US Senate Investigators Target Money Laundering In Securities Industry After Correspondent Banking Report

WASHINGTON -- US Senate investigators are now looking at the extent to which the money-laundering activities of criminals and corrupt politicians affect the US securities industry.

The General Accounting Office, the investigating arm of the US Congress, is initiating an inquiry into the problem at the request of Senate investigators who have now completed two reports on the way money launderers exploit the US banking system.

In February, the minority Democratic staff of the Senate's investigations subcommittee published its report on how money launderers abuse correspondent banking arrangements.

As previously foreshadowed in Operational Risk, the 305-page report found that fraudsters, drug-traffickers and other criminals have laundered billions of dollars through correspondent accounts at US banks. The aim was to 'clean' the money and give it the appearance of lawfully-acquired funds.

Correspondent banking is a practice whereby large banks earn fees for handling money transfers for smaller banks that don't have a physical presence in a particular country.

Ongoing problem

The report said the failure of US banks to prevent money laundering through their correspondent banks is "long-standing, widespread and ongoing". It has made the correspondent banking system "a conduit for criminal proceeds and money laundering for both high-risk foreign banks and their criminal clients".

In an echo of criticisms made of them in previous money-laundering inquiries, the report said US banks took insufficient effort to identify properly the source of funds transferred to them under correspondent relationships.

Correspondent account balances at the 75 largest US banks that maintained them totalled $35 billion in mid-1999.

Senator Carl Levin, the senior Democrat on the investigations subcommittee, intends proposing legislation later this year to curb the abuses by barring US banks from opening correspondent accounts with foreign banks that are 'shell' operations without any physical presence.

Democratic staffers say US banks should also be required to identify a foreign bank's correspondent banking clients, and refuse to open accounts for banks that allow shell foreign banks to use US accounts.

But the US banking industry is resistant to the idea of legislation. The American Bankers Association says no laws are needed and that the industry has a good record in preventing money laundering.

Many banks mentioned in the correspondent banking report said their controls had already been tightened.

The correspondent banking report follows the minority report on private banking of November 1999. That showed how determined miscreants could easily get around the anti-money laundering controls of major banks.

Among the money-laundering scams identified by the 1999 report were those operated by the late Sani Abacha, the Nigerian dictator, who along with his family is estimated to have plundered an estimated $4 billion from Nigeria's public funds. UK regulators in early March said 15 unnamed banks in the UK showed serious failings in handling accounts linked to the Abacha family.

Minority Staff of the Permanent Subcommittee on Investigations Report on Correspondent Banking: A Gateway For Money Laundering.

www.senate.gov/~gov_affairs/020501_psi_minority_report.htm.