Recovering stolen BB reserve money through lawsuits - II

Nironjan Roy concluding his two-part article | Published: April 07, 2016 00:00:00 | Updated: February 01, 2018 00:00:00

The US Patriot Act 2001 and the US Criminal Money Laundering & Civil Forfeiture Act 1986 are the two most powerful legal weapons for fighting money laundering activities and financial crimes in America. In the Bangladesh Bank's reserve hacking incident, these two acts have grossly been violated and therefore, the central bank has the right to get remedy under these laws.
Section 311 of the US Patriot Act clearly states that identity and necessary information must be obtained about the customers whose transaction is routed through a foreign bank's correspondent account. In this particular incident, three banks viz. The Bank of New York, The Citi Bank and the Wells Fargo Bank have failed to comply with this section because they have neither ascertained identity nor obtained information about the customers when these transactions were routed through their respective correspondent accounts. Section 312 of this Act stipulates that the banks must apply their Due Diligence (DD) and Enhanced Due Diligence (EDD) on foreign correspondent banks. As per this section, the banks must apply risk-based procedure and control if money laundering risk is presented by the correspondent account. In this money laundering offence related to the Bangladesh Bank's reserve heist, these three American intermediary banks have failed to comply with this section. Section 319 has given the power to the US authority to seize fund of the same amount from the respective correspondent account. If the case can be substantially established in the US court, the judge, if convinced about the proof, may pass the order for directly debiting the accused bank's correspondent account for the same amount without waiting for return by that bank.
The US Criminal Money Laundering & Civil Forfeiture Act 1986 is another very powerful legal instrument to deal with Specified Unlawful Activity (SUA) which, among others, specifically includes wire fraud. So transaction related to wire transfer fraud can be tried under this law. This law even reaches foreign individual and foreign financial institutions if the financial transactions occur in whole or in part in the US or if the foreign financial institution maintains bank account with US financial institutions. So it is evident that the Bangladesh Bank's reserve hacking has clearly violated this law. First, this is wire transfer-related fraud; secondly, wire transfer has taken place in the US territory and thirdly, the Regal Commercial Banking Corporation of the Philippines maintains account with these US banks where transactions have taken place. So this money laundering case can easily be tried in the US court where there is US banks' involvement and their violation of the US Patriot Act 2001 and the US Criminal Money Laundering & Civil Forfeiture Act 1986 under which the Bangladesh Bank may get remedy.       
PLACE OF LAWSUIT: For proceeding with legal action, the jurisdiction of filing lawsuit is very crucial. Where the case will be filed is very important because nature of judgement and degree of remedy vary from jurisdiction to jurisdiction. At the same time, lawsuit cannot be filed in the court of plaintiff's preferential jurisdiction because the place of occurrence determines the jurisdiction where the related lawsuit is filed. In this particular case, cross-country involvement is evident and therefore, where the case will be filed is a very complicated legal question. Fraudulent wire transfer message has originated from the Bangladesh Bank, so Bangladesh is considered as the place of occurrence. At the same time, wire transfer messages have been executed in the Federal Reserve Bank of New York and the other three intermediary US banks. Even the transferred amount has not been moved from the US, rather remained in the correspondent bank's Nostro account in the US banks as the fund has been transferred from one account to another and only equivalent amount of local currency has been transacted in the Philippines. So, the US is evidently the place of occurrence. Similarly, final transaction has taken place in the bank account of the RCBC in the Philippines. Even physical payment has been made to the accused frauds in the Philippines, so this is definitely a place of occurrence too. It is also learnt that some amount of stolen money has already been moved to casinos in Hong Kong and if so, Hong Kong would be considered as a place of occurrence.
Now, the question arises whether lawsuit will be filed in the US court or court in the Philippines or court in Bangladesh. Or, lawsuit involving all other parties and countries will be filed in the US court. This is really a very vital and complicated legal issue which can only be determined with expert advice from renowned lawyers who have wide experience in handling cross-country money laundering and financial crimes.
THE EXAMPLE OF LIBOR RATE MANIPULATION CASE: The Libor rate manipulation case may be a relevant reference. The Libor rate is determined by the BBA (British Bankers Association) in London but is used all over the world where loan pricing is linked with Libor rate. Libor rate affects all parties who charge interest using it. When Libor rate manipulation was first unearthed in 2015, the regulators and the BBA in London tried to avoid the issue. They did not even show any interest in investigating this alleged financial offence. Even the BBA had moved quickly to suppress talk of rate manipulation. The UK regulators showed no interest in bearing this truth.
However, Vince McGonagle, then Head of Compliance of the CFTC (Commodity Futures Trading Commission) of the USA took this matter very seriously and directly talked with his counterpart in the UK but did not get any fruitful result. Undeterred, he strongly pursued this case of Libor rate manipulation. Although under the CFTC mandate he did not have the authority to approach any bank to provide documents, yet he directly wrote to six large banks involved in Libor rate manipulation; no one, except Barclays, turned around. Since Barclays' response was clear evidence of Libor rate manipulation, he then directly involved the Federal Reserve to collect all necessary documents and conduct enquiry with which legal proceedings for trying Libor rate manipulation started. Then the question of jurisdiction for filing lawsuit arose and Vince McGonagle tried hard to try this case in a US court but could not make it as a London court issued directive of trying this case because Libor rate manipulation had taken place in the British capital.
However, if money laundering and financial crime related to the Bangladesh Bank's reserve hacking can be tried in a US court, a very strong judgement with better financial remedy or compensation may be derived because the US law in this regard is very stringent and if the case can be substantially established, the US judge may issue the verdict of any degree. Many large European and American banks were compelled to pay fine of billion of dollars because of judgement from the US court.    
RETAINING LAWYER: A lawyer is very important for filing any lawsuit and obtaining fair judgement. When complicated cross-country financial crime occurs, expert lawyer's role is paramount in deriving favourable judgement. Deploying a renowned commercial lawyer, who has extensive experience of prosecuting complicated financial crimes, especially in North American courts, will be required by the Bangladesh Bank. However, lawyers can be deployed in two specific ways in North American practice, particularly where financial remedy is desired. A lawyer can be retained or contractual agreement can be reached with him or her. The legal fee is exorbitantly high in America. If a lawyer is retained, s/he will move the case as per professional responsibility and fees will be charged as per the standard rate or agreed rate which will be paid by the plaintiff regardless of the result of the case. Disadvantage of retaining a lawyer is that the Bangladesh Bank will have to bear legal fees of million dollars even if it loses in the case. Alternatively, an agreement may be reached with the lawyer for fighting the case in the court and under this arrangement, the plaintiff is not required to pay to the lawyer while the legal proceedings continue and until the final verdict is delivered. However, there remains a condition in the agreement that when money is recovered, certain amount at an agreed percentage will be retained by that lawyer as his/her remuneration. This is a very popular practice in North America for fighting legal battle to recover lost money or realise pecuniary compensation because the plaintiff does not have to bear any financial expense if the case is lost.
However, for the Bangladesh Bank's reserve hacking, national consensus is required for engaging a lawyer under contractual arrangement because if the central bank wins and the money is recovered, certain amount will be retained by the lawyer which may create a ground for political propaganda against the government or the Bangladesh Bank that it has eaten up this amount of government exchequer.
In order to appoint a lawyer and professionally coordinate him/her, legal expertise from our country is also required. In our country, there are many renowned commercial lawyers who have a wide range of experience in dealing with many delicate commercial cases. So, a panel of lawyers may be appointed with an exclusive responsibility of dealing with their counterpart to be appointed for fighting this case in the US court or somewhere else. One or two bankers who have practical experience in the compliance department of a North American bank may be included in this panel because they will be able to assist in relation with the bank's compliance standard, KYC, KYCC, DD, EDD, etc.     
In the world, there are many precedents of recovering money of illegal transaction. In the present situation, money has not been physically taken out; instead wire transfer has been effected through various banking channels. The banks which have been involved in processing these fraudulent wire transfer payment and those which have made eventual payment can in no way avoid the responsibility of paying the bank. Moreover, persons and banks in the Philippines have openly confessed their involvement and some of them have returned a part of money stolen. The RCBC has admitted their officers' involvement which is the bank's failure to prevent money laundering and even it has taken some punitive action. There is a clear violation of the US Patriot Act and the US Criminal Money Laundering and Civil Forfeiture Act by three intermediary American banks. All of these circumstances and documents provide valid ground and substantial prima facie evidence for proceeding with legal action. Even in spite of having the BB officers' involvement, the Bangladesh Bank has the legitimate right to recover this stolen money because this will not immunise others' crime.
If the stolen money is not fully recovered through mutual arrangement, the Bangladesh Bank will be able not only to recover its entire stolen amount but also to realise its losses incurred from its legal cost and reputational damage through the legal process.
The writer is a banker based in Toronto, Canada.
nironjankumar_roy@yahoo.com