#[1]alternate [2]alternate [3]Jeffrey Epstein’s Mystery Bank Came Alive

#[1]alternate [2]alternate [3]Jeffrey Epstein’s Mystery Bank Came Alive
After His Death

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Jeffrey Epstein’s Mystery Bank Came Alive After His Death

Southern Country International received millions of dollars from Mr.
Epstein’s estate in December.
[00Epsteinbank1-articleLarge.jpg?quality=75&auto=webp&disable=u
pscale]
[13]Matthew Goldstein [14]Steve Eder

By [15]Matthew Goldstein and [16]Steve Eder
* Feb. 4, 2020
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In the years after Jeffrey Epstein registered as a sex offender, he
closed his money management firm and started a business to develop
algorithms and mine DNA and financial databases.

Then he set up a bank.

In [17]a banking license application reviewed by The New York Times,
Mr. Epstein described himself as one of the investing world’s
“pioneers” and said he wanted to pursue the “dynamic discipline of
international banking.”

Officials in the Virgin Islands, the United States territory where Mr.
Epstein set up most of his businesses, approved a license for him in
2014 to run one of the territory’s first [18]international banking
entities, a specialized bank that can do business only with offshore
clients. The approval was unusual, given Mr. Epstein’s status as a
convicted sex offender.

The bank, Southern Country International, renewed its license for each
of the next five years, but it’s unclear whether it conducted any
business or had any customers. Mr. Epstein, who died while in federal
custody last summer following his arrest on sex trafficking charges,
does not appear to have done any marketing for the bank or hired much
staff.

The bank was created under a territorial law that lacked many of the
oversight requirements banks are usually subject to, and its regulatory
file is largely empty. A lawyer for Mr. Epstein told officials in the
Virgin Islands in 2018 that Southern Country had not commenced
operations. And regulators in the territory said they did not exercise
oversight of the bank because it did not appear to be doing any
business.

And yet, after Mr. Epstein’s death, his estate transferred more than
$12 million to Southern Country, according to court documents.

On Tuesday, at a court hearing in the Virgin Islands on motions
involving Mr. Epstein’s estate, a magistrate judge, Carolyn
Hermon-Purcell, questioned the estate’s lawyers about the transfers to
Southern Country, saying the disclosure was not satisfactory. The judge
said she did not know why Southern Country would be receiving checks
from the estate. “There’s no explanation for it,” she said.

A lawyer for the estate responded that some of the payment had been
made in error, but the judge was not satisfied with his response and
asked him to follow up with a fuller accounting.

The checks — listed in the estate’s transactions for routine payments
such as cable-TV bills and phone service for Mr. Epstein’s many
properties — stand out. The list of payments were filed with Judge
Hermon-Purcell, who is overseeing his $635 million estate, including
the possible establishment of a compensation fund for his victims.

That Mr. Epstein was able to get a banking license in the first place
is unusual.

His 2008 conviction in Florida on a charge of soliciting prostitution
from an underage girl required him to register as a sex offender. Most
bank operators doing business in the United States are required to
undergo rigorous background checks, and most banking institutions are
subject to oversight by the arm of the Treasury that investigates
suspicious financial transactions. Neither was required by the Virgin
Islands when Mr. Epstein submitted the application in 2013.

The territory had passed its international banking entity law a year
earlier, in hopes of enticing investment from overseas. It modeled its
law on that of Puerto Rico, where international banking entities have
existed for three decades.

Such organizations are attractive to offshore investors because the
banks are able to offer more favorable tax treatment than the
investors’ own countries can. In return, the territories expect
residents to manage the banks, even though they cannot use the banks’
services.

These specialized banks have drawn scrutiny because of their potential
for abuse, including money laundering. The Federal Reserve Bank of New
York describes international bank entities in the Virgin Islands and
Puerto Rico as [19]“high-risk” institutions. Last year, it temporarily
suspended applications for them to obtain financial services from the
Fed until it can issue stricter rules for them.

Mr. Epstein was carefully evasive in answering a question on the
application that was meant to reveal information about an applicant’s
criminal record. His response mentioned his guilty plea to state
charges in Florida, but it played down other elements of the case.

“For a relatively brief period, in what has otherwise been a productive
and accomplished life,” the application said, Mr. Epstein “did face
some legal difficulties relating to matters alleged to have taken place
seven years ago.” The application noted that a federal investigation
had been “discontinued.”

But that answer was misleading, said Richard Scott Carnell, a former
assistant secretary for financial institutions at the Treasury
Department. The application did not reflect that Mr. Epstein’s plea
deal included an agreement with federal prosecutors, who promised not
to bring their own charges. The agreement acknowledged that federal
authorities had compiled a long list of other possible underage
victims.

“Bank regulators expect applicants to be candid,” said Mr. Carnell, now
an associate professor at Fordham Law School. “You’d never suspect
there was a nonprosecution agreement. As a bank regulator, I’d be
outraged to learn that an applicant had misled me in that way.”

In his application, Mr. Epstein listed as references James E. Staley,
the chief executive of Barclays who had [20]cultivated a relationship
with Mr. Epstein while at JPMorgan Chase. Another reference was Andrew
Farkas, a New York real estate tycoon and co-owner of a marina and
office complex on St. Thomas with Mr. Epstein. Spokesmen for both men
said they had been unaware they were listed as references, along with
JPMorgan and FirstBank, a Puerto Rico-based lender with branches in the
Virgin Islands that long held some of Mr. Epstein’s accounts.

The application was submitted by Erika A. Kellerhals, a longtime tax
lawyer for Mr. Epstein in the Virgin Islands. She did not return
requests for comment.

Southern Country had not commenced doing business as of April 2018,
according to correspondence between Ms. Kellerhals and the territory’s
banking department. Regulators said the bank was a “self-reporting”
company and did not require additional regulatory oversight if it was
not operational.

But court documents show Southern Country was active for some of last
year.

Records filed by the estate on Friday indicate that Southern Country
had $693,157 in assets when Mr. Epstein died on Aug. 10. Then, in
mid-December, the estate transferred $15.5 million to Southern Country
in two checks. Southern Country sent back $2.6 million, leaving the
total it received at $12.9 million. The documents filed by the estate
do not give a reason for the transfers.

It’s also not clear what Southern Country did with that money. Two
weeks later, the year-end value of Southern Country’s assets was
$499,759, according to the estate’s filings.

The estate has told officials in the Virgin Islands that it does not
intend to renew the bank’s license again.

Around the time the territory granted Mr. Epstein his banking license,
it also gave a lucrative tax break to Southern Trust, a company Mr.
Epstein said was developing sophisticated algorithms to mine DNA and
financial databases. The tax break came from the territory’s Economic
Development Authority, which was approved by the territory’s former
governor, John de Jongh Jr., while his wife, Cecile, worked for Mr.
Epstein. Neither Ms. de Jongh nor her husband returned messages seeking
comment.

The tax break, granted in 2013, was a boon for Mr. Epstein. Southern
Trust generated about $300 million in profit in six years, and he paid
an effective tax rate of about 3.9 percent. The source of Southern
Trust’s revenue is not clear; the bare-bones corporate filings made by
the company in the Virgin Islands do not list any clients.

Although the Virgin Islands was long a place where Mr. Epstein got his
way, it has lately cast itself as one of his victims.

In a lawsuit last month, the attorney general of the Virgin Islands,
Denise N. George, said Mr. Epstein had sullied the territory’s
reputation with his conduct. She [21]sued Mr. Epstein’s estate, seeking
to seize his private islands and dissolve what she said were shell
companies acting as fronts for his sex-trafficking enterprise.

The suit seeks to intervene in the administration of Mr. Epstein’s will
to safeguard assets for dozens of his victims, claiming the coexecutors
may have a conflict of interest because they were officers in many of
Mr. Epstein’s companies, including Southern Country and Southern Trust.
The coexecutors, Darren Indyke and Richard Kahn, did not return
requests for comment.

Judge Hermon-Purcell, the magistrate judge overseeing the
administration of Mr. Epstein’s will in the Virgin Islands, heard
arguments on the attorney general’s request at the hearing on Tuesday.
The judge said she would issue a ruling at a later date.

Freeman Rogers contributed reporting.

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