Magazine article American Banker

In Focus: Sen. Leahy Takes Lead in Money Laundering: His Draft Tones Down Anti-Terrorism Ideas from Justice's Bill

Magazine article American Banker

In Focus: Sen. Leahy Takes Lead in Money Laundering: His Draft Tones Down Anti-Terrorism Ideas from Justice's Bill

Article excerpt

Though support for a government bailout to help the insurance industry cope with the Sept. 11 terrorist attacks was fading last week, lawmakers have lost none of their enthusiasm for enacting a law to target money laundering.

No fewer than five legislative proposals are being considered on Capitol Hill -- three from lawmakers and two from the Bush administration.

What will become law is unclear, but the smart money is on a bill being drafted by Senate Judiciary Committee Chairman Patrick Leahy.

The Vermont Democrat's proposal would combine elements of the anti-terrorism bill backed by the Justice Department with two anti-money-laundering bills, one introduced by Sen. Carl Levin, D-Mich., and the other co-sponsored by Sens. John Kerry, D-Mass., and Charles E. Grassley, R-Iowa.

The Leahy draft is viewed as the front-runner because lawmakers are adamant about wanting to act quickly on money laundering and, at a week old, his proposal has had the most exposure. Being chairman of the powerful Judiciary Committee does not hurt either.

Sen. Leahy plans to tone down parts of the Justice bill that would expand the government's authority to detain suspects, which may allay the concerns of some senators who felt the administration plan impinged on civil liberties.

Though the administration's bill focuses on combating terrorism, Sen. Leahy's measure contains more extensive anti-money-laundering provisions aimed directly at financial institutions. The Leahy proposal would bar U.S. financial institutions from hosting correspondent accounts for so-called "shell banks" -- institutions that exist on paper but have no physical existence.

It would also give the Treasury secretary authority to impose an array of sanctions on countries that fail to cooperate with the United States in efforts to fight money laundering. Much like President Bush's executive order last week, this bill would let the Treasury cut off access to the U.S. financial system for banks and other financial institutions in noncompliant countries.

However, some lawmakers are concerned that requiring foreign banks to either comply with U.S. standards or be shut out of the world's largest market may be seen as extraterritorial application of U.S. law. If enacted, they argue, such a law could cause the sanctioned countries to retaliate against U.S. institutions that operate abroad.

Sen. Charles Schumer, D-N.Y., criticized the provision, arguing that cutting off one country would have little effect if the banks there could simply reroute their money by opening correspondent accounts in countries that have not been shut out of the U. …

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