"Dirty money": greasing the wheels of the American empire.
As Senator Levin summarizes the record: "Estimates are that $500 billion to $1 trillion of international criminal proceeds are moved internationally and deposited into bank accounts annually. It is estimated half of that money comes to the United States."
Over the 1990s, between $2.5 and $5 trillion in criminal proceeds were laundered by U.S. banks and circulated in the U.S. financial circuits. Senator Levin's statement, however, only covers criminal proceeds, according to U.S. laws. It does not include illegal transfers and capital flows from corrupt political leaders, and tax evasion by overseas businesses. A leading U.S. scholar who is an expert on international finance associated with the prestigious Brookings Institute estimates that "the flow of corrupt money out of developing [Third World] and transitional [ex-Communist] economies into Western coffers at $20 to $40 billion a year and the flow stemming from mis-priced trade at $80 billion a year or more. "Including other elements of illegal flight capital would produce much higher figures still. The Brookings expert did not include illegal shifts of real estate and securities titles, wire fraud, etc.
This incomplete figure of dirty money flowing into U.S. coffers during the 1990s amounts to $3 to $5.5 trillion. Dirty money covers part of the U.S. deficit in its balance of merchandise trade, which ranges in the hundreds of billions annually. As it stands, the U.S. trade deficit is close to $300 billion. Without the "dirty money" the U.S. economy external accounts would be totally unsustainable. If not corrected, living standards would drop and the dollar would weaken. Available investment and loan capital would shrink, since dirty money is an important source of funding for domestic investment and loans. In addition, it provides major banks with hefty profits and working capital. Dirty money clearly helps Washington sustain its global empire.
The importance of laundered money is forecast to increase. Former private banker Antonio Geraldi, in testimony before the U.S. Senate Subcommittee, projects significant growth in U.S. bank laundering. "The forecasters also predict the amounts laundered in the trillions of dollars and growing disproportionately to legitimate funds."
The $500 billion of criminal and dirty money flowing into and through the major U.S. banks far exceeds the net revenues of all the IT companies in the U.S., not to speak of their profits. These yearly inflows surpass all the net transfers by the major U.S. oil producers, military industries and airplane manufacturers. The biggest U.S. banks, Bank of America, J. P. Morgan, Chase Manhattan and particularly Citibank derive a high percentage of their banking profits from serving these criminal and dirty-money accounts. The big U.S. banks and key corporate institutions sustain U.S. global power via their money laundering and managing of illegally obtained overseas funds.
U.S. Banks and the Dirty Money Empire
Washington and the mass media have portrayed the U.S. in the forefront of the struggle against narcotrafficking, drug laundering and political corruption: the image is of clean white hands fighting dirty money from the Third World (or the ex-Communist countries). The truth is exactly the opposite. U.S. banks have developed a highly elaborate set of policies for transferring illicit funds to the U.S., investing those funds in legitimate businesses or U.S. government bonds, and legitimating them. The U.S. Congress has held numerous hearings, provided detailed exposes of the illicit practices of the banks, passed several laws and called for stiffer enforcement. by any number of public regulators and private bankers. Yet the biggest banks continue their practices, the sum of dirty money grows exponentially, because both the state and the banks have neither the will nor the interest to put an end to the practices that provide high profits and buttress an otherwise fragile empire.
The first thing to note about the money-laundering business, whether criminal or corrupt, is that it is carried our by the most important banks in the U.S. Second, the practices of bank officials involved in money laundering have the backing and encouragement of the highest levels of the banking institutions -- these are not isolated cases by loose cannons. This is clear in the case of Citibank's laundering of Raul Salina's (brother of Mexico's ex-president) $200-million account. When Salinas was arrested and his large-scale theft of government funds was exposed, his private bank manager at Citibank, Amy Elliot,t told her colleagues that "this goes in the very, very top of the corporation, this was known... on the very top. We are little pawns in this whole- thing."
Citibank, the biggest money launderer, is the biggest bank in the U.S., with 180,000 employees worldwide operating in 100 countries, with $700 billion in known assets and over $100 billion in client assets in private bank accounts operating private banking offices in 30 countries, which is the largest global presence of any U.S. private bank. It is important to clarify what is meant by "private bank."
How Money Laundering Works
Private Banking is a sector of a bank which caters to extremely wealthy clients ($1-million deposits and up). The big banks charge customers a fee for managing their assets and for providing the specialized services of the Private Bank (PBs). The attractiveness of the PBs for money laundering is that they sell secrecy to the dirty-money clients. There are two methods that big banks use to launder money: via private banks and via corresponding banking. PB sroutinely use code names for accounts, concentration accounts (concentration accounts co-mingle bank funds with client funds, which cut off paper trails for billions of dollars of wire transfers) that disguise the movement of client funds, and offshore privateinvestment corporations (PICs) located in countries with strict secrecy laws (Cayman Islands, Bahamas, etc.).
For example, in the case of Raul Salinas, PB personnel at Citibank helped Salinas transfer $90 to $100 million out of Mexico in a manner that effectively disguised the funds' sources and destination, thus breaking the funds' paper trail. In routine fashion, Citibank set up a dummy offshore corporation, provided Salinas with a secret codename, provided an alias for a third-party intermediary who deposited the money in a Citibank account in Mexico, and transferred the money in a concentration account to New -York, where it was then moved to Switzerland and London.
The PICs are designed by the big banks for the purpose of holding and hiding a person's assets. The nominal officers, trustees and shareholders of these shell corporations are themselves shell corporations controlled by the PB. The PIC then becomes the holder of the various bank and investment accounts and the ownership of the PB clients is buried in the records of so-called jurisdiction, such as the Cayman Islands. Private bankers of the big banks like Citibank keep pre-packaged PICs on the shelf awaiting activation when a PB client wants one. The system works like Russian Marryoshka dolls, shells within shells within shells, which in the end can be impenetrable to a legal process.
The principle legislative and regulatory agencies of the U.S. government are domplicit with the major banks. While individual Congress people have held hearings and approved regulatory legislation, neither Congress nor the adminisriative agencies have enforced the legislation in any consequential manner. At best, a few banks have been fined and a handful of minor bank officials convicted. The Treasury Department is close to the banking system and very tolerant of bank omissions as the congressional banking committees. In July, 2002, however, a serious conflict developed within the state apparatus. The powerful military-security wing of the Bush Administration (Rumsfeld, Wolfowirz, Cheney), according to the Financial Times, has successfully pressured the Treasury Department to demand that banks "set up elaborate schemes to monitor correspondent and private banking accounts opened in the U.S. by foreign banks of individuals." The entire banking sector united in opposition, citing the threat to billions in profi ts. Treasury officials agreed to "review the matter." This is a clear indication of the growing conflict between the increasingly autonomous military-security sector of the state apparatus and the financial sectors of the state. The former, with its military-security definition of political reality, seeks to expand its empire even at the expense of important sectors of the U.S. economic empire.
Over the last 20 years, big-bank laundering of criminal funds and looted funds has increased geometrically, dwarfing in size and rates of profit the activities of the formal economy. Estimates by experts place the rate of return in the PB market between 20 and 25 per cent annually. Congressional investigations revealed that Citibank provided "services" for four political swindlers moving $380 million: Raul Salinas, $80-$100 million; Asif Ali Zardari (husband of a former prime minister of Pakistan) in excess of $40 million; El Hadj Omar Bongo (dictator of Gabon since 1967) in excess of $130 million; and the sons of General Abacha, ex-dictator of Nigeria, in excess of $110 million. In all cases Citibank violated all of its own procedures and government guidelines: there was no client profile (review of client background), determination of the source of the funds, nor of any violations of country laws from which the money accrued. On the contrary, the bank facilitated the outflow in its prepackaged format: shell corporations were established, code names were provided, funds were moved through concentration accounts, the finds were invested in legitimate businesses or in U.S. bonds, etc. In none of these cases -- nor in thousands of others -- was due diligence practiced by the banks (under due diligence a private bank is obliged by law to take steps to ensure it does not facilitate money laundering). In none of these cases were the top banking officials brought to court and tried. Even after arrest of their clients, Citibank continued to provide services, including the movement of funds to secret accounts and the provision of loans.
Correspondent Banks: The Second Track
The second and related route the big banks use to launder hundreds of billions of dollars of dirty money is through "correspondent banking" (CB). CB is the provision of banking services by one bank to another. A bank that is licensed in a foreign country and has no office in the United States for its customers attracts and retains wealthy criminal clients interested in laundering money in the U.S. Instead of exposing itself to U.S. controls and incurring the high costs of locating in the U.S., the bank will open a correspondent account with an existing U.S. bank. By establishing such a relationship, the foreign bank (called a respondent) and through it, its criminal customers, receive many or all of the services offered by U.S. bank (called a correspondent). Today, all the big U.S. banks have established multiple correspondent relationships throughout the world so they may engage in international financial transactions for themselves and their clients in places where they do have a physical presence. Many of the largest U.S. and European banks located in the financial centres of the world serve as correspondents for thousands of other banks. Most of the offshore banks laundering billions for criminal clients have accounts in the U.S.
All the big banks specializing in international-funds transfer are called money-centre banks -- some of the biggest process up to $1 trillion in wire transfers per day. For the billionaire criminals an important feature of correspondent relationships is that they provide access to international transfer systems -- that facilitate the rapid transfer of funds across international boundaries and within countries. The most recent estimates (1998) are that 60 offshore jurisdictions around the world licensed about 4,000 offshore banks, which control approximately $5 trillion in assets.
Pillaging the Third World
One of the major sources of impoverishment and crisis in Africa, Asia, Latin America, Russia and the other countries of the ex-U.S.S.R. and eastern Europe, is the pillage of the economy and the hundreds of billions of dollars transferred out of the country via CB and PB systems linked to the biggest banks in the U.S. and Europe. Russia alone has seen over $200 billion illegally transferred in the course of the 1990s. The massive shifts of capital from these countries to the U.S. and European banks has generated mass impoverishment and economic instability and crises. This in turn has created increased vulnerability to pressure from the IMF and World Bank to liberalize their banking and financial systems leading to further flight and deregulation, which spawn greater corruption and overseas transfers via private banks, as Senate reports demonstrate.
The increasing polarization of the world is embedded in this organized system of criminal and corrupt financial transactions. While speculation and foreign-debt payments play a role in undermining living standards in the crisis regions, the multi-trillion-dollar money-laundering and bank servicing of corrupt officials is a much more significant factor. The scale, scope and time frame of transfers and money laundering, the centrality of the biggest banking enterprises and the complicity of the governments, strongly suggests that the dynamics of growth and stagnation, empire and re-colonization are intimately related to a new form of capitalism built around pillage, criminality, corruption and complicity.
James Petras is a frequent contributor to Canadian Dimension. He is the author of 36 books. The latest one, co-written with Henry Veltmyer, Globalization Unmasked, is the winner of the 2002 Kenny Prize.
I dedicate this article to Cy Gonick, friend, fighter and comrade over 40 years.
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|Title Annotation:||money laundering|
|Date:||Sep 1, 2002|
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