Make good use of your offshore status

`So much to do, so little time!''George Bernard Shaw is said to have remarked on his death-bed.
While the same degree of pre-destiny might not be as urgent for expatriates leaving postings after
many years overseas as it was for one of history's most famous playwrights, there are still many
things to consider before final departure. How many of us give sufficient time to the financial
areas of our lives that could possibly affect us once we land back on the native soil we left five,
10 or even 20 years ago?

There is much to consider. The fortunate may have access to their companies' lawyers, accountants,
tax specialists and consultants. For the vast majority, there will not be much more than a final
``Bon Voyage'' party, a slap on the back and good luck, before everyone departs early once the free
drinks have run their course.

For the experienced expat who has taken the time to structure his/her financial affairs, the
implications of the journey home are of no concern. For less experienced professionals or those who
haven't considered the consequences of returning to the old tax environment, the potential costs to
them or their loved ones who stand to benefit from their career earnings loom large.

In which case, it's a good idea to examine the potential dangers now, face them and be prepared
rather than find yourself uttering the words ``If only I ...'' once back within the bounds of
home-country revenue legislation. Solutions are available to legally avoid the taxman's grasp, not
evade duty-bound commitments.

The importance of professional independent financial advice: In matters of finance, investments and
taxation, there is no one rule for all; each nationality has a different set of rules.

For example, American expats will need different financial advice than British, Scandinavian or
Dutch nationals. This makes it very difficult for us to generalise and advise across the board. One
thing for sure is that it is important for those returning home to consider flexibility in financial
structures should you change your mind or long-term plans.

Consequently, some of the questions that you may wish to ask your adviser to give you peace of mind
may include:

Do I have any taxation, social security, compensation fund and corporate filing requirements to
complete?

Do I amend, change or cancel any wills or should I consider the benefits of trusts, offshore
companies, etc, to pre-empt any future contestment?

Is it wise to maintain my Thai and offshore bank accounts, minimise balances or close them
altogether?

Do I cancel all offshore investments, pension plans, savings accounts, credit/debit cards, and other
various transactional entities in favour of new domestic liabilities?

Should I consider consolidating all of the assets I have obtained offshore into a streamlined
structure or, if I have not done so, open new offshore accounts and investment options before I or
the family return to native shores ?

What is the reality in tax terms of any bank and investment accounts that I have opened over the
years? Will they remain tax-exempt, how do I stand, how should I declare these assets for taxation
purposes and how will that affect any gains I have made in the past?

The issues, reasons, merits and measures available to strategically mitigate one's position are as
varied as fish in the ocean. Each can be different according to status, nationality, age, and
whether you are prey or still operating in internationally protected waters.

Similarly, then, just as fish differ from ocean to ocean, and climate to climate, so too does the
level of advice you receive. Insist your adviser take a full brief of your exact situation as well
as your your plans moving forward. As mentioned previously, it's always beneficial to build in an
element of flexibility should one change one's mind or become a ``victim of circumstance''.

In reality an attitude of ``Mai pen rai, it can wait until I get back home'', is certainly not to be
recommended.

What are my options? One thing's for sure, expatiates returning home, whether temporarily or more
permanently, must deal with all finance, investment, taxation and inheritance-related issues before
leaving their present tax-sheltered positions. Ignorance of tax laws is no excuse when it involves
the riches that you have toiled for over the years.

And in the words of BBC1's world-renowned wildlife expert David Attenborough: ``That, viewers, is a
different planet, and one that we will explore in more depth in The World About Us next week, and
future episodes to come.''

Questions to the author can be directed to Barclay Carrigan International on 02-653-1971 or by
e-mail to info@barclaycarrigan.com

© Copyright The Post Publishing Public Co., Ltd. 2005
http://www.bangkokpost.com/yourmoney/24oct2005_money42.php

Bahamas Off FATF Monitoring List

Darrin Culmer

The Bahamas must strengthen the regime it has in place for regulation of its vital financial
services sector and not become complacent now that the Financial Action Task Force (FATF) has
discontinued its monitoring of the country, according to Attorney General and Minister of Education
Alfred Sears.

Minister Sears reported Friday that after five years of monitoring this country the FATF announced
at its plenary meeting in Paris, France earlier in the day that it would remove The Bahamas from the
list of countries which it would continue to monitor.

"The Government of The Bahamas will maintain the vigilant position that we have and will not relax
in any respect the pace of regulatory cooperation," Minister Sears assured.

"This will require that we constantly review our process and that we improve and increase our
capacity. It also means that we will have to actively engage the international community:because we
are talking about an evolving standard of international cooperation. This requires that we
participate and through our participation influence these evolving standards so that we have an
ownership of the global norms."

In June of 2000, the FATF listed The Bahamas among 14 other offshore financial centres which it
identified as Non-Cooperative Countries and Territories.

The country subsequently implemented a series of legislative and institutional measures to improve
the regulatory regime and was removed from that list in 2001, however, the FATF continued to monitor
the jurisdiction until this month.

Speaking at a press conference also attended by Financial Services and Investments Minister Allyson
Maynard-Gibson, Minister of Foreign Affairs Fred Mitchell, and representatives from various public
and private sector regulators in the conference room of the Office of the Attorney General, Minister
Sears noted that The Bahamas' removal from the list of countries that will continue to be monitored
is without qualification.

"That means that within the eyes of this body (the FATF) The Bahamas has a satisfactory process for
both judicial and regulatory cooperation," Minister Sears said.

Describing the FATF's decision to discontinue monitoring of The Bahamas as "extremely important",
Minister Maynard-Gibson said the development is expected to produce significant benefits for the
country in general and the financial services sector in particular.

She also expressed approval of the way in which the present administration dealt with the
blacklisting experience.

"The prime minister, while leader of the opposition, and also since as prime minister has been very
resolute in his point of view that the incidents of 2000 and subsequently ought to have been handled
in a different way," Minister Maynard-Gibson said.

"This administration has handled those matters in a different way and today we see the result
thereof and The Bahamas remains a sovereign nation with its dignity intact."

Minister Mitchell, meanwhile, commended the efforts of local authorities and Bahamian diplomats
posted overseas for the work they did in helping to secure The Bahamas' removal from the list of
monitored countries.

He was critical, however, of the process by which The Bahamas initially came to be blacklisted,
stating, "As Foreign Minister I have spoken to the United Nations about three or four times about
these un-elected bodies that have been imposing these un-funded mandates on The Bahamas and I think
it has been most unfair, but that's life."

Echoing Minister Mitchell's sentiments, Minister Sears also supported the call for a more
representative body, which would operate under the auspices of the United Nations to deal with
issues related to money laundering.

He noted that presently the FATF comprises only 33 member states.

Also praising The Bahamas' removal from the list of FATF-monitored countries, Wendy Warren, CEO and
executive director of the Bahamas Financial Services Board, said the development would assist the
country as it continues to promote itself as a jurisdiction known for providing high quality
international financial services.

"Certainly from the private sector's perspective when we look at being a competitive international
financial centre we look at the need to be relevant for clients, but also the need to be integrated
with or connected to the international financial systems and the FATF is a body that oversees and
has an influence on the degree to which The Bahamas can connect or integrate into the global
financial systems," Ms. Warren said.

"We would like to commend the efforts of the government and the regulatory bodies in securing the
recognition of The Bahamas' compliance with international requirements. We would also support all
efforts to ensure that The Bahamas continues to maintain its status as an international financial
centre."

The Bahama Journal - Bahamas News Online Edition
Copyright Jones Communications Ltd. ©2005 - Nassau, Bahamas.
http://www.jonesbahamas.com/

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Bank of NY may pay $14 mln in money-laundering case

NEW YORK, Oct 20 (Reuters) - Bank of New York Co. on Thursday said it set aside $14 million for an
expected settlement of an investigation by federal prosecutors related to a Russian money-laundering
conspiracy.

The long-running probe by the U.S. Attorney for the Southern District of New York concerns accounts
at the bank once controlled by former bank executive Lucy Edwards, her husband Peter Berlin, and
others.

Bank of New York has said the probe concerns fund transfer activities in some accounts at the bank,
mainly involving wire transfers from Russian and other Eastern Europe sources. The bank had in
August said it received a settlement proposal from the U.S. Attorney.

"We are satisfied with the progress we are making" toward a settlement, said Thomas Renyi, the
bank's chief executive, on a conference call discussing quarterly results.

Higher fees helped push the bank's third-quarter net income up 10 percent to $389 million, or 51
cents per share, a penny more than analysts forecast.

Edwards, a former vice president in the bank's Eastern European division, and Berlin pleaded guilty
in February 2000 to charges that they were part of a conspiracy that moved $7 billion through
accounts at the bank.

They also pleaded guilty to helping two Russian banks conduct illegal activities in the United
States in the scheme.

The bank's main unit, Bank of New York, was founded in 1784 by statesman Alexander Hamilton.

© Reuters 2005. All Rights Reserved.
http://today.reuters.com/investing/financearticle.aspx?type=governmentfilingsnews&storyid=uri:urn:newsml:reuters.com:20051020:mtfh67091_2005-10-20_12-40-37_n20620539:1

Central Bank Revokes Leadenhall's Licence

The Central Bank of The Bahamas has revoked the licence of Leadenhall Bank and Trust Company Limited
to protect the interests of depositors of the bank.

"Revocation has been made on the grounds that the company has been placed into liquidation," said
the bank's notice, dated October 20, 2005.

In addition, Craig A. Gomez has been appointed liquidator of the bank and is authorized to assume
control of Leadenhall's affairs in the interest of its creditors and to exercise all the powers of a
receiver under the Companies Act, 1992.

Mr. Gomez has requested creditors having debts or claims against the company to contact him at Gomez
& Partners at 28 Cumberland Hill Street.

The Central Bank did not go into specifics regarding why it took this action.

But Leadenhall in recent years has been plagued with legal troubles, as indicated in an earlier
Bahama Journal report when the suspension was announced.

In 2003, federal authorities in the United States filed petitions in seven federal courts in an
attempt to secure the records from MasterCard accounts at Leadenhall.

The U.S. government has been targeting persons it believes used credit and debit cards issued by
offshore banks to hide income from U.S. tax collectors.

The Internal Revenue Service has already announced that more than 1,200 people have admitted that
they used offshore accounts or credit cards to avoid paying over $100 million in taxes.

U.S. authorities believe these cards allowed tax evaders and fraudsters to access their offshore
funds by using the card in the United States for cash withdrawals and purchases.

In 2004, a New York doctor pleaded guilty to money laundering charges. It is alleged that he ran
more than $200,000 of taxable income through Leadenhall accounts and other accounts.

Earlier that year, Leadenhall had been thrust at the centre of a major fraud case in which a U.S
court appointed receiver had been seeking to recover millions of dollars allegedly owed to creditors
and investors in an elaborate scheme involving the channeling of funds into Bahamas-based accounts.

Leadenhall Bank provided credit card and other financial services to residents in the United States
and provided a broad array of services to and engaged in nefarious activities with an entity in the
Cayman Islands called Morningstar Ltd., a suit had alleged.

The Bahamian bank was also the partner of AXXESS INTERNATIONAL, which provided credit and debit card
services around the world.

Liquidators and receivers had been seeking to hold Leadenhall and AXXESS INTERNATIONAL accountable
for being a part of "a conspiracy to defraud."

It was alleged that the U.S-based operators of a business enterprise called "Cash 4 Titles"
developed a multi tier marketing enterprise, which eventually involved the use of the Cayman
Islands, Bahamas and United States entities and individuals in a joint venture to defraud investors
in the scheme.

It was further alleged that between 1993 and December 1994, the Cash 4 Titles made loans of up to
$1,000 to consumers with poor credit histories, and charged interest rates as high as 25 percent per
month.

Liquidators at the time had insisted that certain clients were being bilked in the process. It was a
claim William Jennings, managing director of Leadenhall, had dismissed as "totally spurious".

The Government of The Bahamas has been fighting to avoid the kind of publicity that has surrounding
certain alleged transactions of Leadenhall, seeking to protect the reputation of The Bahamas as a
well-regulated financial services jurisdiction with a zero tolerance approach to money laundering
and other financial crimes.

It's why the parliament of The Bahamas passed a controversial package of financial bills in 2000
after being blacklisted by the Financial Action Task Force.

The Bahama Journal - Bahamas News Online Edition
Copyright Jones Communications Ltd. ©2005 - Nassau, Bahamas.
http://www.jonesbahamas.com/?c=47&a=5716&sid=df003f41dbd2ba8768abf7ac9d780f4a

Ten more charged in KPMG tax shelter case

Ten more people have been charged with criminal offences in the KPMG tax shelter case, US
prosecutors announced on Monday.

Prosecutors also revealed that the range of alleged offences had been expanded from conspiracy to
defraud the Internal Revenue Service to tax evasion.

KPMG's US business admitted in August that it helped wealthy individuals to evade tax on billions of
dollars of income and capital gains by selling them "fraudulent" tax avoidance schemes between 1996
and 2002.

Seven former KPMG partners, and a former manager at the big accounting firm, were charged in August
with conspiracy to defraud the IRS. A former partner at a law firm that allegedly assisted KPMG with
the tax shelters was also charged.

Prosecutors on Monday released a revised indictment that charged 19 people with offences.

Nine additional former KPMG partners were named in the indictment, together with an executive at a
financial services firm that allegedly assisted with the tax shelters.

Michael Garcia, US attorney for the southern district of New York, whose office has led the
investigation into KPMG's tax shelters, described the case as a "massive fraud".

"This was an orchestrated case of deliberate tax evasion, and not legitimate tax planning," he said.

All 16 former KPMG partners named in the indictment who include Jeffrey Stein, former deputy head of
its US business were charged with conspiracy to defraud the IRS and tax evasion.

Three of the 16 were also charged with obstructing the IRS investigation into the tax shelters.

The additional former KPMG partners in the revised indictment include its former chief financial
officer and former associate general counsel.

KPMG's US business agreed in August to pay $456m in penalties as part of a deferred prosecution
agreement with the Department of Justice.

The agreement should ensure KPMG's survival. So long as its US business does not breach the terms,
KPMG will not be put on trial.

KPMG's US business said on Monday night that the revised indictment did not involve any of its
current personnel, and that it would be inappropriate to comment on individuals under investigation
by the justice department.

"This matter is now behind us," it added, in reference to its settlement with the justice
department. "KPMG is focused on moving forward and providing the highest quality audit, tax and
advisory services to our clients."

Mr Garcia said his office's investigation was "continuing".

A report by the Senate permanent sub-committee on investigations, published in February, alleged
that Deutsche Bank, HVB, and UBS played important roles in KPMG's tax shelters.

Copyright 2005 Financial Times
http://moneycentral.msn.com/inc/news/providerredir.asp?feed=ft&date=20051017&id=5197691


Prosecutors broaden KPMG case
By Jonathan D. Glater The New York Times

TUESDAY, OCTOBER 18, 2005

NEW YORK U.S. prosecutors have significantly widened the criminal case against executives involved
in the sale of questionable tax shelters by the accounting firm KPMG, filing dozens of criminal
charges against a total of 19 defendants.

The new indictment, which was presented in a U.S. District Court in Manhattan on Monday, augments
and replaces an indictment of nine people filed in August.

The revised indictment accuses 17 former KPMG executives, an outside lawyer and an investment
adviser of scheming to defraud the Internal Revenue Service by "devising, marketing, and
implementing" fraudulent tax shelters; by preparing and filing or causing the filing of "false and
fraudulent U.S. individual income tax returns containing the fraudulent tax shelter losses"; and by
fraudulently concealing those shelters from the tax authorities.

Prosecutors described the case as the largest criminal tax case ever filed.

The shelters sold by KPMG have been under investigation for about two years, by the tax authorities,
Congress and prosecutors. Prosecutors charged on Monday that four shelters, known as Blips, Flip,
Opis and SOS, had created $11 billion in phony losses and allowed wealthy individuals to avoid
paying some $2.5 billion in income taxes.

Prosecutors described the superseding indictment as following the same theory as the initial one.

"We're looking at the same case that we were looking at before," Justin Weddle, an assistant U.S.
attorney on the case, told the court. He added that he thought a trial would take about three
months; the judge previously scheduled a trial to begin next May.

But the new indictment adds details on slightly different aspects of the case. For example, some of
the unidentified co-conspirators in the first indictment appear to have been identified and charged
in the new one. The new indictment also names specific cases in which a new defendant made false
statements to the authorities, and it charges that some of the new defendants used the shelters
themselves to claim hundreds of thousands of dollars in tax losses.

Both versions of the indictment contend that several of the defendants prepared opinion letters
advising that the Flip and Opis shelter transactions were "more likely than not" to withstand a
challenge from the tax authorities.

"As they well knew, the tax positions taken were not more likely than not to prevail against an IRS
challenge if the true facts regarding those transactions were known to the IRS, and opinion letters
and other documents used to implement Flip and Opis were false and fraudulent in a number of ways,"
the indictment stated.

http://www.iht.com/bin/print_ipub.php?file=/articles/2005/10/18/business/kpmg.php

Stamp duty action may hit offshore unit trusts

The Times October 17, 2005

Stamp duty action may hit offshore unit trusts
By Jenny Davey

THE Treasury is believed to be poised to clamp down on tax avoidance in offshore unit trusts,
putting at risk the multibillion-pound offshore property unit trust industry.

The Inland Revenue wants to put a squeeze on property dealers who are exploiting a loophole in stamp
duty legislation that allows them to escape the 4 per cent land tax levy by injecting buildings into
new offshore property unit trusts.

When a building is transferred into a new offshore unit trust, the deal is typically free of stamp
duty. Some property dealers have taken advantage of the rule - which is designed to help pension and
life companies to repackage their assets - by transferring individual buildings into a new offshore
trust and then selling on shares in the new vehicle free of stamp tax because the property is held
offshore.

Because the deal is free of stamp duty, a purchaser in this instance may be prepared to pay a higher
price for the property, effectively sharing the 4 per cent stamp tax saving with the seller,
allowing both parties to benefit from the avoidance scheme. Typically, this kind of tax avoidance is
limited to high-value property deals because of the large costs of structuring the transaction and
because of the risks involved. Most of the funds are based in Jersey.

Stamp duty relief on transferring assets into new property unit trusts, known as "seeding relief",
was originally brought in two years ago in order to make it easier for pension and life companies
and investment houses to repackage their assets into different trusts.

At that time, it appeared to be unfair that a company that was legitimately seeking to improve the
efficiency of its operations by setting up new trusts should be hit with a 4 per cent stamp duty
bill on asset transfers.

However, the extent of the abuse means that industry experts fear that the Treasury will move to
halt the tax avoidance and potentially damage the legitimate and successful offshore property unit
trust industry in the process.

William Hill, the head of property for Schroders, said: "The Treasury must not use a sledgehammer to
crack a nut, particularly at a time when it wants to encourage greater innovation and to widen the
ownership of property through the introduction of tax- efficient real estate investment trusts." Mr
Hill said that avoidance was the outcome of a "fundamentally flawed approach" to stamp tax, arguing
that stamp duty is set at too high a rate on large transactions.

"If you have an unfair and silly tax, you can't blame the property industry for trying to avoid it,"
he said.

He called for stamp duty to be charged on a tapered scale according to the value of the property
transaction.

Melville Rodrigues, a member of the British Property Federation stamp duty working party and a
partner in Mayer Brown Rowe & Maw, the law firm, said: "Stamp duty avoidance has become a cat and
mouse game between the Government and the property industry.

"This will continue so long as stamp duty land tax rates are at current levels. Rate reduction would
discourage the avoidance mindset and could well result in a greater tax receipt for the Government."

The British Property Federation and the Association of Property Unit Trusts are putting together a
working party to provide ideas to the Treasury on how to deal with the problem.

A Treasury spokesman would only say: "We keep all taxes under review."

Copyright 2005 Times Newspapers Ltd.
http://business.timesonline.co.uk/article/0,,16849-1828951,00.html

China's Booming Economy Will Never Surpass U.S.: John Berry

John M. Berry is a columnist for Bloomberg News. The opinions expressed are his own.

Dec. 29 (Bloomberg) -- China's economy is growing so fast that estimates of its long-term prowess
are bordering on the absurd.

After Chinese statisticians recently sharply revised up their estimate of economic output in 2004 to
$1.93 trillion, some analysts said that in 35 years it would overtake the U.S. economy.

No way, no how. The U.S. simply has too big a lead, with gross domestic product last year at $11.73
trillion.

Even if China's GDP were to grow indefinitely at 11 percent a year -- 9 percent real growth plus 2
percent inflation -- and the U.S. experienced 5.5 percent growth -- 3.5 percent real and 2 percent
inflation -- it would take the Chinese 40 years to catch up in terms of nominal GDP.

Sustainable nominal GDP growth of 5.5 percent annually is well within the capability of the U.S.
Eleven percent growth, about what Chinese authorities expect in 2006, isn't remotely possible in the
long run.

One reason China's economic growth looks so formidable is the sheer size of its population, just
over 1.3 billion as of the middle of this year, compared with slightly fewer than 300 million in the
U.S., according to the U.S. Census Bureau.

Yet that comparison is misleading in calculating the availability of workers to fuel economic
growth.

Population Growth

Partly as the result of continued immigration, legal and illegal, U.S. population is increasing by
0.92 percent a year, according to census estimates. With no net immigration and with its
government's harsh rule of one child per family, China's population is expanding at a much smaller
0.58 percent rate.

Surprisingly, given the enormous difference in current populations, Census Bureau projections show
that between now and 2050, the U.S. population will rise by 124 million while the Chinese population
will increase slightly less, by only 118 million.

If those projections prove accurate, the Chinese likely would have no great advantage in terms of a
burgeoning labor force as an ingredient for economic growth.

China does have an advantage in the rapid movement of workers from rural agriculture into higher
productivity jobs in industry and services. On the other hand, it is a process that can only occur
once, just as it was largely completed in the U.S. more than half a century ago.

The other principal source of China's economic growth is its extraordinarily high share of GDP going
to investment.

Investment and GDP

``China's investment-to-GDP ratio is still rising -- we estimate it at 47 percent in 2005 -- and
this has resulted in a significant build-up of production capacity in many industries,'' Lehman
Brothers economists told their clients on Dec. 19, just before the GDP revisions were published.

``So far, production has stayed strong, but there are symptoms of oversupply: Profit margins are
being squeezed, and the trade surplus has ballooned, partly because of excess local supply being
exported.

``There is an urgent need to rebalance GDP from investment to consumption, otherwise weaker foreign
demand, or rising protectionism, could slow exports and bring China's oversupply to a head, forcing
a major cutback in production,'' the Lehman economists said.

Some industries, such as steel and cement, are already plagued by overcapacity. And the People's
Bank of China, the country's central bank, expressed concern that investment could rise further in
2006 as local governments push new projects.

Protectionist Measures

The threat of protectionist measures is probably greatest in the U.S., which in the first 10 months
of this year had a $167 billion trade deficit with China, about $36 billion more than in the same
period last year. This country's next largest deficit is $69 billion, with Japan.

The possibility of such protection action -- a 27.5 percent tariff on Chinese goods has been
proposed -- will remain as long as China refuses to let its currency float more freely against the
U.S. dollar.

Meanwhile, as Chinese incomes rise, so will consumption as a share of GDP, with a more or less
corresponding decline in the investment share. Once the Chinese capital stock begins to rise more
slowly, so will GDP.

Aside from these reasons to question the sustainability of continued annual increases of 11 percent
in Chinese nominal GDP, there is the overriding issue of authoritarian rule by the Chinese Communist
Party.

Internal Unrest

China's Public Security Ministry reported there were 74,000 protest incidents involving some 3.76
million people in 2004. Jerome Cohen, an adjunct senior fellow for Asia at the Council on Foreign
Relations, said in a posting on the Council's Web site that the number of protests over such things
as land confiscations, pollution, taxation, corruption and religion probably has doubled this year.

The protests don't immediately threaten Communist Party rule ``because there's no coordination
between them,'' said another Council Asia senior fellow, Adam Segal. On the other hand, the Chinese
government seems unlikely to address the underlying grievances, so the unrest will continue and
grow, the Web site article said.

At some point, the Communist Party may well lose control of the country, and a major disruption of
the economy would be likely if that were to happen.

Prospects for U.S. growth generally look good, even though eventually the country is going to have
to deal with its low savings rate and huge current account deficit.

China will remain a formidable economic competitor. Nevertheless, of necessity its growth will slow
before too many more years pass and the U.S. economy will remain the largest in the world.

To contact the writer of this column:
John M. Berry in Washington at  jberry5@bloomberg.net
Last Updated: December 28, 2005 17:45 EST

©2006 Bloomberg L.P. All rights reserved.

Bank of New York Pays $38 Million for Bank Secrecy Act Violations

By CATHERINE TOMASKO, ESQ., Andrews Publications Staff Writer

The Bank of New York will pay $38 million to avoid prosecution in two federal courts for alleged
violations of the Bank Secrecy Act following investigations into fraud and money laundering by
employees and customers, prosecutors said.

The bank's settlement and non-prosecution agreement arose from parallel criminal investigations by
the U.S. attorneys for the Eastern and Southern Districts of New York.

The investigations concerned money laundering through the unlicensed transmission of billions of
dollars via BNY accounts and a fraudulent escrow account scheme that was not reported to authorities
as suspicious activity, according to a joint Nov. 8 announcement by Roslynn R. Mauskopf, U.S.
attorney for the Eastern District of New York, and Michael J. Garcia, U.S. attorney for the Southern
District of New York.

In connection with the settlement, BNY admitted that it did not have an effective
anti-money-laundering program and failed to report evidence of suspected criminal conduct as
required by the Bank Secrecy Act, Mauskopf and Garcia said.

Under the terms of the agreement, the bank will pay $26 million to the government and $12 million to
victims of the escrow account fraud. The settlement is one of the largest ever paid by a financial
institution in the United States, according to prosecutors.

BNY will also enact internal reforms to ensure compliance with anti-fraud and anti-money-laundering
mandates and will be monitored by an independent examiner. If the bank complies with the terms of
the agreement for three years it will not be prosecuted, Mauskopf and Garcia said.

The settlement arose after investigators from Garcia's office, together with the FBI and Internal
Revenue Service, determined that two accounts at the bank's branch at One Wall Street in Manhattan
were being used to launder funds from Russia.

The accounts, which were held in the names of Benex International Co. and BECS International LLC,
were opened in 1996 by customer Peter Berlin with the assistance of his wife, Lucy Edwards, a BNY
vice president, prosecutors said.

The accounts were used in connection with an illegal money-transferring business run by an unnamed
bank in Moscow and an unnamed company in Queens, N.Y. Prosecutors said employees in Queens, acting
on instructions from Moscow, would make wire transfers of funds each day out of the Benex and BECS
accounts using electronic banking software provided by BNY.

The transfers allowed Russian citizens and businesses to move funds out of Russia without paying
customs duties and taxes to the country's government, prosecutors said. A total of $7 billion passed
through BNY, according to Garcia.

BNY was accused of failing to conduct due diligence on the Benex and BECS accounts. Bank employees
thought the companies were in the import/export business but this belief was never verified, Garcia
said.

In addition, some BNY executives knew that the companies acted as money transmitters but did not
inquire as to whether they held licenses to do so, prosecutors said.

Prosecutors claimed the bank did not adequately monitor activity in the Benex and BECS accounts even
though the accounts produced the highest fees for the Wall Street branch. Investigators learned that
when employees inquired about performing a money-laundering review, they were informed by a manager
that the bank did not have an automated system to review the accounts and a manual review would not
be practical given the volume of activity by the companies.

Following the investigation, in February 2000 BNY signed an agreement with the Federal Reserve and
the New York State Banking Department under which the institution promised to correct deficiencies
in its anti-money-laundering program. The agreement also required BNY to conduct enhanced due
diligence and suspicious-activity reporting.

Prosecutors said that in spite of this agreement, fraudulent activity continued at BNY.

The investigation conducted by Mauskopf's office revealed that between 1991 and 2002, BNY managers
and staff at a branch in Island Park, N.Y., signed fraudulent escrow agreements for RW Professional
Leasing Services Corp., a customer that arranged financing for leases of medical equipment.

Prosecutors alleged that BNY was obligated by the terms of the escrow agreements to set up accounts
and act as an agent for the banks that were financing the leases. However, BNY did not establish the
escrow accounts, according to prosecutors.

The fraudulent escrow account scheme operated for more than 10 years and continued during the time
BNY was obligated by the terms of its February 2000 agreement with regulators to conduct increased
due diligence, prosecutors said.

Executives at the Island Park branch ignored Bank Secrecy Act reporting requirements and did not
file a "suspicious-activity report" about the escrow accounts, Mauskopf said. In addition,
prosecutors said the bank did not file a SAR even though it learned of the escrow scheme and
estimated that its potential liability from the fraud could reach $72 million.

BNY did file a SAR in July 2002 but the document was inaccurate and incomplete, Mauskopf added. The
bank's failure to report the suspicious activity allowed the fraud to continue and allegedly caused
other financial institutions to suffer losses of close to $18 million.

In addition to paying the settlement, BNY will cooperate with ongoing investigations into the
schemes, prosecutors said.

-- Andrews Publications
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