REPORT SAYS MONEY LAUNDERERS EXPLOIT BANKS

A report to be formally released today by Democrats on the staff of a
Senate investigating panel says that money launderers have exploited
the international system by which banks handle accounts for one
another's customers, according to a copy provided in advance. The
investigation was led by Senator Carl Levin of Michigan, the ranking
Democrat on the Governmental Affairs Permanent Subcommittee on
Investigations.

In filtering profits from illegal activities through banks to
disguise their origin, money launderers take advantage of banks'
willingness to arrange what are known as correspondent accounts for
customers of other banks with no local presence.

"Correspondent accounts in U.S. banks give the owners and clients of
poorly regulated, poorly managed, sometimes corrupt, foreign banks
with weak or no antimoney laundering controls direct access to the
U.S. financial system and the freedom to move money within the United
States and around the world," the report said.

Correspondent banking is a huge business: in the United States, as of
mid-1999, the top 75 banking companies in the correspondent business
held $35 billion in such accounts, according to the report. Large
correspondent banks manage 2,000 to 3,000 such accounts and process
billions of dollars in wire transfers daily, the report noted. "Yet,
until very recently, most U.S. banks did not invest in the software,
personnel or training needed to identify and manage money-laundering
risks in correspondent banking," it said.

Money launderers are involved in drug trafficking, tax evasion,
financial frauds and Internet gambling. Perhaps $500 billion to $1
trillion in criminal proceeds are sent through banks worldwide
annually, with about half that amount transferred through United
States banks, according to an earlier report by the subcommittee's
Democratic staff.

When United States banks were confronted with cases where their
correspondent clients had used their systems to launder money, "In
most cases they closed those accounts as soon as we told them the
facts," Senator Levin said in an interview yesterday.

Among the report's recommendations is that banks be barred from
offering correspondent services to foreign banks "that are shell
operations with no physical presence in any country." The report also
urges banks to step up their scrutiny. And it seeks new laws to make
it easier for law-enforcement officials to seize laundered money from
foreign banks' correspondent accounts in United States banks.

The banking industry is likely to resist any new legislation
regulating correspondent banking or money laundering in general.
Banks say they have cooperated with efforts to prevent money
laundering, and want the federal government instead to better
identify rogue banks, said John Byrne, senior counsel at the American
Bankers Association.

"There is no logical, rational reason to create new laws to deal with
this," he said, stressing that he had not seen the report. "If the
premise is that correspondent banking needs additional vigilance
going forward, we're not going to dispute that. But this is a two-way
street. The government has some obligation to give us an inkling
about which institutions and countries we need to increase our
vigilance about."

Senator Levin responded yesterday that the banks could still do more.
"There are current regulations which I believe too often have been
ignored," he said. "We need to rely on the banks to do their share of
the work to stop money laundering abuses that exist, and the
government has the responsibility to enforce regulation as well as
tighten up the laws."

Senator Levin expects to hold hearings within a month. "I have spoken
to the Secretary of the Treasury about it and he is interested in the
subject," he said. A spokesman for the Treasury Secretary, Paul H.
O'Neill, did not return calls seeking comment.