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Morgenthau Nails Wire-Transfer Schemers; Bloomberg Yawns

Check, please!: Morgenthau and Castleman
Manhattan D.A.

Other than being nearly 90 years old, part of the rap on Manhattan District Attorney Robert Morgenthau has long been that he gets too tied up in complex financial investigations. His perpetual opponent, ex-judge Leslie Crocker Snyder, pushes the age issue every chance she gets. The theme of her current campaign is "A District Attorney for the 21st Century." This is supposed to be a subtle reminder that her opponent lived through most of the last century, and shouldn't be counted on for too much in this one.

Snyder's campaigns, both in 2005 and now, have also steadily hammered away at the notion that Morgenthau wastes office resources on probing sophisticated banking and investment schemes, efforts that are better left to the feds. Once she's in charge, her campaign promises, she'll put the focus where it belongs—on street crime and the threat of domestic terrorism.

But here was Morgenthau last week, wizened but still wily, posing with one of those silly, made-for-the-cameras giant checks, this one made out to the City of New York for $175 million. The check was bogus, but the money was real. The nine-term D.A. collected the cash in fines and forfeitures that his office won as a result of two of those tangled financial cases. While the rest of the government is using taxpayer funds to bail out banks and investment firms, Morgenthau's shop is sending a modest bailout package in the other direction.

The bulk of the dough—$109 million—is a belated payment from two former financial titans, Dennis Kozlowski and Mark Swartz, who were in the midst of looting Tyco International before the D.A.'s office interrupted their spree. It took two trials to convict the duo, but the evidence provided us with enduring images of uninhibited corporate greed: There was the $2 million birthday party that Kozlowski threw for his wife in Sardinia, the $15,000 umbrella stand, and the $6,000 shower curtain that graced the family's Fifth Avenue apartment.

The massive case emerged after Morgenthau's investigators spotted the Tyco tycoon pulling one of those casual heists so favored by the rich: Kozlowski would buy costly artworks from local dealers, then have them declare that it was an out-of-state sale, hence no sales tax was due. Then he'd order empty boxes sent to an address in New Hampshire. For crime-policy purposes, this is the upper-income version of the broken-windows theory, i.e., people this cheap are apt to steal a lot more.

The rest of the bounty forked over to the city came from an even bigger score that the D.A.'s office made when it nailed a major British bank sneaking billions of dollars in Iranian funds into the U.S. in violation of federal prohibitions. The bank was helping its Iranian customers pay vendors with American dollars for such big-ticket items as oil field equipment. Some $321 million was routed this way to New York banks, while several billion more passed through city institutions on its way to other recipients.

Lloyds TSB Bank in London became so adept at this procedure that it even issued a manual to its clerks on how to do it. "What Lloyds was doing was physically stripping the identifiers of the originator off the wire transfers," said Dan Castleman, chief assistant district attorney. The bank would replace a name such as Bank Melli—the government-owned bank based in Tehran—with a neutral name that wouldn't trigger screening software used by New York banks.

Probers were unable to track most of what the Iranians were buying with the wire transfers, but some of what they could see raised other questions. In addition to heavy machinery for its oil industry, which is the world's fourth largest, Iran was also ordering centrifuges, according to Morgenthau. While these devices have innocent uses, they are also employed in the enrichment of uranium for nuclear weapons. Then there was an e-mail message that popped up during the probe that showed that an Iranian firm was buying some 30,000 tons of tungsten, a material with many applications, including the construction of missiles.

"It was enough to make all the refrigerators in the Middle East, or enough to build a heck of a lot of rockets," said Morgenthau.

The wire-transfer scheme emerged from yet another probe. This one was looking into suspicious money transfers between the Iranian government and the Iranian-run Alavi Foundation, which is based in an office building at 650 Fifth Avenue. The foundation owns the building together with another Iranian company, the Assa Corporation, which was the target of a federal forfeiture lawsuit filed last year. Just before Christmas, the FBI arrested the foundation's president for shredding documents that a grand jury wanted to look at.

This is not unfamiliar territory for Morgenthau. For one thing, he helped bring down another rogue financial operator in the early 1990s, Bank of Credit and Commerce International—the notorious BCCI. For another, his father, Henry Morgenthau Jr., created the Office of Foreign Assets Control in 1940 to watchdog German and Japanese activities when he was treasury secretary under FDR.

Still, the D.A. recognized that in the wire-transfer schemes he was in deep international waters, and he took his findings to the federal government. "First, we told the CIA about it," said Morgenthau. "They said it's the FBI. We told the FBI. They said this belongs at main Justice."

The Department of Justice referred the case to its Asset Forfeiture and Money Laundering unit, which joined the investigation. Prosecutors said that, once confronted, Lloyds cooperated fully, admitting its wrongdoing and agreeing to undertake "an extensive look-back at its misconduct" aimed at identifying the culprits whose identities were removed from the wire transfers. The bank also agreed to cough up $350 million. Half went to the federal government, the rest to New York.

In mid-January, Morgenthau went up to see Governor Paterson at his midtown office with the state's share of the haul from Lloyds, $109 million. The governor held a press conference, in which he praised Morgenthau for his diligent work and accepted a symbolic check, posing for the cameras. The city's cut was $66 million, and Morgenthau combined this with the $109 million his office had just taken in from the Tyco bandits who had kept the money in escrow pending the exhaustion of their appeals. The $175 million resulting sounded like a nice, round number, and the D.A. had another of those Jolly Green Giant–sized checks prepared.

This is enough to hire about 800 more teachers and 650 extra cops, according to the Independent Budget Office. Yet Mayor Bloomberg, accustomed to checks this big, was unable to arrange a press conference. He issued a statement thanking the D.A., albeit one that made the nine-figure deposit sound like this week's parking meter collections: "I applaud District Attorney Morgenthau for bringing in fines and settlement money, especially when we need to collect on every dollar that is owed to us," said the mayor. Morgenthau held his own press conference, posing gamely with Castleman and the big check.

As for the wire-transfer scheme, the D.A. says there is more to come. "We think there are 10 other banks in all doing this monkey business," he said. "We have two of them front and center right now."

Wouldn't he admit, though, that all this is way off the charts for the District Attorney of New York County? "In Manhattan, there were 62 homicides last year against 628 when I took office," responds Morgenthau. "It frees up a few resources to work on these other cases."

trobbins@villagevoice.com


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