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Manhattan District Attorney and Money Laundering Regulations

Manhattan District Attorney Robert Morgenthau, together with federal and New York state banking officials, is on the verge of settling serious money laundering charges against the Bank of America Corp. with a reported $25 million fine, making this the second largest money laundering case the long-time DA has settled in three months. In December, the Manhattan DA, the New York State Banking Department, and the Federal Deposit Insurance Corp. settled a similar case with Israel Discount Bank of New York, also for a fine totaling $25 million, including the costs of the investigation.

The BofA case, first reported by Bloomberg News, involves as much as $2 billion in money transfers made by BofA branches to an Uruguayan company operating near the borders of Paraguay, Argentina and Brazil. The area is a reported hotbed of drug, arms trafficking, and other illegal activities that fund Islamic terror groups, according to a 2003 Library of Congress study. The Israel Discount Bank case involved $2.2 billion in Brazilian funds sent through its New York office between 2000 and 2005.

The Bank of America case arose from another case, against Beacon Hill Services Corp., which was convicted in February 2004 of being an unlicensed money transmitter. Prosecutors said between 1997 and 2002, Beacon illegally shipped more than $6.5 billion through accounts it maintained at JPMorgan Chase to a number of South American destinations.

The same investigation also led prosecutors to Hudson United Bank, which, between June 2002 and November 2003, managed to overlook $1.3 billion sent through its Manhattan branch, including more than $65 million sent to the same Uruguayan border area. Hudson United paid $5 million plus the cost of the investigation to settle the matter last March, and cooperated with Morgenthau’s investigation. TD Banknorth Inc., a unit of Canada’s Toronto Dominion Bank, bought Hudson this month for $941.8 million in cash and 32,849,252 shares of TD Banknorth common stock, valued $19.73 per share.

The Office of the Comptroller of the Currency (OCC), which regulates national banks, may have been involved in these cases, but isn’t talking about it. Details of none of them were published on its website, although the OCC this past week published money laundering-related cease and desist orders against Pine Bank N.A., a $402 million bank based in Miami, Fla., and Summit National Bank, an Atlanta, Ga.-based bank with $526 million in assets. A spokesman for the OCC told Electronic Payments Week that, as he expected, “we are not able to discuss the B of A matter.”  Explanations were also unavailable as to why a local district attorney was apparently enforcing federal anti-money laundering laws, the Bank Secrecy Act, and provisions of the USA Patriot Act.

The BofA case resurrects memories of the hoo-hah last July, after an OCC insider leaked to Congress two memos written by Carolyn Amundson, the OCC’s  enforcement and compliance counsel. Those memos explained why Wells Fargo & Co. wasn’t issued a cease and desist order after it was found to have had what the memo called substantial deficiencies in its anti-money laundering (AML) and Bank Secrecy Act (BSA) compliance programs—deficiencies that the memo said dated to 1999. (see Electronic Payments Week, July 12 & 19, 2005)

In the first memo, dated Feb. 4, Ms. Amundson recommended issuing a cease and desist order for what were called “systemic” lapses in both areas. Amundson particularly mentioned that Wells had allegedly been resisting the OCC at virtually every turn of its investigations, and what that memo called “strained” and “incorrect legal interpretation of the Bank Secrecy Act” by Wells’ lawyers, Sullivan & Cromwell. That interpretation included the assertion that Wells didn’t need to have a good AML/BSA program, as long as it had something. This was probably news to the many banks issued cease and desist orders by the OCC in late 2004 and early 2005.

In the February memo, Amundson wrote that “The [Wells Fargo] BSA officer did not coordinate and monitor the Bank’s compliance with the BSA. In particular, she has failed to ensure the adequacy of the identification of BSA/AML risks.” But in an April 12 memo, written after Wells Chairman Richard Kovacevich met with acting Comptroller Julie L.Williams, Amundson adopted Sullivan & Cromwell’s reasoning, and recommended some action short of a cease and desist order. Nothing about the Wells affair was ever published on the OCC web site.

There may be some explanation for the OCC’s apparent pillory of small banks, and indulgence toward large ones, but we have never been privileged to hear one. We’ve been treated instead to the usual “no comment” from government spokesmen. Whether such postures are appropriate is not within our writ. But it’s worth observing that in a republic, the rule of law is either applied to all, or it becomes a joke that eventually undermines the republic.

In A Man For All Seasons, Robert Bolt has Sir Thomas Moore tell his son-in-law, who says he’d tear down every law to get at the Devil, “And when the last law was down, and the Devil turned to face you, could you stand in the winds that would blow then? Yes, I support the law; for mine own sake.” The same could be said about a government that seems to wink at serious violations by big banks, while it makes a great show of punishing small ones. (Contact: Office of the Comptroller of the Currency, 202-874-5000; New York County District Attorney’s Office, 212-335-9000; Bank of America, 415-622-4041)