As reported in The Miami Herald – Front Page:
BY MICHAEL SALLAH AND ROB BARRY
When Florida regulator Keith Jasper arrived at the opulent Miami trust offices of billionaire banker Allen Stanford in 2001, he expected to see records showing that money turned over to the company was safely invested.
But when the veteran bank examiner asked for the reports, he was told there were none.
In fact, records of the millions of dollars that flowed through the office had been shredded.
State regulators could have demanded the documents, or even taken steps to shut down the office to protect investors.
None of that happened.
Over the next eight years, Stanford’s offices were allowed to continue selling investments, destroying records and sending money overseas on private jets in what prosecutors are now calling an enormous Ponzi scheme.
Twice, Florida regulators visited the office after it opened in 1998, but state supervisors never acted on the troubling findings, records show.
“I tried to write it plain enough so they could see what was going on,” said Jasper, 65, now retired from the state Department of Banking and Finance. “More should have been done.”
The destruction of records — and the state’s failure to stop it — created crucial gaps that allowed the Miami office to sell millions in controversial securities without regulators questioning where the money was invested, The Miami Herald found.
Prosecutors say the investments — certificates of deposit — were supposed to go to Stanford’s Antiguan bank to generate hefty profits for customers.
But once in the bank, the money was secretly diverted to pay for Stanford’s personal expenses, including sports sponsorships, private mansions and a fleet of private jets.
Stanford and his lieutenants kept the scheme going for years by paying off earlier investors with the money coming from new ones, prosecutors say.
Now indicted on federal fraud charges, Stanford and his assistants are accused of siphoning $7 billion over the past decade.
MONEY EXCHANGES
During the years he ran Stanford Financial Group, the Miami office overlooking Biscayne Bay was among the most productive in his banking empire.
Created as a foreign trust company — the only one of its kind in Florida — the office operated under a unique agreement with the state.
From the moment Jasper arrived, he said he found employees funneling hundreds of thousands of dollars to Stanford’s bank in Antigua.
They weren’t wiring the money — like most financial institutions — but stuffing checks in bags to send overseas.
“They had these pouches that were going back and forth by courier in airplanes, and we had no access to them,” he said. “I had never seen anything like it.”
He reported his findings to supervisors, but they never responded. “It was there for them to read,” Jasper said.
In the ensuing years, the office went on to sell hundreds of millions in CDs — following the same routine — with the state never questioning the money’s source or destination.
Money-laundering experts question Florida’s decision a decage ago to permit a Caribbean bank to have such freedoms on U.S. soil.
“It’s absolutely insane,” said Bill Branscum, a former U.S. Treasury agent. “That money could have been coming from anyone and going to anyone — like narco-traffickers or terrorists — and you never would have known.”
Florida bank regulators said agents didn’t find enough evidence to initiate an investigation or try to close the office.
“We didn’t find red flags,” said Linda Charity, a director of the same agency where Jasper worked.
But the shredding of records alone was enough for the state to launch an investigation into the Miami operation.
Under the state’s agreement, state agents had the right to ask for all records of money transfers. If they had, state agents could have discovered that customers were buying CDs from office employees — in violation of the agreement. In addition, state agents could have found employees were giving financial advice — another violation.
“All they had to do was ask for the documents,” said Mark Tepper, a former prosecutor for the New York attorney general’s office. “That’s the one thing they had the power to do.”
Because the state let Stanford open a foreign trust office — an entity created only to promote services — employees were not bound by federal currency laws.
But when the state allowed the transfer of money — an unprecedented freedom — it created a completely new enterprise, say experts.
To this day, Florida regulators claim they don’t know why Stanford — aided by powerful Miami law firm Greenberg Traurig — was given the right to move money.
Art Simon, the state banking director who approved the 1998 deal over objection of his own counsel, said he didn’t recall his agency granting that power.
“I would have to go back to the attorneys because this was prepared by the attorneys,” said Simon, a former state representative and now a UM political science professor.
But Simon, who is an attorney, signed the seven-page agreement.
In an interview with The Miami Herald, Simon defended his actions, saying he made sure the state could visit the office to enforce the deal — including the ban on securities sales.
But records show that inspectors went to the office only three times in 10 years — and never filed enforcement actions.
FRUITLESS INSPECTIONS
When Jasper showed up at the office in 2001, he said he was unclear over what to inspect.
Though he had been examining banks and trust offices since 1969, the Stanford office was like “no other place I had ever been before,” he said.
When he arrived, he was led down a hallway with ornate wood walls and expensive artwork to a waterfront room to see a promotional video. It was a “dog and pony show,” said Jasper. “They showed us the film about how Stanford got started, and we sat and watched it.”
He said he asked to look into pouches going overseas, but was told there were none that day.
Jasper said he then asked for any other records. “We found nothing,” he said. “I think they told us something about officers keeping papers in their desks, and we asked to see that, and of course that wasn’t available.”
After 2001, the state didn’t return until four years later.
When state agents did go back, they ran into the same scenario: money sent to Antigua — and no supporting documents. But this time, Stanford’s Miami office turned over a list of 46 employees — 16 licensed as stock brokers.
By then, the office was a powerhouse, generating $600 million in CD sales — one in every five dollars of Stanford’s worldwide operations, records show.
After both visits, state agents sent their findings to supervisors, including David Burgess, a senior analyst who helped negotiate the deal with Stanford.
At the time of the proposal in 1998, Burgess wrote a crucial memo that helped find a legal justification for Stanford to create his ambitious center.
Burgess said a foreign trust office was not supported by Florida law, but said if “the definition of a trust company can be stretched,” the office could open “pursuant to the laws of another country.”
He also wrote in his report that Stanford had been “active in cleaning up the Antiguan banking laws.”
But federal records show that six months after Burgess wrote his memo, the U.S. Treasury put Antigua on a money-laundering alert list, saying the new laws pushed by Stanford actually weakened enforcement efforts.
Burgess, who still works for the state, did not return calls.
Linda Charity insisted that a third state visit in 2007 turned up “red flags,” but said her agency took no action. The state would not release results, citing an ongoing investigation.
The office was finally shut down in February, when federal agents froze Stanford’s assets.
While victims now say federal regulators should have challenged Stanford’s claims of consistently high returns on his CDs, Florida was also in a key position to investigate the bank network.
Branscum said Florida agents had a right to challenge Stanford on how the money was invested, especially since licensed brokers worked in the Miami office.
“They were selling securities. You don’t just ignore something like that. You get in there to see what they’re doing,” he said, including demanding to inspect the bank’s investment portfolio.
He said agents should have tried to stop the destruction of records, particularly since money was going to Antigua. “I was a treasury agent. Antigua was one of the centers of money laundering in the Caribbean. On top of that, they’re shredding records. It doesn’t take a genius to figure out that someone needed to be asking questions.”