WASHINGTON, D.C. — Subcommittee Chairman Susan M. Collins (R-ME) and Ranking Minority Member Carl Levin (D-MI) will hold two days of hearings entitled, Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities as part of a Minority-led investigation. The hearing on Tuesday, November 9th will begin at 10:00 am and the hearing on Wednesday, November 10th will begin at 1:00 p.m, with both hearings being held in Room 628 of the Dirksen Senate Office Building.
“We cannot allow the integrity of our banking system to be sullied by the dirty money that fuels the engine of criminal enterprises both here at home and abroad,” said Senator Collins. “Our banks must be vigilant in their efforts to detect and report criminal activity and cannot be conduits for money laundering.”
“Private banking is a growing, profitable business for U.S. banks,” Senator Levin said. “Though established for servicing the wealthy, it is also attractive to drug cartels, profiteers from corruption and tax evaders as a way to get their ill-gotten gains into the world banking system. Private banking is attractive to these people because it sells secrecy, the very service a money launderer wants.”
The Subcommittee hearing will focus on one aspect of our banking system — private banking — that may be particularly attractive to criminals who wish to launder money. Private banking is probably unfamiliar to most Americans since private banks primarily cater to very wealthy clients.
The Subcommittee found that most private banks require their clients to deposit investable assets in excess of $1 million. The banks charge the customers a fee for managing those assets and for providing the specialized services of the private bank. Some of those services include traditional banking services, like checking and savings accounts. But, private banks market themselves to clients by also offering secrecy and the use of offshore accounts.
“In essence, private bankers act like a concierge at an expensive hotel,” said Senator Collins. Private banks offer their wealthy clients not only first class service but secrecy as well. The Subcommittee’s investigation found that private banks routinely use code names for accounts, concentration accounts that disguise the movement of client funds, and offshore private investment corporations located in countries with strict secrecy laws. Such laws are so strict that there are often criminal penalties for disclosing information about the client’s account to banking regulators in the United States.
“The problem, however, is that what makes private banking appealing to legitimate customers also makes it particularly inviting to criminals,” said Senator Collins. “The Subcommittee found that in several cases criminals used private banking services to move huge sums of money with the assistance of private bankers.”
“Private banking is a global transportation system for money that can be used by both the legitimate and the illegitimate,” Levin said. “Our U.S. banks have a legal duty to identify the difference. But we’ve learned in this investigation that the forces in play in the private banking world all too often make the duty less important than servicing the client.”
The hearings will examine the role of U.S. banks in the growing and competitive private banking industry, their services and clientele, and their anti-money laundering efforts. Issues expected to be discussed include how U.S. private banks accept clients, use shell corporations and secrecy jurisdictions to open accounts and move funds, monitor clients and transactions, and identify and respond to suspicious activity. The role of bank auditors and regulators will also be examined.
Witnesses will include The Chief Executive Officer of Citigroup, the largest financial institution in the United States, four private bankers who will discuss their relationship with several important clients, and a former private banker who was convicted of money laundering and is now serving a ten-year prison sentence.
On Monday, November 8, the PSI subcommittee staff will hold a press briefing to provide background information about the hearings. The briefing will be at 2:00 pm in Senate Russell Office Building Room 189.
The following witnesses are scheduled to testify before the Subcommittee:
Tuesday, November 9th, 1999 — 10:00 a.m.:
Panel 1 Elise J. Bean
Deputy Chief Counsel to the Minority
Permanent Subcommittee on Investigations Robert L. Roach
Counsel to the Minority,
Permanent Subcommittee on Investigations
Panel 2 Amy Elliot
Vice President
The Citibank Private Bank
New York, New York Albert Misan
Vice President
The Citibank Private Bank
New York, New York
Panel 3 Alain Ober
Vice President
The Citibank Private Bank
New York, New York G. Edward Montero
Senior Executive
The Citibank Private Bank
New York, New York
Panel 4 John S. Reed
Chairman and Co-Chief Executive Officer
Citigroup
New York, New York
Accompanied by:
Wednesday, November 10th, 1999 — 1:00 p.m.:
RAYMOND BAKER
Guest Scholar in Economic Studies
The Brookings Institution
Washington, D.C.
ANTONIO GIRALDI
Former Private Banker
Currently Incarcerated in Federal Prison for Money Laundering
RALPH E. SHARPE
Deputy Comptroller for Community and Consumer Policy
Office of the Comptroller of the Currency
Department of the Treasury
Washington, D.C.
RICHARD A. SMALL
Assistant Director
Division of Banking Supervision and Regulation
Federal Reserve System
Washington, D.C.