PROGRESS ON MONEY LAUNDERING

In its final week, the Clinton administration, after lengthy discussions
with leading banks, announced new measures that banks may take to deter
corrupt foreign leaders and their business associates from hiding stolen
wealth in the United States. The voluntary guidelines, if followed, will
represent a welcome recognition of the central role that official corruption
plays in the impoverishment of much of the world and in the proliferation of
criminal syndicates in today's global economy. But they fall short of
providing the legal tools that prosecutors need to combat the problem
effectively.

Washington in the last few years was a leading advocate of tighter global
restrictions on money laundering, but its effectiveness was undermined by
the fact that American banks were themselves leading conduits for illicit
money. A series of Congressional investigations, including one to be
released today, have found that despite growing international attention and
tighter money-laundering controls, as much as $1 trillion in criminal
proceeds is laundered through banks worldwide each year, with about half of
that moved through American banks.

Under the agreement announced last month, regulators will recommend that
banks and brokerage houses apply "enhanced scrutiny" to accounts linked to
foreign leaders and their business partners when they deposit large sums.
Banks would notify the authorities when suspicious transactions occurred.
The measures would become mandatory for a financial institution if
investigators found that it helped launder corrupt wealth by ignoring the
guidelines.

Unfortunately, there is still no criminal penalty for laundering the funds
of corrupt dictators. America's money-laundering statutes define laundering
as a crime if the money comes from drug trafficking, terrorism or bank
fraud. But handling the deposits of corrupt foreign officials is not
illegal. That loophole needs to be closed.

Last year the Clinton administration introduced legislation that would have
broadened money-laundering statutes to cover bank transactions involving
money that comes from official corruption. It died in Congress under
pressure from banks. The Bush administration should consider reviving that
effort. Banks are understandably wary of legal restrictions that raise costs
and discourage depositors, particularly in their lucrative private banking
divisions. But America cannot condemn corruption abroad while allowing its
own banks to make fortunes off it.