Former Co-Owner of a CUSO Sentenced to Probation in Anti-Money Laundering Case

A federal judge sentenced a former co-owner of a New York CUSO to two years of probation for engaging in high-risk financial transactions that included more than $324 million in bulk cash deposits managed by the $1.8 million New York State Employees Federal Credit Union (NYSEFCU).

Last September, Hanan Ofer, 70, pleaded guilty to one felony count of failing to maintain an effective anti-money laundering (AML) program.

During an Aug. 30 court hearing, U.S. District Court Judge Diane Gujarati in Brooklyn also ordered Ofer to pay a $9,500 fine and a $100 assessment fee.

Federal prosecutors recommended a probation sentence because Ofer was a minor participant, owning 25% of the NYSEFCU CUSO, who relied on his co-defendant, Gyanendra Asre, who was the compliance officer responsible for implementing an effective AML program.

Ofer and Asre were initially indicted by a grand jury from the Eastern District of New York in Brooklyn in March 2021. Asre, whose criminal case is pending, pleaded not guilty to eight counts of failing to maintain an AML program at the credit union, failing to maintain an effective AML program at the credit union’s CUSO, failing to file suspicious activity reports and operating an unlicensed money transmitting business. Asre, who also owned 25% of the CUSO, served as NYSEFCU’s compliance officer from March 2015 to June 2016 and was a member of the credit union’s supervisory committee from November 2014 to April 2016, according to court documents.

Prosecutors noted in their sentencing memo to Judge Gujarati that Ofer knew that the AML program was ineffective, and that he did not take steps to ensure that the person responsible for the program, Asre, had implemented an effective program.

“Instead, he permitted the NYSEFCU-CUSO to transfer hundreds of millions of dollars in high-risk transactions through the NYSEFCU’s Federal Reserve account without appropriate AML controls,” prosecutors wrote. “While the conduct is serious, it did not involve violence or harm to third parties and the defendant has no criminal history and has accepted responsibility for his actions.”

The purpose of the CUSO was to facilitate an agreement between an armored car company’s holding company and a Mexican bank to help NYSEFCU handle bulk transfers of currency. NYSEFCU-CUSO provided bulk cash services for a U.S. money transmitter, which was one of the armored car company’s major clients. The Mexican bank and U.S. money transmitter were NYSEFCU-CUSO’s only two customers, according to court documents.

From November 2014 to June 2016, the NYSEFCU-CUSO received more than $100 million in bulk cash deposits of U.S. currency from the Mexican bank into an account at the Federal Reserve maintained by the credit union, which then wired those funds to the Mexican bank’s accounts at a U.S. financial institution. In addition, from October 2015 to June 2016, NYSEFCU-CUSO received more than $224 million in bulk cash deposits from a money transmitter’s various branches and deposited them into the NYSEFCU’s account at the Federal Reserve. The credit union then wired the funds to the money transmitter’s account at another U.S. financial institution, according to court documents.

Ofer was brought into the NYSEFCU-CUSO because of his experience in the physical logistics and security of bulk cash shipments. He began his banking career with Republic National Bank in New York and its successor entity, HSBC Bank, where he worked in the logistics division of managing hard currency, according to a sentencing memo written by Ofer’s lawyer, Arthur D. Middlemiss.

In addition to his banking experience, according to Middlemiss, Ofer served as a director of the $123 million American Broadcast Employees Federal Credit Union in Rockville Centre, N.Y., and served as CEO of Saks Fifth Avenue Enterprises Federal Credit Union, which was merged in 2013 because of its poor financial condition.

“It is relevant to consider that Mr. Ofer’s focus was on logistics, not AML compliance, and that his failure was in not taking full steps to ensure that the business had an effective AML program. He relied, mistakenly, on others to provide requisite AML controls,” Middlemiss wrote on behalf of his client. “Likewise, it is appropriate for this Court to consider that this case is about AML risk, not about money laundering itself. The indictment alleges that NYSEFCU provided services to institutions that handled a large quantity of funds, including funds from Mexico, which is recognized to be a high-risk jurisdiction, but it is nowhere alleged that Mr. Ofer laundered money or knew that his services were used to launder money for others.”

In October 2017, the 1,183-member NYSEFCU was liquidated by the NCUA, which declined to comment on whether the high-risk AML transactions contributed to its decision to close the credit union.

NYSEFCU’s financial performance reports showed that in the three years before Asre and Ofer were providing their services (2012-2014), the credit union was making $11,000 to $13,000 in fee income. In 2015 and 2016, the credit union’s fee income substantially increased to $87,000 and $79,000, respectively.