The money-laundering scandal that has engulfed Bank of New York should not be a catalyst for broad new laws or regulations, the House Banking Committee's chairman said in an interview Thursday.
Rep. Jim Leach said it is important to distinguish between the sort of customers typically served by banks and those implicated in the investigation.
"Let me be very precise on this," he said. "There is a massive difference between an American customer with a $10,000 transaction" and a sophisticated foreign client with a "multi-billion-dollar series of transactions." Complex foreign accounts, he said, clearly require more scrutiny.
Similarly, the Iowa Republican said, "there is a huge distinction between ... an American small businessman and a Russian mob figure."
As a result, Rep. Leach said, a one-size-fits-all fix to the entire financial services industry would be inappropriate. It could lead to safety-and-soundness problems at community banks, he warned.
"If every customer thought that their banker had to report to the Treasury every time they made a deposit above $10,000, they would rapidly leave the American banking system into other forms of financial intermediary processing," he said.
Bank of New York's role in the alleged international money laundering scheme came to light last week when The New York Times reported that billions of dollars had passed through half a dozen suspicious accounts. At least one of the accounts is reportedly tied to Semion Mogilevitch, a reputed Russian mobster.
U.S. law enforcement agencies are exploring evidence that some of the funds passing through a half-dozen of the $68 billion-asset Bank of New York Co.'s accounts were International Monetary Fund loans meant to aid Russia. Last year Rep. Leach offered key support for a Clinton administration plan to recapitalize the IMF. He has also been a frequent and harsh critic of corruption within the Russian government and economy.
Bank of New York officials refused to comment, other than to say they are cooperating with law enforcement and that the bank is not a target of the 18-month investigation. The investigation also involves Republic New York Corp., which transferred some of the funds to Bank of New York on behalf of Russian banks.
Rep. Leach said lawmakers need to "cautiously" reconsider the adequacy of laws surrounding large, complex accounts like those under investigation. House Banking will discuss this and related questions at a series of hearings tentatively scheduled to occur Sept. 21 and 22. Regulators, academics, and representatives from Bank of New York will be invited to testify.
But Rep. Leach said far more is at stake than allegations of money laundering by U.S. banks and others. "This is an issue that goes to whether or not one of the three greatest countries in the world can run a stable economy," he said.
If "mobocracy" continues to reign in Russia, he said, and if Western banks perpetuate it by laundering ill-gotten state funds, it could imperil the stability of the international political and financial systems.
Not everyone on Capitol Hill is as sanguine about U.S. anti- laundering laws.
"We're in a new era here of global money transfers," said Rep. Marge Roukema, chairwoman of House Banking's financial institutions subcommittee. "It would seem that the existing system (of laws), whether it be through central banks or through individual banks ... may not be adequate at all."
She said lawmakers should revisit the "know-your-customer" proposal, which regulators issued in December but later withdrew amidst a public outcry over privacy concerns. Under that proposal, banks would have been required to verify the identity, funding sources, and expected account activity of each new customer, and then report any unusual transaction patterns to the government.
In the Senate, a spokeswoman for Banking Committee chairman Phil Gramm, R-Tex., said he has no plans to hold hearings. However, the Governmental Affairs investigations subcommittee is expected to hold hearings this fall on money laundering in the private banking business.
