FINANCE-US: International Private Banking in the Spotlight

By Jim Lobe Reprint | | Print |

Analysis - Jim Lobe

WASHINGTON, Nov 11 1999 (IPS) - Western nations have complained for years that many leaders in the Third World are guilty of looting their nations’ treasuries, soliciting bribes and accepting kick backs from public contracts.

But they have been less outspoken about what happens to the billions of dollars involved.

It is common knowledge that numbered Swiss Bank accounts play a big part, but huge amounts of money also are deposited in US banks, which profit from managing the ill-gotten gains, according to Senate hearings in Washington this week.

The hearings featured testimony from senior officials of Citibank, which has managed the accounts of the likes of such Third World leaders whose names – Abacha, Bongo, Salinas, Stroessner, Soeharto, Zardari – have become synonymous with corruption in their home countries.

“Americans can’t have it both ways,” said Sen. Carl Levin. “We cannnot condemn corruption abroad, be it officials taking bribes or looting their treasuries, and then tolerate American banks making fortunes off that corruption.”

His remarks opened two days of testimony about international private banking (IPB), a special service offered by the world’s most prominent international banks to their wealthiest clients.

For a deposit of at least one million dollars, banks will provide wealthy clients their own “private banker” – officers with special expertise in such areas as setting up off-shore private investment corporations whose ownership is difficult to trace.

They move money across borders discreetly and with a minimum of fuss and red tape.

Once confined to European banks serving a small number of wealthy clients, IPB has taken off in the age of globalisation and is now believed to hold as much as 15 trillion dollars in assets worldwide.

Most IPB business today is with US banks. Citibank alone has some 40,000 IPB accounts serviced by hundreds of private bankers in more than 30 cities around the world.

The average rate of return on those accounts for Citibank – just one of dozens of banks with private banking departments – exceeds 20 percent, according to its records.

While the vast majority of clients obtained their assets legally, IPB’s “culture of secrecy” also has attracted “dirty money,” according to a Senate staff report released at this week’s hearings.

Under current law, US bankers must exercise “due diligence” in finding out whether the source of assets deposited with them was legitimate. Failure to do so can result in criminal prosecution, but only if the underlying funds were obtained from drug-trafficking, terrorism or bank fraud.

But Levin and other lawmakers, backed by the Clinton administration, now want to expand that list by making it a crime for banks to handle money obtained through corruption or fraud by or against a foreign government. That would include such activities bribery or the diversion of public funds.

Despite its growing importance, private banking came to the attention of the general public here only in 1995 in the wake of the scandal over drug-trafficking and murder charges against Raul Salinas, the brother of then-Mexican president Carlos Salinas.

It turned out that Raul had his own private banker at Citibank – Amy Elliott, who helped him move between 80 and 100 million dollars from Mexico to foreign accounts between 1992 and 1994.

So devoted was Elliott to Raul’s accounts that, on the day after his arrest, she discussed with colleagues the possibility of moving the assets held in Raul’s New York accounts to Switzerland without leaving a “paper trail” that could be traced by prosecutors, according to taped conversations obtained by the Senate Permanent Subcommittee on Investigations.

At the hearing, Elliott insisted that she never had any indication that the funds held in the Salinas accounts were illicitly obtained.

Such service was not limited to Salinas. In several other cases covered by the Subcommittee, Citibank’s private bankers were shown to have gone out of their way to protect – and hide – the assets of their clients, even as they displayed an extraordinary lack of curiosity about how those assets had been acquired.

Omar Bongo, president of oil-producing African nation of Gabon since 1967, for example, funnelled more than 130 million dollars through Citibank private bank accounts over the past 14 years. The bank, in turn, provided him and his family with a range of services – from extending loans of up to 50 million dollars to establishing shell corporations with code names, Tendin and Leontine, to ensure secrecy.

Asked by government regulators to detail the source of these funds, the private banker, Alain Ober, offered a series of “guesses.” They could have come from “donations” from the French oil company Elf; or from his personal investments in real estate and oil companies; or from a special account amounting to 8.5 percent of the Gabonese budget which the president was supposedly given for his exclusive use as he saw fit.

Ober, a dual US-French national with long experience in West Africa, also managed the accounts of the sons of Gen. Sani Abacha, Nigeria’s military ruler from 1993 until his death last year.

He said he never suspected his clients’ connection with Abacha, widely regarded as Nigeria’s most corrupt ruler, from the time he received the accounts (in the name of “Sani” instead of “Abacha”) from a London colleague in 1992 until the death in an airplane crash of son Ibrahim in a 1996 plane crash.

Ober’s sloth in closing the account and his lack of curiosity about Abachas’ source of wealth stood in marked contrast to his zeal in protecting the more than 110 million dollars that moved through the Abacha accounts.

Citibank not only set up dummy corporations on their behalf, but even lent them 39 million dollars to deposit in a non-Citibank account in Switzerland after the Nigerian government began an investigation in late 1998. Ober insisted before the subcommitte that the loan was part of Citibank’s strategy for closing the account.

But his assertions, like Elliott’s, were greeted with incredulity by senators, including the subcommittee chair, Republican Sen. Susan Collins, who called it a policy of “deliberate ignorance.”

Without changes in the law, said Raymond Baker, an expert at the Brookings Institution who testified at the hearings, Washington is sending a confusing message to the rest of the world.

While US law makes it illegal to for US businesses to bribe foreign officials, he said, “if wealthy foreign officials are enountered, including those suspected to be corrupt, then the United States wants their money.”