Stories in the NY Times and NY Post about millions being transferred from Epstein's estate to Southern Country International Bank, a US Virgin Islands entity created in 2014. Some people and entities in the article are worth looking deeper into.
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 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 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 “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 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 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.