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7 min read

Shades of Gray*?


Shades of Gray*?

A Recent History of Relevant Congressional Investigations for the AML Community: Informative but Not Nuanced

Having been in the AML community for over thirty years, I remain frustrated that I am aware of the true dedication of the men and women in this area that are proactive, dedicated and effective in stopping and detecting financial crime but many others are not (or choose to ignore the facts). While the financial sector is not remotely blameless on a number of recent scandals, failure to identify the various projects/events that emanated from AML professionals fails to present a balanced view of a very complicated area.

This brings me to a new book, close to a “textbook”, on a 15 year period (1999-2014) of the work of the US Senate’s Permanent Investigations Subcommittee (“PSI”) covering money laundering, tax abuse, the financial collapse and several other compelling abuses. Elise Bean, who had various roles at PSI during that time, has written “Financial Exposure: Carl Levin’s Senate Investigations into Finance and Tax Abuse” (to order, go to Palgrave Macmillan).  The focus is on Senator Levin’s leadership, which is without question, but does give some credit to his Republican colleagues and the work of committee staff. At close to 500 pages, “Financial Exposure” will be a must-read for all of us that make financial crime prevention our career work.

The PSI hearings and subsequent reports were essential during those years for the in depth coverage of complicated issues and the subsequent recommendations which could sometimes be predictors of legislative action. Bean captures that detail in what seems, at times, like extensive meeting minutes but the book does contain a wide array of footnotes that can assist researchers that want to further dive into these scandals.

However, if you are looking for balance on some of the issues in the book, you’ll need to look elsewhere. I will return to this topic in a bit.

One of the first comments that tells the reader where we are headed, is how Senator Levin (D-MI) and PSI “faced down corrupt bankers, arrogant executives, and sleazy lawyers.” To be fair there is also recognition that the committee “found many hard-working, good hearted government employees.” However, when you were not “with” the committee, the language is much harsher and sometimes clearly snarky.



Money Laundering Issues and Responses Pre-9/11

One of the strongest sections is the historical review of PSI going back decades from the McCarthy era to the present day and the author’s view (which I share) of the need and effectiveness of oversight especially when bipartisan. The discussion of what constitutes obstruction and related crimes early in the book are well crafted and interesting.

Chapter 3 is particularly important for AML professionals as it covers the scandals surrounding Citigroup, private banking and Raul Salinas, the criminal brother of the then President of Mexico. The committee clearly uncovered the seamy side of private banking in the 1990’s and their focus forced many institutions to increase their vigilance, resources and commitment to AML---something we in the community had been pushing senior management for a time. Of course, there was nothing like a major congressional report to move the infrastructure and PSI deserves credit for those actions.

I was less enamored with the coverage of the correspondent banking issues that still resonate today. Our community continues to work on how to address the “de-risking” debate with correspondent banks that was caused by identifying those activities as inherently high risk (an incomplete assessment at best) with inadequate regulatory guidance on how to successfully mitigate those risks. In 2018, correspondent banks still struggle to gain access to traditional banks, so pointing out issues without offering solutions is not helpful.

More to the point above, in a good faith effort to assist the committee in its work back then in order to provide PSI with survey data on the scope of correspondent banking, in my role with the American Bankers Association (ABA), we convinced several bank members to respond to PSI requests and to participate in-person for dialogue and interviews. When PSI issued subpoenas after those meetings, my requests to get volunteers became much more difficult and I had to win back their trust.

The hearings and subsequent report, was clearly effective in shining a needed light on the importance of expanded due diligence regarding correspondent banking, and the industry has held hundreds of conferences and webinars since then on best practices. However, there has been no solution in 2018 on how to navigate the risk issues, so that correspondent banks remain connected to the traditional banking system. Throwing stones without following up is an incomplete response at best.

As an important aside, it also should be noted that the ABA and our members strongly supported much of the AML proposals from as far back 1986 to the Patriot Act in 2001 and we constantly offered our expertise to agencies and committees whenever asked.  Neglecting to acknowledge this fact does a disservice to the community.



The Industry’s Response to 9/11

As I mention at the beginning, I am honored to have worked for an industry that has done so much but receives so little notice in many areas of financial crime prevention. There was no clearer answer than how we responded to 9/11 and here is where my memory substantially differs from the author’s. (writing this blog on 9/11 actually further heightens my reaction)

As a backdrop, it would be useful to note that there was scant appetite for more laws and regulations regarding money laundering in the late 1990’s and having come close to losing my job for promoting the proposed “Know Your Customer” (KYC) regulations in late 1998, it becomes quite revisionist to ignore those debates. In fact the lead federal agency official and primary drafter of the proposal, Rick Small of the Federal Reserve Board, participated in scores of programs to explain KYC until he had the rug pulled out from under him by the OCC Comptroller, reacting to public opinion against the potential new requirements.

The horrific attacks of September 11th impacted all of us and the financial sector was quick to respond. Meetings were held in NYC with the FBI to assess how best to share information with law enforcement and Rick Small led the effort with the New York Clearinghouse and their members, along with the ABA. Congress reacted quickly as well but I challenge the author’s comment that “outrage built over how the US banking system had been used to further the attack.” As the 9/11 Commission Report clearly showed (and Senator Levin alluded to this as well) the financial sector had not caused or facilitated the financial acts of the terrorists.

The banking industry strongly supported the resulting USA Patriot Act, offered recommendations such as what became 314 and 326 and pushed for AML programs on any industry with a financial footprint. The specific reference to Rick Small, (then with Citigroup) as “acting in a shameless manner” to explain operational difficulties with some other proposed provisions such as to “know your customers customer” (and I might add recently confirmed by the US banking agencies as unnecessary) is the textbook definition of providing valued input. Any other explanation is (and was then as I vividly recall) “shameless.” Rick and other bankers should have been lauded for their immediate reactions to that day and how we helped shepherd key provisions to final enactment.

The financial sector, for all its foibles and mistakes identified by PSI, was both honorable and committed to addressing terror finance after 9/11 and that continues unabated today.



Tax Evasion and Credit Cards

Returning to the comprehensive and cutting edge work of PSI, the chapter on tax evasion, UBS and the passage of FATCA (foreign account tax compliance act) is both interesting and important to note how prevalent avoiding taxes was and sadly still is in the US.

Ms. Bean focuses on tax haven banks and the committee’s good fortune in having insiders give them volumes of documents showing accounts opened in Lichtenstein by Americans. The staff pored through the documents and settled on a few that they found “oozing with secrecy, deception and indicia of tax evasion.” Bean makes that point stand out with a detailed description of the accounts in question and the coverage of the role of UBS in tax evasion with a chart on tax haven bank secrecy tricks is especially compelling. (e.g. anonymous wire transfers, disguised business trips and foreign area codes among many others)

The chapter on credit card abuses reminds all of us the importance of congressional oversight, especially when a product is utilized by a member of congress. Senator Levin took particular interest in a practice of being charged a fee on the unpaid balance of his credit card bill on the full amount of the prior month’s balance no matter what he had paid.

The resulting investigation used a tried and true method of getting the most sympathetic victims of a practice to testify—completely understandable and very effective. The chapter is worth a close read as it provides a unique look at how a bill becomes law….



Money Laundering Post 9/11

The chapter on the financial crisis deserves its own review so will leave that for others and close with the second chapter dedicated to AML challenges and scandals.

The investigations regarding the now departed Riggs Bank both exposed the deficiencies in regulatory oversight (here with the OCC) and the extent to which the bank officials enabled the financial abuse of citizens in a number of countries by their governments. I have always identified Riggs as the “poster child” of reputation risk since it could not overcome its compliance malfeasance and sold its assets away (picked up by PNC) but sadly that helped the owners so they really didn’t learn their lesson.

Bean takes after the OCC several times in this chapter for their oversight of Riggs and HSBC. What I find the most important part of PSI’s investigation in Riggs, is how the lead examiner was apparently so lax in following up on formal criticism of the bank and then became their Chief Risk Officer! While having government officials going to the private sector can mainly be valuable for all, the law created to create at least a cooling off period for these moves should be applauded and in today’s environment perhaps strengthened. These and other changes to the regulatory and AML landscapes did result, in part, from Senator Levin’s leadership but clearly not in a vacuum.



Bipartisanship---will it ever return?

Elise Bean has provided a detailed view of a true model for congressional oversight. Cynics may doubt the ability of a return to true bipartisanship, and frankly I remain hopeful that it can once again happen.  Ms. Bean lists what she calls the “Levin Principles” in chapter 2, and to be “relentlessly bipartisan” is one of the 12 noted, as is #7 to “Listen to all sides.” Both are essential.

This tome is a necessary addition to any AML/Financial Crime library and can be used for training, awareness and improving corporate culture.

Just remember, the AML community is a partner in societal protection and I, for one, am so proud to have been part of this august group. Nothing is really black or white---most are shades of gray.




* Written by Barry Mann and Cynthia Weil and yes recorded by the Monkees. In fact, from the only album where they played their own instruments, Headquarters (1967).