A Banking Story


I started today’s posting with a disclaimer. My first real job was in banking although the transactions I dealt with were much more pedestrian and never reached nine figures left of the decimal point. The plot is ripped straight from today’s headlines. My hope is that my financial expertise and education may help many of my readers to understand just how feasible international money laundering transactions are if you have a few unscrupulous characters and banks involved. If everyone involved stays quiet it is difficult to expose unless you have a talented team trying to unravel it. Say a team like Robert Mueller has assembled. Please join me and read on.

Our story starts with a several time bankrupt high end real estate developer in a country like America (say someone like Donald Trump – we’ll call this character Donny) and an autocratic dictator in a country like Russia who needs to move money out of his country (say someone like Vladimir Putin – we’ll call this character Vlad). Donny needs money and his local banks won’t lend him any because he is what we used to call a, “Stiff”. A stiff is someone who had a habit of not repaying the money we lent them. Vlad has access to lots of money – much of which he and his crew basically stole from the citizens of their country – and needs to move a lot of it out of Russia to get it away from any possible overthrowing force. Vlad is cocky but is much smarter than Don and knows all good things come to an end.

After the American banks stopped lending to Donny because he was a stiff, his only “local” resort is a large German bank that is a bit more adventurous in its lending and did international business out of its New York City offices. If I were making a movie I might use Deutche Bank as my model for this role.

Vlad controls all major businesses in Russia including banking. Not a bad industry to control. To paraphrase Willie Sutton, (or at least the legend), that’s were all the money is. If we stay with the Russian setting the perfect bank to cast is VTB which is the international banking arm of the Russian banking system and Vlad appoints its top officers. Interestingly most of them completed their education not at the London School of Economics but at a KGB facility. Did I mention that Vlad was a KGB colonel before he entered politics?

After Donny stiffed Deutche Bank on a loan and then sued them they made a $300 million dollar loan to him. Now during my time in banking my loan authority was significantly lower than $300 million but I would certainly never approve any loan to someone who was delinquent on a loan with my bank and simultaneously suing it. (In reality Deutche Bank did make a $300 million dollar loan to Trump under these circumstances.)

I don’t know what individual officers’ loan authority limits are at Deutche Bank and that is not information that banks make readily publically available. My educated guess is that a loan of that size would need to be approved by a committee comprised of several very senior bank officers. The question remains why they would make that loan. I would be terrified of approving it because how could I explain my decision to an auditor or bank examiner? I would expect that within minutes of that conversation ending I would be cleaning out my desk, then being escorted out of the building by security or in the custody of banking regulators.

Here is where Vlad reenters the picture. Since Vlad controls VTB and it really doesn’t have to make a profit on this loan he can guarantee the $300 million because he can have VTB agree to immediately buy the loan. Your question at this point should be if Deutche immediately sells the loan what’s in it for them. Banks make money on interest. Well, they also make money via fees. It would not be uncommon for Deutche Bank to make say a 1% origination fee on a transaction like this. One per-cent of $300 million is $3 million; not a bad piece of income for almost no risk.

There is a fly in the ointment of my story in that VTB is sanctioned in both the United States and 20 European countries, including Germany, preventing a straight deal between them and Deutche Bank. The VTB sanction is why they couldn’t lend the money directly to Donny in the first place. We need a third bank who can do business with both VTB and Deutche Bank to effectively launder the loan.

It just so happens that an old business partner of Donny’s, Wilbur Ross, is the Vice Chairman of the Bank of Cyprus which has a reputation for helping people move money around the globe and Cyprus is conveniently not one of the 20 European countries that has sanctioned VTB. We can see that operating with a base of $300 million and VTB not caring if it ever gets paid back there is plenty of profit for the Bank of Cyprus if they facilitate this transaction.

While the Bank of Cyprus may not be the middle man in this particular transaction I am certain there is one or more. Part of laundering money is to make the trail complicated.

Another motivation for Vlad to make this deal is that one of the easiest was to launder money internationally is to invest it in high end real estate. Many of his “boys” need to move money out of Russia and “clean” it so that it can be used somewhat openly. Donny can make a lot of money on those deals. Vlad and his crew really aren’t overly concerned about the cost because they stole the money in the first place.

As I said in the disclaimer that commenced this posting it is a work of fiction. Someday we will know the truth. I doubt it will have exactly followed this script outline, but I bet the outline will bear a striking resemblance to reality. Keep digging Mr. Mueller!

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