BALTIMORE – Maryland-based Allfirst Bank suspended four employees and said Wednesday it will write off the $750 million that disappeared this week along with one of its employees, foreign exchange trader John Rusnak.
Bank officials said they are trying to determine how they missed the money, which was apparently lost or stolen in just a year’s time and covered up with bogus foreign currency transactions.
Meanwhile, the FBI is looking for Rusnak, who has not been heard from since this weekend, when bank inspectors began asking questions about the legitimacy of some of his transactions.
“We have lost $750 million that we would have preferred not to have lost,” said Allfirst Chairman Frank Bramble at a news conference Wednesday. But he said the loss has “not significantly negatively impacted” Allfirst or its parent company, Allied Irish Banks.
“Our ability to operate our enterprise going forward at the AIB (Allied Irish Banks) level and the Allfirst level has not been materially impacted,” Bramble said.
Bank officials became suspicious when an annual management review of Allfirst’s treasury division indicated fraudulent activities in the foreign exchange trading area.
Allfirst officials could not say why the apparently fraudulent activities were not noticed before now, except that there was a breakdown in the bank’s internal control system.
Officials would only say Wednesday that the $750 million discrepancy is still under investigation. They could not even say where the money had gone or what, if anything, Rusnak might have done with it.
The incident “did not occur in the core activities of Allfirst,” Bramble said. “This was in an isolated area by an individual who found a way to crack our internal control system.”
He also said that the apparent fraud would have been detected earlier had Allfirst’s internal control system been properly followed.
Allfirst has all kinds of reviews that are part of the control process of its treasury operation, including internal auditors, management controls and reviews and external regulators, said Allfirst President and CEO Susan Keating.
The bank suspended its executive vice president/treasurer, its senior vice president with responsibility for treasury funds management, its senior vice president with responsibility for investment operations and one staff member, pending completion of the investigation. It did not release the names of those employees.
Rusnak has worked at Allfirst since 1993. He was described by Allfirst as a husband and father, “a solid work performer” and an “upstanding member of the community.”
Investigators called his home Sunday and he did not show up for work Monday. Calls Wednesday to Rusnaks listed in Baltimore-area telephone directories produced no results.
The FBI is looking for Rusnak, said Pete Gulotta, a special agent in the agency’s Baltimore office. He said Wednesday that the FBI is investigating the case with the U.S. Attorney’s office in Baltimore, but that no charges had been filed yet.
Assistant U.S. Attorney Virginia Evans could not speculate on any charges that might be brought, Because banks are federally insured, bank fraud is a federal offense and the case will be handled by federal prosecutors, Evans said.
Allfirst is also regulated by both the Federal Reserve Board, which performs an on-site examination every 12 months, and by Maryland’s Commission of Financial Regulation.
Louise Preis, the Maryland Commissioner of Financial Regulation, said Wednesday that it is good that Allfirst controls were able to uncover the apparently fraudulent activities, but “obviously though, there were some breaches of that system in the past.”
She said that as the investigation proceeds, changes will have to be made that will ensure similar problems do not occur again.
Allfirst has more than 250 branches in the mid-Atlantic region and more than 575 automated teller machines. Outside the bank’s Baltimore headquarters Wednesday, customers were shocked by the news of the missing money, but ready to stick with the bank.
“I’m really nervous. I’ll have to give them a call,” said Anne Frazier, a Baltimore resident, who added that she did not plan to switch banks.
Keating maintains that its control system is safe and that “none of our customers, nor any of our customer accounts nor any of our depositor money has in any way been impacted.”
“We are really talking about a very isolated set of complex transactions in our foreign exchange book that have nothing to do with the course of the business activity here at Allfirst,” she said. “None of this has any impact on the stability the soundness of this institution or our depositors money.” — CNS reporters Catherine Dolinski and Laura A. Said contributed to this report in Washington.