Money-laundering case goes to trial

Societe Generale SA, the French bank that reported a record trading loss two weeks ago, was among four banks that went on trial in Paris on Monday for failing to spot a money-laundering ring that funneled €82 million ($121m.) into Israel in the late 1990s.

Societe Generale and the French units of Barclays Plc, HSBC Holdings Plc and the National Bank of Pakistan were among about 150 companies and individuals charged with money laundering in the so-called Sentier Affair, named after the city's garment district, prosecutors said. The banks have denied wrongdoing.

The trial, which may last five months, isn't connected to Jerome Kerviel's unauthorized trading that Societe Generale blamed for €4.9 billion of losses on January 24. It may aggravate concerns about oversight at the bank by opening on the same day French Finance Minister Christine Lagarde released a report on Societe Generale and said its controls "clearly" failed to avert Kerviel's deals.

"Unfortunately, it really is bad timing," said Pierre-Yves Gauthier, chief executive officer at Alphavalue SAS, an independent equity research firm in Paris. "It is a very old affair and everyone had forgotten about it."

The bank and its employees didn't knowingly participate in any money-laundering activities, Societe Generale said Sunday in an e-mailed statement. Executives at the banks, including Societe Generale CEO Daniel Bouton, are charged in the case.

Judge Olivier Leurent on Monday questioned defendants, including Bouton, about biographical details including parents' names and marital status. The court has scheduled 81 hearings and an examination of the facts will begin Tuesday. Societe Generale is scheduled to present its case on May 28 and 29.

Societe Generale is accused of failing to spot €32m. in fraudulent transactions and Barclays France €24m. HSBC Holdings's Societe Marseillaise de Credit and the National Bank of Pakistan are each accused of failing to spot €2.6m. worth of the illegal transfers.

The bank executives face fines of €375,000 and possible prison sentences of five years, Isabelle Montagne, a spokeswoman for the Paris Prosecutor's Office, said in an interview at the court. Other defendants face fines up to €750,000 and as much as 10 years in prison, she said.

The case against the four lenders revolves around their role as correspondent banks for Israeli financial institutions.

Executives in charge of the banks' compliance monitoring, check processing and international banking services are also named in the court's files.

Correspondent banking allows fund transfers and currency exchanges for banks that don't have offices in large financial centers. It also provides an entry point to the global financial system from countries that permit unlimited cash transactions and anonymous accounts.

In 2002, 88 people, mostly merchants from the Sentier neighborhood just north of Les Halles, were convicted for defrauding banks and insurance companies, reaping €82m. in loans using fake invoices. They received fines and as long as seven years in jail.

Societe Generale was one of the banks that filed complaints against the Sentier shop owners in 1997, the bank said in Sunday's statement. "At that time, there were no legal or regulatory obligations" to verify checks to prevent fraud or laundering, the bank said. The bank implemented new controls in April 2002.

During the first investigation, magistrates discovered checks issued by French banks were being cashed by or transferred to third parties in Israel. This second trial focuses on claims the banks didn't make the necessary verifications before processing the payments.

http://www.jpost.com/servlet/Satellite?cid=1202064583645&pagename=JPost%2FJPArticle%2FShowFull