The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The US authorities have been granted access to the financial records of a Bahamian company, and its account at a local bank, which were used to launder $2.632 million from an illegal Internet pharmacy scam.

The Court of Appeal, in an unanimous verdict, upheld the Supreme Court's decision to provide assistance under the Bahamas' Mutual Legal Assistance Treaty (MLAT), rejecting claims from the target company that the US was engaged in "a fishing expedition".

It gave the objections from Gesbo Enterprises, and its attorneys, led by Keith Cargill, "short shrift" after finding that there was "a preponderance of evidence" disclosed about the company's links to an illegal Internet pharmacy that generated $55 million in sales in just two years.

Dame Anita Allen, in her written verdict, said the Attorney General first sought a court Order on the US authorities' behalf on May 31, 2010. This required Union Bancaire Privee (Bahamas) to produce all financial records relating to Gesbo Enterprises and the account, 3003802, that the Charlotte House-based institution held on its behalf.

Gesbo Enterprises, and its account, were said to be beneficially owned and controlled by Michael James Arnold and Diego Podolsky Paes - two individuals suspected of violating US law through an illegal online pharmacy whose profits were being recycled/laundered through the Bahamas. There is nothing to suggest Union Bancaire Privee (Bahamas), or any of its officers or directors, did anything wrong in relation to this matter.

Sharada Humes, then-an attorney in the Attorney General's Office, disclosed in an affidavit that Arnold and Paes' operation had generated $55.554 million in revenues through the sale of 3.455 million pills over the Internet in the 26 months to June 2007.

"These pills were distributed without valid prescriptions; without any legitimate medical purpose; and outside the scope of professional medical practice," Ms Humes alleged, thus making the online pharmacy illegal under US law.

"As part of their scheme to launder the illegal proceeds from their Internet pharmacy operation, Arnold and Paes used numerous shell corporations to establish bank accounts in, among other places, the United States, the Netherlands Antilles, Switzerland, the Bahamas, Brazil, Panama, St Kitts and Nevis.

"Arnold and Paes then used these bank accounts to acquire high value assets such as luxury vehicles and real estate."

Ms Humes added that the Union Bancaire Privee (Bahamas) bank account, and Gesbo Enterprises, were used "to promote their illegal business".

"According to the [US] prosecutor, during the period August 10, 2005, through January 1, 2007, there were 72 wire transfers from the Gesbo account in an amount totalling $2.632 million," she alleged.

"These transfers were used to pay pharmacies participating in Arnold and Paes' illegal Internet pharmacy operation; and to pay online advertising fees associated with the promotion of Arnold and Paes' Internet pharmacy."

Ms Humes said the US Drug Enforcement Administration (DEA) had been unable to trace any legitimate income sources for Arnold and Paes, and had concluded that Gesbo Enterprises' account contained monies "derived from the illegal sale of controlled substances through the Internet".

"Moreover, the transfer of funds into and out of the Union Bancaire Privee (Bahamas) account.... is consistent with the pattern of activity discussed above," she added, "by which Arnold and Paes have attempted to shield their illegal assets from law enforcement seizure by concealing funds in accounts held in the names of shell corporations and moving funds among those accounts in an effort to disguise their source."

One of the websites used for the Internet pharmacy operation was registered to Gesbo Enterprises, but the company's attorneys argued that the MLAT Order be discharged because the alleged offences did not fall within its purview.

They also argued that, if not discharged, the disclosure Order should be narrowed to only include bank records relating to the Union Bancaire Privee (Bahamas) account where it could be proven that it was beneficially owned by Arnold and Paes.

These arguments were made before both the Supreme Court and Court of Appeal, but the latter noted that the alleged offences fell within Bahamian laws such as the Pharmacy Act and Proceeds of Crime Act.