Global Policy Forum

Treasury Report Faults Comptroller


Independence of Money Laundering Inquiries is Questioned

By Timothy L. O'Brien New York Times
November 9, 1999

A regulatory agency has been lax in monitoring banks for possible money laundering, according to a preliminary, and still confidential, report by the inspector general's office of the Treasury Department. The report criticizes the office of the comptroller of the currency for, among other things, a lack of independence when examining how well banks comply with federal laws prohibiting money laundering. The report states that the comptroller's "examiners relied on bank management and/or the banks internal audit function instead of performing their own reviews."

The comptroller and the Federal Reserve are the most important bank regulators in the country. How effectively the agencies police banks for money laundering problems has drawn heightened scrutiny the last few days because of a Senate investigation of private banking practices at the financial services giant Citigroup. The Senate begins public hearings on the matter today. Among the Citigroup accounts being reviewed by the Senate's Permanent Subcommittee on Investigations are those of Omar Bongo, president of the African nation of Gabon. Millions of dollars poured into Mr. Bongo's Citigroup accounts at a time when there were news reports that Mr. Bongo was under investigation for possibly accepting bribes from French oil companies.

Examiners from the comptroller's office inquired about Mr. Bongo's accounts in 1997, but allowed them to remain open after Citigroup said that Mr. Bongo's riches came from a portion of Gabon's state budget that he was legally entitled to receive. Senate investigators said there is no such provision for Mr. Bongo in Gabon's budget. "They represented to us that part of his income derived from the government, "said Robert Garsson, a spokesman for the comptroller's office, referring to Citigroup's description of Mr. Bongo's wealth. " It was a plausible explanation. You can't fly around the world investigating these things. "

According to Senate investigators, the Federal reserve described Mr. Bongo's Citigroup account as "troublesome" in 1996. Citigroup has not been charged with wrongdoing in that case but a federal investigation of its handling of accounts controlled by Raul Salinas De Gortari, the brother of Mexico's former president, is under way. Money laundering describes a process in which criminals clean "dirty" money by "washing" ill-gotten gains through a series of financial transactions that disguise the money's origin. A federal investigation of possible money laundering by Russians through the Bank of New York is the largest such inquiry to date. The Bank of New York has not been charged with wrongdoing in that case. The inspector general said it would not comment on its examination of the comptroller's office until a final version is drafted. The examination began in May 1998, and was largely concluded by early October.

The comptroller's office said that data from the 82 banks reviewed for the inspector general's report are from 1996 and 1997 and that the agency had upgraded its money laundering reviews since 1997. No banks are mentioned by name in the report. "A lot has happened since 1997 and our anti-money laundering group had done a number of new things, including identifying high risk banks for possible money laundering problems," said the comptroller's Mr. Garsson. "Right now we feel we have a very program in place."

According to the report, the comptroller's office emphasizes the speed with which examinations are completed, rather than how thorough they are. The report also says that the comptroller rarely seeks to have serious monetary penalties imposed on banks for failing to comply with anti-money laundering statutes. The report says that the comptroller responded to that observation by saying that it believes most banks are in full compliance with anti-money laundering laws. "This may well be the case," the report says, before noting that "in complete examinations" may mean that "violations may have existed, but simply were not detected."

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