How We Did It: the U.S. Congress’ Exposure of the Grand Scale of Global Corruption

 Over the past two decades the U.S. Senate Permanent Subcommittee on Investigations has laid bare how Gabonese President Omar Bongo, Chilean dictator Augusto Pinochet, Equatorial Guinean President Teodoro Obiang, and a gaggle of friends and relatives of the leaders of Mexico, Pakistan, Nigeria, Angola, Saudi Arabia, and other countries conspired with large, prestigious banks to hide the enormous sums they stole from their nation’s citizens.  Financial Exposure, the new book by subcommittee investigator and later staff director Elise Bean, recounts how Democrats and Republicans united not only to document egregious cases of grand corruption but to enact legislation making banks’ complicity in future cases a crime.

Americans depressed by the rancorous polarization now gripping Congress will find her book a welcome reminder that Democrats and Republicans can work together to advance the public interest.  Scandals involving money laundering by banks in other nations, most recently Denmark’s Danske Bank and Latvian bank ABLV, should prompt non-Americans to send their parliamentarians a copy of Ms Bean’s book.  Below Ms. Bean offers a few morsels from the book to whet readers’ appetites.    

There isn’t room here to recount all the subcommittee’s anti-corruption investigations, but a few examples will illustrate what they showed and what results they produced.

Citibank Private Bank.  Corruption was the subject of a key investigation by the subcommittee in 1999, which was led by then subcommittee chair Republican Senator Susan Collins of Maine. Rumors were flying then that the United States had become the preferred banker for corrupt foreign officials around the world. Working with Democratic Senator Carl Levin of Michigan (my boss), the subcommittee elected to zero in on so-called “private banks,” banking units that opened accounts only for wealthy individuals with at least $1 million in deposits.

The inquiry ended up detailing four accountholders at Citibank Private Bank: Raul Salinas, brother to the then president of Mexico; Omar Bongo, then president of Gabon; Asif Ali Zardari, then known for his marriage to Benazir Bhutto, former prime minister of Pakistan; and the sons of Sani Abacha, recently deceased president of Nigeria.  Senate hearings exposed how Citibank had not only accepted tens of millions of suspect dollars from the accountholders, but also created offshore shell companies to hide their identities, helped them secretly move millions of dollars around the globe, and continued servicing them even after learning of corruption allegations.

At the time, it was not illegal for U.S. banks to accept corrupt funds, so long as the wrongdoing had occurred outside U.S. borders.  Back then, foreign corruption couldn’t even trigger a U.S. money laundering prosecution.  But the Levin-Collins hearings led to a change in the law.  In 2001, for the first time, foreign corruption became a U.S. money laundering predicate offense, and U.S. banks were barred from knowingly accepting the proceeds of foreign corruption.  The law also required private banks for the wealthy to conduct special due diligence reviews before accepting foreign officials as clients.  The Citibank inquiry led directly to those and other provisions strengthening U.S. anti-money laundering laws.

Riggs Bank.  Stronger laws don’t mean much unless they are enforced.  So a few years later, Senator Levin decided to evaluate their enforcement.  He teamed up with Minnesota Republican Senator Norm Coleman who had replaced Senator Collins as the Republican leader on the subcommittee.  They targeted Riggs Bank, a Washington, D.C. bank known for servicing embassies and foreign officials, and turned a spotlight on accounts opened for Teodoro Obiang, president of Equatorial Guinea, and Augusto Pinochet, former president of Chile.

The Levin-Coleman inquiry found that, despite the new anti-money laundering laws, Riggs Bank was engaging in much the same misconduct as Citibank had years earlier.  Riggs had formed offshore corporations for both clients, opened accounts in the names of the offshore companies to conceal the true owners, and deposited millions in suspect funds, including $3 million Obiang cash deposits on two different occasions.  In addition, Riggs helped Mr. Obiang wire $26 million from an Equatorial Guinea account holding oil revenues to foreign accounts rumored to be under his control.   Riggs had also sent Mr. Pinochet nearly $2 million in cashiers checks to conceal the existence of his U.S. accounts.  On top of all that, the subcommittee discovered that the lead federal bank examiner supervising Riggs Bank had left the government and immediately taken a high-paid post at Riggs.

As a result of the investigation, Riggs was hit with multiple criminal and civil enforcement actions. The bank was eventually sold.  Importantly, Congress enacted a Levin-Coleman law that imposed a one-year cooling off period before bank examiners could take jobs at the banks they supervised.

New Tactics.  Senator Levin and the subcommittee did not stop there.  Over the next few years later, he worked with his new Republican partner, Oklahoma Senator Tom Coburn, to examine how foreign officials were devising new tactics to infiltrate the U.S. financial system.  Some officials, they discovered, were using U.S. shell companies to open new accounts.  Others sent money to attorney-client accounts belonging to U.S. lawyers who then forwarded the funds as directed.  Still others sent funds to the accounts of real estate agents to buy U.S. real estate.  One corrupt official sent over $18 million to the bank account of a U.S. lobbyist who then wired the money to other accounts around the world, essentially laundering the suspect cash.

Another Levin-Coburn inquiry exposed how a major global bank, HSBC, used its U.S. branch to help Mexican drug traffickers, Russian fraudsters, rogue regimes, and even a Saudi Arabian bank suspected of supporting terrorism move millions of dollars around the world.  In one instance, after the United States banned a Syrian businessman, Rami Makhlouf, from the U.S. financial system due to a history of corruption, HSBC’s U.S. branch denied having an account for him, while omitting mention of his trust account at HSBC in the Cayman Islands.

HSBC ended up apologizing for its conduct at a 2012 Senate hearing and making major operational changes, including closing hundreds of accounts, increasing its compliance personnel tenfold, and revamping its controls.  When the Justice Department brought criminal charges, the bank settled them by admitting wrongdoing and paying a fine of $1.9 billion.  The subcommittee’s work forced one of the biggest banks in the world to begin cleaning up its act.

Section 1504.  The subcommittee was far from the only Congressional committee battling corruption.  Another example is the Senate Foreign Relations Committee which, among other actions, conducted a multi-year examination of corruption problems associated with oil, gas, and mining operations.  Led by Republican Senator Richard Lugar and Democratic Senator Ben Cardin, the bipartisan investigation found that corporations were paying large sums of money in connection with their extractive activities, but their payments often appeared to enrich a small circle of elites, rather than the nation’s citizens.

In response, the senators introduced legislation that became section 1504 of the Dodd-Frank Act of 2010.  The Cardin-Lugar provision created a new disclosure obligation for publicly traded corporations in the extractive industries.  It required covered corporations to publicly disclose all payments made to governments, on a country-by-country and project-by-project basis, using transparency to deter corrupt officials from siphoning off the funds.  Other countries followed the U.S. lead, enacting similar disclosure laws in Canada, the European Union, and Norway.  While implementation is still a work in progress, the Foreign Relations investigation sparked both the U.S. and global reforms.

History proves Congress can conduct fact-based, bipartisan, anti-corruption investigations that drive reforms.  The question is whether Congress will pursue those types of investigations in place of the partisan squabbles of recent years.

One factor is whether the anti-corruption community will push for, even demand, those investigations.  Another is whether Congressional leaders can be found who will commit to bipartisan inquiries.  If so, the result could be more effective anti-corruption investigations and more fact-driven reforms.  Bipartisan anti-corruption inquiries could even help bridge some of the political divides in Washington and begin the long process of restoring public confidence in Congress.

Wouldn’t that be a result worth fighting for?


6 thoughts on “How We Did It: the U.S. Congress’ Exposure of the Grand Scale of Global Corruption

  1. Pingback: How We Did It: the U.S. Congress’ Exposure of the Grand Scale of Global Corruption – Matthews' Blog

  2. Rick, thanks for this informative history lesson. It is affirming and potentially instructive to see how Congress can exercise its oversight, fact-finding, and investigative powers effectively, when such effective action seems so remote today. I think one of the things that makes me pessimistic that there could be a near term return to this kind of bipartisan consensus on taking action against global corruption is it’s hard for me to see where the political motivation to cooperate on these issues comes from. Overseas bribery and foreign corruption are low salience issues and it’s hard to imagine voters ever making an electoral choice based on where a candidate stood on those issues. This is particularly true when much of the American electorate seems satisfied with a foreign policy of isolationism and retrenchment. And what little electoral impetus to address foreign corruption issues there might be has likely been further marginalized by the politicization of corruption issues in the Trump administration, rendering bipartisan action even less likely. I suspect some Republicans are likely to see Congressional action on corruption and bribery as obliquely targeted at the Trump administration and its host of ethics issues. I suppose the alternative to electoral pressure is lobbying from interest groups like civil society organizations, but its hard for me to see how that overcomes the partisan divide on these kinds of issues. I wonder if you have thoughts, or think I’m overly pessimistic. Thanks again.

    • Glad you enjoyed the post. Better than my answer to you question, here is one from Elise —

      Getting any Member of Congress — Democrat or Republican — to focus on foreign corruption issues isn’t easy, unless and until they become convinced that corruption issues have national security, law enforcement, and foreign aid implications, as well as humanitarian urgency. History shows that some Members of Congress, on both sides of the aisle, do get to that level of understanding and will devote the time and resources necessary to combat the problem. They generally do it, not to win elections, but because they are problem-solvers and it feels good to expose wrongdoing and tackle problems on which progress can be made. Nonprofit organizations can play a critical role in helping to educate Members of Congress and their staffs about the issues, offer suggestions for bipartisan inquiries and possible reforms, and encourage constituents — especially those interested in particular countries with corruption problems — to support elected representatives who undertake anti-corruption efforts. Again, taking this road won’t be easy or quick, especially in the current atmosphere, but history shows it is possible.

  3. Rick, thank you for bringing attention to this fascinating book. Elise, please know it is on my holiday reading list! One thing that truly surprised me from reading this post is the length of time and energy that these members of Congress dedicated to conducting these investigations, then drafting legislation to try and address the root causes of what they uncovered, and finally checking back in to see how effective their proposed law was in curbing this type of corruption. International corruption schemes can be very complex and so at first glance, I would imagine that Congressional investigations would be a medium poorly suited for this type of work, given the potential for serious turnover after each election. How, if at all, do you think this turnover affects the effectiveness of these investigations? Do you find that certain Senators in “safer” seats are more likely to take up this type of work?

  4. What an impressive account! I have a question that I would like to clarify at a risk of sounding silly, since I am not American and may be unaware of some specific context here. What are the reasons why such investigations were carried out by a Congressional committee – and not law enforcement agencies? I understand that in some cases specific Congressional committees may be established to look into specific threats and uncover facts that might lead to criminal or civil cases. But it seems like these were very big cases – was there any specific reason why they had not been “caught” by the law enforcement agencies? I understand that law enforcement agencies cannot (and should not) have resources to investigate each bank for potential crimes, but these cases sound big enough to be “caught” by their systems…

  5. Many thanks for sharing this excerpt with us, Ms. Bean! Your book sounds like a “must read” 🙂

    One follow up question for you: Does your book at all touch upon the passage of Title III of the Patriot Act? I know that much of the KYC (“Know Your Customer”) and AML (Anti-Money Laundering) compliance work that is done at banks is based upon this legislation. Another parallel between some of the legislation that you mentioned and Title III of the Patriot Act is the bilateral support enjoyed. Indeed, the Patriot Act was approved in the House by a vote of 357 to 66 (9 representatives did not vote) and in the Senate by a vote of 98 to 1 (1 senator did not vote). Of course, however, the Patriot Act encompassed far more than anticorruption efforts, and the bill was passed at an extraordinary time in United States history–but still interesting nonetheless.

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