Officials at BankAtlantic Bancorp said they were stunned last week to learn that federal officials believe the company's new international division is a key component in a large international money laundering scheme.
Two employees of the Fort Lauderdale, Fla., thrift, including the vice president in charge of the division, were arrested last week on bank and wire fraud charges, culminating a 13-month federal investigation.
Authorities said the scheme probably was set up to handle the proceeds of a major Colombian drug cartel.
The case shows that such illicit activity can affect banks of all sizes, not just big banks such as Citibank. Citibank is under criminal investigation by the Justice Department in connection with an account held by the brother of the former Mexican president.
The U.S. Attorney's Office in Miami said the investigation, called Operation Bancarias, began last April after BankAtlantic officials contacted the Customs Service about large, undocumented deposits funneling through the division's foreign accounts.
BankAtlantic officials became suspicious of the activity during a routine audit of the office, which was acquired last February as part of the thrift's purchase of Megabank, a $152 million-asset Miami bank.
"I find it hard to imagine in this day and age in south Florida that something like this could happen," said Bowman Brown, a banking lawyer in Miami.
"Banks have been sensitized for the most part to potential drug- laundering problems and have generally been very aggressive about installing procedures and compliance programs to avoid this sort of trouble," he added. "I see it as a real fluke."
Small banks and thrifts are probably more susceptible to such crimes than bigger institutions, lawyers and experts said: They have fewer resources and less training in detection, and their corporate structures are leaner, limiting oversight.
"It wasn't too long ago that the security officer in a small bank wore five or six different hats," said John Byrne, senior counsel at the American Bankers Association and a money-laundering specialist, "but I feel a lot better now about how the small banks are coping with this stuff than I did 10 years ago."
In their rush to grow, aggressive institutions can sometimes overlook possible red flags in their target banks' operations, observers said. Once it completes an acquisition at the end of the year, BankAtlantic will have grown by more than 50% in the past five years - to $2.2 billion in assets.
"It's rather curious that this wasn't spotted earlier" by BankAtlantic officials or regulators, said Michael Sheehan, a Customs Service spokesman.
Observers agreed that the case should make expansion-minded institutions more cautious.
"This will probably have us look at and reassess how we do acquisitions in the future," said Ritchey Peck, senior vice president of BankAtlantic, "but there's nothing that I can think of off the top of my head that we would've done differently."
Federal investigators claim in court papers that former Megabank employee Piedad Ortiz, who headed BankAtlantic's international division, had been known by the Colombian government for the past four years as a facilitator for money-laundering operations in Bogota.
Investigators also discovered that between $18 million and $25 million passed through some 1,100 foreign accounts in the division every month, according to the complaint. The accounts were frozen last Wednesday for at least 10 days to allow investigators to identitify the account holders.
"This is a very significant case, not just because of the fraud uncovered, but because of what it will lead to," said Wilfredo Fernandez, special counsel in the U.S. Attorney's Office in Miami. "It would be fair to say that the international banking community has been implicated."