Banking On Secrecy

  • Share
  • Read Later

(2 of 3)

The typical U.S. bank has dozens, even thousands, of correspondent banking relationships with high-risk banks, Senate investigators found. In many cases, banks are not bothering to perform due-diligence reviews to see if the money they are handling is linked to drugs or terrorism. Making matters worse, the banks taking out correspondent accounts are, in some cases, doing so for other banks that they know little about. The upshot: it might not be hard for bin Laden, who controls a Sudanese bank, to wire money to a friendly neighborhood bank branch in any U.S. city. Or for members of terrorist cells to make withdrawals.

Long before the Sept. 11 attacks, the U.S. government tried to declare war on tax havens and dirty money. After the 1998 attacks on two U.S. embassies in Africa--attacks blamed on bin Laden's network--the Clinton Administration began drafting legislation designed to "strategically change the environment that allowed the money of criminals and terrorists to flow freely," says William Wechsler, a special adviser to Clinton Treasury Secretary Lawrence Summers. And the Administration began sounding out the banking industry.

In Treasury and Capitol Hill meetings, bank representatives argued against new reporting requirements intended to identify the foreign owners of suspicious accounts. Former Treasury officials say that among the most vociferous critics were officials from Texas banks that, because of their proximity to the Mexican border, finance many cross-border projects, and are believed to be a favorite repository for Mexican fortunes whose owners sometimes don't welcome scrutiny. Among the most outspoken were representatives of the International Bank of Commerce of Laredo, Laredo National Bank and Stanford Financial Group, a Houston-based broker-dealer with offshore banks in Antigua. But that's not the way the bankers see it. Says Gary Jacobs, who heads Laredo National Bank: "Compliance is a top priority with us and has been for years."

The Texas bankers did not have much pull with the Clinton Administration, and Summers forged ahead. In March 2000 he worked with Congress to introduce a tough money-laundering bill. High on the Administration's list: know-your-customer rules that require banks to confirm a depositor's identity and determine the source of his money. And that June, Summers cheered the OECD's listing of 35 nations and territories as tax havens and potential money-laundering venues. An ally of Vice President Al Gore's, Summers might have stayed at Treasury and continued his drive in a new Democratic Administration.

Just days prior to Summers' announcement that he was cracking down on the OECD's tax havens, Dennis Nixon, chairman of the International Bank of Commerce in Laredo, gave $20,000 to the Republican National Committee. Already a Bush Pioneer, who had raised at least $100,000 for the primaries, Nixon gave the R.N.C. another $100,000 as the post-election contest for Florida ballots began. Summers' bill passed the House Banking Committee 31 to 1 in July 2000, but it got no further. Republican Senator Phil Gramm of Texas, chairman of the Senate Banking Committee, refused to let it come up for a vote in his committee. In August, Stanford Financial gave $40,000 to the Republican Senate campaign committee. Gramm lost his post this summer, when the Democrats retook the Senate.

Texas bankers have kept Republican campaign money flowing in Bush's first year--$65,000 from Nixon, $40,000 from Stanford Financial, and $12,500 from Jacobs of Laredo National. They deny trying to influence the Administration's money-laundering policies. "We're supportive of any effort our government takes to track down terrorists," Yolanda Suarez, Stanford Financial's chief of staff, told TIME.

Conservative groups have not been bashful. The C.F.P., the most prominent of them, argues that by clamping down on tax havens--by, for example, pressuring such countries not to charge lower taxes to American investors than they do to their own people--the proposed laws could amount to higher taxes, albeit overseas, something many conservatives do not want to encourage anywhere. The center refuses to divulge its contributors, but its lobbyists often work in concert with the financial industry.

Until last month, O'Neill recommended delays in Clinton-era money-laundering regulations that had not yet been implemented so that cost-benefit analyses could be run--a classic Beltway ploy for slowing down and killing rules. And O'Neill's Treasury Department has called for a "top-to-bottom" review of anti-money-laundering resources and programs, which would have brought in the Office of Management and Budget to bean-count the costs of money-laundering enforcement.

It took the worst terrorist attacks in U.S. history to turn the Bush Administration around. Top officials, including Attorney General John Ashcroft and even O'Neill, were suddenly declaring that tough new anti-money-laundering laws were needed. And the Administration dropped its resistance to tough new reporting and record requirements in the anti-money-laundering legislation pending in Congress last week.

  1. 1
  2. 2
  3. 3