Drugs cartel passed £30m through NatWest

When traffickers needed to launder the proceeds, they duped one of Britain's most reputable banks
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The Independent Online

Worries about money-laundering safeguards have resurfaced after investigators discovered that the foreign exchange arm of NatWest was used by Britain's biggest-ever drugs cartel to launder nearly £30m in trafficking proceeds.

NatWest (World) handled the proceeds from the trafficking of £28.2m worth of cannabis and cocaine, believing it was part of a legitimate foreign exchange deal with a major Lebanese bureau de change.

NatWest also intervened when Customs and Excise officials detained couriers from Beirut carrying regular consignments of cash for the money launderers. The bank reassured Customs that the couriers were legitimate, apparently unaware that the parcels of sterling and foreign bills were part of the cover for a huge money-laundering fraud.

The scam first emerged in court two years ago during the prosecution of one of Britain's most notorious drug smugglers and supergrasses, Constantine Michael Michael, 40. But the hearings were covered by blanket reporting restrictions and can only now be revealed.

NatWest's role in Michael's elaborate laundering operation came to light after an undercover drugs investigation by Customs and Excise.

A north London sauna owner, Michael built a huge trafficking operation during the 1990s, organising shipments of hard and soft drugs across Europe worth at least £90m at bulk prices. When he was arrested, Michael had three tons of cannabis resin and 13kg of cocaine at his warehouse.

The raids revealed that Michael had kept detailed records and log books which disclosed the full extent of the money-laundering operation. After his arrest, Customs had a major coup when he agreed to turn supergrass, providing evidence against his key lieutenant, Janice Marlborough, his wife Lynn, and his brother Xanthos.

Michael has been the main witness in a series of trials that have resulted in 34 convictions and sentences totalling 174 years.

During the money-laundering trial, Michael revealed that his key accomplice in the operation was a Lebanese businessman called Houssam Ali, who had moved to west London in the early 1990s.

At first the money-launderers used a bureau de change on Edgware Road run by a man known as Sam al Kurd, who was later jailed for 14 years in an unrelated drugs case. In 1996 Ali set up a fake bureau de change with Ms Marlborough called Classbrook Services, but the amount of drugs money involved became too large for it to handle. So Ali then turned to Schulmann Exchange in Beirut, one of the two biggest bureaux de change in Lebanon, where he already had an account.

Schulmann routinely used NatWest (World) for all its cash deposits. The money was brought to London from Beirut by couriers and taken to NatWest from the airport, usually by security vehicle. NatWest logged it and converted it to US dollars, wiring the money to a US bank in New York. From there it was wired back to Dubai to Schulmann.

Michael needed to convert sterling into Dutch guilders and Spanish pesetas to repay his drugs suppliers in their own currencies. Ali would regularly phone through an order to Beirut for batches of foreign currency, and either he or one of the Michael brothers would meet the Schulmann courier at an airport or hotel in London to swap the foreign currency for sterling. The couriers would then bank the sterling at NatWest as if it were money coming directly from Beirut.

"The couriers certainly knew they were receiving money in the UK, adding it to a Schulmann invoice and taking it to the NatWest bank, and therefore giving rise to the impression it was coming from Beirut," said one Customs source familiar with the case. The money deposited "was ostensibly from Beirut, from a legitimate source".

Questions were raised at NatWest when the bank realised that batches of cash that had come from Ali were not packaged in the same way as the other currency. Ali reacted by importing the same printed wrappings used by Schulmann in Beirut.

Two NatWest managers also quizzed Schulmann about the sudden increase in deposits during a tour of clients in the Middle East. They were assured that a new client had been acquired with a legitimate bureau de change in London.

According to Michael's evidence, Schulmann couriers were stopped on a number of occasions by Customs but NatWest vouched for their legitimacy. The couriers were then allowed to continue on their way. NatWest does not deny this claim.

Between January 1997 and April 1998, Ali successfully laundered £28.2m through NatWest. Just before Customs raids in 1998, the NatWest managers who handled Schulmann moved to Barclays, and Schulmann's business went with them. As a result a small amount of drugs money was laundered through Barclays. In 2000 Ali was jailed for seven years and nine months for his part in the money laundering. In December last year, Michael Michael finished giving evidence as a supergrass and was sentenced to six years.

A spokesman for Royal Bank of Scotland, which now owns NatWest, said: "We would not wish to comment on the specifics of the case, which were properly the subject of court proceedings. However, on the more general issue, the regulators and the banks have in recent years put in place new controls to guard against money laundering. Moreover, since the takeover of NatWest by Royal Bank of Scotland, new anti-money-laundering systems have been put into operation."

Customs officers involved in the case insist that NatWest had no knowledge of the laundering operation, and had made genuine efforts to check with Schulmann about the source of the cash.

"NatWest, as one would expect, have co-operated fully and provided a witness statement and copies of all the accounts and invoices relating to the receipt of the money from the couriers," said one Customs source close to the investigation. "Our view is that NatWest have a very robust anti-money-laundering system in place." Barclays was also exonerated.

However, the affair shocked Customs, which overhauled anti-laundering techniques. It now uses "financial profiling" in all major smuggling and drugs cases, appointing financial investigators to every operation. Money couriers are now subject to close scrutiny as part of a major policy shift focusing on financial transactions in crime.

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