February 28, 2001
J.P. Morgan Chase, Others Are Criticized
Over Correspondent-Banking StandardsBy PAUL BECKETT
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- J.P. Morgan Chase & Co., Bank of America Corp. and Bank of New York Co. responded sloppily to warnings that two Caribbean correspondent-banking clients were involved in suspicious activity during the 1990s, according to a Senate staff report.
The report called the responses a further sign of lax controls at U.S. banks.
The two related banks -- Swiss American Bank and Swiss American National Bank -- received licenses in the two-island federation of Antigua and Barbuda, and served as "repositories of illicit funds from several illegal operations," according to the report by the Democratic staff of the Senate permanent subcommittee on investigations. At the time they were licensed, both were owned by Swiss American Holding Co., a Panamanian company with close ties to financier Bruce Rappaport.
One or both of the banks held so-called correspondent accounts at the three U.S. banks during the 1990s, which provided them with access to the U.S. financial system. The accounts were left open for long periods after problems began to surface, though they now are closed, the report said. Both Chase and Bank of America are scheduled to appear before a subcommittee hearing Thursday.
"These relationships can be characterized by failure of the U.S. correspondents to respond more quickly and decisively to patterns of problems and questionable activities in the relationship and inadequate due diligence and ongoing monitoring," the report said. "The banks' failure to act more quickly and decisively stemmed in part from what appears to have been a general convention throughout the correspondent banking field -- a reluctance to sever a relationship once it is established."
The report said that in recent years a "significant portion" of Swiss American's business has been generated by Internet-based gambling companies or entities that provided cash transfer services for Internet gambling facilities. Internet gambling is illegal in the U.S. and is viewed by authorities as vulnerable to money laundering.
Brian Stuart-Young, managing director of Swiss American Bank said the bank has "isolated any of the Internet business from any U.S. residents completely."
"As a result of our experience in a number of situations with correspondent banks, we have enhanced our anti-money laundering procedures," said a spokesman for J.P. Morgan Chase, in New York. "We have already taken significant steps."
A Bank of America spokeswoman in San Francisco said, "We work with government agencies in matters like this and did this time too." She noted that dealings with the banks ended several years ago.
A Bank of New York spokesman declined to comment.
Howard Wilson, a partner at New York law firm Rosenman & Colin, who represents both Swiss American Bank and Swiss American National Bank, said, "The clear issue is what would a correspondent bank in the U.S. see today if it analyzed the conduct of these banks? It would see a system that prevents money laundering to the maximum degree."
The report said the relationships maintained with the three U.S. banks are examples of widespread lax due diligence at U.S. banks in guarding against money laundering. Much of the report was released earlier this month, but details of the three banks' involvement with the Swiss American banks are just coming to light.
The U.S. banking industry, under the auspices of the New York Clearing House Association, already has said it will develop a code of best practices for correspondent banking. The group also endorsed the report's recommendation that U.S. authorities give more assistance to banks in clamping down on suspicious activity.
Swiss American Holding Corp. is ultimately owned by a trust controlled by Mr. Rappaport, who at one time was a major shareholder in Bank of New York, the report said. Mr. Rappaport also controls Bank of New York-Inter Maritime Bank, a Geneva-based company in which Bank of New York holds a stake of just below 30%. A lawyer for Mr. Rappaport declined to comment, saying he had yet to see the report.
Swiss American National Bank, which provides consumer banking services in Antigua and Barbuda and elsewhere in the Caribbean, recently was sold to Antigua Barbuda Investment Bank, the report said.
Separately, the government of the Cayman Islands, a banking haven mentioned in the report, Tuesday ruled that offshore banks that aren't units or branches of other banks must enhance their physical presence within the next nine months. They will be required to have an office with books and records and a resident manager, while currently they can operate with only an agent.
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