US Treasury Will Not Act On Shell Banks In Immediate Future

Mike Godfrey, Tax-news.com, Washington

09 March 2001

The US Senate Permanent Subcommittee on Investigations has completed its three hearings held in Washington over the last 10 days to further probe the findings of a report published in February which accused US banks of deep and routine involvement in money laundering through the business they do using the correspondent banking system.

The report, entitled "Correspondent Banking: A Gateway to Money Laundering", concluded with the recommendation that US banks should be barred from opening correspondent accounts with shell banks, and pointed an accusing finger at a number of offshore jurisdictions.

It was Senator Carl Levin, senior Democrat in the Senate Governmental Affairs Committee, who had made the recommendation that US banks be prohibited from opening correspondent accounts for shell banks lacking a physical presence. Yet on Tuesday, the government stopped short of such a measure, perhaps given the fact that some offshore banks have already been closed down as a direct result, the Bahamas in particular being very quick off the mark.

Joseph M Myers, Acting Deputy Assistant Secretary (Enforcement Policy) at the US Treasury Department, said at the final Senate subcommittee hearing on Tuesday that the Treasury was looking "very carefully" at Senator Levin's recommendations but because of the infancy of the Bush administration it would be premature for the Treasury to act.

In his testimony at the hearing, Myers said: 'I hope you will understand that we are still formulating our positions on a number of issues raised by this hearing and the report that underlies it. Accordingly, I am not in a position today to address the majority of the specific recommendations from the Minority Staff Report. I can assure you, however, that we are taking a hard look at them, and are reviewing the factual record included in the report and amassed during the hearing as part of our deliberations. We also have asked the minority staff for the complete results of the survey they conducted of banks in the correspondent banking business, and we look forward to reviewing those results in detail'.

It is perhaps surprising that the Treasury has put the Senator Levin's recommendations on the back burner, given its current tough stance on financial crime. Myers skirted the issue, telling the hearing nothing that it did not already know. He said: 'The Minority Staff Report explores an important area. Law enforcement is all too accustomed to encountering obstacles to international investigations. It is troubling for all of us to encounter case histories where foreign financial institutions are actively facilitating financial crimes'.

He added: 'At the same time, it is clear that international correspondent banking is the underpinning of the global financial system, and US banks are already subject to extensive obligations and regulatory oversight to protect against money laundering. As we prepare the 2001 National Money Laundering Strategy, we will take into serious consideration the results of this hearing, with a particular focus on ways that we can improve our oversight and enforcement of existing laws and regulations.'

At the close of the hearing, Levin seemed singularly unconvinced, stating that it was up to the US government to ensure that its financial institutions did not unwittingly become depositories for unsavoury cash: 'We have a responsibility of controlling our banks,' he said. He added that by banning shell banks from opening correspondent accounts in the US, 'all 400 of Nauru's shell banks would lose their access to US dollar accounts [and] so would the more than 50 Vanuatu shell banks.' Myers, however, said the whole issue was more complex as it was extremely difficult to distinguish between legitimate offshore activities and those which facilitated money laundering and other financial crimes.

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