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Money Laundering Alert: August 1996

'Unauthorized' Banks Pose Laundering Threat

They are subject to none of the recordkeeping or reporting requirements
of the Bank Secrecy Act, receive no examinations from any banking
regulator, and may be on your bank's currency transaction reporting
exemption list.

The Office of the Comptroller of the Currency refers to them as
"entities that may be conducting banking operations in the U.S. without
a license." Money launderers probably refer to them as dreams come true
and, unless legitimate financial institutions are alert, can use them to
place illicit proceeds into the financial system.

They are "unauthorized" banks, and for the past five years the OCC has
been disseminating advisories to legitimate U.S. banks - but not to
consumers - in an effort to expose their existence and halt their
illegal operations.

These so-called "banks" offer a variety of banking services, often at
lower fees and better interest rates than legitimate banks offer. What
makes them different from a legitimate bank - and attractive to money
launderers -- is that they are not licensed by any U.S. banking agency
and thus do not have to meet regulatory standards.

Because the OCC and other federal bank regulators are not investigative
agencies, they can do little more than report these institutions to
those who are. If the entities are found to be operating a bank without
a license they can be prosecuted under the Glass-Steagell Act (Title 12,
USC Sec. 378(a)(2)).

Such prosecutions are rare. In one case in 1994, initiated by Federal
Reserve Board examiners, the principals of Lombard Bank, Ltd., were
charged with operating an unauthorized bank through a payable-through
account at American Express Bank International in Miami. Lombard, which
had been "licensed" in the South Pacific money laundering haven of
Vanuatu, offered its Central American customers virtually full banking
services in the U.S. through its PTA (MLA, Sep. 1994).

Earlier this year, the OCC released a list of more than 50 "banks" known
to be operating without authorization. OCC officials say the number
grows steadily. Some of the "banks" say they are licensed by foreign
countries or U.S. states to conduct banking business. Others, such as
the Swiss Trade & Commerce Trust, Ltd., of Belize, continue to offer
services in the U.S. despite edicts from foreign banking authorities to
cease doing business.

The unauthorized entities have a common trait. They usually have names
that are similar to those of well-known legitimate institutions. The OCC
list includes the Bank of England, a Washington, D.C., entity not
associated with London's famous "old lady on Threadneedle Street" and
Citicorp Financial Services, a Beverly Hills firm not associated with
the better-known institution of that name. It also includes the First
Bank of Internet, which heralds itself as the first bank in cyberspace.

Through its periodic "special alerts," the OCC warns banks to "view with
extreme caution any proposed transaction involving any of the listed
entities." It makes no effort to educate members of the general public
who unknowingly place their money and trust in those uninsured
institutions.




American Banker: Friday, August 30, 1996

Swift Near Alliance in Trade Document Automation

By STEVEN MARJANOVIC

Swift, the international banking telecommunications network, wants to
play a bigger role in trade finance and the exchange of related
documentation.

Sources said the Brussels-based organization will soon take a position--
perhaps as early as its September board meeting-- on whether to work on
trade automation in cooperation with another consortium, called Bolero.

Such a move would involve an increase in nonbank participants on a
bank-owned network that has approached such liberalization cautiously.

Swift, formally the Society for Worldwide Interbank Financial
Telecommunication, is used by 5,300 banks for exchanging messages in
such areas as funds transfer, foreign exchange, and securities.

The network averaged about 2.7 million messages a day in July,
representing daily dollar volumes exceeding $2 trillion.

Officials said Swift is nearing a decision to work with the Bolero
Association, which is forming an electronic registry for the so-called
"dematerializing" of trade documents. Swift could provide the "platform"
for allowing banks and corporations to exchange such documentation as
letters of credit and bills of lading.

Bolero was formed in 1994 with funding from the European Commission, but
has not formulated concrete operating plans. Its members include
Citicorp, Barclays Bank PLC, and other multinational banks and
corporations.

Peter Scott, trade services market director at Swift, said it has been
in discussions with London-based Bolero since December 1995 about
joining forces to automate the exchange of trade documents.

"Bankers are beginning to sense both the opportunities in those areas
and the threats to them from an intermediary stepping in and potentially
taking away the business," Mr. Scott said.

Trade-document capability "is not a heavily utilized area within Swift
at the present time," he said.

The potential in automation is obvious to Bolero officials. At the New
York Banktrade Conference recently, John McKessy, the association's
North American representative, said the annual value of goods moved
internationally approaches $4 trillion.

He estimated current international trade requires some three billion
documents to be issued and managed.

The cost of dealing with paper alone eats up about 7% of the total value
of those goods, as much as $280 billion, Mr. McKessy said.

Bank revenues from issuing letters of credit last year were just over $1
billion, according to a soon-to-be-released survey by the U.S. Council
on International Banking.

Anthony K. Brown, senior vice president of trade services at MTB Bank,
described trade transaction processing as "extremely cumbersome and
tedious, prone to mistakes and delays (that) can be a hindrance to the
completion of a transaction."

MTB is a $400 million-asset merchant bank based in New York. About 80%
of its $100 million in loans are trade-related.

The paper-shuffling costs are not borne entirely by banks. Import/export
companies, insurers, freight forwarders, and various government
inspection agencies are also involved.

"The question is whether Swift wants to do it," said Dan Taylor,
president of the New York-based U.S. Council.

"Swift is going to act fairly quickly on this," he added.

Mr. Taylor said Swift officials will likely grapple once again with the
political and philosophical issues of giving nonbanks more access to
Swift, and to payment systems generally.

In 1995, the network granted partial access to nonbanks after years of
heated debate.

"You always have this push and pull, where some banks would like Swift
to do certain things" while others want the network to focus on the
money transfer business, Mr. Taylor said.

"If Bolero succeeds and Swift joins, I think it will move fairly
rapidly, but I'm not sure that Bolero is going to be the only thing out
there."

He said Bolero might evolve using value-added networks - or intranets -
like the IBM Global Network and General Electric Information Services
Co., or perhaps even the Internet.

Indeed, another member of Bolero, CSI Complex Systems Inc., New York, is
apparently talking to several providers of private, value-added networks
and may soon enter a contract with one.

CSI letter-of-credit software leads the pack in banking, with about a
16% market share, Mr. Taylor said.

The company recently formed a business unit called Electronic Documents
International, which has developed an Internet-based system for
initiating letters of credit. CSI spokesman George Capsis said the
software, Import.com, creates "about 30 key documents involved in
international trade."

The Internet, enhanced with security features, may help the trade
industry reduce paper-related costs, especially at smaller companies
overseas.

CSI managing director Andre Cardinale said customers need only to "dial
into a bank's Internet server, pull up the Import.com application, and
actually fill in the details to create a new letter of credit or an
amendment to an existing one."

While Bolero may find a place on the Internet or a GE-type network, Mr.
Cardinale said the ultimate push may yet come from the banking industry
working collectively through Swift.

He said Swift opposition from nonbank constituencies that are concerned
the telecommunications cooperative will be more sympathetic to banks
when disputes arise.

But "if Swift does it," he added, "it will bring banks into the universe
far more - pardon the pun - swiftly."


Crain's New York Business: August 26, 1996

Bloomberg to Detail Growth of Information Empire

Michael Bloomberg made a name for himself on Wall Street with his
trading acumen and mastery of the computer systems that were becoming
crucial to success in the securities business.

But no one suspected when he left Salomon Brothers in 1981 that in the
next decade he would build the fastest-growing provider of financial
information in the world.

Mr. Bloomberg, whose company Bloomberg Financial Markets has estimated
sales of $600 million, will be the keynote speaker at the fifth annual
Crain's ''Growing a Business Expo,'' to be held this year on Thursday,
Oct. 24.

The event will take place at the New York Hilton & Towers from 8 a.m. to
1 p.m. It is presented by Citibank and co-sponsored by Con Edison and
Empire Blue Cross and Blue Shield.

Last year, more than 1,000 growing business owners and managers attended
the expo, which provides information for companies operating in the city
regarding potential suppliers, financial resources and government
programs.

The cost to attend the event is $45 and includes a continental
breakfast. Individuals registering before Sept. 6 can bring a colleague
for free. To register, call Flagg Management at (212) 286-0333.

In addition to Mr. Bloomberg's speech, attendees will be able to attend
seminars on financing and other help available from the city, financing
techniques, energy cost savings programs and how to reduce health
insurance costs. An expected 135 exhibitors will be offering products
and services of use to growing companies.

Crain's New York Business editors will discuss how a growing business
can get coverage in Crain's and in other publications.

The heart of Mr. Bloomberg's empire is a news gathering operation that
sends information through 62,000 computer terminals installed on the
desks of investment professionals around the nation. His company
provides the latest financial news and sophisticated tools to analyze
information.

The company he has built is noted for its lack of bureaucracy despite
its growth to 2,000 employees. Its hallmarks are hands-on leadership and
an entrepreneurial atmosphere where employees receive perks such as free
food.

Mr. Bloomberg has extended his reach to include an all-news radio
station in New York, WBBR; Bloomberg Personal TV; syndicated television
shows; a monthly personal finance magazine; and a similar magazine for
institutional investors.


American Banker: Friday, September 6, 1996

America Online Opens a New Banking Channel

By DREW CLARK

Nineteen banks - national home banking stalwarts such as Citicorp and
BankAmerica, plus a complement of less prominent regionals - have
climbed onto the America Online bandwagon.

Most already offer their customers several options for banking via
personal computer and view America Online, with its six million
subscribers, as a way to appeal to a broad cross-section of computer-
literate consumers.

Fourteen of the AOL banking partners will be delivering services through
BankNow, a software package developed for the interactive network by
Intuit Inc.

The other five banks have opted to use their own software. One of them -
Security First Network Bank, which operates entirely on the Internet -
will invite AOL users in through their Web browsers.

With its announcement this week, America Online Inc. takes its place
among the many alternative "channels" for on-line banking.

Many of the banks on AOL's list are simultaneously cooperating with
other companies that are themselves competitors, such as Intuit and
Microsoft Corp., suppliers of the Quicken and Money financial management
software, respectively.

Also crossing competitive lines, America Online said its subscribers
will be able to bank from home with PC software from three suppliers
other than Intuit: Checkfree Corp., Online Resources and Communications
Corp., and Visa Interactive.

"Everyone understands that there is competition in the home banking
arena," said David Baird, general manager of the personal finance
division at America Online, based in Dulles, Va. "To align ourselves
with exclusively one company would be a mistake."

Intuit can count on 14 initial bank users of BankNow. Spokesmen for the
other three system vendors declined to say when they expect to have home
banking products available for the AOL channel.

Experts noted that AOL and Intuit could be a strong tandem, in that they
dominate their respective businesses.

Intuit's Quicken is the leading brand in personal finance software. The
company claims more than 9 million active users and a market share of
about 80%.

America Online's subscriber base of six million is as big as those of
its next two competitors, Compuserve and Prodigy, combined.

The financial institutions currently offering BankNow are: American
Express, Bank of Stockton (Calif.), Centura Banks Inc., Commerce Bank of
Kansas City, Mo., Commercial Federal of Omaha, Compass Bank of Alabama,
CoreStates Financial Corp., Crestar Financial Corp., First Chicago NBD
Corp., Laredo (Tex.) National Bank, M&T Bank of Western New York,
Marquette Bank of Minneapolis, Sanwa Bank California, and Union Bank of
California.

More plan to offer BankNow-based services through AOL later this year:
BankAtlantic of Florida, Bank of Boston, First Hawaiian Bank, First
Michigan Bank, Mellon Bank, Signet Bank, and U.S. Bank of Oregon.

Unlike Quicken, BankNow software is available free to America Online
subscribers.

Banks' fees will vary. First National Bank of Chicago said it will
charge $3.95 a month for on-line banking and $9.95 a month for other
services that include bill payment.

Centura Banks Inc. said it will offer on-line banking free, and charge
$5.95 a month for bill payment.

Intuit officials declined to disclose what its Intuit Services Corp.
processing unit will charge to handle these transactions for banks.

Some of Intuit's larger bank partners chose not to offer BankNow because
they already promote their own PC banking programs.

For example, Citicorp, First Union, and Wells Fargo each support
Quicken, but passed on BankNow. Instead, they are paying a premium for a
"button" on America Online's banking screen that will eventually link
users to a proprietary home banking program.



AP Online: Thursday, September 5, 1996

House Probes Money Laundering

By ROB WELLS

House Banking Committee members on Thursday urged a Treasury Department
agency to step up its efforts to halt money laundering by Mexican drug
lords.

Rep. Spencer Bachus, R-Ala., urged the Financial Crimes Enforcement
Network to put in place new regulations to plug a significant loophole
that allows Mexico's drug dealers to place their ill-gotten profits back
into the U.S.

Bachus, chairman of the House Banking oversight subcommittee, said
Congress gave authority to FinCen in 1994 to put in place new rules that
would prevent drug dealers from using foreign bank drafts, a type of
check, to evade currency reporting restrictions.

''That effort is long, long overdue,'' Bachus said.

Rep. Henry Gonzalez, D-Texas, asked the agency to provide further
details about suspected money laundering in his home town of San
Antonio, particularly the source of a $3 billion cash surplus in the San
Antonio Federal Reserve Bank.

The issue arose as Bachus' panel began exploring the dramatic rise of
narcotics traffic along the 2,000 mile long U.S.-Mexico border, and the
ease with which drug dealers can ship their profits to the south. Money
laundering refers to the practice by which drug dealers, mobsters and
others funnel their illegal profits into the banking system through
businesses or other means.

Bachus said estimates of drug profits laundered through Mexico range
from $6 billion to $30 billion per year. Stanely E. Morris, FinCen's
director, defended his agency's record, saying a combination of new
rules and tougher enforcement in the past decade has ''made it more
difficult to launder money in the U.S.'' and increased the costs of
money laundering. Morris' agency enforces the Bank Secrecy Act, a key
weapon against money laundering.

As for the new rules aimed at foreign bank drafts, Morris said the
regulations are more difficult than first expected because such
restrictions also could hinder legitimate commerce. He said the proposal
would be released soon.

FinCen is working on other fronts to combat money laundering, which
includes a new computer system that tallies bank fraud to help
regulators gain an early warning of money laundering.

In addition, the Clinton Administration assisted Mexico in adopting new
anti-money laundering rules earlier this year. And Treasury Secretary
Robert Rubin convened a conference of 29 nations in December 1995 to
focus on the money laundering problem.

One committee member, Rep. Maxine Waters, D-Calif., addressed the
political context of the hearings.

Waters said she was suspicious that the Republican-led Congress was
holding ''a rash of hearings this month ... on the subject of drugs just
as Presidential candidate Dole tries to use the issue as part of his
campaign strategy against President Clinton.''

Waters said if the GOP-led House ''is truly serious about the impact of
drugs'' it should hold hearings about charges raised in a San Jose
Mercury News investigative series last month concerning the role
CIA-backed rebels in Nicaragua played in bringing crack cocaine and
weapons to Los Angeles and other cities.

Bachus told Waters the hearing wasn't motivated by politics and that he
had personally been involved in anti-drug efforts prior to his election
to Congress.

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<a href="mailto:dlv@bwalk.dm.com">Dr.Dimitri Vulis KOTM</a>
Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps