How War Criminals And Human Rights Violators Exploit U.S. Banks

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The stability of the U.S. dollar and the ease of its use even in remote corners of faraway lands make it the most exchanged currency in the world. It is the currency of choice to travelers and businessmen. The dollar is also the currency of choice for many terrorists, traffickers, and war criminals. From ISIS to the Lord’s Resistance Army to the world’s most brutal dictators and sanctioned war criminals, one common denominator is the need to move money to continue financing their operations. That often includes the need to obtain and use U.S. dollars.

Ill deeds on a mass scale require money – heaps of it. And for those who get their working capital through trafficking, pillage, and corruption comes the problem of where to stash their cash. For far too long, the American financial system and corporate structures have been exploited to enable the actions and transactions of the worst of the worst.

How is this possible? Information on the so-called “beneficial owner”– a term meaning the actual living breathing person rather than a corporate entity who ultimately owns or controls a bank account – is essential so that banks can know their customers and law enforcement can disrupt the bloody business of illicit networks and sanctioned entities.

At present, however, there is simply no legal requirement for financial institutions to gather specific information on the natural person behind a bank account when opened in the United States. Similarly, there is no requirement for states to collect information on who actually controls a company when it is formed.

The need to address this issue is bipartisan. In 2013 the Senate Caucus on International Narcotics Control co-chaired by Senators Feinstein and Grassley issued a report calling on the Administration to finalize a rule requiring financial institutions to determine the beneficial owner of accounts that they hold as as part of their customer due diligence.

The Department of Treasury, and in particular the U.S. financial intelligence unit known as the Financial Crimes Enforcement Network (FinCEN), is finally trying to fix this regulatory gap. Treasury has proposed new federal rules requiring banks and other financial institutions to collect beneficial ownership information for all new customers. This is a basic due diligence measure, and is an important step.

However, Treasury’s rulemaking proposal is only forward looking, and does nothing to create a requirement for financial institutions to review preexisting accounts even on a risk basis. There are other technical fixes required for the rule, but a look-back provision is simply fundamental. Leaving that loophole in place would allow current threats in our financial system to slip right through. For instance, the same 2013 Senate Report noted that HSBC had allowed over $200 trillion in wire transfers to enter the U.S. unmonitored, including $670 billion in wire transfers from Mexico and at least $881 million laundered by Mexican and Columbian drug traffickers. In December 2012, HSBC agreed to pay a $1.92 billion settlement to federal and state authorities for failing to maintain an effective anti-money laundering program. HSBC did not know their customer and the U.S. system was abused as a result.

But the question is, how many other similar accounts are out there in U.S. financial institutions which have not been effectively monitored? We simply do not know.

Unfortunately, Treasury has kowtowed to the arguments of U.S. banks who argue that the implementation of a look-back provision for existing customers would be too expensive for them to implement. There is no doubt that banks would bear some expense, but making review decisions on the basis of risk assessment would minimize such costs.

American leadership has always been and will always be instrumental in developing a rules-based system for the global financial system. Given the interconnectedness of worldwide markets and financial systems, it is impossible to view the U.S. system in a silo. Given the size of our financial system and the use of the dollar as an international currency of choice, the U.S. needs to be at the forefront of setting and implementing standards to stay a step ahead of those who massively profit from violent criminality, terrorism, atrocities, and human rights abuse.

If law enforcement is able to identify a sex trafficker, war criminal or terrorist through basic banking due diligence, the minor costs to the banks are worth it. Strengthening these Treasury regulations on beneficial ownership is one common sense step in the right direction.


Mary Beth Goodman is a Senior Advisor to the Enough Project and a Senior Fellow at the Center for American Progress, who previously served as the Director for International Economics at the White House and as a diplomat for the U.S. Department of State.