cayman, London, Lichtenstein, and Panama. The accounts are controlled solely by Mr. Castro, and are used to finance a plethora of activities – including Mr. Castro’s propaganda and subversion efforts in other Latin American countries, his financing of international terrorist groups, the provision of bribes to world leaders, and Mr. Castro’s personal real-estate interests, including a castle in Austria.


A spokeswoman for Ms. Ros-Lehti nen said yesterday that the possibility of UBS’s having laundered money from the personal stash of the Cuban dictator was “always” an ongoing line of inquiry, and one of many elements of the investigation that the congresswoman had not received satisfactory answers about from UBS representatives.


When asked whether UBS knew whether the $3.9 billion in American cash was squirreled into an account held by the Cuban National Bank or by Mr. Castro personally, a spokeswoman for the Swiss bank, Christine Walton, said: “In general, we adhere to Swiss and U.S. laws pertaining to knowing who you’re doing business with.” Client confidentiality, however, prohibited comment on whom UBS was doing business with when it allowed a Cuban account holder to deposit $3.9 billion in American cash in a Swiss bank.


According to background materials prepared by Senate staff in advance of a May 2004 hearing into the UBS transactions by the Senate’s Committee on Banking, Housing, and Urban Affairs, the bank’s business with Cuba included more than a simple exchange of old currency for new banknotes.


According to Senate documents, the $3.9 billion in transactions apparently involved a transfer of American cash by Cuban account holders “to UBS in exchange for dollar credits.”


“Whether this practice had a net positive effect on Cuba’s economy,” Senate staff wrote, “or provided it a source of hard currency it otherwise lacked is yet to be determined.” The memo continues: “Provision of $3.9 billion over 7 years would make Cuba the fourth largest recipient of U.S. foreign assistance, but it is not certain whether the currency exchange has had such an effect as a straightforward provision of financial assistance.”


A congressional staffer familiar with the ongoing UBS discussions said the bank had also indicated that, while the Federal Reserve’s ECI program had allowed only for the exchange of old American bank notes, Cuba had also purchased new American currency through UBS. Moreover, the Cuban account holder used some of the $3.9 billion to obtain petroleum, for which UBS issued letters of credit vouching for the Cuban party’s assets, the staffer said.


In addition to the $3.9 billion possibly laundered for Cuba, UBS said during discussions that it had exchanged $1 billion in currency for Iran, the staffer said. When pressed for information as to whether the bank had closed all of the accounts maintained by the Islamic Republic, UBS officials responded by explaining that the process of withdrawing from business dealings with the prohibited countries was “challenging,” citing, for example, significant interest from the European Union in investing in Iran’s energy sector and rival banks’ interest in supporting those transactions with Iran.


Ms. Walton said she was not familiar with the discussions or the transactions, and declined to comment. A spokeswoman for the Federal Reserve Bank of New York, Linda Ricci, also declined to comment yesterday.


The New York Sun

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