An undercover FBI sting operation has resulted in the arrest of former Bermuda-based accountant Robin Cotterell on money laundering charges.

Cotterell was arrested on suspicion of laundering $200,000 he allegedly knew to be the proceeds of a securities fraud through an account at the Bank of Butterfield.

Police picked up Cotterell in St. Croix in the US Virgin Islands on May 23, four days after a judge in New York issued an arrest warrant following an application from the Federal Bureau of Investigation.

The affidavit states that Cotterell passed the money through an account at the Bank of Butterfield under the name of the Hanover Trust Company between April 4 and 7 this year.

The affidavit, sworn by FBI special agent Kevin O'Grady, alleges that Cotterell was entrapped by an unnamed associate, referred to as CW, who had agreed to co-operate with the US Government having pled guilty in the Southern District of New York to conspiring to commit securities frauds and launder the proceeds of the crime.

Cotterell was recruited by Bermuda-based Conyers, Dill and Pearman to work for one of the company's associate businesses in the British Virgin Islands between 1991 and 1994.

CDP general manager John Buckley, said yesterday that Cotterell, who is understood to be British, worked as an accountant in the insurance industry in Bermuda prior to 1991.

According to the Miami-based newsletter Offshore Alert, which broke the story, Cotterell is under house arrest in St. Croix having been granted $200,000 bail. The newsletter states he must wear an ankle bracelet monitor.

Cotterell is understood to be facing an arraignment hearing in St. Croix in two weeks' time when he will have to decide whether to go to New York to face charges or face an extradition hearing.

A Bank of Butterfield spokeswoman said yesterday: "We have heard of the allegations and are looking into it.'' The affidavit states: "Before and after agreeing to co-operate with the Government, CW had several dealings with Cotterell in connection with the proceeds of CW's unlawful activity.

"Cotterell agreed to create trusts in St. Kitts and Nevis with named trustees other than CW, and to open bank and brokerage accounts in the names of the trusts.

"CW transferred funds and stock through the trusts' accounts and, with the assistance of others, brought the funds back into the US.'' The affidavit alleges CW, who was given a hidden microphone, and undercover FBI officers met Cotterell in a hotel in San Juan, Puerto Rico, on April 4 this year.

CW introduced Cotterell to an undercover agent, referred to as UC, who said he was not a licensed broker but was a "promoter'' putting together private placements. UC said he had been involved in two private placements of stock, one of which was for $1 million.

"CW told Cotterell he needed to move $200,000 in a manner similar to what Cotterell had done for CW in the past. UC explained that the money had been earmarked in the publicly-filed documents accompanying a private placement as `consulting fees...UC told Cotterell that there was in fact no consultant.

"UC asked Cotterell whether the trust arrangements that Cotterell utilized would prevent any tracing of the funds back to UC.

"Cotterell replied that he used a charitable trust structure to prevent piercing of the corporate veil, and that such a structure would keep UC at arm's length from the transaction.'' Cotterell is said to have agreed a $10,000 fee and to return $190,000 to UC.

Former Bda accountant arrested The affidavit states: "Cotterell suggested that $1,000 be given to a charity to promote the appearance of a legitimate charitable trust. Cotterell stated that he would maintain that a loan had been approved by the trust, resulting in the transfer back to the US.'' It continues: "CW told Cotterell he was `skimming off the top' of the private placement. Cotterell replied that he did not `have a major problem' with that.'' Special Agent O'Grady stated that on April 4 he arranged for an agent to contact the Chase Bank in New York to arrange a wire transfer of $200,000 from an undercover account to the Hanver Trust Company at the Bank of Butterfield.

On April 7, an account at the Chase Bank was credited with $190,000 from the Bank of Butterfield in the Bahamas, ordered by the Hanver Trust Company.

Arrested: Former Bermuda accountant Robin Cotterell seen in a file photo from when he worked at CD&P.