Anti-Laundering Net Lets Big Fish Slip

When it comes to money laundering, it's better to do it big time.

More than two years ago, the USA Patriot Act established reporting requirements for all financial institutions to ensure that they are not used to finance terrorism, launder money or stash funds generated by criminal activity.

Since then, however, certain governments that Washington lists as sponsors of terrorism along with corrupt foreign officials and drug traffickers have used many well-known financial institutions without those institutions reporting any suspicious activities. Among them: Puerto Rico's largest bank, Banco Popular; the U.S. branch of the Swiss bank UBS; New Jersey's Hudson United Bank; and Terrabank in Miami.

Just last week, Senate investigators revealed that Washington's own Riggs Bank helped former Chilean dictator Augusto Pinochet hide up to $8 million from international prosecutors and that bank representatives hand-delivered Pinochet's money to him before U.S. authorities could freeze his accounts.

The problems at Riggs didn't end with Pinochet, but included suspicious dealings with Saudi officials and with Teodoro Obiang Nguema, Equatorial Guinea's dictator. Instead of raising red flags, bank executives seemed too willing to cater to notorious customers while federal regulators were too slow, at the very least, to take action. Key enforcement actions against Riggs only occurred, according to Senate investigators, "after negative press reports began raising public questions."

Ironically, banks could learn something from those hundreds of non-bank licensed money transmitters that send billions around the world from small and inconspicuous offices in immigrant and ethnic communities. Even before the Patriot Act, licensed money transmitters began to regulate themselves and today they are second to none among financial institutions in knowing their clients and reporting questionable activities to authorities.

Ever since the mid-1990s, federal authorities suspected that transmitters were vulnerable to criminal activity, particularly money laundering. In order to survive and thrive in a rapidly expanding market -- and to avoid prosecution -- transmitters got ahead of the curve.

Banks, on the other hand, have lacked some of these "incentives" to reform, making the eternal struggle in tracking and prosecuting illegal activity in the form of international financial transactions today a very unbalanced operation of questionable efficacy.

"The whole regulatory system has a serious problem of uneven application of laws and regulations," said Charles Intriago, a former federal prosecutor who now runs moneylaundering.com. While dozens of small money transmitters have been penalized, prosecuted or suffered forfeitures, he said no securities dealer of any significant size or any U.S. bank in 13 years has been prosecuted. As long as they receive a "Get Out of Jail Free" card every time, banks won't take enforcement seriously, he added.

In 2001, a father and two sons, owners of a money transmitter company in Miami, were caught in a sting operation and later sentenced to 188 months and 155 months respectively for laundering $714,000. In 2003, in the harshest action against a bank in years, Puerto Rico's Banco Popular was accused of failing to report the laundering of $21.6 million in drug money and was threatened with criminal charges. But after the bank paid a $20 million fine, accepted responsibility and promised to behave in the future, the government agreed not to prosecute. (For those keeping score, $21.6 million is $20.9 million more than $714,000 -- and still the bank's president complained of having been unfairly singled out.)

U.S. banks for years have been denying or closing the accounts of licensed money transmitters for fear they are too prone to illegal activity. What's more, in an effort to provide more immigrants with useful banking services, leaders throughout the Americas are encouraging banks to be more involved in the multimillion-dollar remittance business. The result may be to take business away from those with exemplary safeguards against money laundering and put it instead in the hands of those with a spotty track record.

Sure, not all banks are culprits, and that's exactly the point licensed transmitters would like to make about themselves. While there are still hundreds of unlicensed money transmitters, there are dozens of licensed ones trying hard to fully comply with current U.S. laws and regulations.

Yet the Treasury Department continues to label them all as risky. At least in this instance, banks are willingly listening to regulators and opting to close their doors to licensed transmitters. In more important cases, however, large banking institutions maintain the dubious honors of laundering the largest amounts of money for the most prominent and corrupt customers -- with little fear of the consequences.

Marcela Sanchez's e-mail address is desdewash@washpost.com.