Senate Holds Hearing On Money Laundering, Releases Report

February 4th, 2010

The Senate subcommittee on investigations held their hearing today to highlight the problem of US law and money laundering activities from foreign officials. They also released a report, which can be downloaded here.

I wrote about the hearing yesterday, so I’d like to make a general comment about the report.

Reading through each of the case studies, a theme emerges. At various points in each study, certain public and private individuals and institutions identified the unlawful or suspect nature of the financial transactions taking place in front of them. Often, they acted to close a bank account, notify authorities, freeze assets, or start an investigation. However, the corrupt foreign officials continued to find ways to move their money to where they wanted it to be.

The problem was systematic. No one individual or agency can be blamed for any of these four cases occurring. Instead, they were able to establish a veneer  of legitimacy using shell corporations, offshore bank accounts, and lax US financial law to turn an account being shut down by Wachovia or Bank of America or any number of large commercial banks into just a setback, instead of having their flow of money completely shut down.

The recommendations listed by the report reflect this. One suggested reform suggests strengthening PEP (Political Exposed Person) laws, which would do a better job of alerting banks to who they are doing business with. Another set of reforms would close specific loopholes in anti-money laundering laws exposed by these case studies. But more importantly, the report attacks the systemic problem of shell corporations, immigration and visa issues, and ethical standards by professional organizations.

The military would call this an “effects-based” attack on the problem. Instead of simply aiming at the target (which, in this case, would mean closing individual loopholes used by these case studies to move money around, or punishing/firing the people directly involved in the case), the report also suggests focusing on the peripheral enablers and causes of the problem. While this is not exactly a novel concept, Congress’s anti-money laundering efforts have lacked a grand strategy for some time now.

Written by EJ Fagan

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