Banking Committee Discusses Money Laundering 101 (No Bitcoin Necessary)


The recent wild fluctuations in the value of cryptocurrencies has the Senate Banking Committee probing potential consequences.

The panel is scheduled to hold a hearing on virtual currencies early next month, committee leaders announced last week. And at a Wednesday hearing on the Bank Secrecy Act, some members voiced concerns about the use of cryptocurrencies in money laundering.

Bitcoin, the most prominent of virtual currencies, saw its value explode 800 percent in the second half of last year. Roughly half of the spike occurred in December alone. The cryptocurrency has plunged in value since the start of 2018, but it is still worth roughly 500 percent more than it was in July 2017.

But Bitcoin’s decentralized structure, which grants owners some anonymity, might not be as important to money launderers seeking to hide criminal proceeds in the US. As lawmakers pointed out on Wednesday, plenty of conventional asset-masking tactics exist thanks to corporate secrecy laws.

“There have been a number of reports that the United States is among the easiest companies to create anonymous shell companies in,” Sen. Joe Donnelly (D-Ind.) said. “Anyone can legally open bank accounts. Anyone can buy property.”

No state law forces companies in the US to disclose beneficial ownership information when registering, as the Treasury Department’s 2015 National Money Laundering Risk Assessment noted. The framework enables companies to be owned and operated anonymously.

Money launderers also don’t need to get excited about cryptocurrency because penalties against Wall Street culprits are so meager, as some Democrats said Wednesday.

Committee Vice Chair Sherrod Brown (D-Ohio) brought up the case of HSBC. In 2012, the giant bank was fined $1.9 billion for its role in laundering Mexican drug money, after failing to install internal controls for some $670 billion in transactions. No executives faced criminal charges. The Justice Department entered into a “deferred prosecution” agreement with the bank.

As Brown noted, an official overseeing HSBC anti-money laundering compliance said that the bank still had “control deficiencies” in 2016, and that it hadn’t adopted all of his recommendations. Despite this, the Justice Department ended its deferred prosecution agreement with the bank last month.

“I promise you that if HSBC executives were hauled out in handcuffs after their violations in 2012, they would have gotten the procedures in place pretty darn fast,” said Sen. Elizabeth Warren (D-Mass.).

According to the Executive Branch witnesses before the committee on Wednesday, regulators and prosecutors should soon be more able to follow the money. The Treasury Department’s Beneficial Ownership rule is set to take effect in May.

The regulation, written during the waning days of the Obama administration, will force financial institutions to perform due diligence to “identify and verify the identity of the beneficial owners” of most new account holders.

When it issued the rules in 2016, Treasury said banking secrecy enables “criminals, kleptocrats, and others looking to hide ill-gotten proceeds” in the United States.

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Since 2010, Sam Knight's work has appeared in Truthout, Washington Monthly, Salon, Mondoweiss, Alternet, In These Times, The Reykjavik Grapevine and The Nation. In 2012, he worked as a producer for The Alyona Show on RT. He has written extensively about political movements that emerged in Iceland after the 2008 financial collapse, and is currently working on a book about the subject.


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