J.P. Morgan Is Facing Heat Of Patriot Act

[Tyler Durden]

Holy Crap this seems bizarre. This isn't even really a case of "know your 
customers", but "know your customers' customers", isn't it?

Is this some kind of "snipe hunt" or mere "Brazil"-like government 
incompetence and mindless application of half-baked laws?

-TD


>From: "R. A. Hettinga" <rah at shipwright.com>
>To: cypherpunks at al-qaeda.net, e$@vmeng.com
>Subject: J.P. Morgan Is Facing Heat Of Patriot Act
>Date: Tue, 9 Mar 2004 18:13:40 -0500
>
><http://online.wsj.com/article_print/0,,SB107878833057749707,00.html>
>
>The Wall Street Journal
>
>       March 9, 2004
>
>
>
>J.P. Morgan
>  Is Facing Heat
>  Of Patriot Act
>
>By RANDALL SMITH
>Staff Reporter of THE WALL STREET JOURNAL
>
>
>
>NEW YORK -- Manhattan District Attorney Robert Morgenthau has asked banking
>regulators to examine documents from the recent criminal conviction of an
>unlicensed money-transfer operation to determine whether J.P. Morgan Chase
>& Co. or its predecessor banks violated "know your customer" rules.
>
>Staffers in Mr. Morgenthau's office last year turned over to regulators
>court papers from its investigation of Beacon Hill Service Corp., which was
>convicted Feb. 23 in state criminal court in Manhattan of four felony
>counts of operating as an unlicensed money transmitter, Mr. Morgenthau 
>said.
>
>The regulators include the New York State Banking Department and the
>Federal Reserve Bank of New York, Mr. Morgenthau added. Neither agency
>would comment on the action. However, the state agency has been reviewing
>the case, according to one person familiar with the matter.
>
>J.P. Morgan Chase, which declined to comment on any possible rule
>violations, said it has been working with regulators to tighten its
>standards. "We agree with regulators that financial institutions should
>continually raise standards on know-your-customer policies, and have worked
>with them to ensure that we tighten ours and strive to exceed the law," a
>bank spokeswoman said.
>
>The USA Patriot Act, adopted in October 2001, expanded the scope of U.S.
>money-laundering rules in order to make it harder for terrorists to move
>money without attracting attention. It includes beefed-up
>know-your-customer requirements for some financial institutions, according
>to some legal experts.
>
>Beacon Hill took deposits and transmitted money on behalf of clients in
>Central and South America, including wealthy individuals and money-exchange
>houses, according to a filing by prosecutors in the criminal case. J.P.
>Morgan Chase was Beacon Hill's bank and accepted deposits from Beacon until
>Beacon's office was searched by Mr. Morgenthau's agents on Feb. 4, 2003,
>according to an affidavit by a lawyer for Beacon Hill.
>
>Beacon Hill, which began operating in 1994, originally had an account with
>Chemical Bank, which later merged with Chase Manhattan Corp., which in turn
>merged with J.P. Morgan & Co. in 2000 to become J.P. Morgan Chase. Beacon
>had 49 customers as of mid-2002, 36 of them in a "pooled" account that
>shielded their identities from the bank, according to a report by a
>consultant to Beacon Hill that is part of the court record.
>
>At Beacon Hill, $5.5 billion "went in and out between 1997 and 2002," Mr.
>Morgenthau said. Yet, such pooled arrangements meant J.P. Morgan, its
>predecessor banks and other banks who have dealt with money-transfer
>businesses in similar fashion have transferred large sums -- a lot of it
>"to secrecy jurisdictions" -- without knowing whose money it really was, he
>said. Such banks "were not observing the know-your-customer rule."
>
>He said that there isn't an accusation that J.P. Morgan was dealing with
>illegal money. The question, he said, is this: "Should they have taken
>money from an unlicensed money transmitter? That's a matter for State
>Banking and the Federal Reserve to be concerned about." He asserted, "They
>just weren't asking the questions under know-your-customer [that] they were
>required to ask."
>
>The New York licensing requirement for money transmitters, originally
>adopted as a consumer-protection measure in 1963 to guard against fraud or
>insolvency, was amended in 1990 to combat money laundering, according to
>the banking department. The licensing process requires money transmitters
>to have antimoney-laundering programs and to file suspicious activity
>reports about large cash transactions, according to Betty Santangelo, a
>money-laundering expert at law firm Schulte Roth & Zabel LLP.
>
>Although an official at J.P. Morgan Chase asked Beacon Hill as early as
>1998 if it needed a license to operate as a money transmitter, lawyers for
>Beacon Hill said they weren't able to get an answer from the state Banking
>Department, according to court filings. One reason the Banking Department
>didn't answer faster, prosecutors said in court, was that Beacon Hill's
>lawyer asked the question in October 2000 about a client identified only as
>"XYZ Corp.," without disclosing that it already was engaging in the
>activities described.
>
>At one point, prosecutors contended that a senior Chase official lied to a
>state regulator to cover for Beacon Hill. After Beacon Hill's lawyer told
>state banking officials at a meeting in January 2001 that XYZ planned to
>bank at Chase, a Banking Department lawyer, Sara Kelsey, followed up with
>Chase's compliance chief, Greg Meredith. Mr. Meredith "deceitfully
>confirmed that the business was not yet in operation," according to
>grand-jury minutes described in a memorandum of law submitted by Mr.
>Morgenthau on Oct. 21, 2003, as part of the Beacon Hill case. Mr. Meredith
>told Beacon Hill it would have to hire an outside consultant to review its
>regulatory compliance, according to a filing by prosecutors. Although Chase
>wanted an audit of Beacon Hill, its owner, Anibal Contreras, restricted the
>outside consultant to a review of its policies and procedures, the filing
>said.
>
>Mr. Meredith didn't return a call, and a J.P. Morgan Chase spokeswoman said
>he wouldn't have any comment. Mr. Meredith no longer serves as the bank's
>head of compliance, according to one person familiar with the bank, in part
>owing to his failure to take more aggressive action in dealing with Beacon
>Hill.
>
>The J.P. Morgan Chase spokeswoman said the bank first asked Beacon Hill to
>obtain "an outside compliance review," which showed "no indication of money
>laundering." The bank then asked for an outside legal opinion about whether
>Beacon Hill "needed a license, and the opinion said they didn't," she
>added. Eventually, the bank asked Beacon Hill to seek an opinion from
>regulators. "Our steps were directionally correct but too slow and not
>forceful enough," she said.
>
>J.P. Morgan Chase since has exited the business of dealing with wholesale
>money remitters, she added. The bank also has tightened its
>money-laundering controls, put in new monitoring systems, and "made
>organizational changes in an effort to meet the higher standards financial
>institutions are being held to," she said.
>
>Mr. Morgenthau said that the issue of identifying customers of
>money-transmitting businesses is "a very serious problem," but "I'm having
>trouble convincing people of that: the regulators and the banks
>themselves." One problem, he said, is what he called the "patchwork system
>of regulation," with some bank units also regulated by the U.S. Comptroller
>of the Currency, the Federal Deposit Insurance Corp. and other entities.
>
>
>--
>-----------------
>R. A. Hettinga <mailto: rah at ibuc.com>
>The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
>44 Farquhar Street, Boston, MA 02131 USA
>"... however it may deserve respect for its usefulness and antiquity,
>[predicting the end of the world] has not been found agreeable to
>experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
>

_________________________________________________________________
Create a Job Alert on MSN Careers and enter for a chance to win $1000! 
http://msn.careerbuilder.com/promo/kaday.htm?siteid=CBMSN_1K&sc_extcmp=JS_JASweep_MSNHotm2