Banking & Capital Markets

Shell Banks: Filthy Lucre

How U.S. banks are unwittingly laundering billions of dirty money.
Tim ReasonMay 7, 2001

Despite the strictest anti-money-laundering laws in the world, U.S. banks are still the involuntary custodians of up to $500 billion a year in dirty money. Even the $5 billion that drug cartels launder through the receivables departments of U.S. corporations passes through a U.S. bank at some point. The United States, says the Brookings Institution’s Raymond Baker, is “the largest repository of ill-gotten gains in the world.”

In February, a Senate report revealed that correspondent banking– the system by which small, often poorly regulated offshore banks outsource their transactions and services to U.S. banks–provides a wide-open back door for bad guys. “Through correspondent accounts, U.S. banks become unwitting abettors in the laundering of proceeds from drug trafficking, financial fraud, tax evasion, Internet gambling, and other illegal acts,” notes Sen. Carl Levin (D­Mich.), whose staff wrote the report.

Among the offshore entities cited in the report is M.A. Bank, a shell bank that is licensed in the Cayman Islands but has no physical office anywhere. During an undercover operation, U.S. Customs agents transferred $7.7 million of a Mexican cartel’s drug funds into M.A. Bank’s account at the New York branch of Citibank. “We [later] seized $1.8 million in Juarez cartel drug money from M.A. Bank,” says Customs spokesman Dean Boyd. The rest of the money, according to the report, was transferred from the Citibank correspondent account to Argentina before the Customs sting ended.

“We found that virtually every major U.S. bank has opened correspondent accounts for high-risk foreign banks,” says Levin aide Elise J. Bean, who co-wrote the report. Prohibiting shell banks from opening such accounts, she says, would be a major blow to money- launderers.

The alternative–smuggling cash out of the United States in bulk–is a major hassle for drug lords. “Smaller bills create such logistics problems for money-laundering cells that they are sometimes destroyed rather than laundered or stored,” notes U.S. Customs special agent Allan J. Doody. It takes only 44 pounds of cocaine to generate $1 million, but the resulting cash weighs 220 pounds in $10 bills. That’s a fivefold increase–and it won’t fit in the overhead compartment. — T.R.


Why money-laundering matters to drug dealers.

Value Cocaine Crack or Heroin $10 bills
$100,000 4.4 lbs. 2.2 lbs. 22 lbs.
$1 million 44 lbs. 22 lbs. 220 lbs.

Source: U.S. Customs

See Related Article: The Corporate Connection: How Drug Money is Finding It’s Way to the Bottom Line, March 2001.