(November 10 -17:35 ET) – The
virtue of secrecy has long been a
major drawing card of private
banking services. But those same
secrecy provisions also give
plenty of good cover for money
launderers by keeping regulators
at bay, says Richard Small,
assistant director Banking Supervision and Regulation at the
U.S. Federal Reserve Board.
He testified today before the
Permanent Senate Subcommittee on
Investigations on the
susceptibility of private banking
to money launderers.
The Fed’s study of the private
banking industry found that all
the banks studied have anti-money
laundering policies and procedures,
but their effectiveness varies
widely. It found the strongest
policies at those serving primarily
high net worth domestic clients
and weaker policies at those with
primarily an international
clientele. The weakest systems
are at institutions with services
that aren’t very profitable and are
focused on clients in Latin
America and the Caribbean.
It also found that established
institutions are more likely to
have better controls than newer
ones; and that new software is
making it easier to screen for
shady activity.
Attempts to thwart money
launderers focus on the enhanced
secrecy features of private banking
techniques, such as:
• Personal investment
corporations incorporated in
offshore tax havens.
• Corporations owned through
bearer shares, which are negotiable
instruments with no record of
ownership. The Fed says it is
virtually impossible to keep money
launderers at bay unless they have
custody of the share certificates
in this kind of corporation.
• The use of omnibus or
concentration accounts, which are
a variation of suspense accounts
that hold funds temporarily until
they can be credited to the proper
account, which can be used to break
an audit trail.
• Correspondent accounts, which
allow banks to hold deposits and
perform banking services, such
as cheque clearing, for other
banks.
The Fed says that the biggest
obstacle in supervising offshore
private banking is the inability
to conduct on-site examinations.
This leaves the Fed relying on
banks’ internal auditors, although
Small says some offshore
jurisdictions are preparing on-site
examinations, co-ordinated by the
Basle Committee on Banking
Supervision and the Offshore
Group of Banking Supervisors.
IE Staff
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