Citibank attacks money-laundering regulations
by Lucy Komisar
In These Times magazine, November 2001
Citibank is leading a fight by American banks to gut the anti-money-laundering
laws currently being considered in Congress-laws that could significantly
change the way banks do business for their wealthiest clients.
Citibank is seeking an exception to a proposed ban on doing
business with shell banks, which have no physical presence and
are situated "virtually" in offshore zones to avoid
taxes and regulations. The banks are used to hide and launder
perhaps billions of dollars a year. "Citibank is the only
major bank in the United States that admits to having shell banks
as clients, and it doesn't want to give them up," says a
congressional staffer, who spoke on condition of anonymity. "Citibank
is the most active bank trying to gut the ban on shell banks,
and the American Bankers Association is trotting behind them."
In an example of what having friends at the top can do for
the financial services lobby, which is one of the largest and
most powerful in Congress, Richard Small, director of Citibank's
anti' money-laundering department, lobbied the House and Senate
committees to insert an exception that would allow U.S. banks
to work with shell financial services companies, the staffer says.
The clause was deleted in the House version, but at press time
the Senate committee had yet to vote on the bill. "The House
bill [makes it] look like they're banning shell banks, but the
exception makes the ban meaningless," explains the staffer.
Small, who until recently headed the anti-money-laundering
office of the Federal Reserve, declined to comment. But a Citibank
spokesman says that the banking conglomerate sup ports the legislation
and that it is "working with U.S. government and industry
associates to determine the most effective means to prevent the
banking system worldwide from being used for criminal purposes."
Yet as recently as May, Citibank was forced to close two accounts
held in its own offshore banks in the Bahamas and the Cayman Islands
after a Senate investigation revealed that several million dollars
in drug money had been laundered through the accounts. Both the
accounts were from shell banks affiliated with financial services
companies, for which Small was seeking the exception, and one
with a securities firm linked to drug money. Citibank "closed
the accounts of the two [banks] we reported on," the staffer
said, "but they have others."
The American Banking Association has been fighting along with
Citibank to delete the "due diligence" clause in the
legislation, which would require that banks make a concerted effort
to verify the source of foreign funds they transfer or receive.
Peter Blocklin, senior federal legislative representative for
the ABA, told the New York Times that banks were "already
doing due diligence."
But a congressional report released in March of this year
said the opposite, charging four of the largest U.S. banks-Citibank,
J.P. Morgan, Bank of America and First Union-with having inadequate
money-laundering controls and weak due diligence practices. Sen.
Carl Levin (D-Michigan), co-sponsor of the Senate bill, says the
banks are in fact "asleep at the switch."
About $500 billion-or half of the global total-is laundered
through U.S. banks each year, according to the Bureau of National
Affairs. Jack Blum, a Washington lawyer who co-authored a U.N.
report on offshore banking, estimates that $70 billion in taxes
is lost every year when the richest U.S. taxpayers hide money
in offshore banking accounts. Regardless, Republicans historically
have been vehemently opposed to regulating money in U.S. banks,
and the bills being considered are a radical about-face, brought
about by the September 11 attacks as part of Bush's anti-terrorism
In an area where the United States has been lax for decades,
the proposed legislation is reasonably strong. But although the
money-laundering controls are a significant step forward, they
still ignore many of the problems in the U.S. banking and money-transfer
system. The legislation permits, but does not require, the Treasury
Department to stop U.S. banks from working with banks in countries
where secrecy laws prevent cooperation with investigators (countries
like the Cayman Islands and the Bahamas). It asks only a quick
study of imposing regulations on investment companies and hedge
funds, which are not currently regulated at all. And the Bush
administration is not requiring suspicious activity reports (which
banks are currently required to file for suspicious transactions
over $10,000) from casinos, money transmitters like Western Union
and stock brokerages- all of which, because they consistently
handle large amounts of cash, are prime targets for money launderers.
Until the United States closes these gaping loopholes in the
system, the flow of illegal funds from the world's wealthiest,
and the world's wealthiest criminals, will continue.