Clearstream Financial Clearinghouse Is Accused of Fraud and Money Laundering Summary

  • Last updated on November 11, 2022

The Luxembourg-based financial clearinghouse Clearstream International faced public scrutiny for suspicious financial practices after the publication of the muckraking book Révélation$ by Denis Robert and Ernest Backes. The authors accused the company of money laundering, tax evasion, managing unpublished bank accounts, and dealings with organized crime. The scandal revealed the lack of regulation and policing of financial institutions and their practices.

Summary of Event

Clearstream International was established in Luxembourg in January, 2000, through a merger of Cedel International Cedel International and Deutsche Börse Clearing Deutsche Börse Clearing (DBC). Cedel was founded in 1971 to arrange transfers of U.S. dollars, or Eurodollars, deposited in banks outside the United States. DBC also performed money transfers but was not limited to Eurodollars. The founding of Clearstream combined the two companies into a single financial clearinghouse owned by the Deutsche Börse Group, based in Frankfurt, Germany. [kw]Clearstream Financial Clearinghouse Is Accused of Fraud and Money Laundering (2001) [kw]Fraud and Money Laundering, Clearstream Financial Clearinghouse Is Accused of (2001) [kw]Money Laundering, Clearstream Financial Clearinghouse Is Accused of Fraud and (2001) Clearstream International Luxembourg;financial scandal Money laundering;and Clearstream International[Clearstream International] Révélation$ (Robert and Backes) Robert, Denis Backes, Ernest Clearstream International Luxembourg;financial scandal Money laundering;and Clearstream International[Clearstream International] Révélation$ (Robert and Backes) Robert, Denis Backes, Ernest [g]Europe;2001: Clearstream Financial Clearinghouse Is Accused of Fraud and Money Laundering[03040] [g]Luxembourg;2001: Clearstream Financial Clearinghouse Is Accused of Fraud and Money Laundering[03040] [c]Corruption;2001: Clearstream Financial Clearinghouse Is Accused of Fraud and Money Laundering[03040] [c]Banking and finance;2001: Clearstream Financial Clearinghouse Is Accused of Fraud and Money Laundering[03040] [c]Business;2001: Clearstream Financial Clearinghouse Is Accused of Fraud and Money Laundering[03040] [c]Publishing and journalism;2001: Clearstream Financial Clearinghouse Is Accused of Fraud and Money Laundering[03040] [c]Hoaxes, frauds, and charlatanism;2001: Clearstream Financial Clearinghouse Is Accused of Fraud and Money Laundering[03040] Hempel, Régis

Financial clearing is a banking industry service that facilitates the transfer of funds from one bank to another. This procedure is a matter of recording credits and debits. When bank A transfers a sum of money to bank B, the following occurs: Bank A instructs a clearinghouse, such as Clearstream, to debit its account for the sum of money agreed upon by the two banks and to credit bank B’s account with the agreed-upon sum of money. This system is considered secure and quick and is used throughout the world. It is an essential element of financial transactions involving large sums of money and especially for transactions between banks operating in different currencies.

In addition to recording transfers of money, Clearstream and other financial clearinghouses maintain information on the financial position of banks in relation to other banks. This information is calculated each time a clearinghouse credits and debits accounts in the transfer of monies from one bank to another.

As early as March, 2000, the French government had issued a parliamentary report that addressed the difficulties of regulating financial activities and of preventing money laundering and other criminal activity in the realm of money transfers within Europe. The third section of the report dealt exclusively with Clearstream. On February 21, 2001, the tribunal of Luxembourg opened an investigation into possible financial manipulation by Clearstream. The tribunal found no evidence of systematic manipulation, although it did find evidence of accounting manipulation and Tax evasion;Clearstream Financial Clearinghouse tax evasion. No action was taken and the case was dropped on November 30, 2004, because a statute of limitations prevented prosecution.

In 2001, Denis Robert, an investigative reporter, and Ernest Backes, a former Cedel executive until he was fired in May, 1983, published Révélation$. The book reveals Clearstream’s alleged role in the underground economy and claims the company’s practices were unethical, even illegal. According to Robert and Backes, Clearstream was one of the major institutions that laundered money for banks and shell companies and for organized-crime groups. Robert and Backes also claim that Clearstream played an important role in tax-evasion practices.

Furthermore, the book presents a detailed account of Clearstream’s development of an automated system to provide unpublished accounts to banks and other clients. These claims were corroborated by Régis Hempel, a Clearstream computer programmer at the time the accounts were created. This system permitted the transfer of money without any public record or knowledge. The secret transfer of money facilitated both money laundering and tax evasion. Cedel had opened hundreds of unpublished accounts during the 1980’s and 1990’s.

Backes had been fired from Cedel allegedly because of an argument he had with an English banker who was a friend of the chief executive officer of Cedel. However, once the Banco Ambrosiano scandal broke during the early 1980’s, Backes was convinced that he had been fired because of his knowledge of transactions between Cedel and Banco Ambrosiano. (Banco Ambrosiano, one of the major Italian banks, was implicated for money laundering funds obtained from drug and arms trafficking for organized crime and in channeling Vatican funds to revolutionary groups. The bank collapsed in 1982.)

Backes had worked with Gérard Soisson, who was the manager of Cedel and had the authority to open unpublished or secret accounts or decline them. Soisson was found dead on the island of Corsica while on vacation in July of 1983, just a few months after Backes’s dismissal from Cedel.

After being fired from Cedel, Backes remained in Luxembourg to work in the stock market and eventually as manager of a butcher’s cooperative. During this time, he still had friends at Cedel and began collecting the information that he and Robert would include in their book. They found that Soisson had used some discretion in granting unpublished accounts, and Backes discovered that after Soisson’s death, the number of unpublished accounts at Cedel increased dramatically. Backes further discovered that Cedel had opened unpublished accounts for private companies. Backes and Robert claimed that Cedel/Clearstream had violated acceptable practices by opening secret accounts not only for banks but also for commercial and industrial companies. Robert later published a second book La Boîte Noire (2002), which explored issue of the unpublished accounts, or “black boxes,” in greater detail.

Révélation$ brought to light other corrupt activities of Cedel and Cedel/Clearstream. One case involved the sale of six frigates to Taiwan by the French company Thomson-CSF. Joël Bûcher, an employee of the bank Société Générale, who said he left the bank after twenty years because of the money laundering that was a common practice, revealed the firm used Clearstream to launder money and keep bribes secret in the transaction.

Robert and Backes’s book also led to an enormous number of lawsuits and investigations. Clearstream, and other financial institutions and individuals mentioned in the book, filed ten lawsuits for libel Libel cases;and Clearstream[Clearstream] and defamation against Backes and Robert and the book’s publisher, Arènes, in Luxembourg, France, Belgium, and Switzerland. In total, more than fifty lawsuits were filed against Robert alone. In 2003, a French court refused to award Clearstream 500,000 euros for claimed damages in its defamation case against Robert.

On June 10, 2008, a tribunal found against Robert and imposed a fine of 12,500 euros for defamation. The same day, Clearstream filed a lawsuit demanding 100,000 euros from Robert in a Luxembourg court, and the Paris bourse (stock market) recommended that he be sentenced for unlawful receipt of bank documents and dishonest reporting. Robert filed an appeal but refused to speak publicly about Clearstream or speak to the media.

Impact

The Clearstream scandal resulted in no major reforms in the regulation of clearinghouses and their practices, but the scandal had a significant impact on the public’s awareness of clearinghouses and their function in the world of international finance. The transfer of large sums of money between countries and companies using different currencies would be almost impossible if not for the recording of transactions rather than the physical transfer of funds.

The scandal also revealed the lack of regulation and policing of financial institutions and their practices and the reluctance of courts around the world to interfere with the activities of these institutions. Also, the vast number of parliamentary commissions, judicial investigations, and trials convened as part of the Clearstream scandal show the complexity of the problem, given that the financial institutions involved do not operate in a single country nor under any one jurisdiction. Clearstream International Luxembourg;financial scandal Money laundering;and Clearstream International[Clearstream International] Révélation$ (Robert and Backes) Robert, Denis Backes, Ernest

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Coenen, Tracy. Essentials of Corporate Fraud. Hoboken, N.J.: John Wiley & Sons, 2008. An introductory guide to the white-collar crime of corporate fraud, written by a forensic, or investigative, accountant.
  • citation-type="booksimple"

    xlink:type="simple">Loader, David. Clearing, Settlement, and Custody. Woburn, Mass.: Butterworth-Heinemann, 2002. A good explanation of how the finance-clearing industry functions and its critical importance to the global financial market.
  • citation-type="booksimple"

    xlink:type="simple">Norman, Peter. Plumbers and Visionaries: Securities Settlement and Europe’s Financial Market. New York: John Wiley & Sons, 2008. Discusses the Clearstream scandal and the work of Denis Robert. A comprehensive history of European finance clearing, how it started, and how it has changed.

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