Kicking off two days of hearings on alleged Russian money laundering, House Banking Chairman Jim Leach introduced legislation Tuesday that would force U.S. banks to take extra precautions before doing business with foreign customers.
Under the bill, a U.S. bank could not open or maintain an account for a foreign person or company unless the bank identified and kept a record of the account's beneficial, or true, owners.
"It is critically important that banks exercise due diligence in knowing who their customers are," Rep. Leach said.
The bill would also prohibit U.S. banks from hosting correspondent accounts for foreign banks that were not adequately supervised by, or chartered to do business in, their host country. Certain restrictions would also apply to payable-through accounts.
Sen. Charles E. Schumer, D-N.Y., will soon introduce a companion bill in the Senate, his spokeswoman said Tuesday.
The legislation is designed to fill loopholes in the Bank Secrecy Act, shortcomings recently exposed by a broad U.S. investigation into allegations that ill-begotten Russian funds were laundered through the Bank of New York and other institutions. Swiss officials said Tuesday that banks in that country have frozen $16.8 million in accounts as part of the ongoing probe.
Meanwhile, a government letter praising the Republic Bank of New York for its role in the inquiry has surfaced. The Aug. 5 letter, signed by Federal Bureau of Investigation assistant director Lewis D. Shiliro, cited Republic as the primary catalyst for the government's investigation and called the bank's wire transfer monitoring system "highly effective."
One of the Republic executives praised in the FBI's letter, managing director Anne Vitale, will testify Wednesday. Bank of New York chairman Thomas Renyi will also testify.
John J. Byrne, senior counsel at the American Bankers Association, called Rep. Leach's anti-money laundering bill premature. He said lawmakers should have at least waited until the two-day hearing was completed before passing judgement on the adequacy of existing regulations and bank efforts.
"It's way too early to be moving any new laws," Mr. Byrne said.
One likely bone of contention is that the bill would apply to existing accounts, not just new accounts. Theoretically, banks would have to review virtually every account held by a foreign entity.
"That's a nonstarter," Mr. Byrne said of the provision. "There's no indication there's any problem with current accounts."
One clause Mr. Byrne welcomed, however, would protect banks against some lawsuits by former employees. Under the bill, a bank could not be held liable for telling a potential employer that the former employee was suspected of illegal insider activity. Accountants who filed a suspicious activity report based on audit findings would also be granted legal safe harbor.
Other provisions of the bill would provide additional tools for law enforcement.
The legislation would add several crimes -- including violent offenses, bribery of a public official, theft of public funds, or misuse of international aid -- to the list of crimes that could trigger money-laundering charges. Under current law, for example, a U.S. bank found to be conducting transactions with money derived from a Russian mob killing could not be held criminally liable.
Another provision would make it a crime for bank customers to falsify their identity in connection with a financial transaction. Penalties could include a fine and up to five years in prison.
"The same technology that has produced such great benefits for the financial services industry ... has also made it enormously difficult to trace the proceeds of illegal activity once a criminal succeeds in gaining entry to the payment system,'' Rep. Leach said.
Co-sponsors of the House bill include Democratic Reps. John J. LaFalce and Maxine Waters as well as Republican Reps. Marge Roukema, Spencer Bachus, Doug Bereuter, Michael Castle, Bill McCollum, Richard H. Baker, and Rick Lazio.
The IMF was a hot topic at Tuesday's hearing. Much of the interplay between lawmakers and their first witness, Treasury Secretary Lawrence H. Summers, concerned the wisdom of past and future funding for Russia. (See related story on page 21.)
"Our challenge will be to craft rules that stop abuses," said Mr. Summers, whose agency would be responsible for drafting regulations on Rep. Leach's bill.