Private Bank Practices

IF YOU TAKE $15,000 OUT OF a savings account to make a down payment on a new home, your banker is obligated to report you to the feds. If you make a second withdrawal to purchase a car or put the proceeds from selling your current home in the bank, more red flags will be raised.

Presumably, a government agent will check out the transactions to make sure you're not a drug dealer.

But private banks, whose customers need to put up at least $1 million to open an account, often turn a blind eye to multi-million dollar transactions. Not only do they fail to investigate the source of these funds, as bank regulations require, but private bankers actively assist clients in establishing off-shore shell corporations and trusts that are a boon to money-launderers.

Raymond Baker, of the Brookings Institution, estimates that $500 billion to $1 trillion in criminal proceeds are laundered through banks worldwide each year, with about half of that moved through U.S. banks.

According to the Bank Secrecy Act, all banks are to have anti-money laundering programs. Of course, as Citibank officials told the Senate Committee on Govern mental Affairs Permanent Subcommittee on Investigations in November, it had programs in place throughout the 1990s -- as the law required. The problem is, personnel at Citibank's Private Bank simply nodded and winked at the policies until one of its prominent international clients was busted for a host of felonies.

These findings by the subcommittee's Democratic staff were made public in the November hearings. Five months later, there are no laws, no new hearings and no changes in the system.

If Congress can approve $1.6 billion in foreign aid for Colombia, in the name of the war on drugs, certainly Congress can pass a tougher law to prohibit drug lords from laundering their ill-gotten gains through U.S. banks. Congress should start with an audit of the Federal Re serve Bank.

However, if the example of Citibank in the 1990s is any indication how these major clients obtain their funds in order to pump up the banks bottom line, according to the subcommittee's hearings.

POSTER BOY

When Raul Salinas, the brother of Mexico's former president and a convicted murderer, came to Amy Elliott, vice president of the Citibank Private Bank in New York City, to open an account with $2 million in 1992, Mrs. Elliott greeted him warmly.

Mrs. Elliott did not enter the Salinas account in the database known as the Client Account Management System (CAMS). Consequently, the bank didn't have any verified information on Salinas' business background or source of funds. Nor did Mrs. Elliott obtain the two written references demanded by company policy.

She did, however, arrange for a personal investment company to be opened by Cititrust, the private bank's trust company in the Cayman Islands, to open a shell corporation -- Trocca Ltd. -- for a Salinas account.

Cititrust set up three shell Pana man ian corporations to function as the board of directors. Three other companies were established to serve as corporate officers.

Banking in the Cayman Islands, the Bahamas, Jersey and Switzerland is already governed by secrecy. Each shell corporation creates another level of secrecy for regulators to attempt to sift through.

A year later, Cititrust established a trust, identified only by number, to serve as owner of Trocca. Salinas' name never appeared on any documents.

The private bank did not disclose the name of the Salinas shell company to any private bank's trust personnel other than the personnel in the Cayman Islands and Switzerland who administered the ac count. The arrangement was so secret, not even Mrs. Elliott knew the name of Salinas' corporation.

The private bank did not use Salinas' name in bank communications. He was referred to as "Confidential Client Number 2" or "CC-2." In 1994, a special Swiss account was opened for Salinas and his wife under the name "Bona porte."

Through these accounts, Salinas passed $80 million to $100 million between 1992 and when the accounts were frozen in 1995, Citibank helped to secretly move the millions out of Mexico.

Mrs. Elliott introduced Salinas' then-financèe, Paulina Castanon, to the service manager at the Mexico City branch of Citibank. Ms. Castanon was introduced as Patricia Rios in order to keep the transactions secret.

Ms. Castanon delivered cashier's checks to be converted into dollars, which were wired to New York. The funds were then added to Citibank accounts and moved overseas under cover of Citibank so as not to attract attention.

More than $67 million moved from Mexico to New York and then to London and Switzerland between 1992-94 like this. No one ever questioned where the money came from.

Even after Salinas was arrested for murdering his ex-brother-in-law in 1995, Citibank kept his account open. Mexico has an ongoing criminal investigation on alleged money laundering by Salinas.

In late 1995, after the bank demanded the account be closed, Mrs. Salinas told Mrs. Elliott the Salinas account contained millions of dollars in funds from "other individuals."

In October 1998, a Swiss federal court linked the Salinas accounts to narcotics trafficking.

WHERE DO WE GO FROM HERE?

If the brother of Mexico's president is involved in drug-running and murder, one has to ask how many other drug runners and murderers are being assisted by private banks in America.

One also needs to wonder where the Federal Reserve is while felons are using U.S. banks to launder money. Congress passed a law that says banks have to:

• Develop internal policies, procedures and controls;

• Designate a compliance officer;

• Train employees; and

• Obtain independent audits.

There are questions as to how well Citibank trained employees to be on the lookout for laundered money, but there is no question that the bank complied with the law. The problem is the internal policies and audit results were ignored.

The Money Laundering Control Act of 1986 makes it a crime for someone to "knowingly" engage in financial transactions of unlawful activities. In the case of Mrs. Elliott and Citibank, no one bothered to investigate where the Salinas money was coming from.

It was a case of "don't ask, don't tell," according to Tony Giraldi, a private bank er convicted of "willful blindness" -- laundering drug funds for a convicted drug lord. He is doing 10 years. Ironically, Mrs. Elliott was an expert witness called at his trial.

Citibank wasn't charged with violating any U.S. laws, but the subcommittee raised the concern that felons are using the mechanisms of private banks to launder their loot.

THE FED KNOWS

If billions of dollars are moving through accounts in private banks, certainly the Federal Reserve Bank knows about it. The Fed is guilty.

According to SPOTLIGHT writer George Nicholas, drug pushers pump billions of dollars into the U.S. economy each year. These funds are "recycled through the Fed [and] invested in legitimate businesses."

He said the Fed accepts this huge inflow of undocumented cash "because the depositors are bankers."

One thing that could correct this oversight is an immediate call for an independent audit of the Federal Reserve. Urge your congressman and senators to sponsor such a bill.

Contact the members of the permanent subcommittee on investigations and demand expanded hearings. Sen. Susan Collins (R-Maine) chairs the subcommittee. Members include Sens. William Roth (R-Del.), Ted Stevens (R-Alaska), George Voinovich (R-Ohio), Pete Dominici (R-N.M.), Thad Cochrane (R-Miss.), Arlene Specter (R-Pa.), Carl Levin (D-Mich.), Daniel Akaka (D-Hawaii), Dick Durbin (D-Ill.), Max Cleland (D-Ga.) and John Edwards (D-N.C.).