Commentary
Banks Wearing Blinders
Reproduced from the Los Angeles Timesvia Dow Jones
Leading an international drive to stampout money laundering, Washington now has to face up to an embarrassingfinding in a yearlong Senate study--that a big part of the problemis rooted in the United States. U.S. banks, it turns out, serveas major conduits for illicit money from drug traffickers, illegalgambling, gunrunners and corrupt officials.
According to the February 8th Home Edition of the Los AngelesTimes, Law enforcement officials and bank regulators agree that,despite reams of laws, regulations and voluntary guidelines, moneylaundering thrives. The banks themselves can and should do moreto make life difficult for the criminals.
Tougher enforcement of existing laws is part of the solution,but regulators should also try an approach that has produced impressiveresults elsewhere--shaming banks into compliance by publishingthe names of those with lax controls on laundering.
The public rarely hears the details of money laundering unlessthere's a Page 1 scandal such as the Bank of New York's role inhelping Russian organized crime hide $7 billion.
By some estimates, money laundering is a $1.5-trillion-a-yearoperation and a foundation of the criminal underworld. Some ofthe best-known U.S. banks, including Bank of America and ChaseManhattan, the report said, have such weak controls that theyhave become unwitting links in the scheme. Through correspondentbanking--moving funds around the world--they often deal with bogusfinancial institutions that are little more than post office boxesin offshore tax havens.
There are plenty of laws and directives to combat the practice.Financial institutions are required to keep track of large transactionsand report suspicious activity. U.S. Treasury and internationalguidelines tell banks what to look for, and some of the world'slargest banks have adopted a voluntary code.
Bank regulators themselves receive detailed guidelines from theBank for International Settlements on how to ensure that banksunder their control are not used by criminals. Enforcement isthe weak link.
The Treasury's Financial Crimes Enforcement Network lists on itsWeb site only 13 cases over a period dating to April 1999, mostlyinvolving paperwork violations by casinos and small financialinstitutions.
According to the report, the Treasury must step up enforcementif it wants the laws obeyed. Moreover, it said, the Treasury shouldtake as an example the Financial Action Task Force (FATF), theParis-based organization set up to tackle global money laundering.
It noted that the task force last June published a blacklist of15 countries that failed to enact laws against money laundering.Among those countries, it says, are Israel, Russia and severalothers in the Caribbean.
"The governments were so red-faced that 11 of them have alreadyenacted all or some of the requisite laws," the Los AngelesTimes report said.
"The Treasury should consider blacklisting all "noncooperating"banks. This would hit them where it hurts most--their reputations,"the report concluded.