Money Laundering Global in Scope

John Moscow, the hard-driving, tough-talking assistant district attorney for Manhattan, sent shivers through British financial circles last year when he declared here that his office might begin filing criminal charges against overseas bank employees who fail to spot and report money-laundering schemes involving U.S. and foreign banks.

British banking executives fumed. The New York prosecutor, they said, had no right to threaten citizens and institutions of other countries. The British Bankers Assn. and individual bankers accused the United States of arrogantly assuming extraterritorial powers.

But the Bank of England tartly warned British financiers that, whatever they might think about it, the uncompromising U.S. attitude toward money laundering was a fact they would ignore at their peril.

The bank’s refusal to side with British bankers was not as surprising as it might seem. Money laundering--manipulating money to disguise its criminal origins--has become global in scope.

Once confined to Switzerland and the Caribbean countries that have made sheltering cash a cottage industry, cleansing the fruits of crime has become a highly profitable growth industry almost everywhere.

And everywhere money is laundered, honest businesses and government institutions are contaminated, experts say.

“With money laundering, dirty money flows downhill,” says Stanley Morris, director of the U.S. Treasury’s Financial Crimes Enforcement Network. And it brings organized crime and other problems with it, Morris says.

Part of the difficulty in combating money laundering is simple human greed. For unscrupulous bankers, the temptation to reap profits by servicing the enormous amounts of money gushing from drug trafficking and other criminal activity can prove irresistible.

More than that, the issue can seem remote to the public.

The weapons used against money laundering are the dusty tools of bookkeeping and financial reporting--not high-tech gadgets or eye-catching SWAT team raids.

*

A larger problem, officials say, is that the steps needed to detect and thwart money laundering collide with long-established rules and deeply ingrained attitudes inside the banking industry about customers’ privacy. Bankers tend to balk at looking too closely into the activities of their customers.

“I’m not looking for a squabble,” prosecutor Moscow says, “but I think that money laundering is a problem and banking secrecy is a big thing. There are some people who think there should be banking secrecy and no questions asked. I disagree.”

Moscow admits that London and other overseas financial centers are only part of the problem.

“I’m not conceding the money-laundering title to London. We do more of it in New York,” he says. “But we’re not going to tolerate our bad guys moving money from New York to London banks and using that to say they are out of our jurisdiction.”

His comments were made a day after a survey was published showing that in London alone, one in five bank or other financial officers responsible for reporting suspicious transactions to authorities had received inadequate training to meet legal obligations to do so.

As the problems spawned by illegal money multiply, however, pressure to change traditional attitudes is mounting as well. And the American prosecutor’s threat, which reflects an increasingly tough U.S. attitude toward money laundering, is beginning to be taken seriously by British bankers.

Since his remarks, Moscow says, his office “absolutely has received more cooperation from London banks.”

While they may still disapprove of the U.S. approach, bank leaders here have issued warnings that bank officers could face prosecution in U.S. courts if their banks fail to report suspicious money transactions that have passed through the U.S. banking system.

The Bank of England, in a publication providing guidance for detecting money laundering, now cautions them that “the U.S. approach to extraterritoriality--whereby they attempt to impose their will over any country/institutions using their financial system--is a reality.”

Further, the Bank of England noted that the United States had already gone after overseas bank officials. It cited a 1993 Los Angeles case in which a European bank pleaded guilty to money laundering in connection with large deposits made by two South American drug traffickers.

After opening an account in the European bank, the South Americans deposited cashier’s checks totaling $2.3 million that had been bought from various U.S. banks. Each check was for less than the $10,000 threshold for filing a currency transaction report with the Financial Crimes Enforcement Network, but the traffickers later withdrew $1.6 million and transferred it back to the United States.

*

As part of its guilty plea, the European bank admitted that the officer who handled the account either knew of or was willfully blind to the fact that the accounts were being used to launder the proceeds of crime. The bank forfeited the $2.3 million to the U.S. government; it also agreed to pay a $60,000 fine to the United States and to submit special audit reports for the next three years, as well as to publish a document on money laundering for distribution to other European banks.

If U.S. officials see growing recognition of the problem and greater willingness to adopt new strategies against it, they say serious problems remain. For example, New York prosecutor Moscow says that “the position of the Swiss banks, that they are outside our jurisdiction even when they have branch banks in New York, is unacceptable.”

Britain has particular problems. By some estimates, as much as $500 million generated by criminal activities--notably drug smuggling and Russian organized crime--pulses through London financial institutions daily, and British police officials say the presence of so much dirty money is seriously corrupting the country’s law enforcement agencies.

“Money has been pouring into London from Russia and Eastern Europe, and it’s estimated that about $500 million is being laundered in the city at all times,” says Bryan West, vice president of Citibank and former superintendent of the London Metropolitan Police.

British banks and financial institutions are required by law to report suspicious financial transactions to the National Criminal Intelligence Service, which plays a major role in combating money laundering in Britain. The number of disclosures per year has increased from 600 when it came into being in 1987 to 16,125 in 1996. Officials estimate that 1997 disclosures totaled more than 18,000.

Police officials here have expressed concern that the constant presence of so much “dirty money” is having a corrupting influence on the London police. Before retiring recently as director general of the National Criminal Intelligence Service, Albert Pacey warned that millionaire criminals were increasingly trying to corrupt or compromise the city’s detectives.

*

In the illicit drug trade, Britain remains mostly a consumer country, with relatively little production or exporting, but authorities say drugs are still the major source of illegal proceeds being laundered, as they are in the United States and many other countries.

A huge increase in the smuggling of heroin, mostly from Turkey and Northern Cyprus, has been responsible for much of the dirty money in London. British Customs reported seizing more than a ton of heroin in a recent three-month period, more than was seized in all of 1996.

The Bank of England, in its own money-laundering investigations, has played an increasingly important role in combating the influx of heroin. Its investigations have led to the closing of the Cyprus Credit Bank (United Kingdom), which had two London branches and was linked to money laundering in connection with a heroin ring. The Bank of England also has been investigating the much bigger Turkish Bank (United Kingdom) and its three London branches.

Turkey presents a particular problem for law enforcement agencies in Britain and other countries because it has not outlawed money laundering. That makes it unique among the 26 countries of the Financial Action Task Force on Money Laundering representing the world’s major financial centers.

The task force, a U.S. initiative established in 1989 by the world’s seven largest industrialized nations and based with the Organization for Economic Cooperation and Development in Paris, reviews money-laundering methods and countermeasures. Its members evaluate one another’s progress in dealing with the problem and spotlight shortcomings.

After being censured by the task force, the Turkish government replied that it was prepared to comply, and the task force sent a “technical mission” to help it implement an anti-money-laundering system.

The United States, for all its efforts to persuade other countries to combat money laundering, has “a very serious money problem of its own,” as outlined in the task force’s report.

While lauding the U.S. commitment to combating international money laundering, the task force said the complexity of its enforcement system, the large number of law enforcement and regulatory agencies, the huge number of financial institutions and the diversity of federal and state laws “militate against a fully effective and efficient system.”

Nevertheless, the report praised the United States for pressing its own enforcement efforts.