Treasury Cracking Down on Money Laundering

Treasury and Justice department officials announced a broad new attack on money-laundering violations Wednesday, highlighted by establishment of “high-intensity zones” in Los Angeles and three other regions.

Officials said “action teams” composed of federal, state and local law enforcement officers will focus on the Los Angeles area, the New York-northern New Jersey region, the Texas and Arizona borders with Mexico and San Juan, Puerto Rico.

As a major financial center only 150 miles from the Mexican border, Los Angeles was the site of $7 billion in suspicious banking transactions possibly related to drug trafficking in the last two years, officials said in their report, “National Money Laundering Strategy for 2000.”

Los Angeles banks and other financial institutions sent Treasury 5,171 “suspicious activity reports” over the two-year period, exceeded only by 14,000 from the New York area, officials said. Such totals indicate a need for “enhanced communication . . . and coordination of efforts” at all levels of government to investigate and prosecute wrongdoing, the report said.

Federal regulations require banks to submit SARs “whenever they see something suspicious or identify a high-risk account,” a Treasury official explained. These reports alert federal investigators that money laundering may be occurring. Under the new strategy, the reports will be shared more fully and systematically with state and local law enforcement agencies.

Officials said they also will consult with the banking industry to make sure that the reports sent to Treasury do not impose needless costs on the industry, and that analysis of the information shared with the industry is truly helpful.

Commenting on the report, James E. Johnson, the Treasury’s undersecretary for enforcement, told a news briefing that money laundering has become “a global phenomenon of enormous reach.” It occurs whenever proceeds of crime are introduced into “the legitimate stream of financial commerce” to mask their origin, he said.

The report said that while no hard numbers exist, the amount of laundered money has been estimated conservatively from 2% to 5% of the world’s gross domestic product, or $600 billion. It arises from organized crime and other forms of corruption as well as from drug trafficking, experts said.

Domestically, Treasury and Justice department officials said they are developing final rules for reporting suspicious activity by casinos and card clubs, as well as by brokers and dealers in securities.

Internationally, the government plans to work closely with the U.S. financial services industry to “conduct enhanced scrutiny” of foreign customers who may be misusing American institutions to conceal criminal funds, the report said.

The administration also will ask Congress to give Treasury authority to prohibit U.S. financial institutions from maintaining correspondent accounts with foreign banks identified as crime havens.

Money laundering drew special attention last summer when federal authorities said the Bank of New York, one of the nation’s largest institutions, had served as a conduit for about $7 billion in Russian money, some of it believed to be from criminal activity.

The administration’s report was issued in accordance with the Money Laundering and Financial Crimes Strategy Act, which Congress passed two years ago.