Money Laundering: Observations on Private Banking and Related Oversight
of Selected Offshore Jurisdictions (Statement/Record, 11/09/1999,
GAO/T-GGD-00-32).
Pursuant to a congressional request, GAO discussed money laundering in
relation to private banking and highlighted some regulatory issues
related to the vulnerability of selected offshore jurisdictions to money
laundering, focusing on: (1) regulators' oversight of private banking in
general; (2) regulators' oversight of private banking in selected
offshore jurisdictions; (3) barriers that have hampered regulators'
oversight of offshore banking; and (4) future challenges that confront
regulators' efforts to combat money laundering in offshore
jurisdictions.
GAO noted that: (1) federal banking regulators have overseen private
banking through examinations that, among other things, focus on banks'
"know your customer" policies; (2) these policies enable banks to
understand the kinds of transactions a particular customer is likely to
engage in and to identify any unusual or suspicious transactions; (3)
federal banking regulators have examination procedures that cover
private banking activities conducted by banks operating in the United
States; (4) in cases that involve private banking activities conducted
by branches of U.S. banks operating in offshore jurisdictions, examiners
rely primarily on banks' internal audit functions; (5) GAO found that
the key barriers to U.S. regulators' oversight of offshore banking
activities are secrecy laws that restrict access to banking information
or that prohibit on-site examinations of U.S. bank branches in offshore
jurisdictions; and (6) an important challenge that confronts efforts to
combat money laundering is the extent to which such secrecy laws will
continue to be barriers to U.S. and foreign regulators.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-GGD-00-32
TITLE: Money Laundering: Observations on Private Banking and
Related Oversight of Selected Offshore Jurisdictions
DATE: 11/09/1999
SUBJECT: Banking law
Law enforcement
Money laundering
Organized crime
Financial institutions
Federal reserve banks
Bank examination
Jurisdictional authority
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United States General Accounting Office
GAO
Testimony
Before the Permanent Subcommittee on
Investigations
Committee on Government Affairs
U.S. Senate
Not to Be Released
Before 9:30 a.m., EST
Tuesday
November 9, 1999
GAO/T-GGD-00-32
MONEY LAUNDERING
Observations on Private Banking and Related
Oversight of Selected Offshore Jurisdictions
Statement for the Record of Thomas J. McCool,
Director
Financial Institutions and Markets Issues
General Government Division
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GAO
Permit No. G100
(233629)
Statement
Money Laundering: Observations on Private Banking
and Related Oversight of Selected Offshore
Jurisdictions
Page 8 GAO/T-GGD-00-32
Ranking Minority Member Senator Levin and Members
of the Subcommittee:
This statement provides an overview of money
laundering in relation to private banking and
highlights some regulatory issues related to the
vulnerability of selected offshore jurisdictions
to money laundering. 1 Specifically, this
statement covers four areas:
ú regulators' oversight of private banking in
general,
ú regulators' oversight of private banking in
selected offshore jurisdictions,
ú barriers that have hampered regulators'
oversight of offshore banking, and
ú future challenges that confront regulators'
efforts to combat money laundering in offshore
jurisdictions.
Federal banking regulators have overseen private
banking through examinations that, among other
things, focus on banks' "know your customer" (KYC)
policies. These policies enable banks to
understand the kinds of transactions a particular
customer is likely to engage in and to identify
any unusual or suspicious transactions. Federal
banking regulators have examination procedures
that cover private banking activities conducted by
banks operating in the United States. In cases
that involve private banking activities conducted
by branches of U.S. banks operating in offshore
jurisdictions, examiners rely primarily on banks'
internal audit functions. We found that the key
barriers to U.S. regulators' oversight of offshore
banking activities are secrecy laws that restrict
access to banking information or that prohibit
on-site examinations of U.S. bank branches in
offshore jurisdictions. An important challenge
that confronts efforts to combat money laundering
is the extent to which such secrecy laws will
continue to be barriers to U.S. and foreign
regulators.
To address these areas, we reviewed the Federal
Reserve's and Office of the Comptroller of the
Currency's (OCC) regulatory activity related to
private banking and reported our observations in
June 1998.2 At that time, we reviewed examination
manuals, relevant agency documents, and
examination reports that addressed banks' anti-
money-laundering efforts related to their private
banking activities. We also interviewed U.S.
banking regulators, law enforcement authorities,
and representatives of bank trade associations;
conducted a limited survey of banks; and spoke
with officials from key offshore jurisdictions,
international bank supervisory groups, and
international anti-money-laundering task forces.
Recently, we updated some of our work and
recontacted the Federal Reserve, OCC, the State
Department, and Treasury's Financial Crimes
Enforcement Network. We also spoke with the
Offshore Group of Banking Supervisors and three
international groups established to combat money
laundering.3 This update was focused on the 9
offshore jurisdictions we had previously reviewed
and 11 jurisdictions added at your request.4 The
information on foreign laws and policies in this
report does not reflect our independent legal
analysis but is based on interviews and secondary
sources.
Private Banking Has Drawn Attention
Private banking has been broadly defined as
financial and related services provided to wealthy
clients.5 It is difficult to measure precisely how
extensive private banking is in the United States,
partly because the area has not been clearly
defined and partly because financial institutions
do not consistently capture or publicly report
information on their private banking activities.
We do know, however, that domestic and foreign
banks operating in the United States have been
increasing their private banking activities and
their reliance on income from private banking. The
target market for private banking-individuals with
high net worth-is also growing and becoming more
sophisticated with regard to their product
preferences and risk appetites.
During the past few years, private banking has
become a focus of law enforcement and regulatory
attention as a number of high-profile cases have
come to light involving private bankers and money
laundering. A notable example is the American
Express case that resulted in the conviction of
two private bankers for money laundering and the
imposition of the largest monetary penalty ever
imposed on a bank in a money laundering-related
case.6 More recent investigations of private
bankers at Citibank and BankBoston continue to
keep private banking in the forefront of public
attention. Such cases, which can involve the
illicit transfer of millions of dollars,
underscore the crucial importance of private
banking and its potential vulnerability to money
laundering.
Regulatory Efforts to Oversee Private Banking
Activities
Federal banking regulators may review banks'
efforts to prevent or detect money laundering in
their private banking activities during
examinations,7 including recent examinations
focused on their private banking activities.
During these examinations, regulators focus on a
bank's compliance program; internal controls; and,
in particular, on its KYC policies. Regulators
instruct their examiners to determine whether
banks have implemented sound KYC policies in
general and to ensure that these policies extend
to their private banking activities. Until
recently, U.S. regulators were attempting to
incorporate KYC requirements as uniform
regulations. However, the proposed KYC regulation,
which was published for comment in December 1998,
was met with an overwhelming public response that
raised concerns about the government's scrutiny of
personal banking accounts. In the face of these
concerns, U.S. regulators have since withdrawn the
proposed regulations. Nevertheless, regulators we
interviewed for this statement told us that,
during the course of examinations, they continue
to verify that banks have prudent banking
policies, including KYC policies, that ensure
compliance with the Bank Secrecy Act.
Although regulatory efforts to establish uniform
KYC requirements have stopped, Congress continues
to look for ways to reinforce current anti-money-
laundering laws and, more specifically, to promote
due diligence in customer banking relationships.
For example, the Chairman of the House Committee
on Banking and Financial Services recently
introduced legislation that would, among other
things, require financial institutions that open
or maintain a U.S. account for a non-publicly-
traded foreign entity to maintain a record of
identity for each beneficial owner of the account.
The legislation would also prohibit U.S.
depository institutions from maintaining banking
relationships with banks that are not licensed to
provide services in their home countries.
Federal Banking Regulators Focus on Private
Banking
The growing importance of private banking over the
last several years led the Federal Reserve Bank of
New York (FRBNY) to undertake a special initiative
focusing on private banking that disclosed a
number of key weaknesses in selected institutions'
internal controls for detecting or preventing
money laundering. In 1996 and 1997, FRBNY
attempted to review private banking activities at
about 40 domestic and foreign banking institutions
in the New York district. During the course of
these reviews, examiners focused on assessing each
bank's ability to recognize and manage money
laundering risks associated with inadequate
knowledge of its clients' personal and business
backgrounds, their sources of wealth, and their
use of their private banking accounts.8
FRBNY officials explained to us that most of the
banks reviewed had adequate anti-money-laundering
programs for their private banking activities,
although a few were antiquated and vulnerable to
money laundering. Deficiencies identified in the
private banking area primarily involved poor
internal controls, such as insufficient
documentation and inadequate due diligence
standards.9 In a systemwide study conducted during
1998, the Federal Reserve assessed the risk
management practices at seven banks with private
banking activities. The study found that internal
controls and oversight practices over private
banking activities were generally strong at banks
that focused on high-end domestic clients, while
similar controls and oversight practices were
seriously weak at banks that focused on higher
risk Latin American and Caribbean clients.
In the latter part of 1997, the Office of the
Comptroller of the Currency began targeting
national banks' private banking activities based
on law enforcement leads or on the bank activities
meeting OCC's high-risk criteria. A primary focus
of these reviews has been the banks'
implementation of sound KYC policies and
procedures. In these reviews, OCC targeted 10 high
risk national banks for expanded Bank Secrecy Act
examinations, three of which focused on the banks'
private banking activities. OCC found that only
one bank had diligently developed processes to
manage the risks associated with anti-money-
laundering and KYC issues, while the anti-money-
laundering processes of the remaining two banks
were classified as weak or needing improvement.
Regulatory Efforts to Oversee Offshore Private
Banking Activities
A second major area for our work was regulatory
efforts to oversee offshore private banking
activities, including the types of procedures
regulators use and the deficiencies they have
identified during examinations. Federal banking
regulators and law enforcement officials have
raised concerns about offshore private banking
activities and their potential to be the private
banking "soft spot" for money laundering.
Offshore Private Banking Accounts
Although banking regulators believe that customers
generally use offshore entities to establish or
maintain private banking accounts for legitimate
reasons, they are concerned that this practice may
also serve to camouflage money laundering and
other illegal acts. Offshore entities, including
private investment companies10 and offshore trusts,
provide customers with a high degree of
confidentiality and anonymity while offering such
other benefits as tax advantages, limited legal
liability, and ease of transfer. Detecting or
preventing money laundering by offshore entities
can pose special difficulties because
documentation identifying the individual or group
that controls these offshore entities and their
U.S. private banking accounts (referred to as
their "beneficial owners") is frequently
maintained in the offshore jurisdiction rather
than in the United States.
Regulators recognize that the use of offshore
entities to establish or maintain U.S. private
banking accounts tends to obscure the account
holders' true identities. Consequently, they
instruct their examiners to look for specific KYC
procedures that enable banks to identify and
profile the beneficial owners of these offshore
entities. In the course of examinations, examiners
may test the adequacy of beneficial-owner
documentation maintained in the United States. At
the time of our earlier review in 1998, with the
exception of FRBNY, we found no evidence that
examiners had attempted to examine the
documentation that banks maintain in offshore
secrecy jurisdictions.
During examinations conducted under FRBNY's
private banking initiative, examiners sought to
review beneficial owner documentation regardless
of where it was maintained. Because this was the
Federal Reserve's first focused review of private
banking activities, officials believed that it was
particularly important to verify whether banks had
the ability to identify and profile the beneficial
owners of offshore entities that maintained U.S.
private banking accounts. A senior FRBNY examiner
explained that it was also a way to induce banks
to develop or improve their systems for
maintaining appropriately detailed information on
the beneficial owners of offshore entities that
maintain U.S. accounts.
Other Federal Reserve and OCC examiners we
contacted in 1998 expressed different views about
accessing such documentation during examinations.
Some examiners, for example, said that they do not
see a need to examine offshore documents if they
are confident about the bank's commitment to
combating money laundering. Since that time,
according to a Federal Reserve official, its
examiners have routinely attempted to examine
documents maintained in offshore jurisdictions.
Private Banking Activities by Offshore Branches of
U.S. Banks
Offshore branches are extensions of U.S. banks and
are subject to supervision by U.S. regulators,
primarily the Federal Reserve or OCC,11 as well as
host countries. However, such branches are
generally not subject to this country's Bank
Secrecy Act. For this reason, U.S. banking
regulators do not attempt to determine whether
offshore branches are in compliance with specific
anti-money-laundering provisions contained in the
Bank Secrecy Act, such as the one requiring that
suspicious transactions be reported to U.S.
authorities. Instead of monitoring formal
compliance, U.S. banking regulators try to
identify what efforts the branches are making to
combat money laundering and to determine whether
the banks' corporate KYC policies are being
applied to activities, such as private banking
activities, that the offshore branches may engage
in.
Although examiners are able to review the written
policies and procedures being used in these
branches, they must rely primarily on the banks'
internal audit functions to verify that the
procedures are actually being implemented in
offshore branches where U.S. regulators may be
precluded from conducting on-site examinations.
They may also rely on external audits, but are
less prone to do so because external audits tend
to focus on financial, rather than anti-money-
laundering, issues.
Identified Deficiencies and Status of Corrective
Actions
We found in our review of examinations conducted
by FRBNY that the most common deficiency relating
to offshore private banking was a lack of
documentation on the beneficial owners of private
investment companies and other offshore entities
that maintain U.S. accounts. While there is no
requirement that banks retain documentation in the
United States on the beneficial owners of these
offshore entities, maintaining such information in
clients' U.S. files, or having the ability to
bring it on-shore in a reasonable amount of time,
promotes sound private banking practices,
according to the Federal Reserve.
Our review in 1998 of FRBNY and OCC examinations
found that examiners identified a number of
general private banking deficiencies that also
pertained to the banks' offshore private banking
activities. Two such deficiencies were inadequate
client profiles and weak management information
systems. For example, examiners found that some
banks' client profiles contained little or no
documentation on the client's background, source
of wealth, or expected account activity, or on
client contacts and visits by bank
representatives. Examiners also found that some
banks' management information systems did not
track client activity or did not allow bankers to
systematically examine all accounts related to a
given client. Both of these deficiencies make it
difficult for banks to monitor clients' accounts
for unusual or suspicious activity, according to
the banking regulators.
At the time of our review in 1998, we noted that
most banks with deficiencies identified during
FRBNY's private banking initiative had started to
take corrective actions to address these
deficiencies. For example, during follow-up
examinations, examiners found that banks had
started to make progress on improving client
profiles.
Bankers' Concerns About Uneven Regulatory
Oversight
Some bank officials we interviewed during this
assignment expressed concerns that securities
brokers and dealers are not subject to the same
regulations covering suspicious activity reports
or to the same regulatory reviews of KYC policies
that banks are subject to. They indicated that
this inconsistency creates an "uneven playing
field" that they felt was unfair, particularly
since brokers and dealers are engaged in private
banking activities similar to those of the banks
themselves. Officials from the Securities and
Exchange Commission and Treasury's Financial
Crimes Enforcement Network have indicated that
they have been working together since 1997 to
develop regulations for brokers and dealers
regarding suspicious activity reports. As of
October 1999, however, such regulations had not
yet been issued.
Offshore Jurisdictions' Bank Secrecy Laws
Represent Key Barriers to U.S. Regulators'
Oversight of Offshore Banking Activities
The third major area for our work was barriers to
regulators' efforts to oversee offshore banking
activities in general. We found that secrecy laws
in many offshore jurisdictions represent key
barriers to U.S. oversight of offshore banking
activities. According to U.S. and international
agencies and organizations, all of the 20 offshore
jurisdictions we reviewed have secrecy laws that
protect the privacy of individual account owners,
and 16 of them impose criminal sanctions for
breaking those laws. While secrecy laws are
intended to preserve the privacy of bank
customers, they also restrict U.S. regulators from
accessing individual account information and often
prevent regulators from conducting on-site
examinations at U.S. bank branches in offshore
jurisdictions.
In our earlier work in 1998, we reviewed nine
jurisdictions in depth because of their private
banking activities. Updated information on these
nine jurisdictions showed that five would allow
U.S. regulators to conduct on-site examinations of
banking institutions in their jurisdictions and
that only two of these five would provide some
access to individual bank account information.
Each of the jurisdictions had secrecy laws to
protect the privacy of individual account owners.
However, some jurisdictions provided for an
exception to their secrecy laws when criminal
investigations were involved. We were told that
these jurisdictions had established judicial
processes through which U.S. and other foreign law
enforcement officials could obtain access to
individual bank account or customer information.
However, U.S. law enforcement officials we
contacted expressed concerns about the difficulty
they have in obtaining information from offshore
secrecy jurisdictions, including those with
established judicial processes. They noted, for
example, that it can take an inordinate amount of
time to obtain information requested through
mutual legal assistance treaties.12
None of the 11 jurisdictions added to our list
allowed U.S. regulators to access individual
customer information or to conduct on-site
examinations. However, according to regulators,
U.S. banks had little banking activity in these
jurisdictions, and regulators had not attempted to
access individual account information or conduct
examinations in these jurisdictions, with one
exception: Russia has been asked by the Federal
Reserve whether on-site examinations can be
conducted. According to a State Department
report, there has been some level of cooperation
and progress in integrating Russian monitoring and
enforcement into international anti-money-
laundering efforts.13 However, the report notes
that (1) a more aggressive legislative approach is
needed to address the conditions that encourage a
destabilizing level of capital flight and money
laundering, and (2) Russia supervises its banks
poorly. Details on the 20 jurisdictions are
presented in attachment I.
Limitations Hamper U.S. Efforts to Work Around
Barriers
U.S. banking regulators are attempting to work
around barriers created by offshore secrecy laws,
but limitations hamper their efforts. For example,
a limitation in some jurisdictions is that since
regulators have been precluded from conducting on-
site examinations, they rely primarily on banks'
internal audits to determine how well KYC policies
and procedures are being applied to offshore
branches of U.S. banks. Our 1998 review of
examination reports, however, found several
instances in which examiners noted that the bank's
internal audit of the offshore branch inadequately
covered KYC issues pertaining to its private
banking activities at these branches.
Regulators' reliance on internal audits for
overseeing offshore branches is also impeded by
their inability to review banks' internal audit
workpapers in some offshore jurisdictions that
require that such workpapers be kept in the
jurisdiction. Examiners explained that, without
access to supporting audit workpapers, it is
difficult to verify that audit programs were
followed and to assess the general quality of
internal audits of offshore branches. Also,
without access to bank documents or internal audit
workpapers, it is difficult to explain to bank
management the basis for regulatory concerns about
particular activities conducted in their offshore
branches.
Offshore Jurisdictions' Activities to Combat Money
Laundering
All but 1 of the 20 offshore jurisdictions we
reviewed were engaged in some type of anti-money-
laundering activities. Twelve of the 20
jurisdictions were members of either the Basle
Committee on Banking Supervision or the Offshore
Group of Banking Supervisors, two international
groups formed to foster cooperation among banking
supervisory authorities. Both of these groups
place special emphasis on the on-site monitoring
of banks to ensure, for example, that they have
effective KYC policies. Sixteen of the 20 offshore
jurisdictions were also members of the Financial
Action Task Force, the Caribbean Financial Action
Task Force, or the Council of Europe Select
Committee on Money Laundering, three international
task forces created to develop and promote anti-
money-laundering policies. (See attachment II.)
Membership in any of these three task forces
implies that the jurisdiction has stated its
intention to work towards the task force's
principles and recommendations, including those
related to establishing KYC policies and policies
on reporting suspicious transactions. It is
important to point out that membership in these
task forces does not necessarily mean that these
principles and recommendations are adequately
being followed by the jurisdiction's financial
institutions or monitored by its government
authorities. The State Department's International
Narcotics Control Strategy Report (INCSR) for
1998, for one, identifies 11 of the 20 offshore
jurisdictions as having weak or nonexistent
regulatory supervisory structures. Attachment III
provides information on the 20 jurisdictions' anti-
money-laundering practices and the State
Department's classification of the extent to which
the jurisdictions may be vulnerable to money
laundering.
Future Challenges That Confront Efforts to Combat
Money Laundering
Several challenging questions confront U.S.
policymakers and others involved in ongoing
domestic and international efforts to combat money
laundering through offshore banking activities. A
number of these questions are specific to offshore
private banking activities of banks and offshore
banking in general. Despite the recent anti-money-
laundering activities of some key offshore
jurisdictions, one central question is whether
secrecy laws will continue to represent barriers
to U.S. and other foreign regulators. A number of
related questions follow from this question. For
example, do the offshore jurisdictions that have
enacted new money laundering laws have the
regulatory infrastructure and adequate regulatory
and law enforcement personnel to enforce the new
laws?
Another key question with important implications
is how effective are the efforts of international
task forces and supervisory groups to combat money
laundering. A related question is what needs to be
done to ensure that offshore jurisdictions give
sufficient emphasis to preventing and detecting
money laundering. An equally important, if
narrower, question that grows out of the GAO work
described here is what needs to be done to ensure
that offshore jurisdictions allow the U.S. and
other foreign governments adequate access to
information needed for supervisory and law
enforcement purposes.
Other questions remain, related to the domestic
oversight of banking and money
laundering-especially with regard to the adequacy
of current examination procedures, including
knowing your customer. The National Money
Laundering Strategy for 1999 marks a new stage in
the government's fight against money laundering.
A major goal is to enhance regulatory oversight
while making it cost-effective, with measurable
results. We believe such a goal is worth
achieving.
_______________________________
1 For purposes of our review, we defined offshore
private banking activities as including (1)
private banking activities carried out by banks
operating in the United States that involve
financial secrecy jurisdictions, such as
establishing private banking accounts for offshore
entities that maintain U.S. accounts, and (2)
private banking activities conducted by foreign
branches of U.S. banks located in these
jurisdictions. The Internal Revenue Service has
defined financial secrecy jurisdictions as
jurisdictions having a low rate of tax or no tax,
a certain level of banking or commercial secrecy,
and relatively simple requirements for licensing
and regulating banks and other business entities.
Examples of such jurisdictions include the Cayman
Islands and the Channel Islands. This statement
uses the term "offshore jurisdictions" to refer to
financial secrecy jurisdictions.
2 Money Laundering: Regulatory Oversight of
Offshore Private Banking Activities (GAO/GGD-98-
154, June 29, 1998).
3 The international groups we recontacted were the
Financial Action Task Force, the Caribbean
Financial Action Task Force, and the Council of
Europe Select Committee on Money Laundering.
4 The original jurisdictions we reviewed were the
Bahamas, Bahrain, Cayman Islands, Channel Islands,
Hong Kong, Luxembourg, Panama, Singapore, and
Switzerland. The 11 jurisdictions added to our
review were Anguilla, Antigua and Barbuda,
Barbados, Liechtenstein, Montserrat, Nauru,
Netherlands Antilles, Russia, St. Vincent and the
Grenadines, Turks and Caicos, and Vanuatu.
5 Such financial and related services include a
wide array of products and services that extend
from basic banking products such as loans to
investment counseling services and more
sophisticated products such as risk management
products, including derivatives.
6 American Express Bank International paid over
$35 million in forfeitures, fines, and civil
penalties, but was not charged with a criminal
offense.
7 Such examinations include compliance or Bank
Secrecy Act examinations and safety and soundness
examinations.
8 Such risks include reputational and legal risks.
9 Due diligence in private banking generally
refers to verifying the client's identity,
determining the client's source of wealth,
reviewing the client's credit and character, and
understanding the type of transactions the client
will typically conduct.
10 Private investment companies are "shell"
companies, incorporated in financial secrecy
jurisdictions, formed to hold client assets, to
maintain clients' confidentiality, and to carry
out various tax- or trust-related intentions.
11 The Federal Deposit Insurance Corporation does
not routinely conduct overseas examinations,
because the foreign offices of banks under its
direct supervision are primarily offshore shell
branches or otherwise represent relatively small
operations in terms of their asset size.
12 Mutual legal assistance treaties are bilateral
agreements that the United States has entered into
with other countries to enhance international
cooperation in criminal matters, including those
involving money laundering.
13 International Narcotics Control Strategy Report,
1998, U.S. Department of State (Washington, D.C.:
February 1999).
Attachment I
Extent of U.S. Regulatory Access to Bank
Information in Offshore Jurisdictions
Page 13 GAO/T-GGD-00-32
Jurisdictio Jurisdiction U.S. regulators U.S. regulators U.S. law
n has bank allowed access allowed to enforcement and
secrecy laws to individual conduct on-site judicial
that include customer examinations authorities
criminal information allowed access
sanctions to individual
customer
information
Yes No Yes No Yes No Yesa No
Nine
initial
jurisdictio
ns
Bahamas xb x x x
Bahrain x x x x
Cayman x x x x
Islands
Channel x x x x
Islands
Hong Kong x x x r
Luxembourg x x x r
Panama x x x x
Singapore xb Somec xd x
Switzerland x xe x x
Eleven
additional
jurisdictio
ns
Anguilla x x x x
Antigua & x x x x
Barbuda
Barbados xb x x r
Liechtenste x x x x
in
Monsterrat xb x x x
Nauru x x x x
Netherlands x x x x
Antilles
Russia x x xf x
St. Vincent x x x r
& the
Grenadines
Turks & xb x x x
Caicos
Vanuatu x x x x
aAn "x" in this column indicates that the
jurisdiction has a mutual legal assistance treaty
in force with the United States and that it allows
access to individual account information if a
formal criminal investigation is under way. An
"r" in this column indicates that an agreement has
been signed with the United States but has not
been ratified.
b Criminal sanctions exist for unauthorized
disclosures, but "safe harbor" is provided for
specific authorized disclosures to certain
entities.
c Examiners can review customer records regarding
bank assets, but not liabilities.
d Singapore allows limited-scope examinations.
e A process exists that allows foreign supervisors
to request this type of information; however, in
regulators' experience, customer information is
rarely provided.
f Russia has been asked by the Federal Reserve
whether on-site examinations can be conducted in
that country.
Source: U.S. Department of State, Financial Crimes
Enforcement Network (FinCEN), the Federal Reserve,
OCC, Financial Action Task Force (FATF), Caribbean
Financial Action Task Force (CFATF), Offshore
Group of Banking Supervisors, and Council of
Europe Select Committee on Money Laundering.
Attachment II
Membership in International Supervisory Groups or
Anti-Money-Laundering Task Forces
Page 14 GAO/T-GGD-00-32
Jurisdictio Basle Offshore Financial Caribbean Asia/Pacif Council of
n Committee Group of Action Financial ic Group Europe
on Banking Banking Task Force Action on Money Select
Supervisio Supervisor (FATF) Task Force Laundering Committee
n s (CFATF) a on Money
Laundering
Nine
initial
jurisdictio
ns
Bahamas x x
Bahrain x b
Cayman x x
Islands
Channel x
Islands
Hong Kong x x x
Luxembourg x x
Panama x x
Singapore x x x
Switzerland x x x
Eleven
additional
jurisdictio
ns
Anguilla x
Antigua & x
Barbuda
Barbados x x
Liechtenste x
in
Montserrat x
Nauru
Netherlands x xc x
Antilles
Russia x
St. Vincent x
&
the
Grenadines
Turks & x
Caicos
Vanuatu x x
aThe Asia/Pacific Group was created to establish
cooperation in combating money laundering in the
Asia/Pacific region and to develop principles for
application of the FATF 40 recommendations.
bBahrain is not a member country of FATF It is,
however, a member of the Gulf Cooperation Council,
one of two regional organizations that are members
of FATF.
cNetherlands Antilles is a part of the Netherlands
and is associated with FATF through the
Netherlands' membership.
Source: International Narcotics Control Strategy
Report, 1998, Bureau for International Narcotics
and Law Enforcement Affairs, U.S. Department of
State; FATF; CFATF; Offshore Group of Banking
Supervisors; and Council of Europe Select
Committee on Money Laundering.
Attachment III
Anti-Money-Laundering Regulatory Framework in
Selected Offshore Jurisdictions
Page 15 GAO/T-GGD-00-32
Has Does the Does the Does the Does INCSR What is the
money jurisdicti jurisdicti jurisdiction describe INCSR
launder on have on require have supervisory classificati
ing KYC banks to corporate structure of on for the
been policies report secrecy laws the jurisdiction
crimina or suspicious that include jurisdiction ?b
lized guidelines transactio criminal as weak or
in the for banks? ns? sanctions?a nonexistent?
jurisdi
ction?
Jurisdic Yes No Yes No Yes No Yes No Yes No JPC JOC OJM
tion
Nine
initial
jurisdic
tions
Bahamas x x x xc, d x x
Bahrain x x x x x x
Cayman x x x x x x
Islands
Channel x x x x x x
Islands
e
Hong x x x x x x
Kong
Luxembou x x x x x x
rg
Panama x x x x x x
Singapor x x x x x x
e
Switzerl x x x x x x
and
Eleven
addition
al
jurisdic
tions
Anguilla x x x xd x x
Antigua x x x x x x
&
Barbuda
Barbados x x x xc x x
Liechten x x x x x x
stein
Montserr x x x xd x x
at
Nauru x x x x x x
Netherla x x x x x x
nds
Antilles
Russia x x x x x x
St. x x x x x x
Vincent
&
the
Grenadin
es
Turks & x x x xd x x
Caicos
Vanuatu x x x x x x
aFor the purpose of this inquiry, the term
"corporate secrecy laws" refers to any law that
shields the identities of officers and directors
of private entities and serves to either prohibit
or restrict foreign government agencies from
accessing such information.
bThe International Narcotics Control Strategy
Report assigns priorities to jurisdictions using a
classification system consisting of three
categories, titled Jurisdictions of Primary
Concern (JPC), Jurisdictions of Concern (JOC), and
Other Jurisdictions Monitored (OJM). This
prioritization process draws upon a number of
factors that indicate, among other things, the
extent to which the jurisdiction may be vulnerable
to money laundering.
cCriminal sanctions exist for unauthorized
disclosures, but "safe harbor" is provided for
specific, authorized disclosures to certain
entities.
dCriminal sanctions exist for unauthorized
disclosures, but information is exchanged under
terms of the Mutual Legal Assistance Treaty.
e Information is for Guernsey, one of four islands
known as the Channel Islands.
Source: U.S. Department of State, FinCEN, FATF,
CFATF, Offshore Group of Banking Supervisors, and
Council of Europe Select Committee on Money
Laundering.
*** End of Document ***