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 the very first 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?