U.S. Banks and the Dirty Money Empire

by James Petras

Dollars and Sense magazine, September / October 2001


Washington and the mass media have portrayed the United States as being in the forefront of the struggle against narcotics trafficking, drug money laundering, and political corruption. The image is of clean white hands fighting dirty money from the Third World (or the ex-Communist countries). The truth is exactly the opposite. U.S. banks have developed an elaborate set of policies for transferring illicit funds to the U.S. and "laundering" those funds by investing them in legitimate businesses or U.S. government bonds. The U.S. Congress has held numerous hearings, provided detailed exposes of the illicit practices of the banks, passed several anti-laundering laws, and called for stiffer enforcement by public regulators and private bankers. Yet the biggest banks continue their practices and the sums of dirty money grow exponentially. The $500 billion of criminal and dirty money flowing annually into and through the major U.S. banks far exceeds the net revenues of all the information technology companies in the United States. These yearly inflows surpass the net profits repatriated from abroad by the major U.S. oil producers, military industries, and airplane manufacturers combined. Neither the banks nor the government has the will or the interest to put an end to practices that provide such high profits and help maintain U.S. economic supremacy internationally.


"Current estimates are that $500 billion to $1 trillion in illegal funds from organized crime, narcotics trafficking and other criminal misconduct are laundered through banks worldwide each year." writes Senator Carl Levin (D-MI), "with about half going through U.S. banks." The senator's statement, however, only covers proceeds from activities that are crimes under U.S. Iaw. It does not include financial transfers by corrupt political leaders or tax evasion by overseas businesses, since in those cases any criminal activity takes place outside the United States. Raymond Baker, a leading U.S. expert on international finance and guest scholar in economic studies at the Brookings Institution, estimates the total "flow of corrupt money ... into Western coffers" from Third World or ex-Communist economies at $20 to $40 billion a year. He puts the "flow stemming from mis-priced trade" (the difference between the price quoted, for tax purposes, of goods sold abroad, and their real price) at a minimum of $80 billion a year. "My lowest estimate is $100 billion per year by these two means ... a trillion dollars in the decade, at least half to the United States," Baker concludes. "Including other elements of illegal flight capital would produce much higher figures."

The money laundering business, whether "criminal" or "corrupt," is carried out by the United States' most important banks. The bank officials involved in money laundering have backing from the highest levels of the banking institutions. These are not isolated offenses perpetrated by loose cannons. Take the case of Citibank's laundering of Raul Salinas' $200 million account. The day after Salinas, the brother of Mexico's ex-President Carlos Salinas de Gortari, was arrested and his large-scale theft of government funds was exposed, his private bank manager at Citibank, Amy Elliott, said in a phone conversation with colleagues (the transcript of which was made available to Congressional investigators) that "this goes [on] in the very, very top of the corporation, this was known ... on the very top. We are little pawns in this whole thing."

Citibank is the United States' biggest bank, with 180,000 employees worldwide, operating in 100 countries, with $700 billion in known assets. It operates what are known as "private banking" offices in 30 countries, with over $100 billion in client assets. Private banking is the sector of a bank which caters to extremely wealthy clients, with deposits of $1 million or more. The big banks charge customers for managing their assets and for providing the specialized services of the private banks. These services go beyond routine banking services like check clearing and deposits, to include investment guidance, estate planning, tax assistance, offshore accounts, and complicated schemes designed to secure the confidentiality of financial transactions. Private banks sell secrecy to their clients, making them ideal for money laundering. They routinely use code names for accounts. Their "concentration accounts" disguise the movement of client funds by co-mingling them with bank funds, cutting off paper trails for billions of dollars in wire transfers. And they locate offshore private investment corporations in countries such as the Cayman Islands and the Bahamas, which have strict banking secrecy laws. These laws allow offshore banks and corporations to hide a depositor's name, nationality, the amount of funds deposited, and when they were deposited. They do not require any declarations from bank officials about sources of funds.

Private investment corporations (PICs) are one particularly tricky way that big banks hold and hide a client's assets. The nominal officers, trustees, and shareholders of these shell corporations are themselves shell corporations controlled by the private bank. The PIC then becomes the official holder of the client's accounts, while the client's identity is buried in so-called "records of jurisdiction" in countries with strict secrecy laws. The big banks keep prepackaged PICs on the shelf awaiting activation when a private bank client wants one. The system works like Russian matryoshka dolls, shells within shells within shells, which in the end can be impenetrable to legal process.

Hearings held in 1999 by the Senate's Permanent Subcommittee on Investigations (under the Governmental Affairs Committee) revealed that in the Salinas case, private banking personnel at Citibank- which has a larger global private banking operation than any other U.S. bank - helped Salinas transfer $90 to $100 million out of Mexico while disguising the funds' sources and destination. The bank set up a dummy offshore corporation, provided Salinas with a secret Coleman, provided an alias for a third party intermediary who deposited the money in a Citibank account in Mexico, transferred the money in a concentration account to New York, and finally moved it to Switzerland and London.

Instead of an account with the name "Raul Salinas" attached, investigators found a Cayman Islands account held by a PIC called "Trocca, Ltd.," according to Minority Counsel Robert L. Roach of the Permanent Committee on Investigations. Three Panama shell companies formed Trocca, Ltd.'s board of directors and three Cayman shell companies were its officers and shareholders. "Citibank controls all six of these shell companies and routinely uses them to function as directors and officers of PICs that it makes available to private clients," says Roach. Salinas was only referred to in Citibank documents as PETER KUPER Confidential Client No. 2" or"CC-2."

Historically, big-bank money laundering has been investigated, audited, criticized, and subjected to legislation. The banks have written their own compliance procedures. But the big banks ignore the laws and procedures, and the government ignores their non-compliance. The Permanent Subcommittee on Investigations discovered that Citibank provided "services," moving a total of at least $360 million, for four major political swindlers, all of whom lost their protection when the political winds shifted in their home countries: Raul Salinas, between $80 and $100 million; As if Ali Zardari (husband of former Prime Minister of Pakistan), over $40 million; E1 Hadj Omar Bongo (dictator of Gabon since 1967), over $130 million; Mohammed, Ibrahim, and Abba Sani Abacha (sons of former Nigerian dictator General Sani Abacha), over $110 million. In all cases Citibank violated all of its own procedures and government guidelines: there was no review of the client's background (known as the "client profile"), no determination of the source of the funds, and no inquiry into any violations of the laws of the country where the money originated. On the contrary, the bank facilitated the outflow in its prepackaged format: shell corporations were established, code names were provided, funds were moved through concentration accounts, and the funds were invested in legitimate businesses or in U.S. bonds. In none of these cases did the banks practice "due diligence," taking the steps required by law to ensure that it does not facilitate money laundering. Yet top banking officials have never been brought to court and tried. Even after the arrest of its clients, Citibank continued to provide them with its services, including moving funds to secret accounts.

Another route that the big banks use to launder dirty money is "correspondent banking." Correspondent banking is the provision of banking services by one bank to another. It enables overseas banks to conduct business and provide services for their customers in jurisdictions where the bank has no physical presence. A bank that is licensed in a foreign country and has no office in the United States can use correspondent banking to attract and retain wealthy criminal or corrupt clients interested in laundering money in the United States. Instead of exposing itself to U.S. controls and incurring the high costs of locating in the U.S., the bank will open a correspondent account with an existing U.S. bank. By establishing such a relationship, the foreign bank (called the "respondent") and its customers can receive many or all of the services offered by the U.S. bank (called the "correspondent"). Today, all the big U.S. banks have established multiple correspondent relationships throughout the world so they may engage in international financial transactions for themselves and their clients in places where they do not have a physical presence. The largest U.S. and European banks, located in financial centers like New York or London, serve as correspondents for thousands of other banks. Most of the offshore banks laundering billions for criminal clients have accounts in the United States. Through June 1999, the top five correspondent bank holding companies in the United States held correspondent account balances exceeding $17 billion; the total correspondent balances of the 75 largest U.S. correspondent banks was $34.9 billion. For billionaire criminals an important feature of correspondent relationships is that they provide access to international transfer systems. The biggest banks specializing in international fund transfers (called "money center banks") can process up to $1 trillion in wire transfers a day.


Hundreds of billions of dollars have been transferred, through the private-banking and correspondent-banking systems, from Africa, Asia, Latin America, and Eastern Europe to the biggest banks in the United States and Europe. In all these regions, liberalization and privatization of the economy have opened up lucrative opportunities for corruption and the easy movement of booty overseas. Authoritarian governments and close ties to Washington, meanwhile, have ensured impunity for most of the guilty parties. Russia alone has seen over $200 billion illegally transferred out of the country in the course of the 1990s. The massive flows of capital out of these regions - really the pillaging of these countries' wealth through the international banking system - is a major factor in their economic instability and mass impoverishment. The resulting economic crises, in turn, have made these countries more vulnerable to the prescriptions of the IMF and World Bank, including liberalized banking and financial systems that lead to further capital flight.

Even by an incomplete accounting (including both "criminal" and "corrupt" funds, but not other illicit capital transfers, such as illegal shifts of real estate or securities titles, wire fraud, etc.), the dirty money coming from abroad into U.S. banks amounted to $3.5 to $6.0 trillion during the 1990s. While this is not the whole picture, it gives us a basis for estimating the significance of the "dirty money factor" in the U.S. economy. The United States currently runs an annual trade deficit of over $400 billion. The gap has to be financed with inflows of funds from abroad - at least a third of which is "dirty money." Without the dirty money the U.S. economy's external accounts would be unsustainable. No wonder the biggest banks in the United States and Europe are actively involved, and the governments of these countries turn a blind eye. That is today's capitalism - built around pillage, criminality, corruption, and complicity.


James Petras is on advisor and teacher for the Rural Landless Workers Movement in Brazil and an activist-scholar working with socio-political movements in Latin America, Europe, and Asia.

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