-Caveat Lector-
"'The United States has, according to all credible estimates, become the
largest repository of ill-gotten gains in the world,'' a Brookings Institute
expert said, noting that the flow of corrupt money from developing economies
into the U.S. and Europe is estimated at as high as 40 billion dollars per
year."
Moneylaunderers using U.S. banks to conceal dirty money
.c Kyodo News Service
WASHINGTON, Dec. 14 (Kyodo) - By: Keiji Urakami Private banking is a
profitable, fast-growing business in the U.S. banking industry but it has
also been a hotbed for moneylaundering by drug cartels, tax evaders and
profiteers.
Private banking, established for catering to those with minimum investable
assets of 1 million dollars, offers an all-inclusive, personalized money
management service including investment portfolio management, financial
planning advice, custodial services, bill payment and fund transfers.
Such services almost always involve a high level of confidentiality about
customer information, a feature that makes private banking attractive to
moneylaunderers.
''Private banking is attractive to those (drug smugglers and other criminals)
because it sells secrecy, the very service a moneylaunderer wants,'' said
Sen. Carl Levin, a Michigan Democrat.
When Raul Salinas, the brother of then Mexican President Carlos Salinas,
became a client of Citibank in 1992, Amy Elliot, the New York bank's Mexico
team leader, was named his relationship manager.
''Raul Salinas was referred to me by one of our most valued clients who
personally brought him to the bank in New York,'' Elliot said recently in
Washington.
Salinas established a personal investment company to hold his investments and
the shares of the company were owned by a trust, Elliot said, noting this was
a standard account structure in the private banking industry.
Such an account structure provides for confidentiality and also allows for
efficient tax and estate planning, benefiting many Mexicans who have become
increasingly sensitive about the confidentiality of financial information
because they were frequently the targets of kidnapping and other violent
crimes in the past.
Salinas initially deposited 2 million dollars and started to put up larger
amounts of money in mid-1993. Elliot said Citibank felt ''completely
comfortable'' accepting his additional deposits because the bank knew his
wealth had grown from a number of sources, including the sale of his
construction company.
''The activity in the account never appeared suspicious to me in any way. In
fact, it was quite the opposite. It seemed entirely consistent with what I
know about Raul and his family,'' she said.
Elliot said, ''The public's perception of the Salinas name today, however, is
very different than it was when I first met Raul Salinas.''
Raul Salinas was later accused of laundering more than 100 million dollars of
drug money through banks in Switzerland and other countries.
Drug kingpins and global thugs thrive because moneylaundering is easy, and
moneylaundering is easy because an illegal flight capital is cultivated and
maintained, said Raymond Baker of the Brookings Institution's Economic
Studies Program.
''The United States has, according to all credible estimates, become the
largest repository of ill-gotten gains in the world,'' Baker said, noting
that the flow of corrupt money from developing and transitional economies
into the U.S. and Europe is estimated at as high as 40 billion dollars per
year.
''As destructive as these tides are, however, they are aided by both U.S.
public policies and private practices,'' he said.
Competition to serve the affluent market of the banking sector has
intensified, with players now including nonbank financial institutions as
well as commercial banks.
Richard Small, assistant director of the Federal Reserve's Division of
Banking Supervision and Regulation, said there are about 4,000 financial
entities competing worldwide in the market with no one organization currently
commanding more than 2.5% of the estimated available business.
The private banking market, at 17 trillion dollars globally, is estimated to
grow at two to three times the pace of the overall consumer banking market in
the near future, he said.
Private banking services have become increasingly vulnerable to illegal
moneylaundering by the criminal elite, and that has cast a dark shadow over
the industry.
Antonio Giraldi, a former private banking officer, told a recent
congressional hearing that foreign political figures, military leaders and
their families have established private banking relationships with U.S.
banks, many of them using funds that were later identified as ''tainted.''
To be competitive, these banks had to extend the treatment and services
private banking clients had come to expect from foreign banks in return for
the promise of their deposits, said Giraldi, who was convicted of
moneylaundering and is now serving a 10-year prison sentence.
As the U.S. regulatory framework would not permit the same degree of secrecy
and tax flexibility enjoyed by many of the U.S. banks' foreign competitors,
the U.S. banks moved offshore, using tax havens, he said.
Giraldi said he and other relationship managers were taught by their
superiors that secrecy is paramount in private banking transactions.
Relationship managers often posed as tourists and were encouraged to travel
on tourist visas when visiting foreign clients abroad, and the managers and
their clients were encouraged to speak in code during business-related
telephone conversations, he said.
''The moneylaunderer has shed his or her conventional image and now wears a
chameleon cloak provided courtesy of the international private banking
industry,'' Giraldi said.
In late September, the U.S. government released a new national initiative to
make it harder for money gained through criminal activities to be recycled
through U.S. banks.
The initiative, if approved by Congress, would expand the list of foreign
crimes subject to moneylaundering prosecution to include official bribery,
arms trafficking, misappropriation of public funds and crimes of violence.
The current law prevents financial institutions from accepting money
generated from such criminal activities as drug trafficking and bank fraud.
The initiative would also call for enhanced international cooperation in
investigations of moneylaundering, and would force casinos and brokerages to
notify authorities of suspicious transactions.
Attorney General Janet Reno, a chief architect of the initiative, said,
''Moneylaundering is a very sophisticated crime and we must be equally
sophisticated.''
Commercial banks say they have significantly improved programs aimed at
checking moneylaundering.
John Reed, chairman of Citigroup, said, ''Each of our businesses in each of
our locations is vigilant in detecting and preventing moneylaundering schemes
and other efforts to misuse the financial services we provide to law-abiding
clients, both here and abroad.''
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