Marshall Islands trust fund defrauded of $1M
- Category: News
- Published: Monday, 23 October 2017 13:39
- Written by Giff Johnson
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By Giff Johnson
MAJURO — Nearly one million dollars was illegally removed from the Marshall Islands government’s United States-based trust fund and only a portion of the money has been recovered, said officials in Majuro Friday.
A series of 12 unauthorized withdrawals from the Marshall Islands Trust Fund “A Account” at State Street Bank and Trust Company during June and July sent $982,265 to accounts at banks in Ireland and Malaysia. State Street Bank is a major U.S. bank headquartered in Boston. While the $273,883 sent in four withdrawals to an account in Dublin, Ireland was recovered, the $708,382 sent to accounts at the Standard Chartered Bank in Selangor, Malaysia has not been returned, said Marshall Islands Finance Secretary Maybelline Bing.
“State Street Bank and Trust Company, the former Trust Fund’s Custodian, released the funds in error and did not follow established processes and protocols,” said Anthony Costanzo, the Executive Administrator of the Marshall Islands Trust Fund. “State Street was informed that the A Account transactions were possible fraud on July 13 after exchanges of information regarding questionable cash account fluctuations.”
The trust fund, which as of April had $320 million, is being capitalized to provide funding to the Marshall Islands government after U.S. grant assistance largely halts in late 2023, when the current 20-year funding agreement expires.
The trust fund agreement with the bank required that any withdrawal from the A Account — which holds the bulk of the trust fund’s money — needed a signature from the Marshall Islands Trust Fund Committee Chairman. The person in the chair position is U.S. Interior Department’s Director of Insular Affairs Nikolao Pula. A separate account, known as the D Account, can be tapped by the Marshall Islands when it has over $10 million. Required signatures for D Account withdrawals are Marshall Islands trust fund committee representatives Bobby Muller and David Paul or Finance Minister Brenson Wase.
However, the 12 withdrawals from the A Account in question were not authorized by Pula. Instead, said Bing, documents containing the signatures of Wase, Muller or Paul were somehow obtained and then used to forge withdrawal requests that were successfully processed by the bank despite the fact that this violated the A Account signature requirements.
“The Trust Fund has an authorization form with the approved authorizers and verifiers,” said Costanzo. “No authorizer approved the removal of the funds and the fund removals were not approved or verified as established.”
The 12 fraudulent withdrawals between June 6 and July 17 this year ranged from a low of $68,470 to a high of $117,637. Bing said that all of these withdrawals were in amounts significantly higher than the usual amount of withdrawals the RMI has made in recent years from the D Account.
Documents also show that there were two “inter-fund” transfers from the D Account to the A Account, one of which notes the reason as “cover short.” Bing speculated that the people behind the illegal withdrawals were apparently attempting to reimburse the A Account from the D Account, possibly in an effort to cover their tracks. A total of $734,819 was transferred from the D Account to the A Account as part of the series of fraudulent transactions in June and July.
These fraudulent withdrawals were not detected until the Ministry of Finance in mid-July submitted a legitimate drawdown request to its D Account fund manager, Investor Solutions, Inc. When Finance received a reply from Investor Solutions inquiring about Finance initiating “another withdrawal,” alarm bells went off, triggering an investigation that discovered the improper withdrawals sending money to Ireland and Malaysia, according to Bing.
“It took several days to discover the origin of the (12 withdrawal) transaction authorizations,” said Costanzo. “I had informed the Marshall Islands members and staff by e-mail and phone on July 18 to verify if they were legitimate transactions. They were not.”
Costanzo added that the Boston-based bank “has the necessary documents to reconcile both the Compact Trust Fund Cash account and the D account. They are going through their approval process to reconcile both funds.”
“State Street has taken total responsibility for the lapse in their procedures leading to the account’s loss,” said Frank Armstrong, who is President of the Florida-based Investor Solutions, Inc., which manages the D Account for the Marshall Islands. “State Street is well along in the process of making the accounts whole, pending only receipt of original affidavits from the government. They are acting with the highest level of integrity to correct the situation.”
The Ministry of Finance submitted a withdrawal for $3 million from the D Account based on the FY 2017 Supplemental Budget adopted by Nitijela (parliament) during the session in the first half of this year. Two million dollars was to be re-invested into the A Account, while $1 million was for the government’s General Fund to meet spending needs authorized by the Supplemental Budget. The discovery of the fraudulent withdrawals, however, derailed the legitimate withdrawal, which still has not been processed to date, said Bing.
A Majuro law enforcement official said the FBI had been engaged to investigate the theft of funds from the account. Marshall Islands officials in the Attorney General’s office, Auditor General’s office, Banking Commission, Ministry of Finance, and Ministry of Foreign Affairs have been engaged in attempting to investigate the situation and get money taken returned to the trust fund.
The government’s internal investigation led officials here to conclude that documents containing the signatures of Marshall Islands trust fund officials were illegally accessed to create fraudulent withdrawal documents to steal money from the government’s trust fund. Whether these documents were obtained by computer hackers or in some other way is not known.