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American Morning

Correspondent Banking Is Chink In U.S. Banking Regulation Armor

Aired November 07, 2001 - 11:04   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL HEMMER, CNN ANCHOR: Another device that lets terrorists operate within the U.S. financial system is called "correspondent banking."

CNNFN Correspondent Peter Viles now tells us, investigators did not have to look far from the scene of the crime to find such a setup.

CHRIS HUNTINGTON, CNNFN CORRESPONDENT (voice-over): Just blocks from ground zero, federal law enforcement agents are scouring accounts at major U.S. money center banks. Of the $4 million of terrorist assets currently frozen in the United States, federal officials say that a significant portion is in accounts managed by Citibank, JP Morgan Chase, the Bank of New York and Bank of America.

SEN. CARL LEVIN (D), MICHIGAN: One of the most dramatic proofs that our banks have been misused by foreign terrorists is bin Laden's comment when he said that his operatives knew the cracks in our banking system and our financial institutions, like they knew the lines on their hands.

HUNTINGTON: Investigators are particularly concerned that terrorists found a back door into the U.S. banking system by exploiting a service known as correspondent banking.

A correspondent account with a U.S. bank allows banks based overseas to conduct business in the United States without the expense or regulatory exposure of setting up their own branches. All major U.S. banks provide correspondent accounts, collecting billions of dollars in fees for processing trillions of dollars in transactions.

ROBERT MORGENTHAU, MANHATTAN DISTRICT ATTORNEY: It can be a shell bank in the Cayman Islands, they can have an account with a major U.S. bank or the foreign branch of a U.S. bank or the U.S. branch of a foreign bank and then they can -- they can send the terrorist money through and nobody will be able to identify it.

HUNTINGTON: Earlier this year, a Senate panel issued a blistering report on correspondent banking, calling it "a gateway for money laundering", "widespread and ongoing problem," and blasting U.S. bank oversight as "weak or ineffective." The banking industry insists it did a good job.

EDWARD VINGLING, AMERICAN BANKERS ASSOCIATION: For a few years preceding September 11th, there actually had been an ongoing strengthening of procedures in the larger banks with respect to correspondent accounts.

HUNTINGTON: Still, the terrorists found a weak link. In June of last year, Mohammed Atta received $100,000 in a Suntrust bank account in Florida, wired from a bank in the United Arab Emirates. That transfer was made through a correspondent bank account.

(on camera): For years U.S. banks have been required to know their customers. A skill for which they have demonstrated only limited commitment. Now under new money-laundering laws passed just last week, banks handling correspondent accounts will be required to go even further, and know their customers' customers.

Chris Huntington, CNN Financial News, New York.

HEMMER: And quite clearly that was Chris and not Peter. But we thank, nonetheless, for that report.

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