Legislative Recommendations 22

LEGISLATIVE RECOMMENDATIONS 1. THE SUBCOMMITTEE RECOMMENDS THAT THE UNITED STATES DEVELOP A MORE AGGRESSIVE AND COORDINATED APPROACH TO COMBAT INTERNATIONAL FINANCIAL CRIME. THE U.S. NEEDS TO TAKE FIRM ACTION AGAINST NATIONS WHO PERMIT THEIR PRIVACY AND CONFIDENTIALITY LAWS TO PROTECT CRIMINALS FROM U.S. REGULATORS AND LAW ENFORCEMENT.

Both BCCI and its customers used foreign bank secrecy and confidentiality laws to commit crimes, to prevent the detection of those crimes, and to obstruct law enforcement efforts to investigate and prosecute crimes once they were discovered. The traditional approach of smaller nations such as the Cayman Islands and Luxembourg of offering strict bank secrecy as an inducement to attract foreign deposits has is poor international public policy, and threatens vital interests of the United States. Current practices of major financial centers such as the United Kingdom and Switzerland, while providing for the exchange of information among regulators, and some mechanisms for the exchange of information among federal law enforcement, after criminal activity is uncovered, still impede an adequate flow of financial information concerning such activity in the earlier, investigative phase. The United States needs to take a more aggressive

and coordinated approach to developing an international regime for the sharing of financial information among governmental entities, and a substantial loosening in financial confidentiality and privacy laws to insure that government investigators in the U.S. can gain adequate access to and information about, financial transactions that cross international boundaries, but impact the U.S. While the U.S. has become more focused in fighting drug money laundering through international cooperation in recent years, it has continued to take the position that the process of sharing on applications between law enforcement agencies is sufficient to protect U.S. interests, and no broadscale changes in foreign bank secrecy laws are necessary. As Federal Reserve counsel Virgil Mattingly testified, sixteen months after the Federal Reserve began its formal investigation of BCCI, Swiss and French authorities were still denying it critical information as a consequence of their secrecy laws.(1) A much more aggressive approach by the United States to changing attitudes among the G-10 nations on this issue is essential. Current toleration by the United States of bank secrecy and regulatory havens such as the Grand Caymans, Liechtenstein, the Bahamas, the Channel Islands, Vanuatu, Hong Kong, Aruba, and the Netherlands Antilles needs to be replaced by a policy that threatens to withhold access to the U.S. market for banks doing business in any nation that does not meet minimum standards for regulation and the sharing of information with the United States.

The Treasury, as the lead agency for handling U.S. policies concerning international financial crime, needs to be much more aggressive on these issues, to place substantial limits on the ability of criminals to use confidentiality and privacy laws as a shield against law enforcement. 2. THE SUBCOMMITTEE RECOMMENDS THAT THE INSPECTOR GENERAL OF THE JUSTICE DEPARTMENT INVESTIGATE THE POLICIES AND PRACTICES THAT LED TO THE JUSTICE DEPARTMENT'S INEFFECTIVENESS IN INVESTIGATING AND PROSECUTING BCCI, AND IMPAIRED ITS ABILITY TO COOPERATE WITH OTHER INVESTIGATIONS OF BCCI. THE JUSTICE DEPARTMENT NEEDS FUNDAMENTALLY TO RECONSIDER ITS POLICIES IN DEALING WITH COMPLEX FINANCIAL CASES. FUNDAMENTAL CHANGE IN HOW THE JUSTICE DEPARTMENT HANDLES INQUIRIES FROM OTHER GOVERNMENT AGENCIES AND THE CONGRESS IS ALSO ESSENTIAL. The problems encountered by the Justice Department in investigating and prosecuting BCCI are familiar ones. As a consequence of a lack of understanding of the significance of the case, requests for additional resources from the Customs Agents and prosecutors involved were ignored, broader investigated leads were abandoned, and ultimately, BCCI was permitted to plead guilty and thereby avoid a trial that could have helped bring down the bank entirely. Other problems compounded these original problems. Most significant was the Justice

Department's unwillingness to share information with other ongoing governmental investigations, including those of the Federal Reserve, the New York District Attorney and the Senate. Instead, the Justice Department appeared on numerous occasions to be more concerned with protecting its ability to control information about BCCI, than with assisting the investigative efforts of others. Related to this problem was the lack of candor demonstrated by individual Justice Department employees in responding to inquiries of the Federal Reserve, New York District Attorney, and Senate. In addition, there were substantial problems of coordination between the Justice Department in Washington and its U.S. Attorneys office, as was especially demonstrated by the breakdown in communication between the U.S. Attorney in Miami and the Criminal Division of the Justice Department in Washington in 1991. In response to the resource and coordination issues arising in BCCI, consideration needs to be given within the Justice Department to the recreation of the strike force concept, abandoned during the early years of the Reagan Administration, and used to devote substantial resources to major cases. In response to the cooperation issues pertaining the Federal Reserve, New York District Attorney and Senate, consideration needs to be given by the Attorney General to adopting a new set of procedures and regulations governing such contacts, to direct Justice Department personnel to give a far higher priority to providing assistance in response to the legitimate requests of other governmental entities, limited only by such legal requirements as the

withholding of documents placed before a grand jury.

3. THE SUBCOMMITTEE RECOMMENDS THAT THE CENTRAL INTELLIGENCE AGENCY AND STATE DEPARTMENT TARGET FOREIGN FINANCIAL INSTITUTIONS AS SUBJECTS FOR INTELLIGENCE GATHERING AND ANALYSIS. Prior to BCCI's collapse, the CIA had disseminated only three analytic reports on BCCI itself, one of which was lost and of which no original remains. While the reports demonstrate the Agency's early recognition of BCCI's systematic engagement in money laundering and other criminality, they are also oddly limited in detail and scope, given the serious nature of the allegations discussed, and there was little follow up by the CIA to any of them. Moreover, these reports were not provided to the users, the Federal Reserve and the Justice Department, who most required them. Finally, these reports contained no information concerning several individuals who were affiliated with or owned BCCI, and with whom the CIA had had or was still having substantial contact. These gaps would suggest a remarkable lack of information at the CIA about the basic business dealings of important CIA contacts in the Middle East. The State Department, by contrast to the CIA, knew almost nothing about BCCI prior to its collapse, and seemed to view the collection of information on foreign financial institutions as largely beyond its scope of responsibilities.

Given the risk to the United States from international financial crime, both agencies need to upgrade their capabilities to understand the strategies being employed by foreign financial institutions that may impact on vital U.S. interests, and to begin to include such entities as targets for collection and analysis.

4. THE SUBCOMMITTEE RECOMMENDS THAT THE CONGRESS CONSIDER ADOPTING ADDITIONAL OVERSIGHT MECHANISMS TO ENSURE THE CIA'S ACCOUNTABILITY ON THE PROVISION OF INFORMATION. At various times, the Central Intelligence Agency provided information to the Subcommittee during the course of its investigation that was both misleading and untrue. Documents that existed were characterized as not existing. Information that was provided was incomplete. It required repeated efforts by the Subcommittee, extending over a year, to obtain more complete information, which was provided only following a meeting in February, 1992 between the Subcommittee chairman and Director Gates. Even then, as the CIA purported to provide a full account of its knowledge of BCCI, it cautioned the Subcommittee that its system of record-keeping could not guarantee that all information had in fact been provided. Moreover, information regarding certain persons who were shareholders, nominees, officers, or affiliates of BCCI, was provided solely in a summary form, containing relatively limited information and far less than is clearly in the CIA's possession.

Staff of the officer of the Inspector General of the Central Intelligence Agency has recently requested meetings with Subcommittee staff to discuss these issues. It is recommended that the House and Senate Select Committees on Intelligence consider whether the current procedures and mechanisms are adequate to ensure accountability by the CIA in its responses to Congressional requests. Of particular concern is the lack of any practical mechanism for members who do not serve on the Committees to insure the CIA's responsiveness to their legitimate requests, as well as the difficulties of establishing whether or not the CIA's responses to inquiries are forthright and accurate.

5. THE SUBCOMMITTEE RECOMMENDS THAT FEDERAL AGENCIES IMPOSE NEW REQUIREMENTS ON FOREIGN AUDITORS TO PROTECT U.S. INTERESTS IN ANY CASE IN WHICH ANY SUCH AGENCY IS RELYING ON AN AUDIT CERTIFIED BY A FOREIGN AUDITOR. AT MINIMUM, THIS SHOULD REQUIRE FOREIGN AUDITORS WHOSE CERTIFICATIONS ARE USED BY INSTITUTIONS DOING BUSINESS IN THE U.S. AGREE TO SUBMIT THEMSELVES TO U.S. LAWS.