Big Banks serve as bagmen for global crime syndicates (03/02)

It’s one of the twisted ironies of the war on drugs. While the US spends billions of dollars trying to interdict illegal drugs from abroad, the country’s banking system has been making it easy for drug lords to launder their profits. About half of the estimated trillion dollars in dirty money that comes in large part from drug trafficking – but also from criminal activities such as gambling, auto theft, and child prostitution – moves through the US financial system, according to government estimates.

This startling revelation came to light in March when the US Permanent Subcommittee on Investigations released a report that identified four of the six largest US banks (Citibank, J.P Morgan, Bank of America, and First Union) as having “weak due diligence practices” and “inadequate” money-laundering controls. Michigan Senator Carl Levin characterized the banks as “asleep at the switch.”

But that’s much too mild a clichŽ to describe the role of the US banking system in money laundering. How about “turning a blind eye”? While several legislators in Congress express shock that such activities could be so brazenly carried on by some of the country’s leading financial institutions, the truth is that the connection between the crime world and US bankers has been known for some time. 

For instance, California Congresswoman Maxine Waters brought Citibank’s ongoing relationship with criminal syndicates to public attention in 1998, charging that its “private banking appeared to be financed by these global criminals, because of [Citibank’s] ‘don’t ask, don’t tell’ policy towards its wealthiest, and sometimes dirtiest, clients.”

Waters made the charge as part of her effort to rally congressional support to block a proposed merger between Citigroup (the parent company of Citibank) and Travelers Group Inc., creating the world’s largest financial institution. Waters feared that the merger would create even better money laundering. 

Waters’ charge against Citibank is well documented, thanks to recent investigations. In one of the most high profile cases, Raul Salinas, the brother of former Mexican President Carlos Salinas, funneled $100 million in drug money into his Swiss bank accounts with the help of Citibank, according to a Government Accounting Office (GAO) investigation. The GAO revealed that Citibank set up a shell investment company in the Cayman Islands and accounts in London and Switzerland to help Raul quietly transfer funds between 1992 and 1994.

Among other revelations: Citibank failed to conduct a background check on Raul and allowed his wife to wire funds from Mexico to New York City using another name.

The money involved in the Salinas case was pocket change compared to the $7 billion in suspected dirty money that passed from Russian banks through three accounts at the Bank of New York in 1999. Although investigators knew the Russian mafia had infiltrated the New York banking system, the extent of this operation surprised them. Still, they believe that the $7 billion is most likely a mere fraction of the money being laundered. The Russian Interior Ministry estimates that, in the period from 1994 to 1998 alone, criminals illegally transferred $50 to $250 billion out of Russia.

The laxity in federal oversight of the US’s banking system is evident in the findings of a recent one-year US senate investigation of two Citibank-owned offshore banks in the Bahamas and the Cayman Islands. The investigation disclosed that Citibank failed to close the Cayman Islands bank for 21 months after US Customs seized its funds as a part of a drug money laundering operation. Prosecutors charged that the Cayman Islands’ bank funneled $7.7 million from Mexico’s Juarez drug cartel through two Citibank accounts in New York. According to Senator Levin, Citibank’s “delayed reaction” helped its Bahamas shell company to move an additional $300 million through a New York account between the time of the seizure and the closure of the account in early 2000.

Did Citibank learn its lesson from the embarrassments? More to the point, has it begun to practice “due diligence?” Hardly. In January, the Wall Street Journal revealed that Joseph Estrada, the corrupt, ousted president of the Phillippines, used two Citibank bank accounts to take money from a local politician who ran an illegal gambling operation.

So, why have Citibank and other major US financial institutions been able to keep serving as the bagmen for criminal syndicates and corrupt foreign politicians? Start by taking a look at the US financial system. In reality, the US has two systems in place: one for Joe and Jane consumer and another one for the rich, who are allowed to take advantage of a special unit within banks known as the “private bank.”

According to information revealed during hearings of the US Senate Permanent Sub Committee on Investigations on “Private Banking and Money Laundering,” the larger private banks may handle as many as 100,000 clients, and a single private bank may have assets exceeding $100 billion. And these “private banks” don’t just operate in the US. The total worldwide assets currently being managed by “private banks” is estimated at $15.5 trillion, a figure that dwarfs the US’s Gross Domestic Product (GDP).

Such banks work hard as the bagmen for the individuals and institutions who are getting wealthy from globalization and the free hand multinationals have been given in the so-called New Economy. They serve as financial advisors, estate planners, credit sources, and investment managers for their rich clients.

How rich is rich? A prospective client must deposit a sum of $1 million or more to open an account in a “private bank.”

US bank regulators, who have been looking at the activities of “private banks” for some time, know there is a problem. In 1998, the US State Department, in its annual “International Narcotics Control Strategy Report,” noted that “private banking facilities continue to be vulnerable to money laundering.”

Multinational financial institutions also have been eager participants in criminal activity. For example, their “private banks” have routinely set up shell companies for clients to help them hide their identities.

Engaging in such activity is criminal. After all, under US laws, banks, whether the multinational or small town variety, are supposed to have adequate safeguards in place to screen and monitor their clients. Moreover, banking laws require that banks be “familiar with their customer’s money.”

But the US government and Congress have not moved aggressively to punish the multinational financial institutions that are making a sham of the War on Drugs. Our political leaders have settled for public scolding and investigations that lead to nowhere. Meanwhile, the new economic order continues to corrupt the US political process.