GAO: Banks Held Suspicious Funds : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

GAO: Banks Held Suspicious Funds Wednesday November 29, 3:02 PM EST NEW YORK (Reuters) - More than $1.4 billion in suspicious, mostly overseas funds passed through accounts at Citigroup and Commercial Bank of San Francisco (BKCA) from 1991 through this year, according to a U.S. government report into possible Russia-related money laundering. Money laundering, which involves pushing ill-gotten profits through bank accounts to make them look legitimate, is an area of grave concern after an investigation last year found Russian businessmen and mobsters illegally pushed some $7 billion through accounts at the Bank of New York Co. Inc. (BK)

The General Accounting Office, the investigative branch of the U.S. Congress, said in a report that these banking activities raised questions about whether U.S. banks were used to launder money. The Permanent Subcommittee on Investigations asked the GAO in February to look into the ease with which foreigners could form U.S. companies, open bank accounts for these companies and use the accounts to launder money.

The Wall Street Journal and the New York Times broke the story.

In response to the report, which was dated Oct. 31, but released Wednesday, Citigroup wrote the GAO a letter in which it owned up to internal oversights that allowed about $725 million in questionable Russian funds to pass through accounts at its branches from 1991 to this year.

This is not the first time Citibank, Citigroup's banking arm, has faced scrutiny for suspicious accounts. Citibank was probed for its role helping Raul Salinas, brother of the former Mexican president, pass $100 million in alleged drug money out of Mexico into Swiss bank accounts in the early 1990s.

Two sons of former Nigerian dictator Sani Abacha also opened accounts at Citibank's private bank in the early 1990s.

Since this time, Citigroup said it has upgraded systems that monitor for suspicious wire transfer activity.

The New York-based company, which runs banking, insurance and brokerage operations in more than 100 countries, also said the bulk of the questionable Russian transfers were before May 1996, when certain reporting rules went into effect and before Citibank developed the ability to monitor wire transfers.

The U.S. government also only named Russia as a country where money laundering is prevalent in 1996, it added.

But the GAO said it had passed on information it learned in its probe to law enforcement and regulatory agencies.

According to the GAO report, Citigroup and Commercial Bank of San Francisco failed to put in place so-called "know your customer" policies for the accounts in question, the GAO said. This rule requires a bank know the source of a customer's money, to make sure the funds are not ill-gotten.

The accounts in question at Citibank, Citigroup's banking arm, were opened by an unnamed Russian businessman, since 1991. Citigroup said its senior management learned of the accounts after getting a government subpoena for information. The Wall Street Journal identified the client as Irakly Kaveladze, a 35-year-old Georgian-born businessman. Citigroup was not immediately available to comment and the GAO declined to name the client.

The Russian businessman opened his first account at Citibank in October 1991, telling the branch he was an import export broker who also provided services helping Russians incorporate businesses in the United States and open U.S. bank accounts. He also referred at least 108 Russians and Russian businesses to Citibank from January 1992 to this year, the bank said. These accounts used his address as their own.

Citibank said it detected no illegal activity in accounts tied to the businessman and the accounts were now closed. It also noted in the letter the accounts were not particularly profitable. Over the 8 years, it said it appears to have made less than $300,000 in total from the accounts.

Among its lapses, Citibank said at the time it undertook only limited due diligence on business referred to it by the Russian client and instead relied on the client to attest to the businesses' legitimacy.

It also failed to close accounts promptly when its compliance department determined they should have been closed, the bank said in a letter signed by Michael Ross, general counsel of Citibank's global consumer business.

"Given enhancements to our systems and procedures, we are confident that we would detect questionable activity and take action more promptly should a similar situation arise today," Citigroup wrote.§ion=news&news_id=reu-49477&date=20001129&alias=/alias/money/cm/nw

-- Martin Thompson (, November 29, 2000

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