In a last-gasp attempt to tighten up US banks' controls over suspect financial transactions, the outgoing administration last week issued 'guidance' to US financial institutions which asks them to impose strict controls over accounts or transactions involving senior public figures or officials from foreign states.
The Congress threw out administration requests for funding for an expanded counter-money laundering programme (which many saw as a thinly-disguised attack on US banking secrecy), so last week's move can be seen as an attempt to achieve by suausion what the administration hasn't been able to achieve through legislation.
The guidance, which the Treasury admits has no legal basis, invents the category of 'Covered Persons', which comprises "senior foreign political figures," any member of a senior foreign political figure's "immediate family," and any "close associate" of a senior foreign political figure. These terms are then defined in detail. A "senior foreign political figure", for example, is a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a "senior foreign political figure" includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure.
That's just about everyone who's anyone, then!
A financial institution which identifies a Covered Person among its actual or prospective clients is advised to carry out a long and detailed series of checks, which will involve highly intrusive questioning of the Covered Person or his or her representatives, under a number of headings such as:
Determine the Covered Person's Source of Wealth and Funds, and
Understand The Purpose For Opening An Account.
If the Covered Person (or his funds) comes from a 'Secrecy Jurisdiction' (which means in effect one that maintains banking secrecy, and probably currently includes Switzerland, although the wording is vague) then the US financial institution must obtain a waiver of such secrecy from the incoming (or existing?) client.
It's difficult to judge whether banks will simply ignore this guidance, or whether they will dutifully try to apply it, in which case it will surely cost them many legitimate customers as well perhaps as a few illegitimate ones. If your correspondent was a Covered Person (he is distinctly an Uncovered Person) then he would stay a mile away from any US bank in future on privacy grounds - even if the current management of a particular bank decides not to apply the guidance now, what is to prevent some busybody compliance officer from applying it in future?
This troubling document (reproduced in full beneath) is very good news for the shareholders of Swiss banks, indeed all banks outside the US, and will do nothing to stop highly-placed money launderers, who will either lie about the origins of their money, or more likely go elsewhere in the first place.
The Administration's Announcement, 16th January 2001
NEW MONEY LAUNDERING GUIDANCE ISSUED
The Treasury Department, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the Department of State, today announced the issuance of new guidance to help U.S. financial institutions avoid transactions that may involve the proceeds of foreign official corruption.
The guidance, issued in furtherance of our National Money Laundering Strategy, encourages U.S. financial institutions to apply enhanced scrutiny to their private banking and similar high dollar-value accounts and transactions where such accounts or transactions may involve the proceeds of corruption by senior foreign political figures, their immediate family or close associates. The guidance provides a set of suggested account establishment and maintenance procedures designed to help institutions obtain appropriate information on accounts held by such persons, as well as a list of potentially suspicious transactions that will often warrant enhanced scrutiny.
Treasury Secretary Lawrence H. Summers said, "Foreign official corruption undermines U.S. efforts to promote democratic institutions and economic development around the world. This guidance will help keep U.S. financial institutions from providing unintended assistance to corrupt foreign officials seeking to hide their ill-gotten gains."
The guidance, developed by an interagency group led by Treasury Deputy Secretary Stuart E. Eizenstat, is available on Treasury's web site at www.treas.gov. Each of the issuing agencies will disseminate the guidance through their formal channels, as well.
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