Money laundering is not a victimless crime

Richard Paxton
Feb 11, 2016 · 4 min read

When discussing money laundering, I rarely dig into the details of the victims. Instead, I’ve focused on the actions and possible motives of the criminals, the size of their crimes and the resulting penalties. This may have given the impression that money laundering is a largely victimless crime, but nothing could be further from the truth. Typically, the victims of money laundering are reimbursed for the financial crimes perpetrated against them, but often face little recourse in terms of getting compensated for physical pain and/or mental anguish in civil court — unless that case is focused on some aspect of terrorism.

Americans can legally sue foreign governments and the banks that support them for compensation related to terrorist attacks. By linking money laundering with terrorism, there may be some justice for these victims in the court system. Here are just two instances:

A Father’s Love Uncovers Iranian Mess

In 1995. Stephen Flatow’s 20-year old daughter Alisa was killed in a terrorist attack by a suicide bomber on the Gaza Strip. What followed is simply incredible — the story is a bit like an onion — lots of layers, so bear with me.

Amidst fighting for his daughter’s organs to be donated, testifying for the Anti-Terrorism Act of 1996 and winning a $247 million lawsuit against the Iran government, Flatow uncovered a nonprofit operating as a front for Iran’s state-owned Bank Melli.

Because Iran refused to honor Flatow’s $247 million settlement, he started digging. What he found was stunning, a piece of which was ironically hiding in plain sight. The Piaget Building is just blocks from Rockefeller Center, a skyscraper standing 36 stories high and occupying some of New York City’s most expensive real estate. Flatow discovered it had been built by a nonprofit linked to Shah Mohammad Reza Pahlavi of Iran called the Alavi Foundation, which was a front for Iran’s state-owned Bank Melli. Flatow’s investigations and findings were turned over to the Manhattan District Attorney’s office, which then alerted the US Attorney’s office.

The US Attorney’s resulting investigation revealed that a number of high-level European banks were cashing in on laundering Iran’s illegal transactions, including Credit Suisse, Lloyds, Barclays, ING, Standard Chartered and HSBC. The worst offender of all, ironically, was France’s largest bank, BNP Paribas, which was eventually forced to pay record fine of $8.95 billion in 2014.

In the end, Flatow was rewarded for his efforts with a $24 million settlement (10% of his original award), which was actually paid by the US government. He recently told the New Jersey Herald-Tribune:

“I’ve got this picture of Alisa in my office and she’s got a big smile on her face. When I read the article (about the Paribas settlement) in the (New York) Times, I said, ‘We were right all along, kid. We were right all along.’”

Americans Sue Mexican Cartels as Terrorists

A handful of American citizens are breaking new ground. They are suing HSBC on behalf of family members murdered by Mexican drug cartels, under the pretext of terrorism. The lawsuit, filed in a federal court in Brownsville, Texas, is seeking an undisclosed sum of money for the murders of Arthur and Lesley Redelfs (an employee of the US Consulate in Ciudad Juarez, who was four months pregnant), ICE special agents Jaime Zapata and Victor Avila Jr. (who survived), tourist Rafael Morales Jr., and two of his family members.

According to Richard Elias, the attorney for the victims and their families:

“. . .the Mexican drug cartels are terrorists who routinely commit horrific acts of violence to intimidate, coerce, and control the civilian population and the government. HSBC was complicit in laundering billions of dollars for drug cartels and should be held accountable under the Anti-Terrorism Act for supporting their [the cartel’s] terrorism.”

HSBC issued a statement saying it will fight the claims in the lawsuit. The bank, which in 2012 was forced to pay $1.9 billion to settle an investigation into whether it violated U.S. laws and laundered $881 million on behalf of drug cartels worldwide, might want to reconsider its stance and simply settle with these families. By fighting the lawsuit, it faces further erosion of public confidence by appearing to consistently fail in taking responsibility for its actions with regard to money laundering and terrorism.

This lawsuit could result in HSBC being hit with a larger fine than Paribas, which set the industry precedent in 2014 as a result of the Flatow case. The key in this instance is the fact that the U.S. government does not currently classify the members of Mexican drug cartels as terrorists. This case will be the first to test the legal theory that the Mexican cartels are, in fact, terrorist organizations. Setting that precedent would send HSBC into a tailspin, considering the numerous accusatory connections between the bank and the cartels, and the fact that the bank is already being sued under the 1996 Anti-Terrorism Act by families of American soldiers killed in Iraq.

As illustrated above, money laundering is far from a victimless crime. But now, these victims have potential recourse through the justice system, with compensation coming from any organization, state or country that knowingly or unknowingly assists them.

Richard Paxton

Written by

CEO of the Alacer Group. Sharing the latest news in financial crimes and best practices that enable financial institutions to prevent money laundering.

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