As Congress trains its eyes once again on money laundering, the booming niche business of international funds transfer is suddenly under intense scrutiny.
The technology-intensive business of moving large sums among correspondent banks and their customers is dominated by a short list of banks. Among them: Chase Manhattan Corp., Republic New York Corp., Citigroup Inc.'s Citibank unit, Bank of America Corp., and Bank of New York Co. The current probe, along with congressional hearings that got under way Tuesday, was sparked by questions about Bank of New York's alleged role as a conduit for moving as much as $10 billion out of Russia on behalf of customers who may have had links to organized crime.
Bank of New York has not been charged with any wrongdoing, but the episode has been a public relations nightmare for the company, which has long cultivated a conservative image. It also casts a shadow over a business that has been among the bank's fastest-growing revenue generators.
The bank, a specialist in securities and cash processing services as well as correspondent banking, has been building its funds transfer business for several years. In 1998 an average of $600 billion flowed through its system daily. Volume, which averaged 115,000 transactions a day last year, has tripled in five years. Fees from the business totaled $94 million last year, a 13% gain from the prior year and are up a steady double-digit rate again this year, the bank said.
At least one of its rivals, Chase Manhattan, is an even bigger player, saying it transfers about $1.1 trillion a day. Bank of America transfers about $420 billion daily. Citi would not disclose its volume.
Money zips through the system in seconds, often leaving just enough time for a bank to check to make sure the money is in the account and that it is not targeted for payment to an account in a prohibited country like Libya before sending it along.
"The thieves are taking advantage of globalization," said Tom Cash, a Miami-based senior managing director with Kroll Associates, a New York security consulting firm. The high-speed business has made it easier for criminals to outwit banks' monitoring systems, he said.
Speakers at a money-laundering compliance conference in New York last week echoed this observation.
"Money laundering has been conducted on an international scale, and the largest amount of money has moved through wire transfers," Anne T. Vitale, managing director and deputy general counsel for Republic New York, said during a presentation at the ninth annual Anti-Money Laundering Audit and Compliance conference. "It's an area that's ripe for abuse," she said.
Ms. Vitale's company has not escaped scrutiny. Republic also has an account that is being scrutinized by U.S. authorities for connections to the Russian money-laundering scandal. Using a new monitoring system put in place last year, Republic identified the account as potentially suspicious and filed a report in August 1998 with the Treasury Department's Financial Crimes Enforcement Network. The investigation into nine accounts at Bank of New York began late last September.
One sign of the times: Suspicious activity reporting rose 30%, to 60,481 reports, in the first half versus the year-earlier period, according to Fincen. About 40% of the reports relate to money laundering, the rest to crimes such as check kiting, credit and debit card fraud, and embezzlement.
Bankers and consultants said U.S. banks' correspondent relationships with foreign institutions have exacerbated the problem. Until recently, large wire transfers to and from U.S. banks and their foreign correspondents had not been examined as closely as those between individuals, Ms. Vitale said. "This is an area that needs to be looked at."
At Bank of New York, most international transfers are for trade finance, with the balance from foreign exchange and other payments. In its annual report, the company boasted it was the only U.S. bank to significantly increase its market share in funds transfer last year, growing from 6.5% of the market to 10.6% by yearend.
New technology has helped speed the process, and Bank of New York has invested heavily to remain competitive. Among the many products the bank offers is a software package, called Cash Register, that allows customers to enter their own data and transmit orders electronically.
In an interview with Amercian Banker five years ago, Donald R. Monks, executive vice president and head of funds transfer and correspondent banking, said the product helped create a "seamless" system for importers and other customers, who wanted a service "that avoids errors and questions." Mr. Monks was unavailable for comment Tuesday.
Bank of New York monitors all such transactions, said a person familiar with the matter. Still, the huge volumes and rapid nature of the business make real-time monitoring impossible, bankers said. "It's always after the fact," Ms. Vitale said at the conference.