WASHINGTON - Representatives of the Treasury and Justice departments on Tuesday expressed reservations about several aspects of a Democratic anti-money-laundering proposal during the third and final Senate hearing on the connection between dirty money and correspondent banking.
Coupled with remarks made Monday by Senate Banking Committee Chairman Phil Gramm, R-Texas, in which he said the issue "is not on my agenda," the officials' testimony showed passage of anti-money-laundering legislation to be highly unlikely this year.
The hearings grew out of a 450-page report by the Democratic staff of the Senate permanent subcommittee on investigations, which found that many prominent U.S. banks have provided correspondent accounts to institutions located in bank secrecy havens, and that those accounts have been used to channel the proceeds of illegal activities into the U.S banking system.
The report, prepared on the instructions of Sen. Carl Levin, D-Mich., made several recommendations aimed at remedying the problem. Sen. Levin has indicated that he plans to incorporate these into legislation this year.
One of the recommendations is that U.S. banks be barred from opening correspondent accounts for institutions with no offices or branches, known as "shell banks," and that banks be required to use enhanced due diligence before opening such accounts for institutions that hold offshore licenses or are licensed by countries known to have weak laundering enforcement.
The report also called on U.S. law enforcement agencies to provide more information to banks about institutions and countries suspected of money laundering, and suggested that U.S. asset forfeiture laws be rewritten to make it easier for officials to seize the funds of suspected criminals from correspondent accounts.
Testifying before the subcommittee, Joseph M. Myers, the Treasury Department's acting deputy assistant secretary, told the panel that his agency has doubts about the recommendations regarding shell banks. "We are still struggling around the margins of this issue before we can give a ringing endorsement of the recommendations in the plan."
Mr. Myers said that an outright ban on shell banks might cast too broad a net. "For example," he said, "subsidiaries of securities companies or insurance companies may be set up in a way that might meet your definition of shell banks."
Sen. Levin countered that the bankers who had testified before the subcommittee previously said they could think of no legitimate reason to open a correspondent account for a shell bank. "I would hope that you would take their thoughts into consideration and move on with it," he said.
Testifying for the Justice Department, Deputy Assistant Attorney General Mary Lee Warren tentatively agreed with the need to change asset forfeiture laws, warning the panel that any such move would have to be "carefully balanced against other needs in the U.S. financial system and legitimate commerce."
On the issue of consultation between law enforcement and the banking industry, Ms. Warren said that significant channels of communication are already open, and that the agency intends to continue with its current efforts.
Both Mr. Myers and Ms. Warren agreed that dealing with offshore banks is a difficult issue, and that limiting the ability of U.S. firms to do business with them could have broader-than-intended consequences. Mr. Myers said, "I don't know that we can draw a line around U.S. firms that would not affect their competitiveness."
A day before the hearing, Sen. Phil Gramm addressed money laundering before the Institute of International Bankers here.
"I killed the administration's anti-money-laundering legislation last year," Sen. Gramm told the crowd. He added that he did not feel any need for legislative action this year, either.
Afterward, Sen. Gramm said in an interview that "We have pretty strong laws now. If someone had a proposal to strengthen them I would listen." However, he added, he would oppose any bill that gave "bureaucrats" the authority to close down banks.
The potential for any anti-money-laundering legislation passing the House Financial Services Committee is not clear. A spokeswoman for Chairman Michael G. Oxley, R-Ohio, said "Chairman Oxley is a former FBI agent, so he is very knowledgeable about money laundering and has been involved legislatively before," but she was unable to say whether he would address the issue on the Financial Services Committee.
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