Closing illegal banking operations is a priority for every state banking office in the nation except the District's Office of Banking and Financial Institutions, according to the Council of State Bank Supervisors.
With the help of state banking regulators, more than 500 such operations have been shut down during the past five years, said a Treasury Department official who oversees bank fraud cases.
But because of limitations in the District's banking law, the D.C. banking superintendent has few resources and no regulatory authority to determine whether businesses are offering banking services without permission.
"I can't believe there's nothing the District can do in this area," said Barry Gladden, director of financial investigations for Florida's Division of Banking. "That's a potential time bomb of a problem."
Gladden said he works closely with state and federal authorities to investigate allegations of illegal banking. He put more than 20 such banks out of business last year and has cases pending against 15 more. A multimillion-dollar budget, a staff of 50 investigators and tough state laws help him do his job.
The situation is similar in Texas, California, New York, Arizona and Nevada -- all states with large immigrant populations and, consequently, many illegal banks that cater to those communities.
Undocumented immigrants do not have Social Security numbers or other legal identification that would allow them to open an account at a chartered bank. Illegal banking businesses also are more likely to lend money to the immigrants.
In Maryland and Virginia, where the problem is not so pervasive, state banking regulators have the authority to investigate banking operations and shut them down if they are violating the law.
This year, Sid Bailey, the Virginia commissioner of financial institutions, shut down Express Bank Ltd. of Rosslyn, which he said was offering banking services without a charter. Bailey said that when he notified Express Bank that it was violating the law, "the owner said he would close his office and move to D.C."
It could not be learned whether Express Bank reopened in the District, but no banking charter has been issued in that name.
Banking regulators throughout the nation report problems with businesses that take deposits, make loans or do both. Most of the businesses refer to themselves as "banks" -- a term that is reserved for institutions with federal or state charters, the regulators said. Some of the firms have business licenses or illegal banking charters from overseas, but most have no license at all.
Because of the structure of the District government and limitations on its banking laws, it is easy for a business to incorporate in the city and offer banking services, said Joseph Lopes, deputy general counsel for the banking office.
A firm that wants to incorporate must register only with the District's Department of Consumer and Regulatory Affairs. If it uses "bank" in its name or states that its purpose is to offer banking services, the banking office may never know. Although such businesses file documents regularly with the regulatory affairs department, they need never come to Lopes's attention.
But even if the banking office becomes aware that a business is offering banking services without permission, Lopes can only pass his suspicions along to the D.C. Corporation Counsel, which must forward the case to the U.S. Attorney's Office.