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--- Begin Message --- -Caveat Lector-Investigative Report
Is Alan Greenspan a Money Launderer?Posted July 1, 2004
![Fed Chairman Alan Greenspan takes a low profile when it comes to billions in money laundering.]()
Fed Chairman Alan Greenspan takes a low profile when it comes to billions in money laundering.Members of Congress recently made some tough statements about violations of money-laundering laws committed by Riggs National Bank and Swiss giant Union Bank of Switzerland. Rep. Sue Kelly (R-N.Y.), who chairs the House Financial Services subcommittee on Oversight and Investigations, began a hearing at the end of May by noting that the panel would examine the "inexcusable lack of compliance and enforcement" by both banks and the agencies that supposedly regulate them.
Kelly lambasted Daniel Stipano, deputy chief counsel of the Treasury's Office of the Comptroller of the Currency (OCC), noting that the OCC's credibility was so diminished that Riggs employees continued to violate the Bank Secrecy Act, even after an OCC examiner was placed on site. Said Kelly: "It is evident that this is still a work in progress" and concluded that a new centralized regulator to attack money laundering is needed. Said Kelly: "Brazen violators should be going to jail."
These latest cases of major violations of money-laundering laws mimic the earlier scandal involving the sales of dollars in Russia via the Bank of New York, scandals that are just the latest examples of financial institutions that got caught in the complex web of laws and regulations governing the movement of cash offshore. So rampant and widespread is the movement of dollars offshore that the basic story had been dramatized by films and TV shows such as Law & Order.
"Nearly three years ago, the Justice Department called the Bank of New York [BONY] money-laundering scandal 'just' a Russian tax-evasion scheme," reported Lucy Komisar for Pacific News Service in August 2002. "Now, European investigations show that BONY was a channel for organized crime. And according to a document obtained by Pacific News Service, some of the alleged Russian mafia leaders have operated freely in the United States. The widening scandal reveals Washington's dangerous reluctance to confront international criminal networks. In August 1999, U.S. investigators revealed that Russians had laundered at least $7 billion through accounts at BONY, a major U.S. institution with important Russian business."
Pacific News Service reported almost two years ago that "the BCCI [Bank of Credit and Commerce] and the BONY cases show the danger of letting criminal networks fester." The news service described how Khalid bin Mafouz, the No. 2 BCCI official, got off with a minor fine when the Pakistan-based BCCI collapsed in a megafraud that made $8 billion "disappear." Mafouz, who is Osama bin Laden's brother-in-law and one of his reputed financiers, never revealed where the missing billions went.
Regulators and politicians love to paint money laundering as an "us versus them" battle with the forces of evil -- the drug traffickers, criminal gangs and terrorists who threaten America's security. And there is no doubt that physical U..S. currency is a primary means for terrorists and drug traffickers to store and move the proceeds from their activities.
Consider just one episode from the U.S. occupation of Iraq: "When a United States Army sergeant broke through a false wall in a small building in Baghdad on a Friday afternoon a little over a year ago, he discovered more than three dozen sealed boxes containing about $160 million in neatly bundled $100 bills," reported the New York Times on June 6. "Later that day, soldiers found more cash in other hideaways near the Tigris River, in an exclusive neighborhood that elite members of Saddam Hussein's government once called home. By the end of the evening, they had amassed 164 metal boxes, all riveted shut, that held about $650 million in shrink-wrapped greenbacks. The cash was so heavy, and so valuable, that the Army needed a C-130 Hercules cargo plane to airlift it to a secure location."
While such examples of large seizures of illicit cash make it seem easy to identify the bad actors in the world of offshore money, if you examine the role played by the U.S. Treasury and the Federal Reserve system in the market for physical dollars, the demarcation between the good and bad guys is far less clear.
The Fed's "Extended Custodial Inventory" (ECI) service provides physical cash to banks and financial institutions around the world. In practical terms, a foreign bank "buys" physical U.S. currency at a discount from the Fed -- often tens or even hundreds of millions of dollars in a single transaction -- and the foreign bank then ships the money to some foreign land, beyond the reach of U.S. law. The Fed profits handsomely from this trade and pretends that this business is a valuable service to legitimate businesses, but in fact the U.S. central bank has no way of knowing where its dollars truly end up.
Thomas C. Baxter Jr., executive vice president and general counsel at the Federal Reserve Bank of New York, testified that the Fed's ECI program "serves as a means to facilitate the international distribution of U.S. banknotes, permit the repatriation of old design banknotes, promote the recirculation of fit new-design currency, and strengthen U.S. information-gathering capabilities on the international use of U.S. currency and sources of U.S. banknote counterfeiting abroad."
Remarkably, Baxter revealed to Kelly and the other members of the House panel that "as much as two-thirds of the value of all Federal Reserve notes in circulation, or over $400 billion of the $680 billion now in circulation, is held abroad." He added that "the billions of dollars held overseas represent a financial benefit to U.S. taxpayers" because the Fed receives foreign currency in exchange for these dollars and transfers most of this "profit" to the Treasury. Baxter added that wholesale banknote dealers purchase approximately 90 percent of the U.S. banknotes that are exported to international markets from the Federal Reserve Bank of New York.
During the hearings chaired by Kelly, several members of Congress asked Fed officials whether it might not be prudent to limit the sale of dollars to U.S. Institutions, in part because such shipments can be used by terrorist organizations to hide assets and finance acts of terror. But the central bank responded that it is necessary to use foreign banks to serve countries where there is "a high demand for physical U.S. currency." The problem, though, is that the U.S. central bank cannot say with any real certainty from whence comes this demand for dollars.
Baxter told the Kelly panel that "The ECI program serves an important function by ensuring that we supply USD banknotes to the global market in an efficient manner, and that the quality of, and confidence in, our currency is maintained at a high level." Yet no one at the Federal Reserve Board or the Treasury has explained why any action of government -- apart from resisting the temptation to print overmuch fiat currency -- has anything to do with private demand for dollars.
In fact, say a number of sources, Federal Reserve officials are unwilling to admit the truth regarding shipments of dollars offshore, namely that most of the demand for physical dollars outside the United States is for illicit purposes. One 25-year veteran of the private banking world describes for Insight how bundles of U.S. $100 bills -- in some cases decades-old, uncirculated bills -- are used to transfer hundreds of millions of dollars at a time without any trace. The cash hoard found in Iraq by U.S. forces is just one such cache of dollars that can be used to pay for assassinations, bribe government officials or help a drug trafficker pay his supplier.
A former consultant to the Senate Banking Committee opined after the Kelly hearings: "It is a monumental act of stupidity for Congress and the Treasury to allow the Fed to ship large amounts of physical currency around the world and then act shocked when the customers turn out to be drug dealers and money launderers. The U.S. government should promote the electronic use of dollars as a means of exchange, but not the use of physical currency."
Several bankers, lawyers and other observers of the world of offshore money tell Insight that it is high time that members of Congress such as Sue Kelly support legislation to end the government-sanctioned shipment of U.S. currency offshore. One lawyer suggests that instead of shipping planeloads of new $100 bills to distant lands, Congress instead should prohibit most bulk shipments of dollars outside the United States and force holders of older U.S. currency to repatriate these notes to the domestic offices of U.S. financial institutions by a date certain or lose the value forever.
While the U.S. government may have an interest in promoting the use of the dollar via legitimate financial institutions, there is little justification for the wholesale shipment of billions of dollars worth of physical currency around the world save to enable terrorism and illegality. Indeed, if Washington, including Congress, is really serious about fighting terrorism, one of the most practical steps that can be taken is to prohibit the Fed and Treasury from encouraging the use of physical dollars outside the United States and its territories.
Christopher Whalen is a frequent contributor to Insight.
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