U.S. denies a report it's probing brokerages for money laundering.

WASHINGTON -- The government is denying a report that it is investigating some of the biggest brokerage firms in the country for money-laundering violations.

The Wall Street Journal reported on Sept. 21 that Merrill Lynch & Co., Dean Witter Discover Inc., Prudential Securities Inc., Paine Webber Group Inc., and Bear Stearns & Co. are being investigated by the U.S. Customs Service and the Internal Revenue Service for illegal activity involving wire transfers.

"There is no investigation" of these companies, said Marvin Smilon, spokesman for the U.S. Attorney's Office for the Southern District of New York. While Mr. Smilon said he usually would tell a reporter "no comment" in such a case, he said he was afraid it would be construed as an affirmation of the story.

While there is no government investigation, banks' competitors on Wall Street may be in for tougher compliance with anti-money laundering regulations.

Under the Bank Secrecy Act, banks and brokerage firms are required to report all cash transactions over $10,000 to the government. But the law does not consider wire transfers - a common means of moving money on Wall Street - as cash transactions.

The Treasury Department is expected to issue new rules at the end of this month that will make it easier for law enforcement officers to track wire transfers. These new rules will require brokerage firms to keep records of all wire transfers above $10,000.

The Journal article is important because it sparked a controversy here among policymakers.

Rep. Edward J. Markey, D-Mass., cited the article in a letter to SEC Chairman Arthur Levitt Jr..

The Sept. 21 letter from Rep. Markey, chairman of House Energy and Commerce's subcommittee on telecommunications and finance, questioned whether criminals were choosing brokerage firms over banks to launder money because less-regulated wire transfers are more common in securities firms.

"Among the more disturbing questions is whether brokers have accepted wire transfers from suspicious sources - notably, from sources in foreign countries with impenetrable bank-secrecy laws -- without first seeking to ascertain their legitimacy," Rep. Markey said in his letter.

Mr. Markey asked the SEC to report back to him by Oct. 3, but the agency's response was not available Wednesday.

John Byrne, senior counsel for the American Bankers Association and its money-laundering expert, said he thought the Wall Street firms were following the rules as well as they can. Quite simply, it's harder to know your customer when he doesn't walk into the institution to do business, Mr. Byrne said.

The Journal story also said that as part of the investigation, $10 million had been seized from customer accounts at Merrill Lynch, Dean Witter, Prudential, and Paine Webber.

Mr. Smilon said such seizures affect individual customers and were not related to a broader investigation of the Wall Street companies.

"We are continually seizing assets in brokerage firms and banks," Mr. Smilon said. "It doesn't mean we are investigating them by any stretch of the imagination.

"If you said we were investigating every bank we seized money from, we'd be investigating every bank in the country."

Mr. Smilon's office prosecutes cases for Customs and the IRS.

The Journal story's quoted Robert Van Etten, a special agent in charge of the U.S. Customs office in New York, as saying the government believes people in the securities business are involved in facilitating money laundering.

Mr. Smilon said Mr. Van Etten's comment was taken out of context.

"We spoke to him [Van Etten] and he said the interview involved general money laundering, not this specific issue," Mr. Smilon said. "It was a conversation about the general problems of money laundering."

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