Investigations expose outrageous misconduct at U.S. banks

In an extract from her new book, senior US lawyer Elise J. Bean hits on some pretty hot issues concerning money laundering, just one aspect of her rich and entertaining story.

Duffle bags of cash. Corrupt dictators and their money-grubbing relatives. Sleazy offshore banks. Shell companies. Drug money. Terrorist finance. Bankers, lawyers, and accountants awash in wrongdoing.

We saw it all in our investigations into money laundering. Laundering money involves taking dirty cash—the proceeds of crime— and hiding its illicit origins.

Buy a house with $1 million in drug money, sell it, and, voila, the cash appears to be the legitimate proceeds of a real estate sale.

Deposit a bribe in a bank account, transfer it to another account disguised as a payment in a business deal, and its criminal taint fades. Senator Levin’s first two PSI investigations delved deep into the issue of money laundering using case studies involving private banking and correspondent banking; his later hearings dug even deeper.

They exposed outrageous misconduct at multiple U.S. banks, disclosed how U.S. professionals were facilitating the movement of suspect funds, and highlighted glaring weaknesses in U.S. laws and financial regulation.

Over the years, the Levin oversight efforts drove legislative and regulatory changes that not only fortified U.S. anti-money laundering efforts but also forced the cleanup of a number of financial institutions. By the time Senator Levin left office in 2015, it was a whole lot harder to launder dirty money than when he started.

Zeroing in on Dirty Money

When Senator Levin joined PSI in 1999, the Democrats were the minority party in the Senate. In most committees, the majority party alone sets the committee agenda. But PSI was an exception; it had special rules and a long history supporting minority-led inquiries.

So once at PSI, Senator Levin was eager to launch his own investigation. Out of respect for the PSI chair Senator Susan Collins, he also wanted to select a topic that was clearly within PSI’s jurisdiction, would attract bipartisan support, and could enhance PSI’s reputation.

When Senator Levin proposed money laundering as his first official investigation, Senator Collins welcomed the inquiry. Her staff director, Lee Blalack, a smart, hard-working, wise-cracking lawyer, asked Claire Barnard of the Collins staff to work with us.1 Zeroing in on money laundering proved to be an inspired choice.

An earlier PSI chair, Republican Senator Bill Roth, had already conducted several money laundering hearings, so there was solid precedent and a bipartisan foundation for the inquiry. In addition, a brewing scandal provided a perfect case study.

The key allegation was that Raul Salinas, brother to the then President of Mexico, had laundered substantial sums through U.S. and Swiss banks, culminating in a 1998 Swiss court order requiring the forfeiture of $114 million determined by the court to be related to drug trafficking.2 One of the named U.S. banks was Citicorp.

When Linda first alerted Senator Levin to the Salinas scandal, he’d asked PSI’s then ranking Democrat Senator John Glenn to join him in asking the General Accounting Office to look into the facts. The General Accounting Office—later renamed the Government Accountability Office but consistently known by the initials “GAO”—is an independent agency that works for Congress.

Established in 1921, GAO’s mission is to respond to House and Senate requests for investigations. Called Congress’ “watchdog,” GAO produces hundreds of reports and audits per year and frequently testifies before Congress. While its work is often slow-moving, its results are generally seen as reliable and nonpartisan.

GAO readily accepted the request to look into the Salinas facts and accelerated its efforts once Senator Levin acquired a PSI leadership position and made money laundering the focus of his first PSI inquiry.

As GAO intensified its efforts, Bob and I began learning everything we could about money laundering. For me, one of the attractions of oversight was learning new things, so I dug in with a will.

We started by researching money laundering crimes, U.S. anti-money laundering laws and regulations, international anti-money laundering standards, and what was known about the Salinas case. Since Mr. Salinas opened accounts at Citigroup’s so-called private bank, we delved into that as well. In the end, we framed the entire investigation as an examination of the extent to which U.S. private banking was vulnerable to money laundering.

Prison Interview

The Fed documents weren’t the only early break we got in the investigation.

During our research, we also came across newspaper articles reporting that a Citigroup private banker, Carlos Gomez, had recently been convicted of stealing from clients and sent to federal prison.5 A Citigroup private banker in prison? We decided to pay him a visit.

Our first step was to check the Bureau of Prisons (BOP) website to find him in the federal prisoner locator system. The BOP data named a Miami prison, but when we called, the prison said he wasn’t there.

Stumped, we tracked down his lawyer who explained his client was incarcerated at an upstate New York prison that was supposed to have sent him on to Florida where he had relatives, but never did.

Later on, we had the chilly realization that it was only because we’d inquired into his status that BOP realized he’d been misplaced in the system and ultimately transferred him to Florida.

In the meantime, in February 1999, I joined Bob and Wes Phillips from the Collins staff on a flight to New York where we rented a car for the drive north to Otisville Federal Correctional Institute. The prison was a grim, concrete structure in a cheerless rural area.

We were taken to a linoleum-tiled room with cinder block walls, cheap chairs, and a table. When Mr. Gomez walked in, we saw a relatively young man with a quiet demeanor, reserved voice, and an air of determination to survive his new surroundings.

We politely explained that we were looking for information about Citibank’s private bank. He spoke with us for the next three hours.

The above extracts  are published from Elise J. Bean’s book ‘Financial Exposure: Carl Levin’s Senate Investigations into Finance and Tax Abuse’ (Palgrave Macmillan, 2018)