Separate bills unveiled Wednesday by the White House and a senior Senate Democrat would give U.S. prosecutors better tools to fight foreign money laundering, but could pose compliance nightmares for banks, while requiring little new from nonbanks.
The Clinton administration's 40-page bill would correct a number of loopholes and flaws that have bedeviled federal prosecutors in court since 1986, when lawmakers and President Ronald Reagan made money laundering a crime. The legislation was handed out just hours before the Senate wrapped up a two-day hearing on alleged money laundering lapses by private bankers at Citigroup Inc. and other institutions.
"We do not want the United States to become the world's repository of criminal proceeds," said Deputy Treasury Secretary Stuart E. Eizenstat. U.S. banks must be particularly vigilant when dealing with government officials in foreign countries, whose corruption has, he said, undermined social and economic stability across the globe.
Like the administration's bill, anti-laundering legislation introduced today by Sen. Carl Levin, D-Mich., and cosponsored by Sen. Arlen Specter, R-Pa., would empower federal judges to subpoena documents and testimony from foreign banks that maintain a U.S. account and are suspected of laundering proceeds from a crime.
Both anti-laundering bills could have substantial consequences for banks, which would have to make a greater effort to find out where clients got their money and note changes in transaction behavior. It would also become a crime for U.S. banks or foreign banks with U.S. operations to knowingly handle money traceable to corruption or bribery in a foreign government. Neither offense is among the current list of 178 offenses that can trigger money laundering prosecutions.
To comply with this provision, banks would be compelled to determine whether foreign clients were the beneficiaries of such crimes. "There would have to be proof," said Deputy Attorney General Eric Holder, who added that the administration was still working on the question.
But Mr. Eizenstat said checking a foreign client's conviction record -- itself a tough job -- might not qualify as sufficient due diligence. He said something less than conviction might be sufficient to trigger the prohibition.
"That obviously is going to take due diligence on the part of the bank," said one government official who requested anonymity.
Sen. Levin's bill, meanwhile, would make it a crime for a bank to conceal or fake the identity of a customer. Private banks, which provide special services to high-net-worth individuals, would have to be particularly vigilant, given their history of allowing clients to maintain accounts with minimal disclosure.
Mr. Eizenstat acknowledged that by focusing on depository institutions -- and not also brokers or other nonbanks -- the administration's bill raises a fairness issue. In the worst-case scenario, he agreed, the legislation could persuade criminals to simply switch their laundering activities from banks to less strictly monitored institutions.
"It's a good question," he said, especially in light of the new financial reform law, which will shatter the barriers between banks, brokers, and insurers. "This is one of the issues we need to look at."
As recently as August -- just months after bank regulators withdrew a controversial "know-your-customer" proposal -- the two anti-laundering bills introduced yesterday might have been laughed, even shouted, out of the halls of Congress.
The know-your-customer rule would have required all banks to determine every customer's identity, income sources, and transaction patterns. It was buried by widespread concerns over customer privacy.
But recent money laundering allegations involving the Bank of New York, Citigroup, and other banking organizations appear to have caused a nearly miraculous change of heart throughout Washington. For example, at least one provision in Sen. Levin's bill -- requiring banks to hand over customer account information and documentation to regulators within 48 hours of a request -- was lifted almost directly from the ill-fated know-your-customer proposal.
Another issue may be at play. For the most part, the two bills introduced Wednesday are narrowly focused on banks' relationships with foreign or well-to-do clients. By contrast, the know-your-customer proposal killed in March would have applied at almost every level of a retail banking operation.
Mr. Eizenstat said a number of lawmakers are interested in sponsoring the White House bill, which they hope to enact in 2000. He called the bill the administration's first concrete accomplishment since issuing an "absolutely mammoth" national money laundering strategy in late September. Mr. Eizenstat and Mr. Holder, who shared the dais at Wednesday's press conference, will discuss their progress at a Feb. 1 presentation before Congress.