A currency trading firm recommended by the Independent Bankers Association of America has become entangled in a criminal investigation.
Two ranking executives of the brokerage, New York Foreign Exchange Inc., were charged in December with criminal conspiracy and failing to report more than $891,000 in cash transactions in 1986.
The company itself was not charged, but it is worried about the fallout. "I think these are nonsensical charges," said Marvin Freed, president of NYFX. "But many people will say, uh-oh, maybe we shouldn't be doing business with them."
Stamp of Approval
The investigation is potentially embarassing for the IBaa, which represents more than 6,000 community banks. More than two years ago, the association singled out New York Foreign Exchange for endorsement as a broker of foreign currency and precious metals.
Steven Ello, a director of services for the IBAA, said the association was not aware of the indictments before being asked about them by the American Banker.
He said the IBAA does not plan to withdraw its endorsement of NYFX, which is "doing a fine job" for members. "How can we hold them responsible for something that has not been proven? " he asked.
Mr. Ello said the association will withhold any judgment on the firm's standing until the case is settled.
NYFX is one of 19 vendors listed in an IBAA purchasing guide to equipment and service suppliers that have been found by the association to be reputable and financially sound. The suppliers offer discounts to IBAA members.
Rosterof Familiar Names
Dozens of community banks affiliated with the IBAA use NYFX. Some larger banks are also among its clients, including First Alabama Bank in Birmingham, Meridian Bank in Philadelphia, National Community Bank of New Jersey in West Paterson, Signet Bank of Richmond, and Whitney National Bank of New Orleans.
The NYFX executives charged in U.S. district court in Manhattan were Louis Baron, one of the firm's founders, and Anthony Pong, a vice president.
They have have pleaded not guilty and categorically deny the charges, according to their attorneys.
The felony charges carry penalties of up to five years' imprisonment and fines of up to $500,000.
The assistant U.S. attorney on the case, Christine Gray, declined to comment on the case.
NYFX, which was founded in 1984 by Mr. Freed and Mr. Baron, is relatively small, employing 25 to 30 people.
Though it originally traded foreign currency and precious metals, NYFX branched out in 1988 into the international money transmission business, competing with the likes of Western Union Financial Services through a network of about 60 agents in the New York area.
Using the name Rapid-O-Giros, NYFX specializes in transmitting money to Caribbean and Central and South American countries for clients with modest incomes living in ethnic neighborhoods in New York, Mr. Freed said.
The IBAA recommendation came in part on the strength of Mr. Freed's and Mr. Baron's experience.
Mr. Freed said he has worked in the foreign currency trading business since 1945, rising to senior vice president of Deak International Ltd., a leading currency exchange house that was purchased by Thomas Cook Group in 1990.
Enforcement Work Cited
Mr. Baron said he started working at the Deak companies in 1957, and eventually rose to chief financial officer.
Mr. Freed said he and Mr. Baron have a long history of helping law enforcement agencies track down money launderers. Mr. Freed added that he, Mr. Baron, and NYFX have "exemplary records" of obeying currency reporting laws.
Mr. Baron's attorney, James R. De Vita, added that if any illegal transactions were executed, they were done without the knowledge of Mr. Baron or Mr. Pong.
The federal government also has criminal charges pending against individuals who have close business relationships with NYFX.
Three individuals who are now fugitives -- Hugo Cuevas-Gamboa, his sister, Angela Cuevas de Dolmetsch, and his brother-in-law, Francois Dolmetsch -- were indicted in 1985 in U.S. district court in Miami for conspiracy to defraud and conceal information from the Internal Revenue Service, and for failing to report millions of dollars of cash transactions executed in 1981.
The transactions involved a Colombian company, Cuevas Associados Ltd., of which the three were directors.
Key Foreign Correspondent
The three individuals control a company called Universal de Cambios, of Cali, Colombia, that is NYFX's principal foreign correspondent for international money transfers.
They are also principals in a company called Interspace Clearance Inc. in the Virgin Islands, which, through a unit called Rapid-O-Giros USA, in Coral Gables, Fla., licensed the Rapid-O-Giros trademark to NYFX, according to Hugo Cuevas-Mohr, Mr. Cuevas-Gamboa's son.
Mr. Freed and Mr. Baron have applied for permission from the New York State Banking Department to sell half of NYFX to three individuals, including two with close ties to Mr. Cuevas-Gamboa and the other indicted family members.
These individuals include Mr. Cuevas-Mohr, who is also a principal in Universal de Cambios, and the son of Mr. Dolmetsch and Ms. Cuevas de Dolmetsch, Richard Dolmetsch.
Mr. Freed said he has met with the family and is aware of the charges.
"These are family-oriented, honest people," he said.
Before the Crackdown
Mr. Freed added that the indictments related to violations at a time when noncompliance with currency transaction reporting rules was widespread and the rules were not widely enforced.
As a result, the Cuevas-Gamboa family may have violated the law without realizing the violations were serious, Mr. Freed added.
In 1985 and 1986 several banks were charged with failing to comply with currency transaction reporting laws, which were intended to help law enforcement agencies identify and stop money laundering.
In 1985, the Bank of Boston pleaded guilty to a felony charge of failing to report some $1.2 billion of international currency transactions.
Others Fess Up
That conviction spurred more than 60 banks to later admit that they, too, were not reporting currency transactions as required by law.
The list of institutions fined for criminal or civil violations of reporting laws in 1985 and 1986 included Bank of America, Bank of New England, Chase Manhattan Bank, Chemical Bank, and Manufacturers Hanover.
"Currency transaction reports were not being filed just about anywhere in the nation," said Michael McDonald, group manager of the Internal Revenue Service's criminal investigation division in Miami.
But Mr. McDonald asserted that investigators have evidence that the Cuevas Associados principals knew they were breaking currency transaction laws.
Leader of Operation Greenback
Mr. McDonald helped lead a joint investigation of the IRS and the Treasury Department, called Operation Greenback, that developed the case against Cuevas Associados, its directors, and dozens of other companies and individuals for failing to file currency reports in South Florida in the early 1980s.
Robert Katzberg, a lawyer representing the Cuevas-Gamboa family, said the family was now negotiating to settle the criminal charges.