[iwar] [fc:Helping.The.Money.Launderers]

From: Fred Cohen (fc@all.net)
Date: 2001-10-15 07:27:12
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From: Fred Cohen <fc@all.net>
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Date: Mon, 15 Oct 2001 07:27:12 -0700 (PDT)
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U.S. News &amp; World Report
October 22, 2001
Helping The Money Launderers
Banks find reasons to resist efforts to crack down on terrorist cash flow 
By Marianne Lavelle 
In the drive to strengthen the U.S. banking system against terrorists,
Congress is finding it must first make it past another formidable force: the
lobbyists.
The banking industry and an array of libertarian groups have been working
relentlessly, if quietly, to blunt new money-laundering legislation that
would give U.S. authorities enhanced oversight over the flow of money across
the nation's borders. In principle, the business and interest groups say
they support a strong U.S. effort to choke off the finances of terrorists.
Nevertheless, with their own lucrative overseas dealings at stake, they are
balking at proposed antiterrorism measures that will, in effect, curb all
business in the secretive world of offshore finance.
"There are outside parties in the banking industry who do not want
heightened due diligence, and they have been trying to get this out of the
bill," said Rep. John LaFalce of New York. He voiced frustration as the
House Financial Services Committee, on which he serves as ranking Democrat,
last week tackled a succession of amendments that would have given the U.S.
treasury secretary discretion to exempt banks from new requirements. LaFalce
said he didn't want to leave such decisions up to the Bush administration,
which had shown little interest in tough money-laundering controls earlier
this year: "It wasn't until September 11 and after that they saw the light
on this issue."
The fine print. The American Bankers Association, the lead industry lobbying
organization, released a letter praising the legislation that emerged from a
House committee last week. But that was after it had managed to insert into
the bill a requirement that government officials embark on a likely lengthy
process of writing regulations to put the law into effect.
"We've asked for what I think are reasonable adjustments," says John Byrne,
association senior counsel. He said that U.S. banks have rallied behind
President Bush's move, expanded last week, to freeze the assets of Osama bin
Laden and to reconstruct the money trail. But, says Byrne, "what we're not
committed to is simply passing laws that have been sitting around for a
while in the current environment simply because the time has come to put
them into play." 
Indeed, money-laundering legislation, stymied for years by bank lobbying,
moved to the fast track after the devastating September 11 attacks. The
measure would crack down especially on dealings with banks in countries with
high levels of bank secrecy. In effect, the legislation would reverse the
Bush administration's pre-September 11 policy of backing off from the
international movement to pressure those countries to change their laws.
"Money laundering is the transmission belt that gives terrorists the means
to carry out their campaigns," said Senate Banking Committee Chairman Paul
Sarbanes, a Maryland Democrat, as he pushed forward with the package. But
the going hasn't been easy.
Case in point: The proposal currently moving forward on Capitol Hill would
bar U.S. banks from doing business with foreign "shell banks," that is,
financial institutions that have no physical offices but simply exist to
move money from one place to another in secrecy. Many U.S. banks already
shun relationships with shells, and the American Bankers Association agrees
with a prohibition. But, according to congressional staffers, lobbyists for
giant Citigroup had urged lawmakers to make an exception for shell banks
affiliated with financial services companies. 
Because it is so easy to set up an unregulated financial service firm-Osama
bin Laden allegedly had one, called Taba Investments-proponents feared such
an exception would render the new legislation meaningless. Citigroup's
proposal was removed from both Senate and House bills just before committee
votes. And Citigroup spokeswoman Christina Pretto, who would not comment
specifically on the shell issue, said the corporation "strongly supports"
the current bill. "We have been working . . . to achieve the most effective
means to ensure that the banking system worldwide is never used by
terrorists and other criminals," she said. Citigroup has taken heat for its
dealings with offshore institutions in the past. An investigation
spearheaded by Democratic Sen. Carl Levin of Michigan earlier this year took
aim at Citigroup for opening a $7.7 million account for a Cayman Islands
shell bank whose assets were eventually seized in an illegal-drug
investigation.
The new legislation would force U.S. banks and other financial institutions
to step up efforts to determine the source of deposits from foreign
countries. Banking industry officials have called the proposal impossible to
enforce. Bert Ely, an Alexandria, Va., banking consultant, calls it an
effort "to turn banks into spymasters" that won't succeed in nabbing
terrorists. "The bad guys figure how to get around these things, or we would
have won the war on drugs long ago," Ely says.
Perhaps the most important-and criticized-provision would give the treasury
secretary power to sanction any country or financial institution he deems to
be "a primary money laundering concern." He might limit or outright prohibit
any dealings with U.S. banks. Former government officials say that's the
kind of clout that the United States has been lacking in international money
laundering probes such as the pursuit of bin Laden.
"This is a very, very deep problem," says William Wechsler, a special
adviser at the Treasury Department in the Clinton administration. "A simple
law enforcement investigation-following the money trail and going to the
country, and saying, 'We need some legal assistance'-is not going to get the
cooperation we need. You need to have leverage over these countries, to be
able to show that there is a price that's going to be paid for not
cooperating."
Tax haven rights. But libertarian groups, led by an organization called the
Center for Freedom and Prosperity, are engaged in what they call a "nonstop
effort" against the measure. The center, which declines to reveal its
supporters, fights for the right of small "tax haven" countries in the
Caribbean and elsewhere to maintain bank secrecy laws in the face of
mounting international pressure. Provisions ostensibly meant to curb money
laundering are, in fact, the center contends, "designed to give an
ideologically driven treasury secretary unchecked powers to impose sanctions
on economically successful low-tax jurisdictions."
The center's critics charge that it is lobbying on behalf of wealthy
individuals or institutions that stow money in the secret offshore banking
system to avoid taxes. "You do everything the same way, if you're a crook, a
terrorist, or a tax evader," says one Senate staffer. "If you start to open
up bank secrecy for terrorism, these folks start to worry that the next stop
will be tax enforcement."
Opponents of the legislation say there's no evidence any of the proposed new
controls over U.S. dealings with foreign institutions would have prevented
last month's catastrophic terrorist attack. But bin Laden himself boasted in
a newspaper interview last month that his followers have exploited "the
cracks inside the Western financial system." And as lawmakers are finding
out, some of those cracks won't be sealed without a fight. 

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