May 21, 2001
The Citigroup-Banamex
Merger
Breaking
The Information Blockade 
The Mexican Press
Speaks:
Narco News 2001
"Dirty
Money"
Foundation
of U.S.
Growth
and Empire
From
La Jornada, May 19, 2001
By James
Petras
Size
and Scope of Dirty Money
Laundering
by Big U.S. Banks
There is a consensus among U.S. Congressional Investigators,
former bankers and international banking experts that U.S. and
European banks launder between $500 billion and $1 trillion of
dirty money annually, half of which is laundered by U.S. banks
alone.
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 decade between
$2.5 and $5 trillion criminal proceeds are laundered by U.S.banks
and circulate 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
flowsfrom 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. My lowest estimate
is a $100 billion per year by these two means which we facilitated
a trillion dollars in the decade, at least half to the United
States. Including other elements of illegal flight capital would
produce much higher figures." The Brookings expert did not
include illegal shifts of real estate and securities titles,
wire fraud, etc.
In other words an incomplete
figure of dirty money (laundered criminal and corrupt money)
flowing into U.S. coffers during the 1990s amounted to $3-$5.5
trillion. This is not the complete picture but it gives us a
basis to estimate the significance of the "dirty money factor"
in evaluating the U.S. economy. In the first place, it is clear
the combined laundered and dirty money flows cover 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, living standards would plummet, the dollar would
weaken, the available investment and loan capital would shrink
and Washington would not be able to sustain its global empire.
The importance of laundered money is forecast to increase.
Former private banker Antonio Geraldi, in testimony before the
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 institutions sustain U.S. global power via their money
laundering and managing ofillegally 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 narco trafficking,
drug laundering and political corruption: the image is of clean
whitehands 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 exposés 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 sums 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.
First thing to note about
the money laundering business, whether criminal or corrupt, is
that it is carried out by the most important banks in the USA.
Secondly, 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 Salinas (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 Elliott 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"
(p.35).
Citibank, the biggest
money launderer, is the biggest bank in the U.S., with 180,000
employees world-wide operating in 100 countries, with $700 billion
in known assets and over $100 billion in client assets in private
bank (secret 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."
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 banks. Private Bank services go beyond the routine
banking services and include investment guidance, estate planning,
tax assistance, off-shore accounts, and complicated schemes designed
to secure the confidentiality of financial transactions. The
attractiveness of the "Private Banks" (PB) 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 routinely use
code names for accounts, concentration accounts (concentration
accounts co-mingles 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 private investment
corporations (PIC) located in countries with strict secrecy laws
(Cayman Island, 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 code
name, 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 shareholder 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 private bank
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 private bank client wants one.The system works like Russian
Matryoshka dolls, shells within shells within shells, which in
the end can be impenetrable to a legal process.
The complicity of the
state in big bank money laundering is evident when one reviews
the historic record. Big bank money laundering has been investigated,
audited, criticized and subject to legislation; the banks have
written procedures to comply. Yet banks like Citibank and theother
big ten banks ignore the procedures and laws and the government
ignores the non-compliance. 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 in the formal
economy. Estimates by experts place the rate of return in the
PB market between 20-25% annually. Congressional investigations
revealed that Citibank provided "services" for 4 political
swindlers moving $380 million: Raul Salinas - $80-$100 million,
Asif Ali Zardari (husband of former Prime Minister of Pakistan)
in excess of $40 million, El Hadj Omar Bongo (dictator of Gabon
since 1967) in excess of $130 million, Abacha 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
funds were invested in legitimate businesses or in U.S. bonds,
etc. In none of these cases - or thousands of others - was due
diligence practiced by the banks (under due diligence a private
bankis obligated by law to take steps to ensure that 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 which the big banks use to launder hundreds of
billions of dirty money is through "correspondent banking"
(CB). CB is the provision of banking services by one bank to
another bank. It is a highly profitable and significant sector
of big banking. It enables overseas banks to conduct business
and provide services for their customers - including drug dealers
and others engaged in criminal activity - in jurisdictions like
the U.S. where the banks have no physical presence. 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 the
U.S. big banks called the 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 centers 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
fund transfer are called money center banks, some of the biggest
process up to $1 trillion in wire transfers a day. Through June
1999, the top five correspondent bank holding companies in the
United States held correspondent account balances exceeding $17
billion; the total correspondent balances of the 75 largest U.S.
correspondent banks was $34.9 billion. 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.
One of the major sources
of impoverishment and crises 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 which are transferred out of the country via the corresponding
banking system and the Private Banking system 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 spawns greater corruption and overseas transfers via private
banks as the 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 crises regions, the multi-trillion dollar money laundering
and bank servicing of corrupt officials is a much more significant
factor, sustaining Western prosperity, U.S. empire building and
financial stability. 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.
"This
Goes Straight to the Top"