MIAMI - Bankers are worried about money-laundering proposals in Congress that call for stiffer regulation of their international operations.
If a proposed bill becomes law, they fear, much of the business they do overseas could move to foreign banks.
At issue are tough requirements that would, among other things, restrict which foreign banks U.S. banks can set up as correspondents; which offshore financial centers can be used by U.S. banks; and what kind of private banking transactions U.S. banks can handle.
According to the proposals, in S 1663 and HR 2896, foreign correspondent relationships would be subject to comprehensive and consolidated global supervision. But no one is quite sure exactly what that means.
"This is very serious," said Keith J. Parker, senior vice president at Bank of America Corp. and president of the Florida International Bankers Association. "We are not just talking about correspondent accounts, we are talking about complete relationships, including investment banking relationships."
Equally complex restrictions would be imposed on private banking customers, who would have to disclose large amounts of information and prove that the funds they are depositing at U.S. institutions do not have criminal origins.
Transactions involving tax evasion, flight capital, or violations of non-U.S. foreign exchange regulations would be defined by U.S. law enforcement agencies as criminal rather than civil offenses. Any U.S. bank handling funds found to have originated from violations of foreign laws would be subject to U.S. prosecution for money laundering.
The proposals stem from growing concerns about foreign criminal abuse of the U.S. financial system.
Two recent scandals helped spur the regulatory zeal. In the mid-1990s, Citigroup Inc. transferred some $125 million in suspect funds on behalf of Raul Salinas, brother of former Mexican president Carlos Salinas. Subsequent investigations found the transfers did not violate any U.S. money-laundering laws. More recently, Bank of New York Co. was found to have processed billions of dollars in suspect funds on behalf of Russian companies. Investigations into those transactions are continuing.
Responding to accusations in Senate hearings this month that Citigroup had ignored its own money-laundering guidelines and assisted corrupt foreign officials in transferring funds out of their home countries, co-chairman John Reed said his company is taking steps to tighten internal controls. He suggested self-regulation is still the best answer to the problem.
But bankers fear that sentiment in Congress is moving toward more complex regulation. They add that given a broad range of existing laws, additional regulation is unnecessary.
"We don't believe the proposals are necessary and we are very concerned about the direction our policymakers seem to be going," said John J. Byrne, senior counsel and compliance manager at the American Bankers Association.
"We already have in place all the laws we need and this will only make it more difficult for foreign customers to do business with U.S. institutions."
Added another banking source. who asked to not be identified: "This is becoming a big cops-and-robbers game between the Justice Department and Treasury on one hand and suspect foreigners on the other.
"Banks have gotten caught in the middle."