By Whalen, Christopher
The International Economy , Vol. 15, No. 3
A stealth campaign by U.S. regulators to turn private bankers into policemen.
The return of Domingo Cavallo as Argentina's finance minister in March resulted primarily from a political backlash after years of economic stagnation and mounting fiscal problems. One factor that intensified the crisis, however, originated in Washington, specifically in the Senate of the United States. A report prepared by the Democratic staff of the Senate Permanent Subcommittee on Investigations ("PSI") made accusations that several Argentine financial institutions laundered money from drug dealing and bribery, creating serious political problems for President De la Rua. The report was a body blow to an already weak government, the mediocre successor to the regime led by the charismatic Carlos Menem. A scolding by a U.S. Senator from Michigan, Democrat Senator Carl Levin, added urgency to De la Rua's appeal to Cavallo, the architect of Argentina's currency peg and previous economic prosperity.
The fact that Argentina is a world leader in money laundering is no surprise to TIE readers. Thanks to the dollar peg engineered by Cavallo, Argentina is one of those nations stable enough to attract anonymous offshore cash, but still corrupt enough not to be particularly bothered about who uses its banks. In 1996, TIE reported on "The G3 Money Launderers" (see The International Economy, May/June 1996) and the growth of venues like Argentina, Israel, and Russia in the invisible world of offshore money havens where legitimate capital flight and the proceeds of drug trafficking and other illegal activities blur, an opaque market built by Wall Street to serve the huge float in offshore dollars. Names like Merrill Lynch and Citibank pioneered modern private banking and offshore trusts, but to be fair, they are just following their clients. If you do a banking business in venues like the Cayman Islands, Mexico City, Nigeria, Colombia, Liberia or the Bahamas, odds are pretty good that many of your non-resident customers are, at best, tax evaders from countries with high levels of government spending and official regulation, like the EU.
American cooperation with the OECD, which operates under the umbrella of the Financial Action Task Force ("FATF"), has extended to American bank regulators, who are eagerly imposing new guidelines on American banks in direct opposition to the wishes of the majority in Congress. Bankers and their lobbyists in Washington, speaking only off the record because of fear of reprisal by zealous regulators, describe a stealth process where the U.S. Treasury and Federal Reserve are building a system of surveillance, information gathering, and monitoring of law abiding citizens, and doing so without the consent of Congress or the knowledge of a distracted public. Indeed, despite the fact that the Congress declined to explicitly give the regulators further powers, bank regulators are using verbal "guidelines" regarding "enhanced due diligence" to turn your friendly commercial bank into a federal law enforcement agency.
On December 7, 1998, the Federal Reserve Board in Washington, along with the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision, asked for public comment on proposed "Know Your Customer" ("KYC") regulations. …