Crackdown on "Greenwashing"

By Stephen Koepp.

The words of contrition did not come easily to the banker. "The events of the past several weeks have taught us a painful lesson," conceded William Brown, chairman of the Bank of Boston (assets: $22 billion). What Brown learned was that the Government is serious in its crackdown on money laundering, a $100 billion-a-year practice by which legitimate businesses like banks accept piles of small bills from criminals in return for cashier's checks or other financial instruments.

Brown was the man on the spot last week when the Senate Subcommittee on Investigations held hearings on the mushrooming money-laundering problem. The message to many other U.S. businessmen, ranging from bankers to stockbrokers, is that they could be next in line for a comeuppance. By accepting mountains of cash without asking questions, says the Reagan Administration, many of these enterprises are helping organized crime, knowingly or otherwise, to invest its booty from illicit activities.

Bank of Boston, New England's biggest bank and the 16th largest in the nation, paid a record $500,000 fine last month for failing to report $1.2 billion in shipments of cash to and from financial institutions abroad. While prosecutors never accused the bank of deliberately laundering money, the scandal swelled anyway. The bank gave no consistent account of why it broke a federal law that requires institutions to notify the Government of large cash transactions. During last week's hearings, Brown explained that at least eight top officials of the bank knew about the rule but wrongly assumed that underlings were taking care of it.

The $100 billion or so that criminals "greenwashed" through institutions in the U.S. last year represents a manyfold increase since 1974. By following these illicit funds to their sources, federal agents hope to nab the high rollers of drug dealing, loan sharking, illegal gambling and prostitution. And since banks are often a key link in the laundering process, the Feds want to get tough about the Bank Secrecy Act of 1970, which instructs banks and other financial concerns to file a report (Internal Revenue Service Form 4789) whenever they accept more than $10,000. By running the forms through computers, investigators can pinpoint who is handling inordinate amounts of cash. Until recently, however, the reporting rule has been widely ignored. The second- and third-largest banks in Boston, the Bank of New England and Shawmut Bank, have admitted that they too made unreported cash transfers. Meanwhile, the Treasury Department is investigating at least 60 U.S. banks for failing to comply with the reporting law. Many institutions apparently brushed aside the regulations because of the paperwork they entail. But that is not the only reason. Says Patrick Walsh, special attorney for the New England Organized Crime Strike Force: "Part of it has to do with not wanting to lose business. Money is money."

Senators last week laid part of the blame for the proliferation of money laundering on Comptroller of the Currency C. Todd Conover, whose agency helps monitor national banks. Declared New Hampshire Republican Warren Rudman: "The record of enforcement for this act has been nothing short of abysmal." Conover, who plans to leave office soon, claimed that the federal examiners who gave Bank of Boston its annual inspection three years ago were simply ignorant of the cash-reporting law.

Some laundering operations can be remarkably brazen. When Edward Fields, a Chicago real estate agent, entered the cocaine business and began accumulating piles of rumpled bills, he turned to a banking friend for help in handling the money. The accomplice, Kenneth Straub, executive vice president of National Republic Bank (assets: $37 million), devised a simple cleansing process. The bank began loaning the drug dealer large sums in the form of cashier's checks, which Fields would repay with cocaine cash. "He'd plunk down suitcases full of old, junky, dirty bills that smelled like they'd been buried," says Roger Markley, a special assistant U.S. Attorney who prosecuted the case. Fields, Straub and the bank were convicted in 1983 of concealing $2.2 million in cash transactions.

Many types of businesses can serve as cash Laundromats. Criminals often use casinos, where they buy a sizable amount of chips with tainted bills, gamble a few away and then redeem the remaining chips for clean cash. Beginning in May, though, casinos will be required to file the same cash-reporting forms that banks must file. Stockbrokerage firms have become popular with launderers, partly because they provide a full range of investment services. A courier for the so-called Pizza Connection, a Sicilian heroin ring operating in the U.S., placed $4.9 million into a Merrill Lynch account before the company became suspicious and closed the account in April 1982. The courier then deposited $13.4 million with E.F. Hutton before the pizza gang was shut down by federal agents.

* The sudden congressional scrutiny of money laundering is giving U.S. financial institutions the jitters. Many banks have started following the federal rules to the letter and have imposed know-your-customer programs, which require employees to assess the character and reputation of new depositors, in the hope of spotting launderers. Even so, some officials want stiffer penalties for banks. One congressional proposal would allow fines of as much as five times the amount of money laundered. Says Assistant Treasury Secretary John Walker Jr., the agency's top enforcement official: "To force a bank to pay a penalty of more than $1 billion would wake up even the sleepiest of chief executive officers."

With reporting by Christopher Redman/ Washington