Secret documents show how an offshore company involved in suspicious transactions hid behind its Hungarian bank

Dozens of unusual transactions were observed in 2011 at Deutsche Bank’s US division. An offshore Caribbean company called the Guarantee Agency has transferred tens of millions of dollars through them to bank accounts around the world. The bank deemed the transactions so suspicious that it made several reports to the investigation team of the United States Department of the Treasury, which is investigating cases of alleged money laundering, among other things.

Deutsche Bank, for example, found it unusual for a significant proportion of transactions to be round and it was not clear exactly for what purpose. The bank was also visibly concerned that it did not know exactly who was behind the Caribbean company.

The way to find out was through Hungary, but Deutsche Bank encountered obstacles here.

The Guarantee Agency maintained its account with one of Hungary’s largest financial institutions, MKB Bank, but the bank refused to disclose information about the client. This was not the first time Deutsche Bank had viewed the Caribbean company’s transactions as suspicious, and when it had approached MKB on a previous occasion to reveal who owned the Guarantee Agency, it received a negative response.

“We would like to inform you that due to local bank secrecy rules, we are unable to provide further data on our client,” wrote MKB.

This exchange of messages grew out of a package of confidential documents processed by an international team of journalists over the last year and a half. The investigation was based on secret reports sent by US-based banks to the US Department of the Treasury about transactions they suspected. The US editorial office, BuzzFeed News, obtained more than 2,100 such classified reports and then shared them with a network of investigative journalists called the International Consortium of Investigative Journalists (ICIJ), which coordinated the investigative work on almost 90 countries. From Hungary, only Direkt36 participated in the project.

In the documents, Hungarian banks appeared on several other occasions as participants in various suspicious transactions. On the basis of the documents alone, it is difficult to determine whether the references were really irregular or illegal, and Hungarian financial institutions often appear in the references only as a single station in a multi-actor chain. However, it is clear from the documents that the transactions were carried out through the Hungarian banking system, the purpose or origin of which was questionable.

The case of the Guarantee Agency is also noteworthy because it was not only Deutsche Bank that was surprised by the company’s references. Direkt36’s investigation shows that the company was also involved in a multi-million dollar fraud case in the UK. According to British court records, a member of a group convicted of credit card fraud has transferred hundreds of thousands of pounds through the Guarantee Agency. It is not clear if the company was already a client of MKB at the time, but court documents indicate that the company already had an account with a Hungarian bank at the time.

However, it is not clear why MKB defended the Guarantee Agency so much against US interests. When Deutsche Bank inquired about another offshore corporate client of MKB, which had unusual transactions in 2012, the Hungarian financial institution reluctantly provided the requested information.

MKB Bank stated that due to bank secrecy rules, they were unable to answer our questions. The bank didn’t help us get to the Guarantee Agency either. The company does not have a website and the only known address is a mailbox in a Caribbean country called Saint Vincent and the Grenadines.

Secret suspicious transaction reports

The leaked documents are reports submitted by US banks and other financial firms to the Financial Crimes Enforcement Network within the US Department of the Treasury This organization, known as FinCEN, plays a central role in the global fight against money laundering. The essence of money laundering is that money from illegal activities, such as drug trafficking, is tried to enter the banking system by criminal groups and presented as if it had been obtained from legitimate stores.

An analysis by the ICIJ leading the research project showed that, according to leaked documents, between 1999 and 2017, reporting banks identified suspicions of money laundering or other crimes in at least $ 2 trillion in transactions. Even this huge amount is only a small fraction of suspicious transactions within the banking system. While the current leaked documents contain 2,100 reports, in fact, more than a million such reports occur in the United States each year.

In Hungary, the Office for Combating Money Laundering and Terrorism Financing of the National Tax and Customs Administration (NAV) receives suspicious reports of money laundering. Last year, NAV investigated more than 14,000 such cases, of which more than 8,000 were reported by banks.

The leaked documents provide a deeper insight into the secret world of international transactions than ever before, where clients, including criminals, often hide behind offshore companies. According to the ICIJ investigation, banks move large amounts of money without even knowing exactly who is behind the transactions, and they do nothing even when it is clear that they are suspicious money laundering transactions.

Several Hungarian banks appear in the documents, but in most cases the documents do not detail the role they played in the suspicious transactions. The exceptions are the documents about the Guarantee Agency.

There are also three company reports in the leaked documents. An American subsidiary of a giant German bank called Deutsche Bank submitted reports to the United States Department of the Treasury, stating that in the first half of 2011, unusual transfers worth more than $ 51.3 million were found involving the participation of the company on its own system. In these, the Guarantee Agency appeared as the initiator or recipient of the transaction.

In analyzing the transactions, Deutsche Bank found it problematic that a significant proportion of the transfers were “big round dollar” transactions. Furthermore, it was noted that the subject of the references was often only a “loan” or a “contract” and that Deutsche Bank “could not confirm the business purpose of these transactions in an independent investigation”.

“If the purpose of the transfer is just a loan or a contract, it is very little,” a Hungarian source who works in the international financial sector told Direkt36. “On each occasion, care must be taken not only to write the purpose of the transfer in the communication, but also to present the contract to the bank,” she added.

The reports list what other companies, individuals and banks were involved in the transactions, but do not detail exactly how much money they gave or received. When companies and individuals are mentioned, they usually do not provide any information other than the name (such as address or, in the case of individuals, date of birth), so it is difficult to identify them.

Documents show that identification was also a problem for Deutsche Bank. The German bank giant has also been unable to find out who is behind the Guarantee Agency, which plays a key role in the transactions. All they knew for sure from the documents they had at their disposal was that the company was registered in Saint Vincent and the Grenadines in the Caribbean and was therefore considered an alleged offshore company.

Offshore companies are companies, often incorporated in the Caribbean or other exotic countries, that are commonly used for two purposes. For one thing, these businesses can help their owners pay less taxes on their businesses elsewhere. On the other hand, it is often extremely difficult to access the proprietary information of these companies, which makes them suitable for clandestine businesses, money laundering or the concealment of questionable assets.

Deutsche Bank tried to find out the ownership history of the Guarantee Agency by contacting the company’s bank account holder, MKB Bank, which was founded in Hungary but was still owned by Germany at the time in question. He did so even before the 2011 transactions, as unusual references involving the Guarantee Agency had already been noticed before that. It was then that they received a negative response from MKB that information about the owners of the company could not be released for reasons of bank secrecy. MKB added, however, that “we have brought our client into a state of enhanced surveillance and, if necessary, we will take specified steps towards authorities depending on the outcome of the investigation.”

As MKB Bank did not respond to our questions, it was not clear what this enhanced supervisory status meant or why the bank rejected Deutsche Bank’s request. The leaked documents revealed that MKB Bank was not always so secretive with its clients. In 2012, for example, MKB Bank provided Deutsche Bank with information about an offshore company affiliated between Israel and Russia, which also maintained a bank account, with no worries, according to leaked documents.

The secrecy surrounding the Guarantee Agency is remarkable simply because, as the Direkt36 investigation has shown, the company had been involved in cross-border criminal investigations for years before Deutsche Bank found the allegations suspicious.

Fraud in Great Britain

On September 29, 2005, at London’s Victoria tube station, the police routinely checked a man of Polish nationality who was found with 40 mobile phone cards and £ 1,000 in cash. As this seemed suspicious, his home was later searched, where additional cards were found, and further investigation revealed that the man was a member of an international credit card fraud ring.

The one-and-a-half year investigation revealed that the group stole data from some 32,000 credit cards, from which significant sums were later deducted. Members of the criminal organization regularly went on luxury trips and bought a number of high-value properties in and around London, as well as in Spain.

One of the documents related to the investigation, which came into the possession of Direkt36, shows that the authorities also knew the name of the Guarantee Agency by following the path of the money. A member of the company transferred about half a million dollars to the company in various transactions. The money was originally a loan to the Guarantee Agency, but from the documents discovered during the investigation, it appeared that the company had already repaid the money loaned that day. It is not clear from the investigation records what the purpose of these transactions was.

Although the documents do not specify in which bank the Guarantee Agency held its account, the UK authorities noted that “the company has banking operations in Hungary”. MKB Bank did not respond to our question as to whether they had already maintained the Guarantee Agency account or were aware of the UK investigation. The British investigating authorities also did not respond to our request.

Documents relating to the British investigation were obtained through the Investigative Dashboard service of the OCCRP investigation network.