From a West Virginia hilltop to Hong Kong, investigators follow secret money

VIENNA, W.Va. — The trail to Dr. Barton Adams' money ran from the wooded, dead-end street where he used to live above this Ohio River town to the British Virgin Islands, the Philippines and ultimately to Hong Kong, federal prosecutors say.

They charged his wife with opening accounts at HSBC in Hong Kong, one of the world's largest banking and financial services organizations, in an attempt to launder $3.7 million. She was convicted in November of obstruction.

Adams, a doctor of osteopathy, has pleaded not guilty to charges of fraud, tax evasion and money laundering, and is expected to go to trial this fall.

Investigators took a closer look at HSBC, too. A Senate committee plans to announce on Tuesday at hearings in Washington that the bank's lax controls created the potential for criminals to move money easily around the world, thwarting U.S. banking laws and exposing gaping holes in the international financial system, according to a copy of the findings obtained by the Tribune-Review.

While the Senate report and hearing will focus on HSBC, weak monitoring by multinational banks in general allows criminals to move money at will, Sen. Carl Levin, D-Mich., chair of the Senate Permanent Subcommittee on Investigations, said Monday.

“Some international banks have abused their access to our banking system,” Levin said. “Some have affiliates in countries where money laundering, drug trafficking and terror financing are major problems. Some have affiliates in secrecy jurisdictions, which are so inviting to wrong-doing.”

Top HSBC executives — including Irene Dorner, president and CEO of its U.S. affiliate, HSBC Bank USA — are scheduled to testify at the hearing.

“We will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong,” the bank said in a statement. “… Our controls could and should have been stronger and more effective in order to spot and deal with unacceptable behavior.”

That the investigations of HSBC stretch from rural America to banking centers in the Caribbean and Asia underscores the pervasive reach of the shadow economy, experts say. A Tribune-Review investigation found that as much as half the world's economy flows through some 70 international jurisdictions that act as black holes, offering those who put their money there extensive privacy, tight security and low or no taxes.

Studies by several organizations, including the International Monetary Fund, estimate the total stashed in these places at as much as $25 trillion, the Trib found.

Shutting down the flow of illegal banking would flush out tax cheats and break international crime syndicates and terror groups, said Heather Lowe, legal counsel at Global Financial Integrity, a Washington nonprofit that tracks hidden money.

“It's become a massive international web, and what facilitates the existence of that massive international web is the international financial system,” Lowe said. “If they can't use that to shift the money necessary to pay for all of these operations, they would be out of business.”

Truckloads of cash

The yearlong Senate investigation uncovered truckloads of cash worth $7 billion a year being brought across the Mexican border into the United States, incidents of Russians running $290 million in travelers checks through a Japanese bank and 2,000 HSBC accounts with murky ownership.

Accounts registered in secrecy jurisdictions such as the Cayman Islands can hide their true ownership, investigators reported. Other times, HSBC's foreign banks evaded U.S. safeguards by making 25,000 transactions worth $19.4 billion without disclosing links to Iran, even when they were allowed.

When criminals in the United States cannot deposit large amounts of money in this country without drawing law enforcement attention, they smuggle the illicit proceeds to other countries for deposit there, Levin said.

“Absolutely, criminals here are laundering their money in this way, and other ways as well,” Levin said.

HSBC, headquartered in London and named after founding member, The Hongkong and Shanghai Banking Corp. Ltd., reported profits of $22 billion last year, with 7,200 offices in 80 countries. The Senate investigation focused on HSBC Bank USA, with 470 branches and 4 million customers.

Levin said the bank cooperated with the investigation and has implemented important changes — such as increasing its number of compliance officers to 1,000 from 200 — but added that it will need to continue making significant changes in addition to having top executives apologize.

The Senate report faults regulators in the U.S. Office of the Comptroller of the Currency for not taking enforcement action against the bank for six years and for not doing enough once it acted.

Vienna doctor

While Senate investigators tracked HSBC accounts to distant places such as Saudi Arabia and Bangladesh, federal prosecutors separately have linked the bank to Vienna and Brentwood Heights Street, where mostly two-story homes are cut into the top of a wooded hill.

People on the street are used to foreign executives coming to live there while working at the nearby DuPont plastics factory. The Adams family, however, seemed different, said Julie Gyongyosi, 54, who lives next to the house the family once rented.

Adams' wife and children rarely went outside the brown-brick home, and he had a habit of driving into his garage and shutting the door even before getting out, she said.

“I was really suspicious of them from day one,” Gyongyosi said. “He made a big effort not to be seen.”

Prosecutors claim Adams set up a pain management clinic in Vienna and bilked millions from federal Medicare and Medicaid programs and private insurers by seeking duplicate payments, billing for ultrasound screenings and pain control injections that were not performed and getting patients to sign for medical services they never received.

Adams pleaded not guilty and maintains his innocence, said his lawyer Stephen Herndon. Prosecutors filed last week to dismiss obstruction charges against Adams but said they would proceed with his fraud trial scheduled to start in November.

William Ihlenfeld II, the U.S. Attorney for Northern West Virginia, declined to comment to the Trib.

As investigators looked at Adams' medical practice, they said his wife, Josephine, set up a shell corporation in the British Virgin Islands, called Keyfield Ltd., and opened Hong Kong bank accounts at HSBC and another bank in the company's name. Money ended up in accounts in Canada, China and the Philippines.

On the day she was convicted, Ihlenfeld said in a statement that Josephine Adams had enjoyed a “luxurious lifestyle” at the expense of taxpayers.

“She took trips around the world, stayed in fancy hotels, and had plans to retire overseas until the whole scheme collapsed.”

Editor's note: This story is one in a series on hidden money.

Andrew Conte is a staff writer for Trib Total Media. He can be reached at 412-320-7835 or andrewconte@tribweb.com.