U.S. Banks Eager To Launder Money, Congress Finds

by Jim Lobe

Some of the country's biggest banks, including Chase Manhattan, Bank of America, Citigroup, and J.P. Morgan Chase & Co. have routinely set up so-called "correspondent accounts" for clients of foreign banks, some of which are mere shell companies created for drug-traffickers and other ne'er-do-wells to hide their ill-gotten gains, according to the report by the Minority Staff of the Senate's Permanent Subcommittee on Investigations.

"Inattention and disinterest by U.S. banks in screening the foreign banks they take in as clients have allowed rogue foreign banks and their criminal clients to carry on money laundering and other criminal activity in the United States and to benefit from the services, safety, and soundness of the U.S. banking industry," said Sen. Carl Levin, whose staff wrote the report.

"Taxpayers are spending hundreds of millions of dollars to protect the U.S. banking, to fight money-laundering," he added. "It's time for U.S. banks do their share to end the money-laundering carried out by high-risk foreign banks."

The report estimates that between $500 billion and $1 trillion of "dirty money" moves through the world's banking system each year and that roughly half of that total is deposited at one time or another in U.S. banks.

In late 1999, the staff produced a ground-breaking report detailing the failure of Citigroup, the largest U.S. bank, to exercise "due diligence" over foreign accounts in its "private banking" department.

It found that tens of millions of dollars apparently obtained by foreign leaders and their family members through bribery and other illegal practices had been held in private bank accounts, which usually require a minimum deposit of $1 million and are managed by special Citigroup officers who act as the client's "private banker."

Raul Salinas, the brother of former Mexican President Carlos Salinas; the sons of former Nigerian dictator Gen. Sani Abacha; Gabonese President Omar Bongo; and Asif Ali Zardari, the husband of former Pakistani Prime Minister Benazir Bhutto were among some of Citigroup's clients who benefited from such services.

Under U.S. regulations, banks must exercise "due diligence" over the accounts of clients to make sure that the money held in them was not derived from certain kinds of illegal activity and report any suspicious activity. Laundering money gained from drug-trafficking, terrorism, or bank fraud -- but not bribery by foreign officials -- can be prosecuted as a crime.

The Subcommittee's work, as well as other investigations into money-laundering by drug-traffickers and Russian mafia interests led to heightened efforts here on the part of Bill Clinton's administration to lead a global crackdown against the use of banks for money-laundering and tax evasion.

Last year, it helped persuade the 29-nation Organization for Economic Cooperation and Development (OECD) to list countries whose lax banking laws make them a haven for hot money, a step that forced many of those named, including several Caribbean countries to tighten regulations and pledge to cooperate with foreign investigators.

The Clinton administration also tried to persuade Congress to add money gained from official corruption by foreign leaders to the list of crimes under the anti-money-laundering law, but the banks successfully resisted such a move.

Just before leaving office last month, however, it announced new voluntary guidelines that would require banks to use "enhanced scrutiny" -- a higher standard than due diligence -- on all accounts linked to foreign leaders and their families or business partners, and report suspicious transactions.

It is not clear yet whether the new administration of President George W. Bush will back stronger measures. Its more conservative leanings, however, make it less likely to do so, according to analysts here.

The new report, based in part on interviews with scores of bank owners and employees here and abroad, as well as with foreign and U.S. regulators, found that many off-shore banks which establish correspondent relationships with big U.S. banks are little more than shell operations sometimes consisting of a single office or even a mailbox.

All of the 10 off-shore banks investigated by the staff were based in the Caribbean -- specifically, Antigua and Barbuda, the Bahamas, Dominica, the Cayman Islands -- or Vanuatu in the South Pacific. A number of these have closed.

In addition to money from drug-trafficking, bribery and tax evasion, the staff found that these banks also handled earnings from internet gambling, which is illegal in a number of U.S. states, and illegal investment schemes.

In one case, the staff found that a Dominica-based bank, British Trade and Commerce Bank, which began operations only in 1997, was able to open accounts at several U.S. banks and move more than $85 million in "dirty money" through them over a two-year period.

In another case, a Bahamas-based bank, which acted as an affiliate of Lloyds TSB Bank in London, provided U.S. dollar accounts to Colombian clients only.

Its U.S. correspondent, the Bank of New York, according to the report, never took any steps to detect money laundering by Colombian money brokers who exchanged pesos for dollars obtained from drug-trafficking. The bank, the British Bank of Latin America, closed last year after being named in two U.S. sting operations.

Levin, who said he will hold Congressional hearings on Correspondent Banking, called for legislation that would bar U.S. banks from opening correspondent accounts with shell banks.

He also called for U.S. banks to conduct a systematic review of all correspondent accounts with foreign banks to identify suspicious activity.

Banks themselves, according to Levin, have acknowledged the problem, but have called on the government for greater help in identifying banks which are likely to be engaged in money-laundering.