PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert Questions to Ms Alexandra Helena Sobisz and Katrin Keikert, former compliance officers at Berenberg Bank 1. Can you please explain the nature of your findings regarding the breach of compliance observed in Berenberg Bank? Before describing the particular findings of our risk report dd. 23rd July 2013 addressed to the managing partners of Berenberg Bank, I want to depict ethics, culture and compliance on the base of some sample cases from my time (from March 2011 until 31st July 2013) at Berenberg’s Compliance office. In my last week at Berenberg in July 2013 (At that time, I had not the faintest idea of those days being my last at Berenberg), I became aware of the following case: Case 1: A married couple, former clients of Berenberg Hamburg, wanted to retransfer their assets and accounts from Berenberg Switzerland back to Berenberg Hamburg. I was kind of surprised. According to the reactivated clients’ files, the couple won a jackpot in the lottery some time ago. But, it was a jackpot from an online lottery. Playing online lottery was prohibited by German law. Hence, the couple was afraid of the money being seized by state authorities and themselves being punished on top. Berenberg found a solution. The couple was advised to open accounts at Berenberg Switzerland. The lottery win was transferred to the couples’ new accounts in Switzerland. In July 2013, when enough time has passed, the money was then going to be retransferred to Berenberg Hamburg. Case 2: Just a few weeks before, my former colleague Ms. Sobisz and I achieved – in the nick of time – the closing of just opened accounts for the sons of one of the (publicly known) most corrupt ministers of Azerbaijan. These highly appreciated Azeri bank clients and their lawyers set up an opaque company structure involving companies and trusts in Guernsey, Jersey and the UK to hide beneficial ownership as well as the money trail and the source of funds. Berenberg London branch was opening the accounts. Later on, so the intention, the set- up of a new Group Holding structure for these Azeri clients should be arranged with support from and accounts at Berenberg Switzerland. There have been other shady money transfers between clients’ accounts at Berenberg Hamburg and their accounts at Berenberg Switzerland. Case 3: So, it happened in the medicines fraud case of the Panamanian company Carnival Enterprises SA, set up by Mossack Fonseca. In Seite 1 von 22 PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert 2012, the German magazine Der Spiegel has first reported about the fraud case. In 2016, the German NDR reported the whole and even more disturbing story in the course of the Panama Papers. According to NDR, a client manager from Berenberg Switzerland was directly involved in the fraud scheme and had personally received some extra “fees”. When my superior (Deputy Group AML Officer) instructed me in 2012 to check the facts regarding the Berenberg client Carnival Enterprises stated in the Spiegel article, I found a note from the client manager with a very detailed payment schedule. Just from reading that, to me the payment schedule was a clear money laundering instruction, involving accounts at Berenberg Hamburg and at Berenberg Switzerland. Reporting that to my superior, she instructed me to trivialize these facts in the unavoidable suspicious activity report. Case 4: Another case from 2012 was a land scam fraud uncovered in the UK. That case is haunting me until today, but illustrates best the close but ill-fated cooperation between Berenberg Hamburg and Berenberg Switzerland. In July 2012, Berenberg Hamburg received letters from fraud victims in the UK who had lost all their savings on a land scam, committed by Berenberg clients. The victims’ statements were proved true by a corresponding asset freeze order of the UK Financial Supervisory Authority. The victims begged Berenberg for help, meaning for refunding the ill-gotten money to the victims, or at least to save it. I found out, that Berenberg has cleared multiple UK cheques over the fraudsters’ accounts in Hamburg and after that, has tolerated that the fraudsters transferred all the money to the fraudsters’ accounts at Berenberg Switzerland (5 million GBP). So, it must have been very obvious to both client managers, the one from Hamburg and the one from Switzerland, that the money from the cheques was never used to buy and to develop land plots in the UK. Again, my superior instructed me to trivialize the facts in the again unavoidable suspicious activity report, especially regarding Berenberg Switzerland, and I did. I had to state that there was not anything suspicious about the cheques clearing or about the money transfers to Berenberg Switzerland. I immediately informed the Compliance Officer of Berenberg Switzerland. Nevertheless, a few days later, Berenberg Switzerland transferred all the money to the fraudsters’ personal (!) accounts in Seite 2 von 22 PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert Latin America. Until today, I am still ashamed because I did not succeed in preventing that final money transfer. Case 5: In in one of our weekly team meetings in spring 2013, our superior requested us to find a solution for a serious problem: Berenberg Switzerland had accounts for an Arabic sheikh who just had been sanctioned by the US authorities; an asset freeze was ordered already. The US sanction had something to do with terrorism. Berenberg Switzerland wanted to give the money back to the sheikh. But, acting that way was certainly a violation of US sanctions. So, now we – from Compliance office in Hamburg – were prompted to find a way to violate the US sanctions but not getting caught. And in the end, it was not very surprisingly us both (me and my former colleague Ms. Sobisz) hitting that money laundering network, which in 2007 has helped to organise the biggest tax fraud in Russian history, in the clients’ files of Berenberg Hamburg. The tax fraud resulted later, in 2012, in the so called “Magnitsky Act”. The criminal network behind was later called “Vanagels connection”, named after Erik Vanagels, an allegedly homeless and boozy Latvian who served as a front man for thousands of offshore companies. The Vanagels connection was involved in major corruption cases, investment fraud schemes, narcotic trafficking and illicit arms deals. One of the criminal cases was the illicit arms trade on board of the MV Faina to terrorists in South Sudan. The vessel Faina belonged to the Ukrainian shipping company Kaalbye. Until March 2009, the case had already been in the media for several months after Somali pirates hijacked the MV Faina in September 2008. Ukrainian Deputy Minister of Transport and Infrastructure Igor Urbansky publicly denied both, Kaalbye being the owner of the MV Faina and himself being one of the owners of Kaalbye. Due to a long lasting business relationship, Berenberg Hamburg knew already better. But, the official owner of the MV Faina was the Panamanian Waterlux AG, which listed two other Panamanian companies as executives. Erik Vanagels served as the companies’ president. On the 19th July 2013, we filed a Suspicious Activity Report towards State Office of Criminal Investigation in terms of the “Vanagels proved” companies and accounts of Kaalbye Group. The triggering transaction was an USD 15.000 payment to an UK company with accounts at a Latvian bank in Riga. The payee was situated at a law firm in 48 Queen Anne Street, London, the law firm and its address publicly known as a notorious money laundering hub, the Vanagels Connection. The payment purpose was stated with “delivery of equipment”. That transaction popped up in the transaction monitoring system because of the PeP flagged accounts of Kaalbye Group, not because of the suspicious transaction Seite 3 von 22 PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert details. Usually, I and my former colleague Ms. Sobisz had nothing to with checking the hits from transaction monitoring. So, I remembered our colleague – who usually checked the hits from transaction monitoring – saying (when leaving to holiday the week before), that he has lately repeatedly found a link to an address of Organized Crime in UK when checking the transactions of Ukrainian Kaalbye Group. Before his holiday absence, he also informed us that he has sent a 4-page list of implausible Kaalbye transactions to the client manager for clarification. Pursuant to German AML Act, those transactions should have already been reported to State Office of Criminal Investigation. When I was preparing the SAR on the 19th July 2013 (Friday), I checked the account opening papers of one of the Kaalbye Group’s offshore companies and found a passport copy of Erik Vanagels. From that time on, it was clear to me that Ukrainian Kaalbye Group is part of that money laundering network if not even one of the initiating parties itself. On the 22nd July 2013, we found out that in April 2009, Berenberg Hamburg wanted to extend the already existing client relationship with Ukrainian Kaalbye Group despite of the MV Faina allegations (illicit arms delivery to terrorists in South-Sudan). According to internal documentation, Berenberg was going to open accounts (usually including several sub-accounts for different currencies) for four companies of Ukrainian Kaalbye Group, i. a. offshore companies, owned by Kaalbye shareholders and/ or by other Kaalbye representatives. Unfortunately for Berenberg, one of the shareholders and beneficial owners has been Igor Urbanskyi who was an Ukrainian PeP. Furthermore, Ukraine was notorious for corruption and kleptocracy, and there was that MV Faina disaster. Hence, there were a lot of red flags in terms of money laundering: o PeP (high corruption risk) o Ukraine (high country risk due to high level of corruption based on empiric data used for AML regulation, confirmed by a high Corruption Perception Index score and due to lacking state of law principles etc.) o Shipping/ Transport sector (high sector risk based on empiric data used for AML regulation, i. e. narcotic trafficking, weapon transport etc.) o Offshore companies (high legal structure risk based on empiric data used for AML regulation, i. e. hiding beneficial ownership and money trail, hotspots for tax evasion and for laundering ill-gotten profits) Notwithstanding that already these red flags should Berenberg have kept away itself from Kaalbye Group and Igor Urbanskyi. But, the definitive strong suspicion of facilitating terrorists must have done so. Seite 4 von 22 PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert Apart from these facts, the banks at that time valid internal AML regulation required in terms of approving a business relationship with a PeP two certain signatures, one from Chief Compliance Officer and the other one from Head of Legal department. In June 2009 – only four months after the end of the MV Faina hijacking disaster – the Chief Compliance Officer of Berenberg – according to documents on the e- drive of Compliance department – personally: o Ignored all available and easily accessible information about the MV Faina vessel case; Just by entering the word “Kaalbye” into Google search, all search results were about the MV Faina case and Kaalbye’s / Urbanskyi’s involvement. o Deleted the word “Kaalbye” as well as all other names of representatives of Kaalbye Group from the first (not approved) draft of the internal PeP assessment memorandum o Labelled the Deputy Minister Igor Urbanskyi (as in the first draft) as a simple member of parliament and referred to soon upcoming elections in Ukraine o Stated that Igor Urbanskyi was just (only, not more than) the beneficial owner of the (offshore) companies which wanted to open new accounts o Stated regarding origin and source of funds that Igor Urbanskyi has started in the 90-ies with a small business and had reinvested his profits o Stated that Berenberg’s risk of being misused for money laundering is very low, because the accounts will only be used for payments o Deleted the text field for the second required signature (of Head of Legal department) and finally authorised that nonsense himself. From my point of view, the Chief Compliance Officer had clearly violated internal AML regulation. Furthermore, he had clearly violated the German Anti Money Laundering Act by: o Not reporting the beneficial owners/ authorised persons of Kaalbye Group/ companies/ accounts/ transactions to State Office of Criminal Investigation. Pursuant to the German AML Act, also suspected terrorism had to be reported. o Not terminating the existing client relationship with Kaalbye Group. On 23rd July 2013, we reported our concerns and findings to the managing partners in a 4-page-risk-report which was basically a brief summary pointing out our most disturbing concerns, mainly based on our observations and our working experience in Compliance department for the past two years. The triggering event of creating Seite 5 von 22 PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert that risk report was the SAR related to Kaalbye Group and the Vanagels Connection. The content of our risk report can be summarised as follows: Risk that Berenberg had been assisting money laundering, organised crime and – because of also not plausible weapon delivery payments from the Russian state owned defence holding over accounts led for the Ukrainian Kaalbye Group – of financing of illicit weapon deliveries to support terrorism after we figured out that a lot of account openings for offshore companies contained directors and secretaries which were according to an official compliance data base (WorldCompliance) involved in money laundering schemes together with Ukrainian officials. Other reliable open sources confirmed that compliance database record and described those money laundering activities as a network, the so called “Vanagels connection”. As causes we stated: (cid:1) Business focus on offshore clients/ transactions with inappropriate data and documentation, evidently with the use of the Vanagels connection o Very few were needed to open accounts for offshore companies: A so called country list, a checklist of almost every offshore destination, defined the required minimum company documents. In the main those were: Memorandum and articles of association, affixed apostille, passport copies of the authorised persons and from the beneficial owners, good standing. (cid:1) Lacking and insufficient fulfilment of so called customer due diligence (KYC) by the client managers o Statements regarding kind and purpose of intended banking relationship were insufficient, if any, “payments” was stated. The clients’ business activities were described with “Shipping”, if any. KYC documentation was barely available, often only after several months when the accounts have been already used for payments. And, quite often, the KYC data was never obtained. In brief, the obligatory KYC forms were in a significant number empty. Hence, transaction monitoring done in Compliance department was ineffective because there were no KYC data to compare with (the payment transactions). (cid:1) Client managers’ lack of awareness for money laundering risks Seite 6 von 22 PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert o As samples we listed reported money laundering cases which were proof enough. (cid:1) Serious shortcomings in so called Internal Control System (ICS) by negligent and systematically turning off the ICS o By control measures which were inadequate related to the risk profile (ineffective transaction monitoring of lacking KYC data to compare with). Apart from that, we seriously doubted the implemented parameters in the transaction monitoring system. For instance, a significant part of payments was carried out within the client group accounts, from one offshore company to the other, allegedly based on group internal loans or on group internal deliveries and service (usually that goes always in the same direction, but not in terms of Berenberg clients). Those circling money transfers are typical for money laundering and hence a money laundering red flag. Since, Berenberg had charged its clients with fees for every payment regardless of deposit or debit, there was never exactly the same amount transferred from one account to the other and the other way around. The transaction monitoring system should filter those payments. A threshold for the charged payment fees should have been defined as criterion in the transaction monitoring system. But Berenberg failed by intention to establish the necessary filtering criteria. We had addressed this deficiency several times to our superior, but without success. o By whitewashing and softening results of internal controls: Ms. Sobisz performed a control – comparable to an audit – which resulted in major findings. For almost 2 years, BaFin regulations related to cooperation partners have been completely ignored and the taken samples showed that client due diligence had severe deficiencies. The Chief Compliance Officer and the head of the audited department compelled her to change it into minor findings although this was by no means justified. o By putting Compliance Officers under massive pressure of Group Compliance / AML Officer and his Deputy Group AML Officer, our superiors: Ms. Sobisz was attacked over a period of several months with general accusations (In the main, to bother client managers and lacking of empathy with the client managers. From my point of view, Ms. Sobisz is the friendliest and most supportive person I ever met.). The Seite 7 von 22 PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert accusations had neither been proved nor reasoned by the superiors. As a punishment, Ms. Sobisz was told that she will not be granted any learning & development measures this year (but regular trainings and seminars were legally obligatory for Compliance employees). Instead, Ms. Sobisz was forced to attend a Psycho-Seminar to reflect herself. The trainer certified her being the most reflected person he ever met. In February 2013 (when bossing increased and Shipping department has started a client acquisition offensive in Cyprus – Berenberg was keen on getting Russian clients with Cyprus offshore companies), I informed Mr. von Berenberg-Consbruch about the risks for Berenberg because of not adequate Compliance measures and about the attacks from our superiors. Due to my first years at Berenberg, I trusted him. Allegedly pursuant to legal contracts with current personal liable shareholders (which were the legal representatives of Berenberg, hence the managing partners), he was not able to get himself involved in current business activities. When being asked to whom of the managing directors we might approach to with our concerns, he recommended better to go to a lawyer because one cannot even trust one of those three guys. Ms. Sobisz approached to working council because of being ongoing threatened / bossed by our superiors. Furthermore, we blamed one of the managing partners and the Deputy AML Officer, our superior, of having suppressed an already decided SAR on 23rd July 2013. That managing partner was personally known to the suspicious client (he initiated the account opening for that client) and became aware of the upcoming SAR by our risk report dd. 23rd July 2013. On the same day, he approached to our battered superior who immediately closed the case by a hidden internal note stating there is no suspicion at all and a foundation in Liechtenstein is per se not a money laundering red flag. She has not performed further checks which may have led to other conclusions. No, she just had a telephone conversation with that particular managing partner. With an additional report dd. 1st August 2013, requested by managing partner Mr. Peters, we also named the Chief Compliance Officers personal violations of internal AML regulations as well as of German AML Act (Kaalbye case). In terms of Kaalbye, we informed the managing partners that client managers from Shipping department have obviously intentionally failed to document in the official visit memorandum that they have met Igor Urbanskyi personally on the previous business trip to Odessa (May 2013) and that they have been at his villa. One of the client managers showed photos to me (saved on his notebook) of Urbanskyi’s villa and him drinking with the client manager(s). A client manager of Berenberg Switzerland also participated in the business trip. Seite 8 von 22 PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert Each of our statements and findings was proved by evidence, i. a. internal documentation, external reliable sources. What was your reaction regarding these findings? During the days after our risk report (from 23rd to 26th July 2013), we tried to figure out the other/ all other clients which used the Vanagels connection. Based on our memories, Erik Vanagels and other notorious names, e. g. Stan Gorin, Petr Zika, Daniel (Danny) Banger, have been stated in lots of account opening documents for offshore companies of Berenberg clients. Another colleague (actually the former head) from account opening department (client administration) confirmed on request of Ms. Sobisz that Erik Vanagels is well known to her from multiple account openings for offshore companies. We had to search manually in the clients’ files because the documents in the CRM (Client Relationship Management) database were not automatically searchable. Apart from that, the documentation in CRM database was incomplete but we had no access to the e-drive from other departments. By the end of 26th July 2013, we had just checked 7 clients but have had already 6 hits. What was Berenberg Bank’s reaction? On that certain day of our risk report, 23rd July 2013, Mr. Peters phoned me several times and seemed to be sort of relieved. He didn’t stop telling me about his worries and concerns, also about other cases (Berenberg Art Advice GmbH fraud disaster, another internal fraud case). Mr. Peters ensured an internal investigation by audit department. The audit started the same day. After a first insight, colleagues from Internal Audit already confirmed some of our findings, esp. related to KYC procedure and to internal controls. Later on in this week, Head of Legal department also confirmed that the as-is-KYC process was rather stupid. He stated that if asking the clients for KYC information only then when the accounts have been opened already one don’t need to be surprised that the requested information will not be granted by the clients. Shipping department was prohibited to open any accounts for offshore companies. Nevertheless, they even tried though. Ms. Sobisz and I were instructed to find the other clients which used the infrastructure of the money laundering network Vanagels connection. A new interim superior was named to us. He backed us with our findings and our research. Seite 9 von 22 PANA committee hearing 9th February 2017. Filled in questionnaire by Ms. Katrin Keikert On 26th July 2013, based on our till then already disturbing findings, Head of Legal department offered us support from other colleagues from next Monday on. But most of all, he prohibited us from filing any further SAR. Compliance has to work and decide independently and has to have a direct reporting line to management board. So, Head of Legal department was basically not in the position to prohibit us from filing other SAR. We had a tough discussion over that issue. On 27th July 2013, we found out that one of the junior client managers in Shipping department was the son of one of the clients whom we had identified two days ago of having used the Vanagels Connection as well as of having hidden his beneficial ownership regarding a number of accounts. The family name of the son was spelled differently and the family relation was hidden within Berenberg by employees from Shipping department. Just the other day after I had reported the client to the Head of shipping department, he sent the son into our office under a pretext. (During our house ban, we found out, that Russian customs agency seized significant amounts of cocaine at the ships of the client. Above that, one of the clients’ shipping owning companies was allegedly involved in the MV Arctic Sea mystery, supposed weapon delivery to Iran.) Alarmed by that action of the Head of Shipping department and because of the in the previous days revealed conflicts of interests, I informed the managing partners Mr. Peters and Mr. Riehmer via e-mail and claimed that someone else who is not conflicted has to do the investigations. I told them that BDO should not review our findings because BDO has done the audits of the financial statements of Berenberg for many years and always certified that everything is fine. So, BDO probably might have a conflict of interest. Apart from that, Ms. Sobisz and I were really afraid of the uncovered Berenberg clients and the tight links to Berenberg employees. So, we refused to enter the banks office until the managing partners will guarantee for our safety. After several phone calls with Mr. Peters over the weekend 27th/ 28th July 2013, he told me that from Monday on (29th July 2013) a forensic team from Deloitte will take over the investigation. He asked me to support Deloitte. I agreed, as well as Ms. Sobisz. On Monday, 29th July 2013, our colleague (the one mentioned related to the Kaalbye Group) returned from holiday leave. We were instructed to fully inform him about the events from last week. He was incredibly relieved and immediately assured to support us. When we informed him about the Head of Legal department prohibiting us from filing SAR, he took a bundle of papers out of his drawer and said: Regarding Head of Legal, I have something else. In this case, the bank made a big mistake. According to him, Berenberg itself had set up trust companies in the name of Berenberg but acted as trustee on behalf of a client, the trustor. That was of course legal. Apart from suspicious transactions carried out via those companies and authorised by the Head of Legal department, Berenberg had not entered the trustee as beneficial owner into CRM database and therefore missed for more than 7 years to disclose the beneficial owner, the trustor, to Seite 10 von 22