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Report: Easy To Launder Cash in U.S.

November 29, 2000

WASHINGTON (AP) _ It is fairly easy for foreigners to hide their identities and set up shell companies to launder money in the United States, congressional investigators have found.

They say U.S. giant Citibank and Commercial Bank of San Francisco violated control rules and allowed some $1 billion in possibly illicit Eastern European money to move through their accounts.

``These transfers raise concerns that the U.S. banking system may have been used to launder money,″ the General Accounting Office, Congress’ investigative arm, said in a report on its nine-month inquiry. ``We have referred the information developed to appropriate law enforcement and regulatory agencies.″

The report was released Wednesday.

New York-based Citibank, one of the world’s largest banks with operations around the globe, came under congressional scrutiny a year ago for alleged abuses by some executives in handling millions of dollars deposited by foreign officials later accused of corruption and money laundering. John Reed, then the co-chairman of parent Citigroup Inc., was closely questioned about the bank’s activities at a Senate investigative hearing that opened a window on the sheltered world of private banking that caters to the very wealthy.

Citibank on Tuesday sent a letter to the GAO saying it had closed the accounts in question after being contacted by the congressional investigators earlier this year.

``It is clear in hindsight that our systems and tracking procedures were not sufficient to detect the nature and extent″ of a client’s relationship with the bank, wrote Michael Ross, general counsel of the bank’s Global Consumer Business division.

The client, though not named in the report, was identified by a congressional source as Irakly Kaveladze, a Russian immigrant. He set up more than 2,000 corporations registered in Delaware for Russian brokers and then opened the Citibank accounts for them, according to the GAO report.

The conclusions of the report and Ross’ letter were first reported Wednesday by The New York Times and The Wall Street Journal.

Citigroup spokesman Michael Schlein said Wednesday the company would have no further comment. ``The letter speaks for itself,″ he said.

Far less well-known is Commercial Bank of San Francisco. According to the GAO report, its president told the investigators that two Russians bought about 9 percent of its stock for $1 million in March 1995.

A woman answering the telephone at Commercial Bank said no one was available to answer questions.

``It is relatively easy for foreign individuals or entities to hide their identities while forming shell corporations that can be used for the purpose of laundering money,″ the GAO report said.

It said Citibank and Commercial Bank of San Francisco ``violated the principles″ of banking industry policies requiring financial institutions to monitor account activities for suspicious transactions or customers.

Public attention focused on money laundering after it was revealed last year that the Bank of New York, one of the nation’s largest, had served as a conduit for an astonishing $7 billion in Russian money, some of it believed to be from criminal activities.

Money laundering, in which profits from drug trafficking, prostitution and other criminal activities are moved through a series of bank or brokerage accounts to make them appear to be proceeds of legitimate business activity, is estimated to absorb close to $600 billion a year. That equates to 5 percent of the world’s gross domestic product.