Revealed: The Secrets Of One Of The World’s Dirtiest Banks And Its Powerful Western Protectors
Blatant forgery. Snarling guard dogs. Shredded evidence. Leaked documents reveal the farcical scramble inside one of the world’s dirtiest banks to conceal incriminating information – while some of the planet’s most prestigious accountants and lawyers used their powers to keep the bank in business.
Posted on December 13, 2017, at 9:00 a.m.
By: Tom Warren, Alex Campbell
Source: BuzzFeed News
Lilit Khachatryan cast a cool eye over the two private detectives who had just barged into her office. The pair of British ex-cops had been brought in to investigate the crisis-stricken Cyprus-based bank where she worked as head of anti-money laundering compliance, and now they were asking questions about a major customer whose accounts threatened to reveal some of its darkest secrets. She needed to buy some time.
With her perfect composure, pristine suits, and Harvard MBA, Khachatryan was the organised and efficient face of an institution in chaos. FBME Bank had been accused by the US government of allowing money laundering on a vast scale for terrorists, drug traffickers, repressive dictators, organised crime groups, and financiers for the Syrian regime – and now it faced being barred from using the dollar. The lion’s share of the bank’s business came from highly secretive Russian clients who relied on FBME to funnel their money into the global financial system without asking too many questions – and the dollar ban threatened to destroy it with a single stroke.
The super-rich Lebanese owners of FBME had hired two of the world’s most prestigious law firms, Quinn Emanuel Urquhart & Sullivan and Hogan Lovells, to fight the dollar ban – and had put the impeccable credentials of the bank’s compliance chief front and centre in their defence against the US government’s allegations. The partner leading the case for Quinn Emanuel was one of the most high-profile lawyers in Washington – William Burck, who was special counsel to President George W. Bush and is now representing two key White House figures in the inquiry into whether Donald Trump’s presidential campaign colluded with Russia. The private detectives standing in Khachatryan’s office – Nigel Brown and Alec Leighton – were working for Burck to compile information that might bolster the bank’s case. They had been assured the compliance chief was the woman to ask for anything they needed to prove FBME’s affairs were in perfect order.
But now Brown and Leighton were demanding information about a particularly problematic network of accounts – belonging to a gun-loving porn baron they suspected of running a massive credit card scam through FBME. Worse, there was evidence that the customer had acted in cahoots with none other than the son of one of the bank’s owners. The situation could not have been more dire, but Khachatryan held on to her composure. “No problem,” she told the detectives.
The compliance chief assured Brown and Leighton she had a “due diligence file” to prove the bank had carried out all the appropriate checks on the customer and found nothing untoward. When she was asked to produce it, she left the room silently. The better part of an hour later, Khachatryan re-emerged clutching a few loose sheets of paper that declared the porn baron was exactly the sort of person the bank would want to be doing business with. The detectives looked at her in amazement.
“What on earth is this?” Brown asked.
“Work in progress,” she told them.
The detectives quickly concluded that the file was a clumsy forgery, riddled with typos and spelling errors and hastily cobbled together during Khachatryan’s absence, according to affidavits they later sent to regulators in the US and Cyprus. Khachatryan and the bank’s owners strongly deny this, saying Brown went after her after she spurned his romantic advances. But the investigators’ suspicions that the compliance chief had a propensity to fabricate documents proved well founded. When they dug deeper, even her Harvard diploma turned out to be a fake.
The unravelling of Khachatryan’s credibility came at a watershed moment in the investigation into the grave allegations leveled at the bank by the US Financial Crimes Enforcement Network (known as FinCEN). Far from finding the evidence they needed to prove the bank’s innocence, Brown and Leighton were beginning to uncover an ever-more devastating trail of connections between FBME’s accounts and many of the world’s most destructive scourges. New evidence was emerging that the bank had facilitated transactions for clients linked to Syria’s chemical weapons program, the Russian government, and major organised crime figures. Now the very executive whose job it was to keep the bank honest had been exposed as a liar.
There was no option, the detectives told the bank’s owners and their lawyers, but to fire Khachatryan, investigate all the evidence of wrongdoing fully, and consider coming clean to the US government. But FBME’s owners refused to ditch Khachatryan. “Fuck FinCEN,” Brown recalled one of the owners telling him. “She is more important.”
Instead, FBME ousted Brown and Leighton, swept their findings under the rug, and kept Khachatryan in her post as the bank’s bulwark against money laundering and corruption.
FBME’s top-flight lawyers at Hogan Lovells and Quinn Emanuel continued acting for their paymasters with full-throated vigour, fighting on behalf of the bank’s owners to gag the two detectives and withhold their findings from government investigators in the US and Cyprus. But files reveal internal tensions about how to handle evidence of FBME’s misdeeds.
Burck initially advised the bank’s owners to mount a sweeping internal inquiry and consider approaching the US Department of Justice after the private investigators laid out their findings – and he clashed with Hogan Lovells after discovering the firm intended to obscure the discovery of Khachatryan’s forged degree certificate from FinCEN. The bank’s owners responded by sidelining Quinn Emanuel at the same time as they ousted Brown and Leighton. But when the two investigators began disclosing their evidence to the US and Cyprus governments, Burck and his firm were brought back in to help silence them by suing to enforce their confidentiality agreement. Then the two law firms joined forces in a lengthy lawsuit against the US government for violating the bank’s rights, a battle that delayed its official banishment from the American financial system by two years. Along the way they touted reports from the global accounting giants KPMG and Ernst & Young to demonstrate that FBME was an upstanding financial institution.
Much of FinCEN’s evidence remains sealed in classified documents that have never been made public – but now the explosive secrets Brown and Leighton were on the cusp of exposing are revealed in a massive cache of leaked documents from inside the bank. BuzzFeed News has obtained the affidavits the investigators sent to FinCEN, which were later filed under seal in a US court. FBME told the judge that the statements included “gross, bad-faith distortions and outright falsehoods” and said in response to questions about this article that the investigators had leaked the information as retaliation over a fee dispute. But BuzzFeed News has also obtained raw emails and documents corroborating key parts of those affidavits, as well as thousands of pages of additional internal materials, and has conducted more than 80 interviews, laying bare the misdeeds of a bank blacklisted by the US government as one of the world’s filthiest financial institutions.
In recent years the world has woken up to the ease with which the super-rich can form offshore companies to conceal their wealth and avoid tax legally. But the FBME files shine a light on how the proceeds of some of the world’s worst crimes have been laundered into the West. And getting away with money laundering requires the support of powerful players within the wider global system – many of whom profit by propping up bad actors without themselves breaking any laws. It requires unscrupulous financial institutions to open accounts for nefarious individuals and their sham companies without performing proper due diligence checks; accountants to overlook red flags and vouch for the books of those corrupt institutions; correspondent banks in the West prepared to wave through suspicious dollar and euro transactions without verifying the true origin of the money; and powerful global law firms prepared to fight to silence whistleblowers and bat away attempts by governments and regulators to enforce the law.
The FBME files provide an anatomical insight into the secret workings of these powerful enablers within the global financial system – enablers that persist and flourish long after the institutions they have propped up, like FBME, finally fall.
Today we tell the inside story of how FBME executives scrambled to lie, threaten, use forgery, and shred their way to success while Quinn Emanuel and Hogan Lovells did battle on the bank’s behalf and accountants at KPMG and Ernst & Young overlooked glaring red flags as they gave a corrupt institution their gold-plated seal of approval. In the coming days, we will expose a secret network of Moscow-based slush funds linked to the Russian government, Syrian chemical weapons, and ISIS – and reveal how an international banking giant allowed suspicious money to flood the Western financial system by facilitating FBME’s dollar transactions for decades.
Hogan Lovells and Quinn Emanuel are massive global players, raking in combined revenues of more than $3 billion last year, much of which comes from “big ticket, cross-border white collar and fraud cases”, as Hogan Lovells puts it. Both were paid handsomely for their work for FBME – and BuzzFeed News can reveal that some of the money came through an unusual route. FBME’s owners, the Saab brothers, paid Quinn Emanuel more than 4 million euros and Hogan Lovells three-quarters of a million euros from the Russian bank accounts of a now-defunct Bermuda company that faces claims that it owes investors hundreds of millions. That company, Saab Financial, had previously been used to funnel tens of millions of dollars out of FBME in a transaction described by a money laundering expert hired by Quinn Emanuel in a separate case as bearing “more red flags than any other arrangement I have previously encountered”. Quinn Emanuel said the payment it received from Saab Financial was entirely lawful. Neither Hogan Lovells nor FBME’s owners responded to questions about the transaction.
FBME’s owners said in a letter sent through a London law firm that they were “the innocent victims of an organised defamatory campaign” orchestrated by “corrupt individuals within corporate and state bodies” who had misled the American government into shutting the bank out of the US. They said they sidelined Brown and Leighton because they were incompetent – and that the investigators had sent false and misleading information to the US and Cypriot governments in revenge over a fee dispute.
“Any suggestion that we created a culture in which secrecy was paramount and staff were encouraged
to evademoney laundering protocols to protect nefarious clients is wholly denied.”
The Saabs denied FinCEN’s allegations, which they said were based on classified evidence that had never been properly tested in court. Far from being willing to service the global criminal element, as FinCEN found, the Saabs insisted that FBME was a “family-owned bank that worked strenuously to meet every compliance requirement” and had been fully open at all times with regulators. The only issues identified publicly by FinCEN, they said, were historical.
Both law firms vigorously defended their work on behalf of the Saabs. Burck, who now represents White House Counsel Donald McGahn and former chief of staff Reince Priebus in the inquiry into the Trump campaign’s ties to Russia, told BuzzFeed News that he stood by his work for the bank’s owners. He said it was unfair of FinCEN to blacklist FBME on the basis of a “black box of secret evidence”, adding: “I think it’s morally reprehensible to have a system where people can lose their life, liberty, or property without being told why.” The bank had been “shot in the head” by FinCEN, he said, and it was his job to fight to save its life, not to dig into the evidence the investigators had uncovered. “When you’ve got a patient with a bullet in his head dying on the gurney, you don’t try to figure out, ‘OK let me check to see if he has cancer,’” Burck said. “You try to take the bullet out.”
Quinn Emanuel said in a statement that no evidence of widespread criminal wrongdoing had been found inside FBME – merely “certain historical compliance issues that had been put right by 2014” and before the firm became involved. Brown and Leighton were “not whistleblowers”, the firm said, but embittered former contractors whose allegations were “false and misleading”, and the lawsuit against them was designed not to “cover up” wrongdoing but to “enforce obligations of confidentiality”. The case against the US government did not seek to prove the bank’s innocence, but simply to demonstrate that FinCEN had failed to provide enough evidence to justify the “death penalty” of shutting it out of the US financial system. The firm said it had no knowledge of some of the evidence of the bank’s activities obtained by BuzzFeed News and could not provide details about much of the evidence that it did have at its disposal, because to do so would violate attorney-client privilege.
Hogan Lovells said in a statement that the firm’s lawyers “comprehensively reject” any suggestion that their work for FBME represented anything other than “the highest levels of integrity and professional ethics”. It said its submissions to FinCEN about Khachatryan’s degree forgery were “carefully considered, discussed and agreed with Quinn Emanuel as the correct way of handling the issue”, but declined to comment on any other details of the case.
KPMG and Ernst & Young – two of the “big four” group of the largest accountancy firms on the planet, entrusted with inspecting the books of hundreds of multinational companies and financial giants – both declined to comment.
Brown and Leighton also declined to comment, citing client confidentiality. But BuzzFeed News has reconstructed their investigation using the leaked files and their detailed affidavits sent to government investigators in the US and Cyprus.
Everyone has a right to a lawyer, and attorneys are honour-bound to keep their clients’ secrets. But when the law firms went to work for FBME it was not under criminal indictment in the US: The bank had the chance to confess its misdeeds to FinCEN, clean house, and regain its access to the dollar. Instead, the bank’s executives launched a madcap scramble to conceal their most damning and embarrassing secrets. When the bank shut down Brown and Leighton’s investigation and its compliance chief was exposed for using a forgery, FBME’s lawyers at Quinn Emanuel and Hogan Lovells could have backed away. Documents suggest some of them even considered it. But instead they chose to launch a legal offensive on FBME’s behalf. This is the inside story of the rotten institution they fought for.
When they landed in Cyprus in August 2014, Brown and Leighton were plunged into a dizzying crime drama playing out in the shimmering Mediterranean heat. The investigators showed up in the island’s dusty inland capital of Nicosia weeks after FinCEN named FBME a “primary money laundering concern” and threatened to shut off its access to the dollar. “FBME promotes itself on the basis of its weak Anti-Money Laundering (AML) controls in order to attract illicit finance business from the darkest corners of the criminal underworld,” the agency’s director said in a statement. FinCEN’s broadside caused all-out panic inside FBME.
In Cyprus, FBME had situated itself on a political and financial faultline that suited its aims perfectly. This was the European Union’s easternmost country, teeming with gangsters looking not just for a beach holiday, but for a Western haven for their money. For years, FBME had sheltered the funds of some of the world’s worst villains. But dollar transactions represented nearly two-thirds of FBME’s business, so if FinCEN followed through on its threatened ban, the bank would no longer be able to move the funds it harboured for its shadowy clients into the Western financial system. That would render its services all but useless.
US government investigators had, it turned out, been digging into FBME’s dollar transactions dating back seven years, and claimed to have identified suspicious movements worth $1.3 billion. But, beyond what could be read between the lines of FinCEN’s brief but incendiary public notice, there was no way of knowing exactly what evidence it was based on. In order to prepare a defence that would persuade FinCEN to back off the threatened dollar ban, the bank had to figure out what the US government knew – and by extension what it didn’t. That was where the investigators came in. Leighton had done work for FBME in the past and the bank called him back with his sometime partner, Brown, to dig into what lay behind FinCEN’s move against the bank.
“When you’ve got a patient with a bullet in his head dying on the gurney, you don’t try to figure out,
‘OK let me check to see if he has cancer.’ You try to take the bullet out.”
The two detectives arrived at the bank’s sand-colored office building to join a formidable team of lawyers and accountants gearing up for a fight. Leighton was a wiry, silver-haired sleuth who had cut his teeth as a detective on the streets of London in the ’70s. Brown was tall and soft-spoken, a decorated former senior detective with four bravery awards and a service injury to show for his own 13-year career at Scotland Yard. Since retiring from the police, they had carried out internal investigations for a host of blue-chip companies grappling with allegations of fraud, money laundering, and bribery. Between them they liked to think there wasn’t much they hadn’t seen – but a few days in this surreal new setting would quickly make them reconsider.
The detectives had been summoned by the bank’s owners, two debonair Lebanese brothers named Farid and Fadi Saab who had built FBME in the ’80s and courted clients from all over the world. They cut a cultured international profile to match, speaking several languages and flying a Yak-40 private plane on regular trips to Russia, where FBME got most of its business.
Farid, in his late seventies, was the grandee of FBME, with a sparse white moustache and wire-framed spectacles perched near the end of his nose. Fadi, a decade younger, was a chain-smoking jazz pianist with a Cheshire Cat grin and a fondness for shiny, wide-lapelled suits. The brothers were instantly welcoming, folding the two detectives into the familial embrace of the patronage they bestowed on many of their employees. But they were also quick to anger. Fadi, in particular, mixed furious outbursts with flourishes of generosity. Mere moments after a savage argument, he once insisted on busting out a bottle of vintage brandy because he had just discovered it was Leighton’s birthday.
The Saabs had cultivated extensive political contacts in both Cyprus and Russia, staff said, and they had become adept at ducking and diving to dodge the long arm of the law. They had even moved FBME’s nominal headquarters to Tanzania when regulators started breathing down their necks. But now they were up against the world’s most powerful government. As soon as news of the FinCEN notice broke, Western banks that FBME depended upon to facilitate its dollar transactions had halted its business, and the government of Cyprus had seized control of FBME’s accounts and sent in a special administrator to take charge.
Now, with everything in jeopardy, and regulators in both the US and Cyprus crawling all over their affairs, the Saabs assembled their cavalry. FBME’s longtime law firm, Hogan Lovells, had already swung into gear, assigning a new white-collar crime partner named J. Evans Rice III to represent the bank in bringing its defence against FinCEN. Rice, fresh-faced with a toothy grin, would soon be joined by Burck, Quinn Emanuel’s older, more seasoned co-chair of white-collar crime, who came on board to represent the Saabs themselves.
Burck was an outwardly affable man with soft, round features and easy smile – but his pedigree was formidable. After graduating from Yale Law School he had spent years inside the government, prosecuting Martha Stewart and working as special counsel to President George W. Bush. Brown and Leighton, the internal investigators the Saabs had hired, were to report directly to him as they dug into FinCEN’s allegations.
Around the time that Burck and his team first started speaking with the Saabs, Burck’s colleagues at Quinn Emanuel were raising serious questions about FBME’s practices. Working for the Saabs’ opponents in a separate lawsuit, Quinn Emanuel hired an expert named Peter Barrie Brown to look into a complex series of transactions in which more than $30 million was moved from FBME to one of the owners’ offshore firms, Saab Financial. Barrie Brown produced a report saying that the transactions bore “hallmarks of money laundering”.
Quinn Emanuel told BuzzFeed News that Barrie Brown’s report “was the opinion of one expert in a confidential arbitration” that was “not tested” because the case was settled later that year. The firm said it had run checks to confirm there would be no conflict of interest in signing up to work for the Saabs at the same time as working for their opponents, and had “maintained ethical walls” to keep the lawyers working on each case separate from each other. So Burck and his team joined the fight for FBME’s life.
By that time, accountants from Ernst & Young had also been brought aboard to perform their own audit of the bank’s accounts. The year before, the bank had received a clean bill of health from another accounting giant, KPMG, which talked up FBME’s “high standard of data protection” and its “comprehensive” internal anti-money laundering procedures – though the audit was careful to note it hadn’t looked at the bank’s credit card division, which would soon prove to be a running sore. The KPMG report was sent to FinCEN as evidence of the bank’s good standing, and the lawyers hoped a second glowing appraisal from another of the world’s big four accounting firms would bolster the case still further.
“It was not surprising that FBME Bank had received the FinCEN Notice if this was how it conducted its business”
The Saabs introduced the assembled lawyers, auditors, and investigators to Khachatryan, their glamorous Armenian head of anti-money laundering compliance, with obvious pride. This was FBME’s internal watchdog, the person who had to be willing to overrule other executives to veto problem accounts. Self-contained and punctiliously professional, Khachatryan was unfailingly immaculate in sharp suits and stilettos and seemed to show a strong grasp of the problems facing the bank. The Saabs plainly adored her, telling the investigators she was like a daughter to them and boasting about her Harvard qualifications. Brown and Leighton were assured she kept detailed due diligence files that would prove the bona fides of all FBME’s clients, they wrote in their affidavits. The lawyers at Hogan Lovells quickly seized upon Khachatryan’s credentials as affirmation of the bank’s probity in the evidence they were preparing to submit to FinCEN.
But however cultivated and hospitable the Saabs might be, and however impressive their hyper-efficient head of compliance, signs soon began to emerge that the detectives had entered a world of intrigue and skulduggery. There was the evening they attended a meeting at Fadi Saab’s home when a junior colleague noticed an intruder prowling in his garden. The colleague rushed out to tackle the stranger, and dragged him into the kitchen to explain himself – whereupon Fadi greeted the newcomer warmly, conducted a hushed conversation with him in the corner, and sent him on his way. An attendee at the meeting recalled that the man turned out to be a relative of a Cypriot government official bearing a morsel of inside information. Then there was the day the Central Bank of Cyprus’s special administrator turned up at the bank’s head office to start taking charge of its affairs. He was met by Fadi Saab’s tall, Dutch, chain-smoking wife, who burst in with a snarling Rottweiler and a German shepherd at her side, screaming at the man to get out of the office.
It was becoming abundantly clear that this was no ordinary assignment. And, as they dug in, the investigators began to learn enough about their new employers to make them deeply uneasy.
The two detectives had initially set up camp at the Hilton Cyprus, a five-star resort with a white marble interior and ground-floor storefront displays featuring oil paintings and fur coats. When they realised the task ahead of them would not be short, they moved their base to an apartment, where they would gradually plaster the walls with flow charts mapping the ever-more sinister connections they unravelled as they delved into the bank’s accounts.
A lineup of key executives at FBME, and the Saabs themselves, had already been called in to explain the bank’s procedures, and a disturbing picture began to emerge from transcripts of the interviews conducted by Hogan Lovells.
FinCEN’s central claim against the bank was that it “promotes itself on the basis of its weak Anti-Money Laundering (AML) controls in order to attract illicit finance” and was therefore “widely recognized by its high-risk customers for ease of use”. This, in the eyes of the US government, was evidence of “FBME’s willingness to service the global criminal element”. While some inside the bank maintained in their interviews that FBME had been unfairly maligned by FinCEN, others acknowledged that the bank had systematically skirted around money laundering checks on its clients for years.
A core principle in the world of money laundering prevention holds that banks must find out who truly controls the money in their accounts – known as the “ultimate beneficial owner”, or “UBO” – and check that person’s credentials to ensure they are not linked to criminality or subject to international sanctions. But at FBME, the identities of the people who truly owned the money in many accounts were kept from most of the bank’s own employees, staff said, and they claimed the bank concealed the ultimate beneficial owners from regulators and the Western financial institutions that processed its dollar transactions.
The lawyers were told that FBME took what customers said about where their money came from at “face value” without performing crucial checks. Some said they had even been instructed to mask the addresses on transactions to or from sanctioned countries such as Syria or Iran so that other banks and regulators wouldn’t notice.
Farid Saab said in a statement that “any suggestion that we created a culture in which secrecy was paramount and staff were encouraged to evade money laundering protocols to protect nefarious clients is wholly denied”. Controversial banking secrecy laws in Cyprus impose strict client-confidentiality requirements, but the Saabs insisted that managers and regulators had full access to client files revealing the true identities of all FBME’s account owners. They had “acted in accordance with all the relevant laws and regulations at all times”, they said, noting that the US government had not made any individual allegations against the bank’s owners or other top executives, nor were they themselves charged with any crimes.
One of the most disturbing claims to emerge from the Hogan Lovells interviews pointed to a scandal inside FBME’s credit card unit – a division of the bank, the lawyers were told, that had “spun out of control”.
Digging deeper, Brown and Leighton learned of an ant’s nest of accounts inside the credit card division that was responsible for astronomically high rates of fraudulent transactions. Fraud ratios that high could cause trouble with card processors such as Visa and Mastercard. But the account holders appeared to have devised a way around that by “miscoding” their transactions to make them look innocent, as well as buying up prepaid FBME credit cards “in bulk” and using them for millions of dollars in innocuous transactions so that the overall fraud rate would go down and the card processors wouldn’t notice.
The ploy ultimately failed: Visa had noticed, and had commissioned an audit by the blue-chip global investigations firm Kroll, which in 2012 had uncovered the network of suspicious accounts. When Brown and Leighton got their hands on that audit report, they found it had uncovered thousands of questionable transactions – some purportedly for hundreds of thousands of euros’ worth of pens and designer sunglasses – from accounts linked to online gambling, pornography, and penis enlargement pills. Kroll had concluded these appeared to be sham transactions designed to “dilute” the overall fraud rate in order to duck “the scrutiny of credit card issuers sensitive to signs of laundering”.
When questioned about these disturbing findings, Leighton recalled in his affidavit, Farid Saab said he had been so annoyed by the report that he had kept it locked in a safe and hadn’t shown it to anybody. But he downplayed its significance. Sure, the report had caused issues with Visa, he said, but FBME had decided to suspend its licence with the card-processing giant “voluntarily”. Asked why the licence hadn’t been reinstated for another two years, Leighton wrote, Farid spoke of “dark, conspiratorial, politically motivated forces”.
After the discovery of the suspect accounts, the Saabs had fired key figures from inside the card services division and taken steps to tighten up the checks on new customers. But as the detectives probed further, they would discover that a senior executive inside the bank remained deeply entangled with the owner of dozens of the shady accounts inside the credit card division. And that executive was none other than the heir to the FBME kingdom: Fadi Saab’s son.
Michael Saab had been educated in American military-style schools and racked up banking experience at Merrill Lynch in London before returning to Cyprus in 2007 to run swaths of the FBME business, and he liked to talk as if he already owned the bank. Brown recalled how the preppy heir apparent promised his “personal assurances that FBME had done absolutely nothing wrong”. The current trouble was all the plotting of his family’s enemies, he told Brown and Leighton at their first meeting, according to Brown’s affidavit. Rival Cypriot businessmen and politicians had pulled strings to set FinCEN upon FBME. Taken aback, Brown tried to suggest that it was “extremely unlikely that even the wealthiest person in Cyprus would be able to influence a FinCen Notice”. But Michael was adamant: The bank had been framed. FBME had, he said, meticulously complied with all its anti-money laundering requirements. Indeed, its compliance chief, Khachatryan, was such a stickler that he joked he had nicknamed her the “Business Prevention Unit”.
At the outset of their investigation, the detectives had explained to the three Saabs that, if they were to get to the bottom of the FinCEN allegations, it would be a long and “intrusive” process, and they would have to ask “a lot of potentially uncomfortable questions”, they wrote in their affidavits. Fadi and Farid had signed up on that basis, but the investigators recalled that Michael didn’t seem to have got the memo.
The young scion kept swinging by Brown and Leighton’s apartment, they wrote, quizzing them on what they were working on. By now, this had become their operational base, with hundreds of files stacking up and sprawling diagrams all over the walls. The constant visits became “an irritation”, and the detectives felt Michael was “trying to obstruct us and direct the way we worked”, Leighton wrote in his affidavit. But, when they told him to back off, heated arguments erupted.
Michael involved himself in the most minute details, the detectives wrote, and he didn’t hesitate to try to shut down leads he didn’t like. When Brown and Leighton learned of a former Cypriot government official who wanted to talk about the bank’s activities, they said, Michael tried to stand in their way. The detectives considered this lead “very important”, Leighton wrote, but Michael responded by criticising the former official’s “reputation, capability and sexuality”, and ordered the detectives “not to pursue the enquiry line any further”. On that occasion, they stood down. But then Michael started trying to send them on what seemed to be wild goose chases.
First, they said he ordered them to hunt for information to “discredit” the special administrator appointed by the Central Bank of Cyprus to take charge of the bank so that FBME could get him removed. Brown’s affidavit says Michael went on to describe “in very graphic detail how he would like to kidnap and physically torture” the administrator. This was alarming, Brown said, but he and Leighton assumed the young executive was simply “venting frustration”.
The detectives also recalled Michael asking them to find information that could be used to “blackmail” a Cypriot politician he believed was responsible for triggering the FinCEN notice. The detectives refused, telling him “blackmail was totally illegal” and that “it was not surprising that FBME Bank had received the FinCEN Notice if this was how it conducted its business”, Brown wrote in his affidavit. Michael backed down on that request, Brown wrote, but continued trying to influence their inquiries.
“That’s it, I’m going to prison,” Brown said he declared. “I’m going to wear an orange jump suit.”
Michael Saab sent a short statement in response to detailed questions from BuzzFeed News. “The allegations you make against me are blatantly false and clearly defamatory and do not warrant a further response,” he wrote. A source close to him strongly denied that he interfered in the investigators’ inquiries or was involved in any impropriety, and insisted that FBME was a totally upstanding bank that had been framed by its enemies.
The problems inside the credit card division were a particular sore spot, the detectives wrote in their affidavits. Michael kept interfering when Brown and Leighton asked about it, preventing them from accessing its accounts. “You are wasting your time with Card Services,” Brown recalled him telling them. But, Brown and Leighton wrote, he also let slip that he was worried: The credit card issue “might implicate me”, Michael told them in an email quoted in Leighton’s affidavit, because he knew one of the key clients “personally”.
That client was a businessman with a number of interests in pornography – and he had ties to a network of accounts that Kroll had suspected of using fake innocuous transactions to dilute their overall fraud rate in 2012. His name was familiar to Leighton. The previous year FBME had asked the investigator to perform what Leighton referred to in his affidavit as “desktop” checks on the client, without giving him any background information about the concerns already flagged by Kroll, and he had reported back that there was nothing in publicly available records to cause concern. Now Brown and Leighton had access to detailed internal information about the porn baron’s suspicious network of credit card accounts – and they were disturbed to discover that his relationship with Michael Saab was uncomfortably close.
BuzzFeed News is not naming the porn baron, who sent seven lawyers to a meeting with reporters to strenuously deny any impropriety, because the allegations against him did not form part of FinCEN’s public ruling against FBME. A spokesperson for the porn baron said he “categorically and emphatically denies” any allegation of wrongdoing. Farid Saab said he was aware of “no compliance issue relating to this client or allegations of wrongdoing of any kind”.
Michael had lived large with the porn baron. Emails show that in May 2012, the same month Kroll issued its damning report, the young banker was hatching plans to join the client’s family on a cross-continental road race with wild parties in the cities along the way. The racing crew exchanged messages musing over how many “hero cams” they could fit on their disco green supercar.
One night, when Michael showed up unexpectedly at Brown and Leighton’s apartment with a bag of cakes, he began to spill the details of his relationship with the porn baron. Leighton recalled that he told them how the pair once flew on a private jet from New York to Vancouver, then traveled down the West Coast together. The porn baron had also taken Michael to his home – complete with a walk-in safe with walls lined with firearms, high-grade military knives, and ammunition – where he had boasted of how he “used to run guns to Mexico, pick up weed and bring it back to the States”, Leighton wrote in his affidavit. The investigators said they couldn’t tell whether or not he was joking, but they were increasingly concerned. The source close to Michael said he had made no such comment.
Brown and Leighton began pressing for access to Michael’s correspondence with the client. When Burck, the Quinn Emanuel partner overseeing their investigation, flew in for a meeting with all three Saabs, the detectives seized the moment to demand unfettered access to Michael’s email account. In the presence of his father and uncle, Brown wrote in his affidavit, Michael “reluctantly agreed”.
The following day, the investigators learned that Michael was holed up in his office anxiously trawling through his emails. “We were concerned that he may be deleting vital evidence, but there was very little we could do,” Brown recalled in his affidavit. Suddenly, their door flew open, revealing Michael with a panicked look on his face. “That’s it, I’m going to prison,” Brown said he declared. “I’m going to wear an orange jump suit.”
He handed them a paper copy of an email he had sent the porn baron the year before, discussing a deal he was contemplating with a man connected to a separate network of accounts in the card services division. FBME had sued that client for breach of contract after becoming suspicious that companies under his control were miscoding illicit transactions to make them appear innocuous, and now Michael wanted to settle. The settlement package FBME was offering was “reasonable”, Michael had written, given that the client’s money came from “child porn and other nefarious activities”.
The porn baron had no connection to child pornography, but he too had been embroiled in a dispute with this other client, so Michael had turned to him for advice. Michael confided that he had an “extremely guilty conscience” about making any kind of deal because “I know he knowingly facilitate [sic] child pornography – a crime that should be dealt with through a court system, and result in an indefinite incarceration.” And yet: “I need to focus on business development.” And so he pressed on with the proposed settlement.
The Saabs told BuzzFeed News that by the time of this email, they had reported the client to the Cypriot financial intelligence unit. “This email demonstrates the hard line we took at FBME to any suspected wrongdoing by any client,” a spokesman said in a statement. “We did not tolerate any illegal activity by any of our clients and our response demonstrated our concern.” Michael’s settlement idea was a way to bring the matter to a close without racking up further legal fees, a source close to him said, but the deal never came to fruition.
Brown immediately saw this as clear evidence that Michael had knowingly become “involved with people dealing in child pornography”, he wrote in his affidavit. For his part, Michael has been adamant to this day that he didn’t actually know or believe that the client was involved in child pornography, the source close to him said. Instead, Michael was just speculating that the client could be miscoding credit card transactions to cover up his involvement in all sorts of heinous crimes – even child pornography. Michael has also been insistent that he never told anyone that the email would land him in an “orange jumpsuit”, the source said, because he believed that the legal dispute with the client would show he wasn’t endorsing his behaviour. Still, the source said, Michael knew the email was “terrible” and has regretted it ever since.
In any case, Brown had to break the news to Michael’s uncle. “Oh my god,” Farid said, according to Brown’s affidavit. He put his face in his hands. Soon he became angry, pacing around the room. “I knew that stupid boy would bring us all down.”
But worse was yet to come.
That evening, Michael spotted Leighton walking home and offered him a ride, according to Brown’s affidavit. In the car, Michael handed him a USB stick containing more emails – and that was how the truth finally emerged about his involvement with the rot inside the credit card division.
The emails showed Michael was under intense pressure to reduce the volume of fraudulent transactions running through accounts in FBME’s credit card division, which in some cases climbed 14 times higher than Mastercard allowed. And he corresponded directly with the porn baron about the need to lower the fraud ratio across his businesses in order to alleviate pressure from the processing giant.
Shortly afterwards, emails showed Michael had discussed setting up 27 new accounts for the porn baron’s businesses. His friend did not want to be listed as the ultimate beneficial owner (UBO) of the accounts on due diligence documents, so he wanted to open them in the name of a puppet owner in Britain.
“Team, Please see below on Harvard issue. Not good.”
Happy to help, Michael set the process of opening the accounts in motion. When a brief delay arose, he called Khachatryan asking what the problem was. Then he reported back that he had spoken to the bank’s anti-money laundering compliance chief and she had confirmed that “we opened 27 accounts under the British UBO you provided and I gave her the approval to open the rest of the companies on that list as well”. A Quinn Emanuel lawyer reading the emails became alarmed. They appeared to show that Michael had “directed” Khachatryan to open the accounts under the name of a British owner even though they “clearly” belonged to the porn baron, the lawyer noted in an internal memo. More disturbingly, the compliance chief appeared to have complied – raising questions about her independence.
Khachatryan acknowledged that the ownership of some of the accounts did initially appear “suspicious” but said she had established that the British director was a business partner of the porn baron after performing all the proper checks. She also strongly denied that she had ever taken orders from any of the Saabs; she said she was fully independent and told BuzzFeed News of how she had rejected accounts in other situations.
But Brown and Leighton identified reams of evidence that the porn baron’s network of accounts appeared to be being used to ping “phantom” transactions back and forth, adding enough innocuous transactions to dilute the fraud ratio – just as Kroll had warned.
The child pornography email, plus Michael’s proximity to the credit card scam, put all hands on deck, Brown wrote in his affidavit. Burck, of Quinn Emanuel, flew in to explain to FBME’s young heir apparent the world of trouble he had got himself into. “Do you understand what has been going on is wrong and criminal?” the investigators recall the lawyer telling him. Michael decided the time had come to lawyer up, and he chose his own high-powered Washington attorney.
The investigators needed to find out as much as they could about the porn baron in order for the lawyers to figure out a way to mount a defence. But they were having difficulty pulling up enough documentation on many of the accounts linked to his suspected credit card scam. And that was when Brown and Leighton showed up in Khachatryan’s office, and she promised to go and fetch them a due diligence file.
When Khachatryan returned with the suspect document claiming that the porn baron was an upstanding client, Brown recalled in his affidavit feeling “absolutely shocked”. He and Leighton had both been impressed by how “organised and efficient” the compliance chief appeared to be and, like FBME’s lawyers and accountants, they had considered her crucial to the bank’s hopes of recovering from the FinCEN allegations. Now they felt her credibility was in tatters.
The file, purportedly dated just a few days prior, was written in “awful English” and signed by Michael. It claimed the FBME heir had conducted due diligence checks on his visit to California and established that this was exactly the type of person the bank would want to do business with.
“I was absolutely shocked,” Brown wrote in his statement, that Michael “and Lilit had deliberately conspired together to falsify a Due Diligence document regarding an important player in the card services money laundering problem.” He confronted Khachatryan with the allegation that she and Michael had forged the document, he said, and she walked out of the room.
“It was disgusting for me to interact with Nigel.”
A few weeks later, Brown received an email from a Hogan Lovells attorney attaching a new due diligence document on the porn baron. Like the one Khachatryan had initially produced, it was signed by Michael Saab. The spelling and grammar were better, Brown recalled. But it was still just one page declaring that the porn baron had “at all-time appeared to be a person of credibility with whom the Bank could conduct business”. When Brown looked at the date on the document, he was stunned. It had purportedly been signed on 11 November 2014. But Khachatryan had done her disappearing act to produce the previous document several days after the 11th. If this file was real, he wrote in his affidavit, why wouldn’t Khachatryan have shared it with him at the time that he asked for it?
Farid Saab said in a statement that “FBME categorically denies any allegations that anything has been fabricated” in the porn baron’s due diligence file. Khachatryan also denied that she had falsified the document, insisting it had been sent to her by Michael a few days before and she had the email to prove it. Asked to produce that email, she replied that it was covered by attorney-client privilege. The source close to Michael said he had written the document after discovering the porn baron’s due diligence file was incomplete.
Khachatryan also told BuzzFeed News that Brown and Leighton are “acting in bad faith” and that “most of the information that they put in their affidavits are awfully-distorted facts, or lies”. She said it did not take her as long as Brown and Leighton claimed to retrieve the file but that it did take a while to get from Farid’s office on the seventh floor to hers on the fourth because “we had only two small elevators for 200 people”.
Brown had been helping Khachatryan prepare a sworn witness statement for FinCEN when he noticed she had deleted any reference to her Harvard degree. That struck him as odd. Inspecting Khachatryan’s CV, he spotted that she claimed to have received a second business degree from a different university, Hult International Business School, at exactly same time she received her Harvard diploma.
When Brown brought it up with Khachatryan herself, in the presence of Farid Saab, “She became quite aggressive,” Brown wrote in an email to the bank’s lawyers, “and said in front of Farid, ‘and what is your point.… I really am too busy to talk to you.” Khachatryan had then stormed out of the room, he said. Khachatryan denied that this incident occurred.
Around this time, Michael approached Leighton and told him Khachatryan had complained that Brown had been sending her inappropriate text messages, the investigators wrote in their affidavits. The pair had gone for a drink early in the investigation, and he had texted her to thank her for a “lovely evening”, telling her he felt it was “rare to find such intellect emotion and passion in one person” and that she was “very special”. FBME sent that and other text messages to BuzzFeed News in response to questions about the two detectives’ discoveries, arguing that Brown’s judgment was impaired because he was trying to cultivate an intimate relationship with Khachatryan. Khachatryan also sent BuzzFeed News the messages and said that at different moments Brown hugged her, touched her arms, and held her hand. He also joked that if she married him, she wouldn’t need a visa to go to the US, Khachatryan said – even though Brown is not a US citizen. And one of his texts referred to sehnsucht, a German word for longing or desire. Brown’s behavior was “outright harrassment”, she said. “It was disgusting for me to interact with Nigel.” Brown said he did try to get close to Khachatryan but only as an investigative tactic to get her to open up.
Khachatryan’s degree had been a prized asset for FBME’s owners and for Hogan Lovells, which was handling the initial responses to FinCEN. Not yet knowing that Brown had started asking Khachatryan about her qualifications, the law firm submitted its formal response including the Ernst & Young audit, and both the auditors and the lawyers cited Khachatryan’s Harvard degree as a stone-cold fact.
Hogan Lovells called Khachatryan “highly qualified” and said that she had “invigorated” FBME’s compliance department. She “received her M.B.A. from Harvard Business School and has over a decade of banking experience”, the lawyers stated. Ernst & Young cited her “MBA in a joint program with Hult International Business School and Harvard Business School”.
“We had hoped to move as quickly as possible and to approach DOJ in early November.”
But soon Harvard confirmed there was no trace of any Lilit Khachatryan on its MBA alumni list. That was enough to persuade the lawyers at Quinn Emanuel that they needed to see a copy of Khachatryan’s diploma. When they turned up in her office to ask for it, Brown wrote, they found her with her head in her hands, sobbing. Her father had been involved in an accident, she explained, and she had to get to Moscow as soon as possible. But the next day, before heading to the airport to fly home, Khachatryan handed over the diploma in a leather-bound case, Brown wrote in his affidavit.
Quinn Emanuel sent the degree certificate to Harvard, which responded: “Unfortunately, the diploma you have been given is a forgery.” It displayed the wrong Harvard insignia and used incorrect fonts and inaccurate wording, and the names of the school’s president and dean were “demonstrably incorrect”.
“Team, Please see below on Harvard issue,” the Quinn Emanuel lawyer wrote as she forwarded the email to Burck and other colleagues. “Not good.”
Khachatryan acknowledged to BuzzFeed News that her degree was fake, but “categorically” denied that she had forged it. “Maximum what I can be accused of is claiming that a fake document is real,” she said.
She insisted that a friend had created the fake degree and sent it to her as a prank, and she had later claimed it as real. The degree claim was a “regrettable mistake”, she said, but was “in no way descriptive of who I am and what I stand for as a professional” and did not pertain directly to her role at the bank. The incident was part of of a “larger plan” by Brown “to defame me by contorting all the other aspects of my professional life to be seen through a prism of this episode”, she claimed.
That night, Khachatryan went to Fadi Saab’s house to apologise to him and to other executives at the bank for what she called her “stupid mistake”. She told BuzzFeed News she made a solemn promise that night: “I will go to Harvard and get an alumni status.”
Brown wrote in his affidavit that when they emerged, the executives were hugging and kissing as if it were “a family dispute that had been discussed”. But Brown and Leighton told the Saabs on the spot that it was crucial to the bank’s “survival” that they fire Khachatryan. When these pleas were ignored, Brown tried again at a meeting with Fadi Saab the following day. “I reiterated the significance to FBME Bank of its head of compliance effectively being revealed as a fraudster” and pointed out that it would not be hard for others to uncover the forgery if they got hold of Khachatryan’s employment records, he said. At that moment, Brown recalled, Fadi summoned an employee and ordered him to fetch her human resources file. Fadi found a copy of the fake degree and handed it to an employee.
“Get rid of it,” Fadi told the employee, according to Brown’s affidavit. “Shred the certificate.”
How it fell to Hogan Lovells to admit to FinCEN that, contrary to its earlier submissions, Khachatryan hadn’t gone to Harvard after all. The firm was drawing up a new response to the agency, and its lawyers decided to relegate this unfortunate discovery to a mere footnote. They sent their planned wording to Burck and his team – but the Quinn Emanuel lawyers were not impressed.
“As previously discussed, the footnote regarding Lilit is inadequate,” one Quinn Emanuel lawyer told colleagues in an email. “We should recommend that Hogan address the issue in the body of the document and confront the facts head on rather than dancing around the issue.” The lawyer said that perhaps Hogan Lovells did not have “the full Lilit story i.e. fake diplomas, lies to me, etc.” and that was perhaps “why Hogan is being soft on her”.
The two firms got together on a conference call to hash the problem out. Minutes of that call show Rice kicked off with the news that, though the Saabs had initially accepted Lilit’s resignation over the forgery, they had since changed their minds. “They love Lilit, they think she’s done a great job and they want to keep her,” the minutes say he explained. The strategy of confining the damning discovery to a carefully worded footnote in the next submission to FinCEN was “tied to the bank’s ultimate plan which is to bring her back”.
“FBME clearly WAS a financial institution of primary money laundering concern but ISN’T any longer.”
A Quinn Emanuel lawyer working under Burck broke the news that Khachatryan had done more than just lie about her degree; she had provided “a fraudulent and forged diploma”, the minutes show. Burck weighed in, telling the Hogan Lovells lawyers that presenting it as “any type of innocent error won’t fly”.
Rice said he had not realised that Khachatryan was “using forged documents”, but he still did not see the need to tell FinCEN. “I’m not sure that has to come out,” he said, according to the minutes.
Rice did not respond to a letter with detailed questions about this story but Hogan Lovells said in a statement that there was “no disagreement over what to report to FinCEN regarding Ms. Khachatryan’s education” and the footnote “was carefully considered, discussed and agreed with Quinn Emanuel as the correct way of handling the issue”.
Hogan Lovells submitted its new response to FinCEN later that month. It spoke of Khachatryan’s crucial responsibilities and cited her “elevated status” in the bank’s hierarchy, as well as her department’s “active role” and “strong voice in Bank matters”. The false Harvard degree remained a mere footnote, which offered “to clarify and correct” the previous statement about Khachatryan and noted that she actually got her degree from Hult. But it made no mention of the fact she had lied about her degree and backed up the falsehood with a forged diploma.
By the autumn, Brown had put together a formal investigation plan for the Saabs called “Project Waxwing”. He outlined his team’s most alarming findings, set out further lines of inquiry, and proposed a possible “self-reporting route” that would involve “bearing [sic] our soul” to US authorities. The document didn’t mention the degree forgery and at times it sounded an optimistic note. The Saabs had an opportunity, it said, to demonstrate to FinCEN that the bank had taken steps to address all the problems and that “FBME clearly WAS a financial institution of primary money laundering concern but ISN’T any longer.”
But first, they wrote, a sweeping internal inquiry was needed in order “to mitigate the bank’s exposure from a more solid foundation”. The internal probe should cover the credit card division, they wrote, and the potential issues with the porn baron. The “entirely lacklustre” due diligence procedures that had been in place in the card services division before 2012 had allowed suspect clients to funnel transactions through shell companies with fake owners in a “flagrant and wholesale disregard of the fundamental principles of any form of compliance procedure”, they said. Worse, there was evidence that some employees in FBME’s card services division had been “heavily involved in a conspiracy” to conduct a “highly lucrative cybercrime related business”. Though some had been fired, certain current employees “could be considered to have been ‘acting in concert’ with the main perpetrators”.
The investigators also pointed to a still more sinister discovery: An FBME client had just been sanctioned for his connections to the Syrian regime. And they had identified a second customer that appeared to be part of a nexus of accounts funneling money to financiers for the Syrian chemical weapons programme. “Only a thorough investigation of the circumstances will identify whether the bank has any exposure,” Brown wrote.
Burck, concerned by what the investigators were finding, signed off on the plan to investigate. He emailed Fadi and Farid Saab that Quinn Emanuel needed to know more about several issues, including “Michael’s role, if any” in the problems in the credit card division, and expressed frustration over how long it was taking to get full access to the information he and his colleagues needed. “We had hoped to move as quickly as possible and to approach DOJ in early November,” Burck wrote, but internal delays were getting in the way.
Farid Saab replied with some unwelcome news for Burck: He was taking Quinn Emanuel off overseeing Brown and Leighton’s investigation, and putting Hogan Lovells in charge instead. Burck’s firm was sidelined. He forwarded the exchange to Brown with a wistful note: “Over to you, my friend. I think we are out for whatever reason. Good luck.”
“Ermmm,” came Brown’s reply. He predicted that “we’ll be removed too”.
“Do you understand what has been going on is wrong and criminal?”
Two weeks later, Brown and Leighton were summoned to London for a meeting with Farid Saab and the bank’s legal team in Hogan Lovells’ hulking office building at Holborn Viaduct. The investigators laid out all their evidence to Rice, the fresh-faced white-collar crime partner leading the case, and other top lawyers. And they made a plea: report the findings to FinCEN, show how the bank intended to root out its problems, and beg for leniency.
This did not appeal to the high-priced lawyers in the room, according to Brown’s affidavit. Rice told Brown “that their strategy was to be open and answer any questions asked of them”, Brown wrote, but they would not volunteer anything FinCEN didn’t ask to see. “Why would we tell FinCEN something that they may not know about?” he said Rice told him.
“It is the right thing to do,” Brown recalled replying. “And secondly if you don’t tell them, but they already know, you, the bank and the shareholders are history. It’s a dangerous game you are suggesting.”
Farid Saab had heard enough. “Pencils down,” Brown and Leighton said they were told.
Rice and Hogan Lovells declined to answer specific questions about this case, instead sending a short statement from the firm saying their defence of FBME was consistent with the very highest ethical standards. The Saabs said via their lawyers that any suggestion that they were “somehow choosing to ignore repeated advice to ‘self-report’ to FinCEN is not accurate”. Brown and Leighton’s investigation “did not identify issues that required reporting”, they said, “even less so any issues that involved criminality”.
They also denied that they “fired” the investigators. Instead, they said, their lawyers at Hogan Lovells asked Brown and Leighton “not to embark on new projects”.
With the investigators out of the way, Hogan Lovells forged ahead. It turned to a second audit by Ernst & Young. Based on files the bank had made available, the auditors had failed to corroborate much of what FinCEN was alleging. Hogan Lovells brandished the audit in its next filing to FinCEN, claiming it showed why FinCEN should back down.
The claim that the Ernst & Young audit amounted to a clean bill of health left US officials flabbergasted, a US government source close to the matter told BuzzFeed News. Attached to the report were pages and pages of raw account information that, far from disproving the allegations against FBME, actually bolstered the US government’s case, this person said, and helped investigators make additional connections.
In the years leading up to the poison gas attacks launched by Syrian President Bashar al-Assad on his own people in 2013, FBME had funnelled hundreds of millions of pounds through the accounts of Issa al-Zeydi, a Moscow-based financier for the regime’s chemical weapons programme. And the money kept flowing even as images of young children foaming at the mouth and fighting for breath sent shockwaves around the world. Zeydi was sanctioned weeks after the first public notice against FBME. The US government later issued sanctions against at least seven other FBME clients over their financial links to the Assad regime.
To the US government, the presentation of this audit as an exonerating document was yet another sign that FBME was not serious about dealing with its failings. “We thought that they’d come out and say, ‘You got us, we’re cleaning it up, how can we work together?’” the official close to the matter said. But “they never wanted to acknowledge the problem”.
The Saabs said in their statement through their lawyers that they had provided Ernst & Young “full and unexpurgated access to client files” and that “these are hardly the actions of party that has something to hide”. While they acknowledged that some of the individuals named in the report were sanctioned, they said there was no evidence that those clients had used their accounts at FBME to funnel money to the Syrian regime and their accounts were stopped as soon as sanctions were issued.
In any case, FinCEN was unimpressed, and in summer 2015 the agency issued a final declaration that it was going to cut off FBME from the US dollar because, in the words of FinCEN’s director, “the United States will not allow a compromised foreign bank to send dirty funds through the U.S. financial system.”
The Saabs had one last option: sue the US government to prevent the action from taking hold. They returned to Quinn Emanuel – and Burck jumped at the chance to come back and fight FinCEN.
Most of FinCEN’s evidence against FBME was classified, and Burck said that offended him. He was “worried” about what FinCEN might have in its “black box” of secret evidence, he said, and if the agency “had produced definitive evidence that the bank was facilitating chemical warfare I would not have continued”. But he pressed ahead because “I do think it’s morally wrong to condemn someone on the basis of secret evidence”.
Quinn Emanuel added another top partner to lead the charge alongside Burck: Derek Shaffer, a highly sought-after white-collar crime defender with a gift for rhetorical flourishes. If FinCEN could treat FBME so unfairly, he declared in early court filings, “then banks all around the world must tremble”. Hogan Lovells signed on to the suit as well, and the two firms submitted the Ernst & Young and KPMG audits as evidence in the bank’s favour.
US District Court Judge Christopher Cooper handed FBME a couple of victories, ruling that FinCEN had failed to give an adequate public explanation of why it was targeting FBME. FinCEN responded with a more detailed case against the bank, and it added a new allegation to the mix: FBME’s employees had taken “various measures to obscure information” after the agency issued its first public notice against the bank.
The claim that FBME staff had tried to hide information “is a uniquely damaging allegation”, Shaffer told the judge. Had FBME been given notice, it “would have launched an internal investigation”.
By then, the findings of the bank’s previous internal investigation had resurfaced. A few months after Brown and Leighton’s investigation had been shut down, the Central Bank of Cyprus had ordered them to hand over their findings and materials. They had complied, preparing detailed affidavits running to almost 200 pages supported by a cache of internal documents. The central bank commissioned a review of their evidence, and it confirmed many of their findings. But then Brown sent the same package of evidence to FinCEN.
In spring 2015, just as Brown and Leighton were making contact with government investigators, Hogan Lovells and Quinn Emanuel began pelting the investigators with letters, demanding that they return all their files and claiming that providing the Cypriot government with information about the bank was a “violation” of their engagement agreements. One of the letters had come from Burck personally. He said he was obligated to enforce client confidentiality because Brown and Leighton had been working under his auspices.
Once they learned that the evidence had been sent to FinCEN, the lawyers claimed in court that Brown and Leighton’s affidavits were “saturated with gross, bad-faith distortions and outright falsehoods”, accusing FinCEN of using the investigators’ materials “in flagrant violation of attorney-client privilege” and urging the judge to toss out the dollar ban. The judge swatted away the accusation that FinCEN’s ruling had been tainted by Brown and Leighton’s evidence, noting that the agency had enough separate evidence to prove its case without the investigators’ materials. Having lost that battle, Quinn Emanuel sued Brown and Leighton on behalf of the Saabs in London for disclosing confidential information to the regulators. That case is ongoing.
Meanwhile, Brown and Leighton had filed their own lawsuit against FBME in Cyprus, alleging the bank had failed to pay their invoices totalling £240,000 after sacking them.
FinCEN ultimately won its case against the bank in the US, and FBME was cut out of the American financial system. But the Saabs and Quinn Emanuel are still fighting, most notably in their claim against the Republic of Cyprus in a highly secretive global court that settles disputes between corporations and nation states. The investor-state dispute settlement tribunal system was exposed by BuzzFeed News last year for frequently favoring corporate interests over small governments and allowing executives to escape punishment for their crimes. In that venue, the Saabs are demanding that Cyprus fork over $1.3 billion in damages for taking control of the bank’s accounts. That is equivalent to 15% of the Cypriot government’s entire annual budget and could prove ruinous for the tiny island nation. That case was heard earlier this year, and both sides are now awaiting the decision of a panel of three arbitrators.
As the Saabs’ many fights have slogged through courts around the world, hundreds of millions of dollars in deposits have remained frozen. As a result, many of FBME’s legitimate depositors haven’t been able to access much of their money, said Floris Alexander, whose firm Legal Floris LLC represents 1,500 of the bank’s clients. “They keep waiting, they’re still in limbo,” Alexander said. “There are people losing their life savings.”
“I will go to Harvard and get an alumni status.”
Though FinCEN’s findings had severely hampered the Saabs’ ability to access the global financial system, they found a way to pay their lawyers. They used Saab Financial – the very company involved in the other case in which Quinn Emanuel, fighting against the Saabs, had hired an expert who found more money laundering red flags than he had ever seen in his career. They paid the firms in euros, and used accounts at Trade Finance Bank, a Russian bank part-owned by Fadi Saab. Quinn Emanuel said the payment was lawful and that it had “no information” about Trade Finance Bank’s connection to it.
In the spring of this year, Saab Financial went into liquidation in Bermuda. The company now faces claims that it owes its private investors hundreds of millions of dollars. The Saabs did not respond to questions about this company.
The Saabs never did fire Lilit Khachatryan. She told BuzzFeed News that she submitted her resignation and gave 90 days’ notice, but that the bank’s lawyers had no luck finding a replacement – FBME’s name had been too tarnished by FinCEN.
But Khachatryan continued to help the Saabs with their legal wrangling, and over time they “came to appreciate me for what I was doing at the bank”. Her tenure with FBME officially ended in April 2016, when the Cypriot authorities made her and other bank employees redundant. But she kept working with the Saabs up until this year, she said, and did some contract work in Moscow for Fadi’s Trade Finance Bank, advising it on how to prevent money laundering.
She also came through on her promise to Fadi Saab the night the forgery was exposed. In December 2014 she won acceptance to one of the most famous universities in the world – though not for an actual master’s degree in business, but rather for a four-month “executive education” program costing more than $50,000. Fadi personally paid for the course with what Khachatryan referred to as a “personal loan” that she said she had repaid by doing work on their legal cases.
And when BuzzFeed News first made contact with FBME and Quinn Emanuel, a spokesperson sent back a raft of documents. Among them was a document proving that Lilit Khachatryan had finally gone to Harvard.
Source: BuzzFeed News – link to the article.