Global Policy Forum

Money Laundering By US Banks

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By Syed A. Mateen

Dawn
March 25, 2002


According to James Petras, Professor of Sociology, Binghamton University, New York, there is a consensus among the US congressional investigators, former bankers and international banking experts that the US and the European banks launder between $500 billion and $1 trillion of dirty money each year, half of which is laundered by the US banks alone.

Senator Carl Levin, while summarising the record says: "Estimates are that $500 billion to $1 trillion of international criminal proceeds are moved internationally and deposited into bank accounts annually. It is estimated that half of that money comes to the United States".

Over a decade, between $2.5 and $5 trillion criminal proceeds have been laundered by US banks and circulated in the US financial circuits. Senator Levin's statement, however, only covers criminal proceeds, according to US laws. It does not include illegal transfers and capital flows from corrupt political leaders, or tax evasion by overseas businesses.

A leading US scholar who is an expert on international finance associated with the prestigious Brookings Institute estimates that "the flow of corrupt money out of developing (Third World) and transitional (ex-Communist) economies into Western coffers at $20 to $40 billion a year and the flow stemming from mis-priced trade at $80 billion a year or more.

My lowest estimate is $100 billion per year by these two means by which we facilitated a trillion dollars in the decade, at least half to the United States. Including the other elements of illegal flight capital would produce much higher figures. The Brookings expert also did not include illegal shifts of real estate and securities titles, wire fraud, etc.

The former private banker, Antonio Geraldi, in a testimony before the Senate sub-committee projects significant growth in the US bank laundering. "The forecasters also predict the amounts laundered in trillions of dollars and growing disproportionately to legitimate funds." The $500 billion of criminal and dirty money flowing into and through the major US banks far exceeds the net revenues of all the IT companies in the US, not to speak of their profits.

These yearly inflows surpass all the net transfers by the major US oil producers, military industries and aeroplane manufacturers. The biggest US banks derive a high percentage of their banking profits from serving these criminal and dirty money accounts. The big US banks and key institutions sustain the US global power via their money-laundering and managing of illegally obtained overseas funds.

The first thing to note about the money-laundering business, whether criminal or corrupt, is that it is carried out by the most important banks in the USA. Secondly, the practices of bank officials involved in money-laundering have the backing of the highest levels of the banking institutions - these are not isolated cases by loose cannons.

This is clear in the case of the Citibank's laundering of Raul Salinas (brother of Mexico's ex-President) $200 million account. When Salinas was arrested and his large-scale theft of government funds was exposed, his private bank manager at the Citibank, Amy Elliott, told her colleagues that "this goes in the very, very top of the corporation, this was known...on the very top. We are little pawns in this whole thing".

The Citibank is the biggest bank in the US, with 180,000 employees world-wide operating in 100 countries, with $700 billion in known assets and over $100 billion in client assets in private bank (secret accounts) operating private banking offices in 30 countries, which is the largest global presence of any US private bank. For example, in the case of Raul Salinas, private banking personnel at the Citibank helped Salinas transfer $90 million to $100 million out of Mexico in a manner that effectively disguised the funds' sources and destination thus breaking the funds' paper trail.

In routine fashion, the Citibank set up a dummy offshore corporation, provided Salinas with a secret code name, an alias for a third party intermediary who deposited the money in a Citibank account in Mexico and transferred the money in a concentration account to New York where it was then moved to Switzerland and London.

The PICs are designed by the big banks for the purpose of holding and hiding a person's assets. The nominal officers, trustees and shareholder of these shell corporations are themselves shell corporations controlled by the PB. The PIC then becomes the holder of the various bank and investment accounts and the ownership of the private bank clients is buried in the records of so-called jurisdiction such as the Cayman Islands.

Private bankers of the big banks like Citibank keep pre-packaged PICs on the shelf awaiting activation when a private bank client wants one. The system works like Russian Matryoshka dolls, shells within shells, which in the end can be impenetrable to a legal process.

The congressional investigations revealed that Citibank provided "services" for four political swindlers moving $380 million: Raul Salinas - $80-$100 million, Asif Ali Zardari in excess of $40 million, El Hadj Omar Bongo (dictator of Gabon since 1967) in excess of $130 million, the Abacha sons of General Abacha ex-dictator of Nigeria - in excess of $110 million. In all cases, the Citibank violated all of its own procedures and government guidelines: there was no client profile (review of client background), determination of the source of the funds, nor of any violations of country laws from which the money accrued.

On the contrary, the bank facilitated the outflow in its prepackaged format: shell corporations were established, code names were provided, funds were moved through concentration accounts, the funds were invested in legitimate businesses or in the US bonds, etc. In none of these cases - or thousands of others - was due diligence practised by the banks (under due diligence a private bank is obligated by law to take steps to ensure that it does not facilitate money laundering). In none of these cases were the top banking officials brought to court and tried. Even after arrest of their clients, the Citibank continued to provide services, including the movement of funds to secret accounts and the provision of loans.

The second and related route which the big banks use to launder hundreds of billions of dirty money is through "correspondent banking" (CB). The CB is the provision of banking services by one bank to another bank. It is a highly profitable and significant sector of big banking. It enables overseas banks to conduct business and provide services for their customers - including drug dealers and others engaged in criminal activity - in jurisdictions like the US where the banks have no physical presence.

A bank that is licensed in a foreign country and has no office in the US for its customers attracts and retains wealthy criminal clients interested in laundering money in the US instead of exposing itself to US controls and incurring the high costs of locating in the US, the bank will open a correspondent account with an existing US bank. By establishing such a relationship, the foreign bank (called a respondent) and through it, its criminal customers, receive many or all of the services offered by the US big banks called the correspondent.

Today, all the big US banks have established multiple correspondent relationships throughout the world so they may engage in international financial transactions for themselves and their clients in places where they do have a physical presence. Many of the largest US and European banks located in the financial centres of the world serve as correspondents for thousands of other banks. Most of the offshore banks laundering billions for criminal clients have accounts in the US. All the big banks specialising in international fund transfer are called money centre banks, some of the biggest process up to $1 trillion in wire transfers a day.

For the billionaire criminals an important feature of correspondent relationships is that they provide access to international transfer systems - that facilitate the rapid transfer of funds across international boundaries and within countries. The most recent estimates (1998) are that 60 offshore jurisdictions around the world licensed about 4,000 offshore banks which control approximately $5 trillion in assets.

One of the major sources of impoverishment and crises in Africa, Asia, Latin America, Russia and the other countries of the ex-USSR. and Eastern Europe, is the pillage of the economy and the hundreds of billions of dollars which are transferred out of the country via the corresponding banking system and the private banking system linked to the biggest banks in the US and Europe.

Russia alone has seen over $200 billion illegally transferred in the course of the 1990s. The massive shift of capital from these countries to the US and European banks has generated mass impoverishment and economic instability and crises. This in turn has created increased vulnerability to pressure from the IMF and the World Bank to liberalize their banking and financial systems leading to further flight and deregulation which spawns greater corruption and overseas transfers via private banks as the US Senate reports demonstrate.


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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.