U.S. Banks and the Dirty Money Empire
by James Petras
Dollars and Sense magazine, September / October
Washington and the mass media have portrayed the United States
as being in the forefront of the struggle against narcotics trafficking,
drug money laundering, and political corruption. The image is
of clean white hands fighting dirty money from the Third World
(or the ex-Communist countries). The truth is exactly the opposite.
U.S. banks have developed an elaborate set of policies for transferring
illicit funds to the U.S. and "laundering" those funds
by investing them in legitimate businesses or U.S. government
bonds. The U.S. Congress has held numerous hearings, provided
detailed exposes of the illicit practices of the banks, passed
several anti-laundering laws, and called for stiffer enforcement
by public regulators and private bankers. Yet the biggest banks
continue their practices and the sums of dirty money grow exponentially.
The $500 billion of criminal and dirty money flowing annually
into and through the major U.S. banks far exceeds the net revenues
of all the information technology companies in the United States.
These yearly inflows surpass the net profits repatriated from
abroad by the major U.S. oil producers, military industries, and
airplane manufacturers combined. Neither the banks nor the government
has the will or the interest to put an end to practices that provide
such high profits and help maintain U.S. economic supremacy internationally.
BIG U.S. BANKS AND DIRTY MONEY LAUNDERING
"Current estimates are that $500 billion to $1 trillion
in illegal funds from organized crime, narcotics trafficking and
other criminal misconduct are laundered through banks worldwide
each year." writes Senator Carl Levin (D-MI), "with
about half going through U.S. banks." The senator's statement,
however, only covers proceeds from activities that are crimes
under U.S. Iaw. It does not include financial transfers by corrupt
political leaders or tax evasion by overseas businesses, since
in those cases any criminal activity takes place outside the United
States. Raymond Baker, a leading U.S. expert on international
finance and guest scholar in economic studies at the Brookings
Institution, estimates the total "flow of corrupt money ...
into Western coffers" from Third World or ex-Communist economies
at $20 to $40 billion a year. He puts the "flow stemming
from mis-priced trade" (the difference between the price
quoted, for tax purposes, of goods sold abroad, and their real
price) at a minimum of $80 billion a year. "My lowest estimate
is $100 billion per year by these two means ... a trillion dollars
in the decade, at least half to the United States," Baker
concludes. "Including other elements of illegal flight capital
would produce much higher figures."
The money laundering business, whether "criminal"
or "corrupt," is carried out by the United States' most
important banks. The bank officials involved in money laundering
have backing from the highest levels of the banking institutions.
These are not isolated offenses perpetrated by loose cannons.
Take the case of Citibank's laundering of Raul Salinas' $200 million
account. The day after Salinas, the brother of Mexico's ex-President
Carlos Salinas de Gortari, was arrested and his large-scale theft
of government funds was exposed, his private bank manager at Citibank,
Amy Elliott, said in a phone conversation with colleagues (the
transcript of which was made available to Congressional investigators)
that "this goes [on] in the very, very top of the corporation,
this was known ... on the very top. We are little pawns in this
Citibank is the United States' biggest bank, with 180,000
employees worldwide, operating in 100 countries, with $700 billion
in known assets. It operates what are known as "private banking"
offices in 30 countries, with over $100 billion in client assets.
Private banking is the sector of a bank which caters to extremely
wealthy clients, with deposits of $1 million or more. The big
banks charge customers for managing their assets and for providing
the specialized services of the private banks. These services
go beyond routine banking services like check clearing and deposits,
to include investment guidance, estate planning, tax assistance,
offshore accounts, and complicated schemes designed to secure
the confidentiality of financial transactions. Private banks sell
secrecy to their clients, making them ideal for money laundering.
They routinely use code names for accounts. Their "concentration
accounts" disguise the movement of client funds by co-mingling
them with bank funds, cutting off paper trails for billions of
dollars in wire transfers. And they locate offshore private investment
corporations in countries such as the Cayman Islands and the Bahamas,
which have strict banking secrecy laws. These laws allow offshore
banks and corporations to hide a depositor's name, nationality,
the amount of funds deposited, and when they were deposited. They
do not require any declarations from bank officials about sources
Private investment corporations (PICs) are one particularly
tricky way that big banks hold and hide a client's assets. The
nominal officers, trustees, and shareholders of these shell corporations
are themselves shell corporations controlled by the private bank.
The PIC then becomes the official holder of the client's accounts,
while the client's identity is buried in so-called "records
of jurisdiction" in countries with strict secrecy laws. The
big banks keep prepackaged PICs on the shelf awaiting activation
when a private bank client wants one. The system works like Russian
matryoshka dolls, shells within shells within shells, which in
the end can be impenetrable to legal process.
Hearings held in 1999 by the Senate's Permanent Subcommittee
on Investigations (under the Governmental Affairs Committee) revealed
that in the Salinas case, private banking personnel at Citibank-
which has a larger global private banking operation than any other
U.S. bank - helped Salinas transfer $90 to $100 million out of
Mexico while disguising the funds' sources and destination. The
bank set up a dummy offshore corporation, provided Salinas with
a secret Coleman, provided an alias for a third party intermediary
who deposited the money in a Citibank account in Mexico, transferred
the money in a concentration account to New York, and finally
moved it to Switzerland and London.
Instead of an account with the name "Raul Salinas"
attached, investigators found a Cayman Islands account held by
a PIC called "Trocca, Ltd.," according to Minority Counsel
Robert L. Roach of the Permanent Committee on Investigations.
Three Panama shell companies formed Trocca, Ltd.'s board of directors
and three Cayman shell companies were its officers and shareholders.
"Citibank controls all six of these shell companies and routinely
uses them to function as directors and officers of PICs that it
makes available to private clients," says Roach. Salinas
was only referred to in Citibank documents as PETER KUPER Confidential
Client No. 2" or"CC-2."
Historically, big-bank money laundering has been investigated,
audited, criticized, and subjected to legislation. The banks have
written their own compliance procedures. But the big banks ignore
the laws and procedures, and the government ignores their non-compliance.
The Permanent Subcommittee on Investigations discovered that Citibank
provided "services," moving a total of at least $360
million, for four major political swindlers, all of whom lost
their protection when the political winds shifted in their home
countries: Raul Salinas, between $80 and $100 million; As if Ali
Zardari (husband of former Prime Minister of Pakistan), over $40
million; E1 Hadj Omar Bongo (dictator of Gabon since 1967), over
$130 million; Mohammed, Ibrahim, and Abba Sani Abacha (sons of
former Nigerian dictator General Sani Abacha), over $110 million.
In all cases Citibank violated all of its own procedures and government
guidelines: there was no review of the client's background (known
as the "client profile"), no determination of the source
of the funds, and no inquiry into any violations of the laws of
the country where the money originated. On the contrary, the bank
facilitated the outflow in its prepackaged format: shell corporations
were established, code names were provided, funds were moved through
concentration accounts, and the funds were invested in legitimate
businesses or in U.S. bonds. In none of these cases did the banks
practice "due diligence," taking the steps required
by law to ensure that it does not facilitate money laundering.
Yet top banking officials have never been brought to court and
tried. Even after the arrest of its clients, Citibank continued
to provide them with its services, including moving funds to secret
Another route that the big banks use to launder dirty money
is "correspondent banking." Correspondent banking is
the provision of banking services by one bank to another. It enables
overseas banks to conduct business and provide services for their
customers in jurisdictions where the bank has no physical presence.
A bank that is licensed in a foreign country and has no office
in the United States can use correspondent banking to attract
and retain wealthy criminal or corrupt clients interested in laundering
money in the United States. Instead of exposing itself to U.S.
controls and incurring the high costs of locating in the U.S.,
the bank will open a correspondent account with an existing U.S.
bank. By establishing such a relationship, the foreign bank (called
the "respondent") and its customers can receive many
or all of the services offered by the U.S. bank (called the "correspondent").
Today, all the big U.S. banks have established multiple correspondent
relationships throughout the world so they may engage in international
financial transactions for themselves and their clients in places
where they do not have a physical presence. The largest U.S. and
European banks, located in financial centers like New York or
London, serve as correspondents for thousands of other banks.
Most of the offshore banks laundering billions for criminal clients
have accounts in the United States. Through June 1999, the top
five correspondent bank holding companies in the United States
held correspondent account balances exceeding $17 billion; the
total correspondent balances of the 75 largest U.S. correspondent
banks was $34.9 billion. For billionaire criminals an important
feature of correspondent relationships is that they provide access
to international transfer systems. The biggest banks specializing
in international fund transfers (called "money center banks")
can process up to $1 trillion in wire transfers a day.
THE DAMAGE DONE
Hundreds of billions of dollars have been transferred, through
the private-banking and correspondent-banking systems, from Africa,
Asia, Latin America, and Eastern Europe to the biggest banks in
the United States and Europe. In all these regions, liberalization
and privatization of the economy have opened up lucrative opportunities
for corruption and the easy movement of booty overseas. Authoritarian
governments and close ties to Washington, meanwhile, have ensured
impunity for most of the guilty parties. Russia alone has seen
over $200 billion illegally transferred out of the country in
the course of the 1990s. The massive flows of capital out of these
regions - really the pillaging of these countries' wealth through
the international banking system - is a major factor in their
economic instability and mass impoverishment. The resulting economic
crises, in turn, have made these countries more vulnerable to
the prescriptions of the IMF and World Bank, including liberalized
banking and financial systems that lead to further capital flight.
Even by an incomplete accounting (including both "criminal"
and "corrupt" funds, but not other illicit capital transfers,
such as illegal shifts of real estate or securities titles, wire
fraud, etc.), the dirty money coming from abroad into U.S. banks
amounted to $3.5 to $6.0 trillion during the 1990s. While this
is not the whole picture, it gives us a basis for estimating the
significance of the "dirty money factor" in the U.S.
economy. The United States currently runs an annual trade deficit
of over $400 billion. The gap has to be financed with inflows
of funds from abroad - at least a third of which is "dirty
money." Without the dirty money the U.S. economy's external
accounts would be unsustainable. No wonder the biggest banks in
the United States and Europe are actively involved, and the governments
of these countries turn a blind eye. That is today's capitalism
- built around pillage, criminality, corruption, and complicity.
James Petras is on advisor and teacher for the Rural Landless
Workers Movement in Brazil and an activist-scholar working with
socio-political movements in Latin America, Europe, and Asia.