Dirty-Money Flow in U.S. Banks Is Huge, a Senate Report Finds


WASHINGTON -- A huge amount of dirty money has flowed through the U.S. financial system through major U.S. banks that provided accounts to high-risk offshore banks, a new U.S. Senate staff report says.

Among the major banks named in the report are J.P. Morgan Chase & Co., Citigroup Inc. and Bank of America Corp. In many cases, the banks themselves were unaware of the nature or background of their own clients because "most U.S. banks do not have adequate antimoney-laundering safeguards in place to screen and monitor such banks, and this problem is longstanding, widespread and ongoing" the report said.

The report was issued by the Democratic staff of the Senate Permanent Subcommittee on Investigations, which has been studying so-called correspondent banking relationships for the past year. Such relationships allow foreign banks to establish accounts at U.S. banks, giving them access to the U.S. banking network. How much of the money that flows through those accounts is dirty or suspicious isn't known. But 12 offshore banks identified in the report have moved billions of dollars through U.S. correspondent accounts in the past several years.
The vulnerability of the U.S. banking system has been a concern since a scandal involving about $7 billion in suspicious Russian funds that moved through three accounts at Bank of New York Co. came to light in 1999. Bank of New York hasn't been charged with any wrongdoing. The new report suggests such concerns are far from limited and raises questions about the ability of banks to control the billions of dollars that flow through them electronically each day.

"U.S. correspondent banking provides a significant gateway for rogue foreign banks and their criminal clients to carry on money laundering and other criminal activity in the U.S.," the report said.

Many of the banks named in the report said they have already taken steps aimed at preventing abuses of their correspondent bank accounts.

Strengthening measures to combat money laundering was a top priority of the Clinton administration's Treasury Department, even though several efforts by regulators and legislators to impose higher due-diligence standards on U.S. banks have foundered. It remains an open question whether the new U.S. Treasury secretary, Paul O'Neill, will place such an emphasis on trying to crack down on the problem. A Treasury spokesman declined to comment.

Large banks were named in the report as having provided correspondent banking services for banks that are either shell corporations, carry high money-laundering risks, or are based in countries with weak antimoney-laundering regimes. Among U.S. banks that were found to have "weak due-diligence practices and inadequate money-laundering controls" or inadequate responses to troubling information are Citigroup's Citibank unit, J.P. Morgan Chase, Bank of America and First Union Corp. -- four of the six largest banks in the nation.

One J.P. Morgan Chase official who handled 140 correspondent accounts said she had received no training in antimoney-laundering measures or due-diligence analysis from Chase, the report said. It also said that a Bank of America official said there was little attention to antimoney-laundering training for several years as the bank went through a series of mergers. Citibank, acting on a seizure warrant from U.S. authorities alleging drug money-laundering violations, seized $7.7 million from a correspondent account held by a Cayman Islands bank but failed to conduct any further review, according to the report.

"As a result of this episode, we developed a new centralized system for following up on seizure warrants," a Citigroup spokesman said. A spokesman for J.P. Morgan Chase said, "We've taken significant steps to strengthen our antimoney-laundering procedures throughout the bank." A spokeswoman for Bank of America said, "We provide training annually to all appropriate people and have never heard any criticism of our antimoney-laundering program." A spokeswoman for First Union said the bank "has taken and continues to take aggressive steps to strengthen our deterrence program."

"Our banks too often are asleep at the switch or, even worse, just don't care," said Sen. Carl Levin of Michigan, the ranking Democrat on the investigations subcommittee. "They have got to tighten up their controls."

The report recommends that U.S. banks be barred from opening correspondent accounts with foreign "shell" banks that have no physical presence, and says the U.S. banks should heighten their due diligence and safeguards for banks with offshore licenses or in high-risk jurisdictions.

One offshore bank named in the report is British Trade & Commerce Bank on the Caribbean island of Dominica, which keeps all of its funds in correspondent accounts. The report said the bank is "surrounded by mounting evidence of deceptive practices and financial fraud." For instance, according to the report, it provided banking services for a New Jersey man who pleaded guilty in February 2000 to a conspiracy to launder money. The man used BTCB to bilk hundreds of U.S. investors out of millions of dollars over two years by falsely promising high-yield investment opportunities, the report said.

Among the banks that operated accounts for BTCB was First Union. The report said BTCB had an account at First Union's securities affiliate from September 1998 to February 2000 and moved more than $18 million through the account before First Union became suspicious and closed it. The report said the First Union affiliate opened the account "without any due-diligence review." The First Union spokeswoman said, "This is a very unusual circumstance." BTCB officials didn't return calls.

Making it even more difficult for U.S. banks to monitor the flow of funds is the fact that some offshore banks with U.S. correspondent accounts in turn offer other high-risk banks use of those services and access to the U.S. financial network. American International Bank, an Antigua-licensed bank that is now in liquidation, engaged in some activities that show a "high probability of money laundering," the report said, including servicing accounts linked to a "highly questionable investment scheme." AIB had correspondent accounts with at least five North American banks in the mid-1990s. It moved more than $240 million through accounts at Bank of America and J.P. Morgan Chase.

But, the report says, AIB also served as a correspondent bank to other offshore banks. One of those was established by convicted U.S. felons, according to the report. At least two were "the centers for financial frauds and money-laundering activity," the report said.

"In a number of instances, AIB's client banks utilized their accounts with AIB to launder funds and take advantage of AIB's correspondent accounts with U.S. banks to work the illicit funds into the U.S. financial system," the report said.

"As soon as we found the problem, we terminated the account," the Bank of America spokeswoman said. J.P. Morgan Chase declined to comment on the matter.
"Watching and trying to make sure you're always dealing with the types of people you want to deal with is sometimes difficult, even impossible," William Cooper, AIB's founder, said in an interview. "When you are dealing with that many clients, you're going to have some dubious accounts." Mr. Cooper himself faces money-laundering charges in federal court in Florida. He denies the allegations.

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