Global Policy Forum

Money Laundering Prompts US Drive


By Joseph Kahn

New York Times
March 2, 2000

The Clinton administration plans to ask Congress for sweeping new powers to combat money laundering including the authority to ban financial transactions between United States banks or brokerage houses and off-shore financial centers, administration officials said today.

The request is the centerpiece of administration efforts to tighten money-laundering laws after the Bank of New York was found to have acted as a conduit for about $7 billion in Russian money, some of which investigators believe was derived from illegal activities. The administration has also been searching for ways to make it harder for drug traffickers to funnel their profits through American banks.

Treasury Secretary Lawrence H. Summers plans to announce proposed legislation in a speech to bankers on Thursday, officials said. The legislation would give his department a broad range of powers to investigate and in serious cases forbid transactions between American financial institutions and individual foreign banks or entire foreign countries.

Administration officials say that current laws do not provide enough authority to fight money laundering, the practice of filtering profits from illegal activities through banks to disguise their origin. Short of having Congress declare emergency sanctions against countries deemed to be a national security threat, the officials said, they are mostly confined to waving a finger at nations that tolerate money laundering and urging American banks to be wary of doing business with such places.

"The issue of money laundering is so prominent and public that we can't ignore it anymore," a senior official said. "We need to be able to target the root problems without unnecessarily hindering legitimate economic activity."

The effort to seek new powers is clearly a response to Russia, where financial mismanagement has been a problem for the Clinton administration and the International Monetary Fund. Some analysts and members of Congress have complained that widespread corruption in that country -- helped in part by the ease of transferring funds abroad -- undermined multibillion-dollar foreign aid programs and left one of the administration's top foreign policy priorities a shambles.

The proposed legislation also appears to be an attempt to broker a compromise between Congressional proposals and private financial companies. Both the House and the Senate are weighing bills that would impose draconian restrictions on foreign banks that hide money and, in some cases, new enforcement duties on domestic banks and brokerage houses. Financial companies have complained that such laws threaten to make them uncompetitive against foreign rivals.

Members of Congress had a mixed response to the Treasury's proposal after briefings by Clinton administrations officials today. Representative Jim Leach, Republican of Iowa and chairman of the House Banking Committee, said the Treasury proposals were exactly what he had been seeking. He said he would introduce the bill as his own when it is sent to Congress next week.

Senator Charles E. Schumer, Democrat of New York and a member of the Senate's banking committee, was less enthusiastic. He said the Treasury proposals were a watered-down version of legislation he has introduced that would mandate the isolation of foreign banks that make hiding money their forte.

"When you leave this up to their discretion, diplomacy will prevail over cutting off money laundering," Mr. Schumer said. "The Treasury seems to be taking a step in the right direction. But we are going to toughen it up."

The new legislation would give the Treasury Department the right to take any number of steps, along a progressive scale, to fight laundering. On the light end of the spectrum, the department wants the power to ask American companies to collect data on all kinds of transactions with an off-shore bank or financial company. That would help law enforcement officials track suspicious activity, and would also make American banks wary of doing business with such places, officials said.

In cases where foreign governments stubbornly shield their banks from prying eyes and act as havens for criminal funds, the department wants the power to simply cut them off from the American financial system, without seeking Congressional approval for such action each time.

Although that would not necessarily force those nations to tighten enforcement, the loss of access to the American market would cripple any legitimate banking activity there and make it a much less attractive destination for criminal elements as well, the officials said. Moreover, officials hope that the United States action in such cases will serve as a model for other developed countries, putting further pressure on the laundering haven.

Ever since the act of money laundering first became a crime, in 1986, Treasury officials have often been sympathetic to private sector concerns that the old way of fighting money laundering -- putting a burden on banks and brokerage houses to police their clients -- might simply drive banking business to nations that do not demand as much. But the rise of multilateral efforts to counter illicit flows of money through the international banking system in recent years has made it possible to tighten restrictions at home without driving too much legitimate banking activity abroad, officials said.

Treasury officials already have sought to step up antilaundering activities through the one tool they now have in their arsenal: moral suasion, or as the Treasury calls it, name and blame. When a foreign bank or nation repeatedly refuses to abide by generally accepted standards to make sure they are not being used by criminals to launder money, Treasury has made that known to domestic banks, usually through advisories. Those put the banks on notice that they should be wary of money that flows into their coffers from such sources. The advisories do not have the force of law.

Legislation before Congress would add processing the proceeds of official corruption to the list of foreign crimes that fall under the money-laundering statute. American financial institutions are now barred from handling the proceeds from a narrow group of offenses committed abroad, including drug trafficking, kidnapping and bank fraud.

An advance copy of a speech Mr. Summers prepared for delivery on Thursday identifies several countries that have served as either sources of illicit money or havens for bank secrecy and laundering. Russia, Colombia, and Nigeria, he says, are among the biggest sources of such funds. The islands of Dominica, Nauru and Antigua are among the biggest destination spots, with laws that make it possible or actively encourage criminals to do business there.

Administration officials said they believed that such moral suasion works. Antigua, Nauru, Russia and Colombia are all working with the United States to toughen their laws, Mr. Summers says in his address. After Clinton administration officials raised public concerns about Nauru earlier this year, citing its role as a chief haven for Russian money laundering, some American banks decided on their own to stop doing financial-correspondent business with banks chartered in that country.


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