NCJ Number
191331
Journal
Economic Perspectives Volume: 6 Issue: 2 Dated: May 2001 Pages: 26-29
Date Published
May 2001
Length
4 pages
Annotation
This article examined U.S. correspondent banking and its use as a conduit for the laundering of money into the American financial system.
Abstract
Through correspondent accounts to foreign banks, U.S. banks have become a gateway for dirty money flowing into the American financial system resulting in the facilitation of illicit enterprises, including drug trafficking and financial frauds. As a result of a 1 year investigation of correspondent banking and its use as a tool for laundering money, the conclusion was drawn that allowing high-risk foreign banks and their criminal clients access to U.S. correspondent bank accounts facilitated crime and undermined the U.S. financial system. Two due diligence failures by U.S. banks were discussed and included: (1) the failure of U.S. banks to determine the extent to which their foreign bank clients were allowing other foreign banks to use their U.S. accounts and (2) the failure of U.S. banks to make a distinction in their due diligence practices between foreign banks that have few assets and no credit relationship and foreign banks that sought to obtain credit from the U.S. bank. Several conclusions and recommendations were discussed as an outcome of the minority staff investigation. It is believed that if U.S. banks terminate relationships with the small percentage of high-risk foreign banks that cause the greatest problems and tighten their anti-money laundering controls in the correspondent banking areas, they could potentially eliminate the majority of correspondent banking problems at a minimal cost.