WASHINGTON : Senate Weighs ‘Death Penalty’ Legislation for Money-Laundering Banks

Legislation pending in the Senate would give federal bank regulators power to revoke a bank’s charter to operate if evidence suggests that the institution’s senior officials knew of money laundering at the bank.

Money laundering is simply the process by which funds from illegal activities are introduced into the economy and used for legitimate purposes. Criminals, particularly drug traffickers, have found that the most obvious introduction point is a bank. While slamming the bank door on “narco dollars” is probably impossible, this legislation aims to make things tougher. And it is given a good chance of passage this summer.

“Drug money laundering is a $100-billion industry in this country. It may be the most important segment of white-collar crime,” said Sen. John Kerry (D-Mass.), chairman of the Senate subcommittee on narcotics and terrorism and sponsor of the Depository Institution Money Laundering Amendments Act (SB 305). Kerry’s co-sponsors are Sens. Donald W. Riegle Jr. (D-Mich.) and Jake Garn (R-Utah), the ranking members of the Senate Banking Committee.

The key provision of SB 305 is the so-called death penalty clause that would make it possible to close financial institutions convicted of money-laundering crimes. Legislation containing this penalty narrowly missed passage last year, and banking industry officials anticipate that it will be approved this time around.

“Prospects are very good for passage,” said John J. Byrne, senior legislative counsel at the American Bankers Assn.

But the bankers association and other industry lobbying groups have worked with legislators and the Treasury Department in recent months to soften the impact of the provision. As originally drafted, it required closing an institution convicted of money laundering, a penalty that industry lobbyists contended was too harsh.

“If you have a couple employees that are not following corporate policies, that should not be imputed to the entire organization,” said Byrne.

This year’s version was changed to reflect that concern and calls for a hearing by regulators when an institution is involved in a money-laundering scheme. A determination would be made about how cooperative the institution has been, what safeguards it had in place against such crimes, involvement of senior executives and the impact on the community of closing the bank. The “death penalty” could still be invoked but only after due consideration.

The package also contains new regulations for such non-bank institutions as check-cashing businesses and currency exchanges. These operations have become attractive alternatives to money launderers as banks have tightened their procedures, according to law enforcement authorities. There also are protections for whistle-blowers and for banks that report suspicious transactions involving their own customers.

The Senate Banking Committee is expected to OK Kerry’s measure in the next several weeks. The House version (HR 26), which is sponsored by Rep. Frank Annunzio (D-Ill.), has passed the House Banking Committee and been referred to the House Judiciary and Foreign Affairs committees.

Design Protection Legislation Revived

Americans spend $135 billion a year on auto parts and service at 400,000 independent shops and stores. This auto after-market employs about 2 million nationwide.

Industry executives are warning that a pending House bill could add up to $27 billion a year to those costs--and, of course, put a big damper on their business.

The measure at issue is the Design Protection Act (HR 1790), which would protect the designs of car manufacturers and original-equipment makers for 10 years. Opponents say it would create a monopoly for the original manufacturers.

“If this bill passes, you’re looking at an increase of 30% to 50% in prices for auto parts,” said Joseph R. Hyde III, chief executive of AutoZone, an auto parts chain, and chairman of a group called the Coalition for Auto Repair Equality. “It could cost the average family $300 annually.”

But a congressional staff member familiar with the bill says the charges raised by Hyde’s group are “a bunch of hog drip.”

“The bill would apply to luggage, furniture, household appliances, swimming pools, things for which people actually create a ‘design,’ ” said the staffer. “But as far as cars go, the truth of the matter is that probably 95% to 98% of the parts--hoses, fan belts, brakes, batteries--would be exempted.”

According to the staffer, in order to be protected by the act a part would have to have some originality of design. Commonplace objects would be exempted.

The bill arises from concerns that American product designers do not have the kind of legal protection for their work that their foreign counterparts enjoy. For example, in 1989 the United States granted 6,000 design patents, compared to 32,000 in Japan and 85,000 in Germany. When a U.S. design becomes popular, the lack of protection makes it vulnerable to cheap imitations by foreign manufacturers.

The debate is not new. Similar legislation has been around for more than 20 years. Rep. Robert Kastenmeier (D-Wis.) opposed the idea and had managed to keep it bottled up in a subcommittee for years. But Kastenmeier was defeated last year, and proponents see a new chance for passage.

Rep. Carlos J. Moorhead (R-Glendale) introduced the legislation for the fourth year in a row. Joining as co-sponsors are House Majority Leader Richard A. Gephardt (D-Mo.) and House Minority Leader Robert H. Michel (R-Ill.). The Bush Administration also supports design protection. The Senate has approved similar legislation and is awaiting House action.

The new possibility of passage has attracted lobbying heavyweights. Insurers oppose the concept, fearing that it could cost the industry money by hiking repair costs.

People such as Hyde and his group also oppose it, arguing that it will cost consumers money and could force many of its members out of business. Consumer groups also have lined up against the measure as anti-competitive and anti-consumer.

Support comes from the auto industry and manufacturers of original equipment. Organized labor also backs the measure, saying it will help the trade imbalance and protect jobs.

“I keep pushing this legislation because the nation needs its creative and innovative ideas protected,” said Moorhead.