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26-Nation Group Presses Fight Against Laundering of Money

By Paul Blustein
Washington Post Staff Writer
Saturday, June 29 1996; Page D01

An international organization formed to fight money laundering issued tighter standards yesterday that may result in foreign exchange dealers, brokerage firms and other companies being required to report "suspicious" transactions to law enforcement agencies.

The new standards marked the first time the Financial Action Task Force, a 26-nation organization, has revised its guidelines since it was formed in 1990. The move is aimed at strengthening the hand of law enforcement organizations in combating the increasingly sophisticated stratagems employed by drug cartels and other organized crime groups in laundering their illegal proceeds.

"Money laundering is an ever-changing activity," said Ronald K. Noble, a former treasury undersecretary who served as FATF president over the past year, when the United States chaired the group. "In the 1980s, we had the problem of people bringing duffel bags full of cash into banks and wiring the money out of the country. Although we stopped that activity by requiring banks to file reports [for cash deposits exceeding $10,000 and other suspicious transactions], smart money launderers have gone to non-bank institutions."

Noble and other officials attending a FATF news conference acknowledged that money laundering can hardly be stamped out, but they contended that tougher measures have forced criminals to cleanse their income using costly methods that reduce their profits and increase their exposure to being caught. Now, they said, even stronger laws and regulations are needed to thwart the crooks.

The development comes at a time when concern over money laundering enforcement is mounting because of revelations concerning Raul Salinas de Gortari, the brother of Mexico's ex-president, who funneled more than $100 million to Swiss bank accounts, much of it via Citibank. He has said the money was given to him by wealthy Mexicans to invest, but he has been jailed in Mexico for alleged "inexplicable enrichment" because of his inability to disprove suspicions that the funds came from influence-peddling or drugs.

The Salinas case has highlighted the importance of bankers asking questions of major clients about the source of their funds and nature of their businesses. U.S. regulators expect U.S. banks to adopt "know-your-customer" policies, but the rules are vague and in practice bankers are often reluctant to investigate a powerful client too deeply. Citibank asserts that its employees complied with the law.

The moves announced yesterday by the FATF would nudge legal authorities, banks and other financial firms toward greater stringency in dealing with such problems. The organization can't force sovereign nations to change their laws or regulations, but its recommendations have the power of moral suasion. Turkey, the only FATF member that has not passed anti-money laundering legislation, was singled out yesterday in the organization's annual report as being "seriously deficient" in its compliance with FATF guidelines.

The organization issued several revisions to its 40 recommended guidelines. The reporting of suspicious transactions would become mandatory for banks, rather than voluntary. The United States already requires banks to report suspicious transactions, but such reporting is only voluntary in some other major countries, including Switzerland and Canada.

"This is probably our most significant recommended change," said Stanley E. Morris, director of the Treasury Department's Financial Crimes Enforcement Network. "The concern is that when reporting is voluntary, it puts bankers in an odd situation" when they see an important customer engaging in questionable transactions.

The task force also said non-banks, particularly foreign exchange dealers, should be included in counter-laundering measures. In the United States, currency dealers are required to submit reports to the Treasury when people bring in more than $10,000 worth of cash, but they are not subject to suspicious transaction reporting requirements. Neither are securities dealers, and Morris said he believes the recommendations would mandate that they would be, adding that he plans to discuss the matter with the Securities and Exchange Commission.

The FATF also released a report on "money laundering typologies," a compendium of worrisome trends and developments compiled by law enforcement experts from its member countries.

Offering evidence supporting stricter regulation of brokerage firms, the report cited "cases in which securities were purchased or sold, or securities accounts manipulated, in an effort to cleanse criminal profits."

In one case, according to the report, a securities professional laundered some of the $1.4 million misappropriated by a public official by engaging in a series of fraudulent put and call transactions, enabling him to put $157,000 in the client's account "and justify its presence on the books as profits from securities investments."

There is "an apparent marked increase" in money launderers using foreign exchange dealers, the report said. It noted that another emerging trend is the laundering of funds through reinsurance companies, though the report didn't say how. Officials are also looking more closely at how casinos and insurance companies handle their transactions.

The report also said that "one of the oldest money laundering techniques, common smuggling [of cash across borders], appears to be on the rise," with criminal groups showing "increasing sophistication in these operations, often purchasing businesses engaged in the shipment of goods and hiding dirty money inside the product."

© Copyright 1996 The Washington Post Company

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