US Senate Report Accuses Banks Of Helping Money Launderers With Correspondent Accounts

Mike Godfrey, Tax-News.com, New York

05 February 2001

A US Senate Committee will today issue a report that accuses US banks of deep and routine involvement in money laundering through the business they do using the correspondent banking system, that's to say, with the US offices of foreign banks, or through their readiness to arrange correspondent accounts for customers of other banks with no local presence.

The Permanent Subcommittee on Investigations of the Senate's Governmental Affairs Committee has a watching brief over money laundering, and this particular report has been in preparation for more than a year. The investigation was led by Senator Carl Levin of Michigan, the ranking Democrat on the Subcommittee.

According to the report, the top 75 US banking companies held $35 billion in correspondent accounts in mid-1999. Large banks might have as many as 2,000 to 3,000 such accounts and process billions of dollars in wire transfers daily, says the report: "Yet, until very recently, most U.S. banks did not invest in the software, personnel or training needed to identify and manage money-laundering risks in correspondent banking."

"Correspondent accounts in U.S. banks give the owners and clients of poorly regulated, poorly managed, sometimes corrupt, foreign banks with weak or no antimoney laundering controls direct access to the U.S. financial system and the freedom to move money within the United States and around the world," says the report.

The report asks for new laws to make it easier for law-enforcement officials to seize laundered money from foreign banks' correspondent accounts in United States banks and recommends that banks be barred from offering correspondent services to foreign banks "that are shell operations with no physical presence in any country."

However, the Congress last year refused to pass laws designed to limit money laundering because of fears that draconian new regulations would breach privacy, discriminate against foreign banks operating in the US, and drive banking business away from the country. It's not yet clear how the new Bush administration will address such issues; but it is scarcely likely to be as aggressive as the outgoing administration.

The banking lobby has been very effective in limiting previous legislative initiatives and is likely to resist any new legislation. John Byrne, senior counsel at the American Bankers Association, quoted in the New York Times, says that US banks have cooperated with efforts to prevent money laundering, and want the federal government instead to better identify rogue banks: "There is no logical, rational reason to create new laws to deal with this," he said, stressing that he had not seen the report, "If the premise is that correspondent banking needs additional vigilance going forward, we're not going to dispute that. But this is a two-way street. The government has some obligation to give us an inkling about which institutions and countries we need to increase our vigilance about."

Senator Levin thinks that the banks could improve their act: "There are current regulations which I believe too often have been ignored," he says. "We need to rely on the banks to do their share of the work to stop money laundering abuses that exist, and the government has the responsibility to enforce regulation as well as tighten up the laws."

Senator Levin thinks that the banks could improve their act: "There are current regulations which I believe too often have been ignored," he says. "We need to rely on the banks to do their share of the work to stop money laundering abuses that exist, and the government has the responsibility to enforce regulation as well as tighten up the laws."

The full 384 page report entitled 'Correspondent Banking: A Gateway to Money Laundering' is available in Tax-news.com resources section - Click here to go there

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