A $500M Tab on Hamilton: Offshore Accounts Hinder Effort to Seize Assets

By Thompson, Laura K.; Blackwell, Rob | American Banker, April 10, 2002 | Go to article overview

A $500M Tab on Hamilton: Offshore Accounts Hinder Effort to Seize Assets


Thompson, Laura K., Blackwell, Rob, American Banker


The January failure of Hamilton Bank could cost as much as $500 million, making it the most expensive failure in nearly three years and putting it on par with the fall of Superior Bank, the Federal Deposit Insurance Corp. said Tuesday.

The announcement came as recently unsealed court documents offered the first detailed look at the suspect transactions that led to the Miami-based Hamilton's collapse.

The allegedly corrupt practices detailed in the filings by regulators help explain why the cost of Hamilton's failure to the Bank Insurance Fund, estimated at between $350 million and $500 million, is so high compared with its asset size of $1.3 billion.

In contrast, Superior, of Hinsdale, Ill., had $1 billion more assets, but its failure is expected to cost the Savings Association Insurance Fund $350 million. However, that cost was mitigated by a historic deal with the thrift's owners, who agreed to pay $460 million over 15 years.

With the release of the court documents, officials at the Office of the Comptroller of the Currency were trying to demonstrate that it was aware of Hamilton's questionable practices, but were repeatedly frustrated in their attempts to curb them by the bank's officers and management.

The allegedly corrupt practices included $80 million of unsound loans, charges of money laundering, and the creation of an elaborate web of companies set up to hide bad loans.

"As a result of this continuous, apparently deliberate activity to 'hide the ball,' the comptroller's examiners were wholly unable to determine with any degree of certainty the true financial condition of the bank," the OCC wrote a year ago in response to a lawsuit that Hamilton filed against the agency.

"It is the assets of the federal deposits insurance fund that are at risk if the pattern and practice of undocumented funding activities involving huge sums are money are allowed to continue," the OCC wrote.

Critics have argued that the OCC should have moved quicker to shut down Hamilton. But Robert Garsson, a spokesman for the OCC, said that the bank would have been saved if it had complied with two agency cease-and-desist orders. The agency moved quickly to shut down the bank once it was determined that Hamilton was not complying with the orders, he said.

"It is unreasonable to suggest we should have closed the bank sooner," he said. "Once we were able to conclude that it was no longer viable, we moved very quickly to close the institution. Up until that point closing the bank would not have been justified."

Instead of conceding to the agency's wishes, the bank sued the OCC last April in an attempt to stop it from imposing strict capital requirements. Though the bank's request was denied, Hamilton successfully petitioned the courts to seal the documents. That ban was lifted in late February after the institution collapsed.

Since mid-1999, when Hamilton ignited its feud with the OCC, the bank has contended, even after its failure, that it had done nothing illegal and that all its dealings were legitimate. In December, Hamilton again sued the OCC, this time claiming that the agency was overly harsh in its criticism of the bank and its accusations of money laundering because of a racial bias against Hamilton's primarily Hispanic management.

However, the OCC sought to show in court documents that it had much more to go on than just stereotypes.

One report outlines a series of transactions where about $1.9 billion of travelers checks and cashier checks from various Latin American countries were delivered to the bank in pouches and then credited to the accounts of correspondent bank customers. These unusual transactions were "conducted in blatant disregard to anti-money laundering laws and regulations," the OCC said in the court papers.

Additionally, in July 2000 Hamilton loaned $5.5 million to Metro Bank International in Vanuatu, a place known for money laundering. …

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