The government of the U.S. Pacific Territory of the Marshall Islands has temporarily closed down a bank that issued a worthless $500,000 cashier's check used to defraud a Washington area office of the brokerage house Merrill Lynch & Co.
Merrill Lynch reportedly fired two employes of its Tysons Corner office in the wake of the incident, which is the subject of a continuing investigation by the Federal Bureau of Investigation.
Investigators say phony checks from the same Marshall Islands bank have been passed at several other banks and financial institutions around the country as well as at casinos in Las Vegas. The Comptroller of the Currency and state law enforcement authorities in Florida have joined the investigation.
Gordon F. Linke, manager of Merrill Lynch's Tysons Corner office, declined to discuss the investigation of his company's losses. Al Hein, a local FBI spokesman, confirmed that the FBI investigation of the worthless check deposited with Merrill Lynch is continuing. He said that the FBI investigation did "extend beyond Northern Virginia," and that "numerous FBI offices are working on the case." Other federal law enforcement officials said investigations had indicated that the check had been deposited with Merrill Lynch as part of an elaborate scheme to convert the check into Iranian currency.
One investigator said the scheme began to unravel when it was discovered that the Iranian government does not allow any of its currency to be exported. The Marshall Islands government recently became so alarmed by a flood of complaints about the dozens of offshore banks licensed in the American territory that it announced all such banks would have to apply for new licenses.
Sterling Bank and Trust Co., which issued the $500,000 check accepted by Merrill Lynch, had its license suspended after Marshall Islands authorities received numerous complaints about its activities, according to John Howard, deputy attorney general and registrar of corporations in the territory.
Howard said in a telephone interview that the bank, which was licensed in the island of Majuro but only allowed to do business offshore, cannot conduct business while the suspension is in force. He said his office would decide by the end of next month whether the suspension should be lifted.
Comptroller of the Currency C. Todd Conover last October warned the banking industry that his office had received information that "certain direct obligations" issued by Sterling Bank and Trust "have not been honored." He recommended that American banks exercise "extreme caution . . . when any involvement with this entity is contemplated."
Shortly after issuing this notice, Conover's office put out a separate bulletin to the banking industry, noting that 101 "offshore shell bank licenses" had been registered in Majuro. The notice recommended that American banks attempt to verify the "financial integrity" of any transaction with such banks "to avoid a possible undue exposure to loss."
The FBI disclosed last November that it was investigating a complaint by Merrill Lynch about a $500,000 cashier's check drawn on a foreign bank that had been deposited in an account at the brokerage firm's Tysons Corner branch last August.
The brokerage paid out a "large sum of money" from the account before learning the check was bad, the FBI said. Although the brokers declined to identify the employes who were fired in the wake of the episode, sources identified the dismissed employes as a broker and an operations manager.
Although the FBI did not identify the bank on which the worthless check was drawn, Bill Clark, a spokesman at Merrill Lynch in New York, said it was the Sterling Bank.
Howard said the Marshall Islands government also had been informed about Merrill Lynch's problem with a Sterling Bank check. Howard said records filed with his office indicated that the Sterling Bank was owned by Kenneth Stanojevich, who listed a Toronto address on licensing papers. He said Stanojevich now conducts business from Miami. Federal and state officials involved in investigations of Sterling Bank said they believe Stanojevich operated the bank with a business associate named Lorenzo Lacayo, and corporation records maintained by the state of Florida show that Stanojevich and Lacayo were officers of several Miami companies.
The Marshall Islands government and federal investigators said the original license for Sterling Bank and Trust was issued to WFI Corp., a Los Angeles consulting firm that "specializes in establishing offshore banks." Jerome Schneider, the company's president, told a congressional subcommittee in 1983 that since 1975, his company had sold 120 offshore banks to members of the public for $35,000 apiece.
Staff investigators for the Senate subcommittee reported that Schneider's company had held seminars on offshore banking in various U.S. cities and that a WFI publishing company had once published a book by Schneider titled "How to Profit and Avoid Taxes by Organizing Your Own Private International Bank in St. Vincent," a Caribbean island.