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international clampdown on money laundering

 ----- Forwarded Message

Date: Tue, 10 Oct 1995 23:35:58 -0400 (EDT)
From: Brad Dolan <[email protected]>
To: [email protected]
Subject: Int'l Money Laundering, Part the Second (fwd)

- ---------- Forwarded message ----------
Date: Tue, 10 Oct 1995 19:31:40 -0800
Subject: Int'l Money Laundering, Part the Second

The increasingly long arm of US law

Those of you who have read my earlier exploration on the subject
of jurisdiction (http://www.communities.com/paper/swamp.html)
should be aware of a wide variety of ways that the US can "reach
out and touch someone" they're not pleased with.

Well, last week, I learned a few more.

There are several ways in which the US is attempting to exert
hegemony throughout the world wrt banking regulation:

  o Identification of "fiscally tolerant" nations and banking
    havens, and close regulatory examination of all transactions
    with these countries.

  o Pressure on major US trading partners and allies to pass
    and implement anti-money-laundering legislation and
    regulatory regimes.

  o Regulations on foreign banks with offices in the US, making
    compliance demands on world-wide operations.

  o Criminal prosecution of banks suspected of institutional
    involvement in money laundering, even if said bank has no
    offices or branches in the US.

  o Worldwide pre-trial substitute asset forfeiture of banks
    suspected of institutional involvement in money laundering,
    even if said bank has no offices or branches in the US.

Pariah Nations in Banking

As I touched on briefly in the previous section, transactions
with well-known banking havens can automatically qualify as
"suspicious." And in addition to some of the better known havens,
a number of countries were pointed out at the conference as
being "fiscally tolerant", including Malta, Uruguay, Japan,
Ireland and Belgium; in another presentation the countries of
Eastern Europe and the former Soviet Union were identified as
"rapidly growing" sources of suspicious baning activity.

Transactions with counterparties in such countries will be flagged
by regulators for closer examination -- banks with large percentages
of transactions with these countries will be expected to meet a
higher standard in their attempt to identify "suspicious" behavior
and will be under increasing pressure to investigate their customers'
business practicies and motivation for all bank transactions.

Some countries are clearly going to continue to tell the US to
"get stuffed." However, if the US is successful in pressuring more
and more countries to "tow the line", it will leave a shrinking
pool of transactions subject to closer and closer examination.

New Money Laundering Legislation

Two presentations, one from Taiwan, the other from Thailand,
focused on new or proposed legislation wrt money laundering in
those countries. Based on my direct experience of living in the
former, and my reseach into the latter, it's going to be a very,
very long time before such legislation has a significant
impact on either country.

Chinese people (who are in the majority in Taiwan, and form
an economically active minority in Thailand) are very cash-
oriented; I vividly remember payday in Taiwan, with the boss
sitting at a table piled with money, bundling up salaries for
everyone. I'd come home at the end of each month with a giant
wad of cash from my several different jobs. One could hardly
imagine a better environment for money laundering than a society
in which large quantities of cash change hands on a regular basis.
After his talk, the Taiwanese speaker acknowledged the problems,
but seemed hopeful that progress could be made.

The speaker from Thailand, Nualnoi Treerat, a professor of
Economics, discussed the proposed legislation primarily as an
attempt to reduce the impact of organized crime on
political life and society in Thailand; however, by her own
estimations, the underground economy in Thailand represents
17-19% of the country's GDP (mostly drugs and prostitution.)
Given the extensive corruption which she also detailed, it
seems that such legislation will be a very small step indeed.

Other speakers addressed the issue of cultural differences
with respect to the use of cash and attitudes towards privacy,
and it came up at lunch both days -- in many cultures, financial
privacy is held in much higher regard than in the US, and people
have a  much stronger suspicion towards the government. Furthermore,
there are many people who feel this way in the US. There is going
to be an inevitable clash between atttempts to closely regulate
and monitor money movements and people's fundamental desire for
privacy. It's not clear that people of any culture can be sufficiently
frightend by the bad guys to give up as much of their privacy as
would be required for ultimate success in the War on Money Laundering.

Despite the dim chances of success, it's clear that the US has
been at least partially successful in coercing and coaxing other
countries to adopt measures against money laundering, and to
some extent there is local support for these measures. But these
direct efforts pale by comparison to some other techniques...

Foreign Bank Regulation

In various pro-privacy publications I've read, there have been
oblique warnings about doing business with foreign banks that
maintain offices in the US. At this conference, I learned some
very concrete reasons for this.

It turns out that if a foreign bank wants to open a US office,
they must demonstrate compliance with US money laundering laws
throughout their _worldwide operations_. Furthermore, they're
expected to have solid leadership for these policies from their
home offices.

This puts such banks in a serious bind. For instance, while
Annunzio-Wylie absolves (or attempts to absolve) banks from civil
liability for filing Suspicious Activity Reports and Criminal
Referral Forms on their cusomters, this absolution does not extend
to the home countries of these banks, where substantially different
laws may obtain -- possibly explicitly forbidding this kind of

There is almost a certain kind of logic to this kind of activity,
but not content to extend our laws over the worldwide operations
of banks with US offices, there are two ways in which US authorities
are now attempting to extend US laws to banks _with no US offices_.

Extraterritorial Reach

The best paper presented at the conference, hands down, was
"Surviving the Solution: The Extraterritorial Reach of the
United States," by Kirk Munroe, a criminal defense attorney
practicing in Miami. [I intend to find out if an online
version of this paper can be made available.]

To quote Mr. Munroe:

  The US money laundering law specifically provides for
  extraterritorial jurisdiction when (a) the conduct is by a US
  citizen anywhere in the world, or, if by a non-US citizen,
  the conduct occurs, at least in part, in the United States,
  and (b) the transactions, or a series of related transactions,
  exceeds $10,000. [18 USC $ 1956(f)]

Some add'l background: banks involved in international business
typically have a number of _correspondent accounts_ scattered
around the world that are used for clearing wire transfers and
other transactions. Since the BCCI scandal, the US government
has increasingly gone after these accounts when a bank is
suspected of facilitating money laundering.

Furthermore, banks can have these correspondent accounts seized,
even if they no longer contain "dirty" money, because they
_facilitated_ a money laundering activity.

When you combine these elements, you get a strategy that
permits the US government to confiscate worldwide correspondent
accounts of banks, even if they don't have a US presence.

The first case Mr. Munroe cites is that of Banco de Occidente
(Panama), one of his clients, that was alleged to have facilitated
the laundering of the proceeds of drug transactions. The indictment
included criminal charges against the banks and a criminal
forfeiture charge. The government also filed a civil action for
the forfeiture of $412 million allegedly laundered (although it
had already passed completely through the bank.)

The government then proceded to freeze not only the bank's US
correspondent accounts, but also accounts in Germany, Switzerland
and Canada, leading to the insolvency of the bank and its subsequent
takeover by the Panamanian Banking Commission. [The Germans quickly
unfroze the account after a civil action brought by the bank.]

Quoting Munroe:

  After months of difficult and complicated negotiations which
  involved the banks' various interests in eight nations, a
  resolution was reached with the governments of the US, Canada,
  and Switzerland... [the bank] entered a guilty plea and agreed
  to forfeit, over a period of four years, $5 million to the US.
  The US, in turn, paid the Swiss and the Canadians $1 million
  each from the initial $2 million forfeiture payment.

[Those of you who are still under any delusions about the "safety"
of Swiss bank accounts, take careful note of this.]

Mr. Munroe concludes that the only reason that the bank got off
this "lightly" was because of substantial evidence that it was,
by and large, a highly respectable institution and that this
instance of laundering was an aberration.

The next case cited by Mr. Munroe is that of Bank Leu. I quote
from his paper:

  In sum, a Luxembourg bank with no office in the US was charged
  and convicted of money laundering in the US on the basis of
  clearing US dollar negotiable instruments drawn on a US bank but
  deposited by non-US citizens in Luxembourg. In other words,
  acceptance of US-dollar negotiable instruments by a bank anywhere
  in the world outside of the US renders the bank susceptible
  to US criminal jurisdiction in the money laundering field.

The case boils down to this: Bank Leu wanted to expand its private
banking business, and hired an officer to market accounts in
South America. Two related accounts were opened, and over a one-
year period $2.3 million in cashier's checks, all below $10K,
were deposited in the two accounts.

Although no guilty knowledge could be shown, this case was pursued
and won on a theory of "willful blindness", that is, the bank "should
have known" that the transactions had no valid business purpose
and were inherently suspicious (came via Columbia, were sometimes
more than 6 months old, all in small amounts, etc.). According to a
LEA representative at the conference, there was a lot of joking in
the backoffice at Bank Leu about the money being dirty, and clerks
were repeatedly told "don't worry, it's ok" by bank officers.
Certainly if this is true, it amounts to _extremely_ willful
blindness, but this case still represents an amazingly long reach
for US laws.

[more to come... "Things bad people do with money"]

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