Academic journal article ABA Banking Journal

Banks on the Front Lines. (Briefing)

Academic journal article ABA Banking Journal

Banks on the Front Lines. (Briefing)

Article excerpt

THE BANK OF EAST ASIA'S Chinatown office in lower Manhattan finally got its phone service back the week of Oct. 15. It had been out since Sept. 11, according to a compliance officer for the bank. The staff had been getting by with cell phones, and by shifting some operations to a midtown office, she said. Ash from the collapsed World Trade Center, about 15 blocks to the southwest, still clung to nearby rooftops.

The officer, who was attending ABA's Money Laundering Conference in late October, observed that anti-money laundering rules had gone from being simply a regulation--"something you have to do"--to being personal--"something you want to do."

That was the mood among others attending the conference, co-sponsored by the American Bar Association. It was a mood reinforced by numerous speakers as well, notably Assistant U.S. Attorney General Michael Cherthoff. The Justice Dept. official told the gathering of about 250 people, "the normal type of calculus has changed" for money laundering compliance.

"Like it or not you are all on the front lines of the war on terrorism," said Cherthoff. "You are privileged by your jobs to make a contribution."

A regular annual event, the conference this year was held a few days before President Bush signed into law the USA PATRIOT Act of 2001, the comprehensive anti-terrorist legislative package. Title III of the new law is the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. While the various conference panelists had not seen the final language of the bill, they were familiar with the proposed changes, many of which had been under consideration for several years. The provisions relating to international correspondent bank accounts, for example, were based on findings of a study conducted at the behest of Sen. Carl Levin (D.-Mich.), and released this spring. Section 312 of Title HI sets new standards for due diligence regarding private or correspondent accounts for non-U.S. persons. These accounts can represent one of the "cracks" referred to in an oft-quoted statement made by terrorist leader Osama bin Laden in an interview with a Pakistani newspaper published Sept. 28. In the in terview he boasts that his educated, young Al Qaeda operatives know the "cracks inside the Western financial system as they are aware of the lines in their hands."

During a panel discussion, Elise Bean, deputy chief counsel to the minority, Senate Permanent Subcommittee on Investigations, gave an example of so-called "nested" correspondent accounts. Harris Bank International, she said, had opened an account for Standard Bank of Jersey. Not New Jersey, but the island of Jersey in the English Channel. The latter institution was a front for 40 "hair-raising" (Bean's term) banks, one of which was Hanover Bank, a one-man "bank in a suitcase" operating out of Antigua. "Harris would not likely have done business with Hanover Bank directly," Bean observed, if they had known about it. New due diligence requirements for international correspondent accounts, and an outright ban on doing business with "shell" banks (banks with no physical location), would make sure such institutions are denied access to the U.S. financial system.

Though there was no indication given at the conference that correspondent accounts were used to finance the Sept. 11 attacks, they could have been used for that purpose, and the Treasury, acting under orders from the President, wants to "starve the terrorists of funding."

(Next month, an article will review in detail the new provisions governing correspondent and private banking accounts, and offer advice on how to comply.)

List management--OFAC's and others

There was a great deal of interest at the conference in the "OFAC list," and the Federal Reserve's "Control List." Several speakers directly involved with these lists addressed the group, including the director of the Office of Foreign Assets Control, Richard Newcomb. …

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