Magazine article American Banker

Charges against Citibank Put Spotlight on Laundering Rules

Magazine article American Banker

Charges against Citibank Put Spotlight on Laundering Rules

Article excerpt

When the Bank Secrecy Act Advisory Group meets Monday, the government's know- your-customer rules will take center stage.

These anti-laundering regulations - tied up in the bureaucracy for two years -grabbed the spotlight last week when Citibank was accused of helping Raul Salinas de Gortari, the brother of the former president of Mexico, launder $80 million.

The question in banking circles is: How could Citibank not know what was going on with such a prominent customer?

The Advisory Group, which includes members from the government as well as banks, was set up in 1994 to help the Treasury Department's Financial Crimes Enforcement Network combat money laundering.

Fincen Director Stanley E. Morris said know-your-customer issues would be "discussed in great detail" at the Monday meeting.

Mr. Morris defended Fincen against criticism that it has been slow to give the industry guidance. Money-laundering laws, he said, state that "financial institutions cannot be "willfully blind" to criminal activity.

"We are not operating in a vacuum," Mr. Morris said.

In addition, recent reporting rules for suspicious activities and large currency transactions "make it clear that banks must still pay attention to not only who their customers are, but what they are doing," Mr. Morris said.

But bankers are still nervous, because the stakes are high, said Michael Zeldin, the former chief of the Justice Department's anti-laundering department.

Under the 1986 money-laundering law, banks can be fined the greater of $500,000 or twice the amount involved. Individuals can also receive 20 years in prison.

That means Citibank faces up to $160 million in fines if bank officials knowingly helped Mr. Salinas launder money, as was alleged in a New York Times article last week. The bank could even lose its deposit insurance, a Fed official said.

"If what the Times said is true, then this would be a big deal," the senior Fed official involved in creating anti-laundering rules said. "It would be something I'd be concerned about. …

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