November 11, 1999

U.S. May Bar Illicit Funds in Deposits by Foreigners

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    WASHINGTON -- The Clinton administration, as well as some senators, presented legislation on Wednesday to make it illegal for American banks to handle the proceeds of official corruption abroad.

    The proposals were offered as a Senate committee completed hearings into how Citibank Private Bank handled hundreds of millions of dollars in questionable deposits from foreign leaders and their families.

    At the hearing on Wednesday before the Senate Permanent Subcommittee on Investigations, regulators and a former private banker described how the use of offshore havens by American private banks shielded wealthy clients and impeded Federal examiners' work in gauging a bank's financial soundness.

    Senator Carl Levin, the Michigan Democrat who initiated the inquiry, told the regulators, "You are stymied in getting information."

    Levin introduced a Money Laundering Abatement Act that would bar American banks from handling accounts for foreign entities unless records were maintained in the United States that showed that the identities of the account owners.

    A former private banker convicted of money laundering, Antonio Giraldi, described how private bankers helped clients hide their wealth by setting up shell corporations in safe havens, countries like the Cayman Islands with strict secrecy laws and few if any taxes, and keeping the records of the true corporation owners outside the United States.

    The proposed legislation would also expand the list of foreign crimes that fall under the money-laundering statute. Presently, American financial institutions are barred from handling the proceeds from a narrow group of offenses committed abroad, including drug trafficking, kidnapping and bank fraud.

    Levin said his bill would include as underlying offenses "corruption or fraud by or against a foreign government under the government's laws or the laws of the country in which the conduct occurred."

    The legislation, submitted by the Treasury and Justice Departments, would expand the list of foreign crimes that serve as a basis for laundering prosecutions to include fraud, official bribery, misappropriation of public funds, arms trafficking and crimes of violence.

    The proposals follow disclosure that hundreds of millions of dollars in possibly corrupt money wound up in banks like Citibank and the Bank of New York after having left Africa, Mexico and Russia under questionable circumstances.

    At the hearing, officials from the Federal Reserve and the Office of the Comptroller of the Currency testified that their examiners were not allowed to look at American bank operations in some foreign jurisdictions and that gaining access to customer records for those countries could be difficult if not impossible.

    "A primary obstacle to our supervision of offshore private banking activities by U.S. banking organizations, not only with regard to beneficial ownership information, but with regard to the safety and soundness of the operations, is our inability to conduct on-site examinations in many offshore jurisdictions," said Richard A. Small, assistant director of the Federal Reserve division of banking supervision and regulation.

    The committee chairwoman, Susan Collins, Republican of Maine, said the secrecy made "it virtually impossible to conduct a thorough examination."

    The regulators told the committee that Citibank had improved its policies and that long-needed efforts were under way to improve cooperation among international bank supervisors on secrecy problems.

    But the records uncovered by the committee show that the culture of secrecy is strongly imbued in the minds of some private bankers. Private banking is a growing and highly profitable niche of the banking business that provides extra care to wealthy customers. American banks face problems with customers from less developed countries in regions like Central America and Africa, according to testimony before the Senate committee.

    The interest in Citibank stems from how it secretly moved $80 million to $100 million for Raúl Salinas de Gortari, brother of the former Mexican president. The Senate committee subpoenaed Citibank for transcripts of conversations among its private bankers on March 1, 1995, the day after Salinas had been arrested for murder. He has been convicted and is in prison in Mexico.

    In one conversation, the head of Citibank Private Bank, Hubertus Rukavina, asked whether Salinas's money could be moved from trust accounts in London to Switzerland, which has strict secrecy laws, according to the transcript.

    "Now, the thing is whether that, whether those, whether those accounts shouldn't be brought to Switzerland," Rukavina said.


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