With Bank of New York under the sharp scrutiny of federal investigators on suspicion of Russian money laundering, and John Reed just back from admitting to Congress that Citigroup mishandled several high-profile accounts, most private bankers would probably be happy to duck for cover.

Not Maria Elena Lagomasino. The Cuban exile and former librarian who runs Chase Manhattan Corp.'s 2,000-person private banking operation surveys the scandal-pocked landscape and sees nothing but opportunity. "There is a tectonic shift going on in private banking worldwide," she says, with excitement in her slightly accented speech.

Ms. Lagomasino, 50, is referring to 25 years of political and economic change that affects the way private banking is done. Domestic markets around the world have grown in sophistication and have become safer places for high-net-worth people to stash their funds. Meanwhile, governments' pressure on banks to know their customers and the kind of business they transact has grown tremendously. "Huge money is not leaving the country anymore," Ms. Lagomasino said in a recent interview at Chase's art-filled private banking headquarters in midtown Manhattan. "Because of the European tax conformation, there is pressure on Switzerland, which has all this money not declared."

This has had significant implications for UBS AG, which has $414 billion of assets under management in its private bank, and for Credit Suisse Group, which has $288 billion. Ms. Lagomasino refers to the two companies as "the big gorillas" of private banking. "They owned secrecy like Volvo owned safety in automobiles." Now, she says, "the offshore market they are good at is changing. That's why it's such a fabulous time."

Paul Rimmer, a spokesman for Credit Suisse Private Banking, acknowledged Ms. Lagomasino's point. "The classic advantages of Switzerland - economic security, a strong currency, the banking secrecy laws, and discretion - are no longer as important as they were some years ago. These days private banking clients invest their money more according to performance and service," he said.

At UBS, these changes have already dealt a financial blow. The company reported a 2.6% decline in private banking assets from the second quarter to the third, mainly due to investment performance, the company said. Chief financial officer Luqman Arnold said last week that growth in the private banking division is unlikely to pick up before next year.

A UBS spokesman said, "We see a marked increase in the demand for onshore versus offshore private banking services. To serve that demand in the United States, we've increased both the scope and the size of our private banking operations."

A report on world wealth in 1997 by Merrill Lynch & Co. and Gemini Consulting further supports Ms. Lagomasino's view. The wash of assets from offshore to onshore accounts is perhaps most keenly felt in Europe, with its drive for monetary union and Continental free trade. Among other things, the report said, high-net-worth individuals "are keeping more of that wealth onshore to exploit local investment opportunities." In 1997 these trends helped keep $3.3 trillion onshore, compared with $2.2 trillion offshore, the study said.

"The governments of these countries are setting up regulatory and tax environments to encourage domestic investments," the report found. "Strong local economic growth in many areas has boosted the number of wealthy onshore entrepreneurs. ... This is the case in mature European markets, where onshore investment is growing strongly at the expense of key offshore centres such as Switzerland."

For Chase, with $136 billion of assets under management in its private bank, the news could not be better. Chase and other U.S.-based multinational banks such as Citigroup Inc., with $128 billion of assets under management in its private bank, and J.P. Morgan & Co., with $73 billion, "have always had an open, competitive onshore game," according to Ms. Lagomasino. These days, "to win, you have to play with that formula."

But playing is not always easy. Though changes in the global economy have opened private banking to more competition, the regulation of financial transactions has grown tougher, both within the United States and abroad. Jonathan Winer, a partner in the financial services practice of the Washington law firm Alston & Bird, helped investigate the BCCI scandal for the U.S. Senate in the early 1990s. He traces the regulatory shifts to the late 1970s.

"Originally all banks only had to fulfill minor currency reporting requirements with the Financial Enforcement Center of the U.S. Treasury," he said, and "the currency filings weren't used very much."

But with concern about money laundering and drug smuggling growingthroughout the 1970s, Congress passed the Bank Secrecy Act of 1977. It required financial institutions to file a report of each deposit, withdrawal, exchange of currency, or other payment or transfer exceeding $10,000.

Every year since then, Mr. Winer said, Congress has added to this law, prodded by a series of high-profile scandals, including one involving money laundering for the Mafia at Bank of Boston in the mid-1980s, the BCCI debacle five years later, the movement of funds by Citibank for convicted Mexican murderer and political figure Raul Salinas de Gortari, and most recently the problems at Bank of New York.

"We've gone from a currency-based reporting system concerned about drugs and other serious crimes to a currency-based system and suspicious activity reporting system relevant to any possible law or violation," Mr. Winer said. "The obligation of banks to do due diligence and compliance has been constantly broadening."

Banks are now required to know their customers, check the names of client businesses, ensure that customers are in the businesses they say they are in, run credit checks, be wary of sudden increases in wire or international transfers or many small incoming wire transfers, watch out for the rapid transfer of payments into and out of the country, distrust economic transactions that don't make sense, and be aware of assets channeled offshore.

It's difficult for banks to keep track of all of this in a manner that does not jeopardize their relationships with customers, Mr. Winer said. "But the obligations have increased over time. We used to be concerned about currency and drugs. Now we're concerned about electronic transfers."

At Chase, Ms. Lagomasino said, she feels that she has an edge in the new, more open world of private banking. And she said she is familiar with the workings of confiscatory regimes and corrupt politicians, having started her career in 1976 at Citibank, where she specialized in Latin American private banking, with Chile as her main market. "Those of us who have had to deal with Latin America are better at this than Americans," she said.

She uses something she calls "the New York Times test. If it doesn't look good or you don't know where the money is coming from," she encourages her people to turn down the account. "If you think there's a chance you might see this person's name on the front page of The New York Times in connection with something negative, then it probably isn't someone you should do business with," she said.

"The single biggest risk in the private banking business, particularly international, is knowing your client," she said. "You have got to be able to give up the business."

Joel Cohen, a managing director at J.P. Morgan, agreed. "It all gets down to the character of the client and the best that we can determine it. We take this very, very seriously. … We've had some very high-profile people want to do business here whom we've turned down. The reputation of this firm is really all we have," he added.

Private banks have had to be equally choosy about whom they hire. At Republic New York Corp., employees were recently accused of falsifying client accounts. There have been several similar scandals in the private banks at Citibank and Bank of Boston, Ms. Lagomasino said.

"The real issue with wealthy people is trust and personal integrity," she said. "Offshore clients in particular don't often communicate with the bank, and it gives bank employees the opportunity to do hanky-panky with the accounts."

One way to manage this risk is to keep an eye on the clothing and lifestyle of employees. She and others in private bank management are on the lookout for super-expensive cars, houses, paintings, jewelry, and watches among the lower-level staff.

"You have a tremendous responsibility" as a private banker, she said. "Basically, you are a middle-class individual handling large amounts of capital who is not going to be running around in a Porsche. But the temptations are huge."

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