----- Forwarded Message Date: Tue, 10 Oct 1995 23:35:58 -0400 (EDT) From: Brad Dolan <bdolan@use.usit.net> To: snet-l@world.std.com 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 INTERNATIONAL ASPECTS 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 reporting. 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"] --****ATTENTION****--****ATTENTION****--****ATTENTION****--***ATTENTION*** Your e-mail reply to this message WILL be *automatically* ANONYMIZED. 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