U.S. Will Lean on Banks, Nonbanks in Battle against Money Laundering

By Meister, David | American Banker, April 20, 1995 | Go to article overview

U.S. Will Lean on Banks, Nonbanks in Battle against Money Laundering


Meister, David, American Banker


Electronic and wire transfers soon will be examined under the same money-laundering magnifying glass that the government has trained on cash transactions over the past decade.

Effective Jan. 1, 1996, new wire transfer regulations will broaden federal regulatory attention to include the monitoring of institutions such as securities broker-dealers and other nonbanks that commonly deal not in cash but in electronic money transfers.

The new regulations are only one among many indications that the

government is submitting Wall Street to strict scrutiny in its renewed efforts to fight money laundering and underlying criminal activities.

The wire transfer regulations are being promulgated in an increasingly and alarmingly aggressive law enforcement environment.

For example, in a recent, widely noted federal prosecution in Texas involving American Express Bank International - United States v. Giraldi and Reategui - two American Express employees were convicted for willful participation in a money-laundering scheme.

That conviction came despite the fact that the government had only the sketchiest evidence that the employees knew the source of their depositors' funds.

Even though the depositors represented themselves to be engaged in a lawful business, the government argued that certain inaccuracies in account documentation demonstrated an illegal source of funds. The government concluded that the employees at a minimum willfully avoided knowledge that the funds were the proceeds of criminal activity.

The results of the American Express trial were dire. One American Express employee was sentenced to a prison term of 10 years. The other received a term of 3#1/2 years. On Nov. 21, 1994, the company agreed to settle Justice Department charges for $36 million, which included the largest reported penalty ever imposed against a U.S. financial institution.

By focusing on the employees of the financial institution rather than on drug traffickers, the government is demanding that financial institutions assume a watchdog role.

The American Express prosecution, related statements by enforcement officials, and the adoption of the wire transfer regulations all signal the government's heightened commitment to holding financial institutions to a high standard of self-policing and penalizing those that fail to meet that measure.

By extending regulation beyond cash transactions into noncash transfers, the new regulations require broker-dealers and other noncash institutions to get up to speed on rules in which banks and other depository institutions have become expert. …

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