Federal officials have done a lousy job policing against money laundering at the nation's banks, according to Senate testimony yesterday and a report by the inspector general of the U.S. Treasury.
"The U.S. has become the largest repository of ill-gotten gain in the world," said Raymond W. Baker, a businessman who owned manufacturing plants and other businesses in Nigeria and is now a guest scholar on economics at the Brookings Institution.
Baker testified during hearings by the Senate's Permanent Subcommittee on Investigations into the lucrative world of private banking and its vulnerability to money laundering. Private banking caters to wealthy clients who want to move money around the world to avoid taxes or other government encounters. Money laundering involves moving money obtained through ill-gotten means through a web of transactions that make its origins and its ultimate owner hard to trace.
"The bottom line is that anti-money-laundering efforts are not working. Officials know it but claim they cannot figure out why," he said. "The laws are inadequate and even the laws that do exist are inadequately enforced."
U.S. Treasury officials would not comment yesterday on why no top bank official or major bank has ever been seriously sanctioned for money laundering.
The hearings come as the inspector general of the U.S. Treasury prepares to release an audit that found serious deficiencies in a key banking regulatory agency's oversight of private bank units and other bank operations often targeted by money launderers.
The agency is the Office of the Comptroller of the Currency, or OCC, a unit of the Treasury that regulates national banks. The inspector general spent seven months in 1998 looking at 82 audits the OCC had conducted the previous year of anti-money-laundering operations. A draft of the audit says the OCC failed to "perform a complete examination" in 38 of the 82 examinations reviewed.
It says the OCC failed to "follow up on indicators of suspicious activity" and to "perform sufficient review of high-risk accounts." In 44 cases--more than half the time--"examinations lacked adequate workpaper documentation to support the examination work performed and conclusions reached," the draft report says.
OCC spokesman Robert M. Garsson said, "These are old cases, and in 1997 we took a lot of steps to improve our ability to detect and deal with money laundering."
The subcommittee has intended to shed light on private banking by focusing on Citigroup, the nation's largest bank when ranked by assets, and several well-documented cases where Citigroup secretly transferred hundreds of millions of dollars around the world for foreign politicians or their relatives during the 1990s. In each case the politicians were suspected by government officials either here or in their home country of moving money obtained illegally.
The OCC and the Federal Reserve Board went to the Citigroup board of directors in early 1997 to underscore their concern that Citigroup was vulnerable to money laundering. They cited Citigroup's record of having ignored repeated internal audits over several years warning that the company's private bank routinely failed to follow policy intended to protect the bank from money laundering.
No civil money penalties or other enforcement actions were brought against Citigroup because, federal officials say, no legal violations were identified and because they say the bank was cooperating to fix the problem, albeit slowly.
"In reality the business community does not feel particularly constrained by the regulations that exist," Baker said. He and others, including Rep. Maxine Waters (D-Calif.), argue that tolerance of ill-gotten money ultimately hurts the country by promoting drug use and violence.
CAPTION: Convicted money launderer Antonio Giraldi testified at Senate hearings yesterday that the practices he followed in his career at American Express, Citibank and Bankers Trust were standard throughout the industry.