November 11, 1999
U.S. May Bar Illicit Funds in Deposits by Foreigners
Citigroup Head Concedes Laundering Controls Were Poor (Nov. 10, 1999)
Hearings Offer View Into Private Banking (Nov. 8, 1999)
By JEFF GERTH
ASHINGTON -- 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.