United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on General Oversight and Investigations,

Committee on Banking and Financial

Services, House of Representatives

June 1998 MONEY

LAUNDERING

Regulatory Oversight

of Offshore Private

Banking Activities

GAO/GGD-98-154

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-279710 

June 29, 1998

The Honorable Spencer Bachus

Chairman, Subcommittee on General Oversight

 and Investigations

Committee on Banking and Financial Services

House of Representatives

Dear Mr. Chairman:

This report responds to your August 26, 1997, request that we review U.S.

regulatory oversight of private banking activities involving offshore

jurisdictions. You expressed concern that high profile money laundering

cases have generally involved the use of offshore accounts or transactions

to facilitate the movement of illicit funds through the banking system. Law

enforcement and bank regulatory officials have also raised concerns about

offshore private banking activities and their potential to be the private

banking “soft spot” for money laundering. To assist with your continuing

deliberations on money laundering, you asked that we review the

regulatory oversight of offshore private banking activities and that we

specifically address the following areas:

• regulatory oversight procedures to ensure that offshore private banking

activities are covered by banks’ anti-money-laundering efforts,

• deficiencies identified by banking regulators regarding offshore private

banking activities and corrective actions taken by banks,

• barriers hindering regulatory oversight of offshore private banking

activities and efforts to overcome them, and

• banking industry views regarding regulatory access to documentation

pertaining to offshore private banking activities.

To address these areas, we reviewed examination manuals, relevant

agency documents, and examination reports that addressed banks’

anti-money-laundering efforts relative to their private banking activities.

We also interviewed U.S. regulators; conducted a limited survey of banks;

and spoke with officials from key offshore jurisdictions, international

bank supervisory groups, and international anti-money-laundering task

forces.

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Background Private banking has been broadly defined as financial and related services

provided to wealthy clients.1

 Such products and services may include

deposit-taking, lending, mutual funds investing, personal trust and estate

administration, funds transfer services, and establishing payable through

accounts2

 or offshore trusts. For purposes of this review, we defined

offshore private banking as including (1) private banking activities carried

out by domestic and foreign banks operating in the United States that

involve financial secrecy jurisdictions,3

 including the establishment of

accounts for offshore entities, such as private investment companies (PIC)4

and offshore trusts; and (2) private banking activities conducted by foreign

branches of U.S. banks located in these jurisdictions. Offshore entities that

maintain private banking accounts provide customers with a high degree

of confidentiality and anonymity while offering such other benefits as tax

advantages, limited legal liability, and ease of transfer. Sometimes

documentation identifying the beneficial owners5

 of offshore entities and

their U.S. private banking accounts is maintained in the offshore

jurisdiction rather than in the United States. Although banking regulators

believe that offshore private banking activities are generally used for

legitimate reasons, there is some concern that they may also serve to

camouflage money laundering and other illegal acts.

The government’s reliance on financial institutions as the first line of

defense against money laundering activities has increased with the

adoption of enhanced suspicious activity reporting rules for banks issued

jointly by Treasury’s Financial Crimes Enforcement Network and the

federal depository institution regulators.6

 The revised rules, which became

effective April 1, 1996, require a bank to file a suspicious activity report

1

See Private Banking: Information on Private Banking and Its Vulnerability to Money Laundering

(GAO/GGD-98-19R, Oct. 30, 1997).

2

Payable through accounts are transaction deposit accounts through which U.S. banking entities

extend check-writing privileges to clients of a foreign bank.

3

The Internal Revenue Service defines financial secrecy jurisdictions as jurisdictions having a low or

zero rate of tax, a certain level of banking or commercial secrecy, and relatively simple requirements

for licensing and regulating banks and other business entities. Examples of such jurisdictions include

the Cayman Islands and the Channel Islands. In this report, we use the term “offshore jurisdictions” to

refer to financial secrecy jurisdictions.

4

Private investment companies are “shell” companies incorporated in financial secrecy jurisdictions

that are formed to hold client assets. Such offshore entities are formed to maintain clients’

confidentiality and for various tax- or trust-related reasons.

5

The beneficial owner is the individual or group that controls the account.

6

The federal depository institution regulators involved were the banking regulators—Federal Reserve

Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance

Corporation—and the Office of Thrift Supervision, and the National Credit Union Administration.

Page 2 GAO/GGD-98-154 Money Laundering
B-279710 

pertaining to money laundering when a transaction at or above $5,000

(1) involves funds derived from illegal activities or efforts to disguise the

nature of such funds, (2) is intended to evade the Bank Secrecy Act (BSA)

requirements, or (3) is not a normally expected transaction for a particular

customer and appears to have no lawful business purpose.7

Federal banking regulators consider “know your customer” (KYC) policies

one of the most important components of an institution’s measures for

understanding with whom it is doing business, recognizing unusual

transactions, and detecting illegal or suspicious activities. These policies

are intended to enable the institution to identify account owners and to

recognize the kinds of transactions that a particular customer is likely to

engage in. Although such policies are not currently required by regulation

or statute, federal banking regulators expect institutions to incorporate

KYC policies in their operations, and they have developed examination

procedures for determining whether institutions have implemented such

policies and related procedures. Federal banking regulators are currently

in the process of developing a joint regulation and accompanying guidance

intended to formally require banks to establish KYC policies.

The Federal Reserve, the Office of the Comptroller of the Currency (OCC),

and the Federal Deposit Insurance Corporation are responsible for

reviewing banks’ anti-money-laundering efforts, including their KYC

policies and procedures. The Federal Reserve and OCC have primary

responsibility for examining and supervising the overseas branches of U.S.

banks to ascertain the adequacy of their anti-money-laundering efforts.8

During the past 2 years, the Federal Reserve and OCC have focused

attention on banks’ private banking activities in an attempt to ensure that

they are not used for money laundering and are not a potential source of

reputational or legal risk9

 to banks. In 1996, the Federal Reserve Bank of

New York (FRBNY) undertook a focused review of banks’ private banking

activities in its district that included coverage of related offshore activities

as well as a review of banks’ anti-money-laundering programs and KYC

policies. This initiative reflected a heightened supervisory interest in the

7

Banks are also required to file suspicious activity reports for other types of suspicious activities such

as insider abuse.

8

The Federal Deposit Insurance Corporation does not routinely conduct overseas examinations, as the

foreign offices of banks under its direct supervision primarily comprise offshore shell branches or

otherwise represent relatively small operations in terms of their asset size.

9

Reputational risk is the potential that negative publicity regarding a bank’s business practices,

whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.

Legal risk is the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or

otherwise negatively affect the operations or condition of a bank.

Page 3 GAO/GGD-98-154 Money Laundering
B-279710 

area arising from the growing market for private banking, banks’ increased

reliance on private banking as a source of income, and a related increase

in competition. Because of the concentration of private banking activities

in the New York district and its focused efforts in the area, FRBNY assumed

a key role within the Federal Reserve for the oversight of private banking

activities. FRBNY, on behalf of the Federal Reserve Board, recently issued a

paper on sound practices for private banking activities.10 At the time of our

review, the Federal Reserve Board was also in the process of issuing a

private banking examination manual and coordinating training for Federal

Reserve examiners in the area of private banking.

Results in Brief Federal banking regulators may review banks’ efforts to prevent or detect

money laundering in their offshore private banking activities during

compliance or BSA examinations; safety and soundness examinations; or,

more recently, during targeted examinations of their private banking

activities. In these examinations, regulators focus on the bank’s

compliance program, KYC policies, and internal controls. They instruct

their examiners to ensure that the bank’s compliance program, and

particularly its KYC policies, extend to its private banking activities. To

guard against offshore entities that maintain U.S. private banking accounts

from being used for money laundering or other illicit purposes, examiners

are to look for specific KYC procedures that enable banks to identify and

profile the beneficial owners of private banking accounts. For private

banking activities conducted by branches of U.S. banks located in offshore

jurisdictions, examiners rely primarily on the bank’s internal audits to

verify that KYC policies are being implemented in offshore branches where

they may be precluded from conducting on-site examinations.

Our review of bank examination reports prepared under FRBNY’s private

banking initiative showed that the most common deficiency relating to

offshore private banking was a lack of documentation on the beneficial

owners of PICs and other offshore entities that maintain U.S. accounts.

FRBNY and OCC examiners noted other deficiencies during their respective

examinations, such as inadequate client profiles and weak management

information systems, that may make it difficult for banks to monitor client

activity for unusual or suspicious activity. The bank examinations we

reviewed, along with discussions with examiners and bank officials,

indicated that most banks had started to take corrective actions to address

deficiencies related to offshore private banking activities, but further

10Guidance on Sound Risk Management Practices Governing Private Banking Activities, July 1997,

prepared by FRBNY on behalf of the Board of Governors of the Federal Reserve System.

Page 4 GAO/GGD-98-154 Money Laundering
B-279710 

improvements were needed. For example, during follow-up examinations,

examiners found that although banks had started to make progress on

improving client profiles, some of the banks’ client profiles were still

inadequate; and other banks were not updating the profiles for their

clients in a timely manner.

Secrecy laws that restrict access to banking information or that prohibit

on-site examinations of U.S. bank branches in offshore jurisdictions

represent key barriers to U.S. oversight of offshore private banking

activities. The nine offshore jurisdictions we identified for review have

secrecy laws that protect the privacy of individual account owners, and

five of them impose criminal sanctions for breaches of privacy. Moreover,

federal banking regulators’ attempts to work around restrictions

associated with these secrecy laws are sometimes hampered. For

example, federal banking regulators’ reliance on internal audits to

determine how KYC policies are applied to U.S. banks’ offshore branches is

sometimes hindered by weaknesses in audit coverage of the KYC area.

Regulators also lacked access to audit workpapers pertaining to branches

in certain offshore jurisdictions and documents containing information on

individual customers. We also found that all nine offshore jurisdictions

selected for review were engaged in some type of anti-money-laundering

activities. Their activities ranged from participating in international task

forces aimed at combatting money laundering to requiring banks to report

suspicious activity. Although the efforts of individual jurisdictions may

contribute to the international fight against money laundering, it is too

early to ascertain their impact on money laundering or the extent to which

the offshore jurisdictions’ secrecy laws will continue to represent barriers

to U.S. and other foreign regulators.

We surveyed officials from 15 banks that were asked by FRBNY to provide

documentation on the beneficial owners of PICs and other offshore entities

that maintained U.S. accounts. We found that the officials had a number of

concerns. One common concern related to perceived inconsistencies

within and among federal banking regulators regarding requests for access

to beneficial owner documentation. Bank officials also expressed

concerns regarding the compromising of customer confidentiality,

potentially violating offshore secrecy laws, and potentially losing business

to other financial institutions not subject to the same documentation

requirements. In spite of these concerns, most officials indicated that their

banks changed how they maintain documentation on offshore private

banking activities in response to FRBNY’s request for beneficial owner

documentation.

Page 5 GAO/GGD-98-154 Money Laundering
B-279710 

Scope and

Methodology

To determine how regulators oversee offshore private banking activities,

we reviewed BSA examination manuals and other agency documents

pertaining to the oversight of private banking and offshore banking

activities. We also reviewed information on examination methodology in

examination reports and, in a few cases, supporting workpapers. We

spoke with FRBNY examiners; Federal Reserve Bank of Atlanta examiners;

and OCC examiners in California, New York, and North Carolina to discuss

specific monitoring practices related to banks engaged in offshore private

banking activities.

To identify deficiencies related to offshore private banking activities and

corrective actions taken by banks, we reviewed 35 examination reports for

21 banks included in FRBNY’s private banking initiative. We also reviewed

21 OCC examination reports11 for 6 banks identified as actively involved in

offshore private banking activities. The banks reviewed do not represent

all banks that may be involved in offshore private banking activities. They

are a subset of banks with a significant level of offshore assets in certain

jurisdictions identified to be particularly susceptible to money laundering.

(See app. I for more information on the methodology we used to identify

banks actively involved in offshore private banking.) For the most part,

examinations reviewed were conducted during 1996 and 1997. We

interviewed FRBNY and OCC examiners to determine the extent to which

general private banking deficiencies identified during examinations

applied to the banks’ offshore private banking activities or to obtain their

perspectives on the adequacy of corrective actions taken by banks. In

addition, we followed up with selected banks to obtain an update on the

status of corrective actions that were planned or in process during the last

examination.

To identify barriers associated with overseeing offshore private banking

activities, we interviewed federal banking regulators and officials from the

Financial Action Task Force (FATF),12 the Caribbean Financial Action Task

Force (CFATF),13 the Basle Committee on Banking Supervision,14 and the

11These reports covered safety and soundness, consumer and BSA compliance, and KYC policies.

12FATF was established by the G-7 Summit in Paris in 1989 to examine measures to combat money

laundering. The membership of FATF comprises 26 countries and 2 regional organizations.

13CFATF is an organization of 19 member states of the Caribbean basin that have agreed to implement

common countermeasures to address the problem of money laundering. It was established as a result

of meetings convened in 1990 and 1992.

14The Basle Committee on Banking Supervision is a committee of banking supervisory authorities that

was established by the central-bank Governors of the Group of Ten countries in 1975. It consists of

senior representatives of bank supervisory authorities and central banks.

Page 6 GAO/GGD-98-154 Money Laundering
B-279710 

Offshore Group of Banking Supervisors.15 We also interviewed officials of

the Central Bank of the Bahamas, Cayman Islands Monetary Authority,

and International Monetary Fund. In addition, we reviewed reports issued

by FATF, CFATF, and the Offshore Group of Banking Supervisors. We also

conducted literature searches on the laws of nine offshore jurisdictions

selected for review and on their KYC policies and policies for reporting

suspicious activity. The nine jurisdictions are the Bahamas, Bahrain,

Cayman Islands, Channel Islands, Hong Kong, Luxembourg, Panama,

Singapore, and Switzerland. (See app. I for more information on how we

selected the nine offshore jurisdictions for review.) The information on

foreign laws and policies in this report does not reflect our independent

legal analysis but is based on interviews and secondary sources.

To obtain industry views about regulatory access to beneficial owner

documentation, we conducted a survey of 15 banks examined by FRBNY

during its recent private banking initiative. We inquired about actions the

banks had taken or planned to take to comply with FRBNY’s request for

access to beneficial owner documentation, the impact of this request on

the banks’ private banking business, and the potential impact on them if

regulatory access to beneficial owner documentation became a

requirement.

Our work was done primarily in New York, NY; San Francisco, CA; and

Washington, D.C., between December 1997 and April 1998 in accordance

with generally accepted government auditing standards.

Regulatory Efforts to

Oversee Offshore

Private Banking

Activities

Federal banking regulators may review banks’ efforts to prevent or detect

money laundering in their offshore private banking activities during

overall compliance or BSA examinations; safety and soundness

examinations; or, more recently, during targeted examinations of their

private banking activities. Regulatory oversight of banks’

anti-money-laundering efforts during these examinations reflects an

attempt to assess the commitment of senior bank management to

combatting money laundering while focusing on bank programs for

complying with BSA, corporate KYC policies, and internal controls.

In the course of these examinations, examiners are to ensure that banks’

anti-money-laundering programs identify high-risk activities, businesses,

and transactions associated with foreign countries viewed to be

15The Offshore Group of Banking Supervisors was established in 1980 as a forum for supervisory

cooperation among the banking supervisors in offshore financial centers.

Page 7 GAO/GGD-98-154 Money Laundering
B-279710 

particularly susceptible to money laundering. OCC’s BSA Manual, for

example, cites transactions involving private banking and those involving

offshore secrecy jurisdictions as warranting particular attention during

examinations. The Federal Reserve also identifies private banking

activities, including the establishment of offshore shell companies, as

warranting supervisory attention; and it provides specific guidance to

banks on sound practices for documenting and exercising due diligence in

their conduct of such private banking activities. During examinations,

examiners are also tasked with ensuring that banks’ compliance programs

and KYC policies extend to their private banking activities, including those

that involve offshore jurisdictions.

Offshore Private Banking

Accounts

Recognizing that offshore entities, such as PICs, that maintain U.S. private

banking accounts tend to obscure account holders’ true identities,

examiners are to look for specific KYC procedures that enable banks to

identify and profile the beneficial owners of these offshore entities and

their private banking accounts. In the course of examinations, examiners

may test the adequacy of beneficial owner documentation maintained in

the United States. However, with the recent exception of FRBNY, we found

no evidence that examiners have attempted to examine the documentation

that banks maintain in offshore secrecy jurisdictions.

Examiners we contacted expressed varying views about accessing such

documentation for examination purposes. Some examiners said that they

do not see a need to examine documents maintained offshore if they are

confident about the bank’s commitment to combatting money laundering

and to exercising due diligence when establishing offshore entities

through private banking accounts. A few examiners expressed

reservations about their ability to compel banks, without the leverage of a

KYC regulation, to obtain documents maintained in offshore jurisdictions.

Others were uncertain about whether a request to export documents from

certain offshore jurisdictions could violate their secrecy laws.

During examinations conducted under its private banking initiative, FRBNY

took a different supervisory approach that involved examiners seeking to

review beneficial owner documentation regardless of where it was

maintained. Because this was the Federal Reserve’s first focused review of

private banking activities, verifying whether banks had the ability to

identify and profile the beneficial owners of offshore entities that

maintained U.S. private banking accounts was viewed as particularly

important, according to officials. A senior FRBNY examiner explained that

Page 8 GAO/GGD-98-154 Money Laundering
B-279710 

seeking out beneficial owner documentation was also a way to encourage

banks to develop or improve their systems for maintaining appropriately

detailed information on the beneficial owners of offshore entities that

maintain U.S. accounts.

Private Banking Activities

by Offshore Branches of

U.S. Banks

Offshore branches are extensions of U.S. banks and are subject to

supervision by host countries as well as U.S. regulators. However, they are

generally not subject to the BSA and, therefore, U.S. banking regulators do

not attempt to determine whether offshore branches are in compliance

with this U.S. anti-money-laundering law. Instead, U.S. banking regulators

attempt to identify the branches’ anti-money-laundering efforts and to

determine whether the banks’ corporate KYC policies are being applied to

activities, such as private banking activities, that these U.S. offshore

branches may engage in.

Although examiners are able to review the written policies and procedures

being used in these branches, they must rely primarily on the banks’

internal audit functions to verify that the procedures are actually being

implemented in offshore branches where U.S. regulators may be precluded

from conducting on-site examinations or have restricted access to

individual customer information. They may also rely on external audits,

but they are apparently less prone to do so, because external audits tend

to focus on financial rather than KYC issues. In our review of 56

examinations, we noted only 1 instance in which examiners relied on the

work of an external auditor for a review of KYC procedures at a bank’s

offshore branches. Regardless of whether examiners rely on internal or

external audits, officials explained they can bring any significant or

recurring problems identified in an offshore branch’s

anti-money-laundering efforts to the attention of the bank’s board of

directors for corrective action.

Deficiencies Related

to Offshore Private

Banking Activities and

Corrective Actions

Taken by Banks

Our review of 1996 and 1997 examinations conducted under the FRBNY’s

private banking initiative found that the most prevalent deficiency related

to offshore private banking activities was a lack of documentation on the

beneficial owners of PICs and other offshore entities that maintained U.S.

accounts. Our review of FRBNY and OCC examinations and discussions with

examiners indicated that some deficiencies they identified that were

related to private banking in general, such as inadequate client profiles

and weak management information systems, also pertained to offshore

private banking activities. We found that banks had started to take

Page 9 GAO/GGD-98-154 Money Laundering
B-279710 

corrective actions to address the deficiencies, but improvements were still

needed.

Deficiencies Related to

Offshore Private Banking

Activities

We found that 9 of the 21 banks whose FRBNY examinations we reviewed

were identified by examiners as lacking information on the beneficial

owners of PICs and other offshore entities that maintained U.S. accounts.

FRBNY identified this deficiency at seven foreign banks and two domestic

banks. Although there is no current regulation mandating that banks retain

information on the beneficial owners of these offshore entities in the

United States, maintaining such information in clients’ U.S. files or having

the ability to bring it on-shore in a reasonable amount of time promotes

sound private banking practices, according to the Federal Reserve.

We also found in our review of FRBNY and OCC examinations that examiners

identified two U.S. banks with inadequate KYC policies at their offshore

locations. Examiners found that one of the banks had insufficient KYC

documentation and had not fully implemented a transaction monitoring

process at its Switzerland branch. At the other bank, examiners noted

inconsistencies between the local KYC policy in its Switzerland branch and

the bank’s corporate policy. For example, the examiners noted that the

local KYC policy did not address requirements for obtaining references or

maintaining a documentation tracking system.

Some Deficiencies Relating

to Private Banking in

General Also Applied to

Offshore Private Banking

Activities

FRBNY and OCC examination reports and our discussions with examiners

indicated that some deficiencies relating to private banking in general,

such as inadequate client profiles, were also applicable to banks’ offshore

private banking activities. Examiners found that client profiles contained

little or no documentation on the client’s background, source of wealth,

expected account activity, and client contacts and visits by bank

representatives. Regulators specify that adequate client profiles are a key

component of a sound KYC policy because they enable the bank to more

effectively monitor for unusual or suspicious transactions.

Another general private banking deficiency pertaining to offshore private

banking activities identified by examiners was weak management

information systems. Examiners found that some banks’ management

information systems did not track client activity or aggregate related client

accounts. Regulatory KYC guidelines emphasize the importance of a sound

management information system that can enable banks to track clients’

account activity and identify unusual or suspicious activity.

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Most Banks Had Started

Taking Actions to Correct

Deficiencies, but

Improvements Were Still

Needed

FRBNY’s private banking initiative established guidelines to be used during

examinations to monitor banks’ progress in implementing corrective

actions, and OCC’s BSA examination guidelines also provide for the

monitoring of corrective actions. Our review of FRBNY’s and OCC’s 1996 and

1997 examinations and our discussions with examiners and bank officials

indicated that banks had started to take corrective actions to address

deficiencies related to offshore private banking activities, but further

improvements were needed.

We noted that most banks were in the process of resolving the problem of

a lack of documentation on the beneficial owners of PICs and other

offshore entities that maintained U.S. accounts. Seven of the nine banks

that did not have information on the beneficial owners of these offshore

entities in their clients’ U.S. files were attempting to resolve the problem,

with most either asking clients to sign confidentiality waivers or

reconstructing information on the beneficial owners from documentation

already in their U.S. offices. Of the remaining two banks, one provided

examiners with the identity of the beneficial owners of several PICs that

maintained accounts with the bank. The other bank, which offered

services to offshore mutual funds, provided examiners with

documentation certifying that the administrator of these funds had applied

KYC policies to the shareholders (i.e., beneficial owners) of the funds.

The two banks with inadequate KYC policies at their offshore locations

were at different stages of correcting the deficiency. One of the banks had

made changes to its KYC policies for its Switzerland branch to make them

consistent with its corporate policies. The other bank had developed a

corporate KYC policy and dedicated resources towards bringing its KYC

policies at the Switzerland branch into compliance with its corporate

policy, but both regulators and bank officials we spoke with indicated that

greater progress was needed. Regulators told us that they were going to

continue monitoring the situation.

Most of the banks with inadequate client profiles were making progress on

improving these profiles, but some shortfalls remained. Some of the banks

were developing strategies to improve the documentation on their client

profiles. For example, a few banks prioritized the process for updating

their client base by focusing first on high-risk accounts such as those

associated with PICs. We found that despite these efforts, regulators noted

that some banks’ client profiles were still inadequate, and other banks

were not updating their clients’ profiles in a timely manner. One bank

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official we spoke with explained that updating thousands of client profiles

was much more time intensive than the bank had initially anticipated.

We noted that most of the banks identified by examiners as having weak

management information systems were either reviewing their systems or

in the process of installing software to monitor unusual or suspicious

transactions. Some bank officials and examiners indicated that regardless

of what changes were being made to their systems, banks would continue

to be unable to aggregate international accounts because some secrecy

laws prohibit them from doing so unless clients sign confidentiality

waivers.

Offshore

Jurisdictions’ Bank

Secrecy Laws

Represent Key

Barriers to U.S.

Regulators’ Oversight

of Offshore Private

Banking Activities

Bank secrecy laws of offshore jurisdictions represent significant barriers

to U.S. regulators’ efforts to oversee offshore private banking activities.

These secrecy laws, which are intended to preserve the privacy of

individual bank customers, restrict U.S. regulators from accessing

information on customers and their accounts and often prohibit regulators

from conducting on-site examinations at U.S. bank branches in offshore

jurisdictions. In some offshore jurisdictions, a bank employee found to

have violated secrecy laws may be subject to criminal penalties, including

imprisonment.

Limited Regulatory Access

to Information in Nine

Offshore Jurisdictions

Our review of nine offshore jurisdictions found some limitations that

hindered U.S. and other foreign banking regulators’ access to bank

information. Secrecy laws to protect the privacy of individual accounts

were in effect in all nine jurisdictions, and five of them impose criminal

penalties on bank employees found to be in violation of the law (see table

1). None of the nine jurisdictions typically provide foreign regulators with

access to individual bank account information, and only two (Hong Kong

and Singapore) have allowed U.S. regulators to conduct on-site

examinations of banking institutions in their jurisdictions. Examinations in

Singapore were limited to a review of bank policies and general

operations. The jurisdiction did not allow examiners to access individual

bank account or customer information.

Another jurisdiction, the Cayman Islands, has not permitted foreign

regulators to conduct on-site examinations of bank branches located

within its borders in the past, but a Cayman Islands official told us that

U.S. and other foreign regulators would be allowed into the Cayman

Page 12 GAO/GGD-98-154 Money Laundering
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Islands to assess the safety and soundness of branches of banks under the

regulators’ supervision. The official emphasized, however, that foreign

regulators would continue to be prohibited from looking at documents or

files containing individual customer information.

Seven of the nine jurisdictions reviewed provide for an exception to their

secrecy laws when criminal investigations are involved. In such cases,

officials of offshore jurisdictions explained that they have established

judicial processes in their jurisdictions through which U.S. and other

foreign law enforcement officials may obtain access to individual bank

account or customer information.16

Table 1: Extent of U.S. Regulatory Access to Bank Information in Nine Offshore Jurisdictions

Jurisdiction has

bank secrecy laws

that include criminal

sanctions

U.S. banking

regulators allowed

access to individual

customer

information

U.S. banking

regulators allowed

to conduct on-site

examinations

U.S. judicial

authorities allowed

access to individual

customer

information

Jurisdiction Yes No Yes No Yes No Yesa No

Bahamas • • • •

Bahrain • • • •

Cayman Islands • • • •

Channel Islands • • • •

Hong Kong • b • •

Luxembourg • • • c

Panama • • • •

Singapore • • d •

Switzerland • • • •

aA “yes” in this column indicates that the jurisdiction has a mutual legal assistance treaty in force

with the United States and that it allows access to individual account information if a formal

criminal investigation is under way.

bIn a recent trip to Hong Kong, a U.S. examiner noted that access to information, including

individual account information, was provided at a branch of a U.S. bank.

cA mutual legal assistance treaty has been signed with the United States but not ratified.

dSingapore allows limited-scope examinations.

Source: Documents from the Internal Revenue Service, the Department of State, the Federal

Reserve, OCC, and the Economist Intelligence Unit of the United Kingdom; and interviews with

officials from FATF, CFATF, and offshore jurisdictions.

16Two conditions must be met for foreign law enforcement officials to obtain such information: (1) a

criminal investigation must be under way, which customarily means that a formal judicial process has

been initiated (e.g., a court order has been issued); and (2) the offshore jurisdiction must have a

mutual legal assistance treaty with the foreign judicial authority requesting access to the information.

Page 13 GAO/GGD-98-154 Money Laundering
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Federal Banking

Regulators’ Efforts to Work

Around Secrecy Barriers

Have Limitations

U.S. banking regulators are attempting to work around barriers related to

offshore secrecy laws, but they remain hampered by limitations associated

with these efforts. For example, in jurisdictions where they have been

precluded from conducting on-site examinations, U.S. regulators rely

primarily on banks’ internal audits to determine how well KYC policies and

procedures are being applied to offshore branches of U.S. banks. In our

review of examination reports, however, we found several instances in

which examiners noted that the bank’s internal audit inadequately covered

KYC issues pertaining to its private banking activities. At one major bank,

we also observed that recurring deficiencies in KYC documentation,

monitoring, and training identified by internal audits of the bank’s key

private banking offshore branch were allowed to go unattended for several

years. An examiner explained that this particular bank, which was

undergoing major changes in its private banking operations, was in the

process of correcting weaknesses identified by regulators, including

branch management’s lack of responsiveness to identified internal audit

deficiencies.

Another difficulty impeding regulators’ attempts to rely on internal audits

for overseeing offshore branches stems from U.S. regulators’ inability to

review banks’ internal audit workpapers in some offshore jurisdictions

that require the retention of such workpapers in the jurisdiction.

Examiners explained that without access to supporting audit workpapers,

it is difficult to verify that audit programs were followed and to assess the

general quality of internal audits of offshore branches. One examiner

added that without direct access to either bank documents or internal

audit workpapers, it is difficult to explain to bank management the basis

for regulatory concerns about particular activities conducted in their

offshore branches.

Other, more recent attempts by U.S. regulators to work around barriers

related to offshore secrecy laws also have encountered limitations. For

example, FRBNY’s previously discussed recent efforts to review beneficial

owner documents represented an attempt to oversee private banking

accounts maintained by banks operating in the United States for offshore

entities. These efforts could not cover similar accounts or other private

banking activities conducted on behalf of customers who deal directly

with offshore branches of U.S. banks that are considered to be outside the

purview of U.S. regulators. Finally, during 1998, U.S. regulators visited U.S.

bank branches located in Hong Kong and Uruguay,17 also viewed as a

17Uruguay was one of three South American countries visited as part of an OCC anti-money-laundering

initiative to conduct on-site reviews of foreign branches of U.S. banks.

Page 14 GAO/GGD-98-154 Money Laundering
B-279710 

financial secrecy jurisdiction. Although examiners were given full access

to information requested in Hong Kong, this was not the case in Uruguay.

An examiner explained that although U.S. examiners were not given

complete access to account documentation in Uruguay, they were able to

review the branches’ local KYC policies and related quality assurance

reviews to help determine the extent of their anti-money-laundering

efforts.

Impact of Offshore

Jurisdictions’ Activities to

Combat Money Laundering

Remains Uncertain

We found that all nine offshore jurisdictions selected for review were

engaged in some type of anti-money-laundering activities. Their activities

ranged from participating in international task forces aimed at combatting

money laundering to requiring their financial institutions to report

suspicious activities. The efforts of individual jurisdictions may contribute

to the international fight against money laundering. However, it remains

uncertain what impact these efforts may have on how the offshore

jurisdictions’ own banking sectors operate or on the extent to which their

secrecy laws will continue to represent barriers to U.S. and other foreign

regulators.

All nine of the offshore jurisdictions reviewed are members of either the

Basle Committee on Banking Supervision or the Offshore Group of

Banking Supervisors (see table 2). Both of these international supervisory

groups place special emphasis on the on-site monitoring of banks to

ensure, for example, that they have effective KYC policies. Seven of the

nine offshore jurisdictions reviewed are also members of either FATF or

CFATF, international task forces created to develop and promote

anti-money-laundering policies. Both of these task forces have agreed on

recommendations that establish a basic framework for

anti-money-laundering efforts in individual countries, including standard

measures intended to increase the due diligence18 of financial institutions.

For example, one of the recommendations adopted by the two task forces

advocates that financial institutions be required to report suspicious

activity to competent authorities.

18Examples of due diligence include determining the client’s source of wealth and understanding the

types of transactions the client will typically conduct.

Page 15 GAO/GGD-98-154 Money Laundering
B-279710 

Table 2: Nine Offshore Jurisdictions’

Membership in International

Supervisory Groups or

Anti-Money-Laundering Task Forces Jurisdiction

Basle

Committee on

Banking

Supervision

Offshore

Group of

Banking

Supervisors

Financial

Action Task

Force

Caribbean

Financial

Action Task

Force

Bahamas • •

Bahrain • a

Cayman Islands • •

Channel Islands •

Hong Kong • •

Luxembourg • •

Panama • •

Singapore • •

Switzerland • •

aBahrain is not a member country of FATF. It is, however, a member of the Gulf Cooperation

Council, one of two regional organizations that participate in FATF.

Source: Reports from FATF, CFATF, the Basle Committee on Banking Supervision, and Offshore

Group of Banking Supervisors.

Membership in such organizations implies that the jurisdiction intends to

work towards the organization’s principles and recommendations,

including those related to financial institutions, such as establishing KYC

policies and policies to report suspicious transactions. Membership,

however, does not necessarily mean that these principles and

recommendations are being adequately followed by the financial

institutions or monitored by the jurisdiction’s government authorities. We

found that eight of the nine offshore jurisdictions selected for review

required banks to report suspicious transactions to their supervisory

authorities (see table 3). However, according to CFATF officials, only a few

of its members have an established authority that is capable of monitoring

and acting on such reports. We also noted that eight of the nine offshore

jurisdictions had established some form of KYC policies or guidelines for

banks operating in their jurisdictions, but the extent to which such

policies are actually being implemented and enforced in these jurisdictions

has yet to be determined.

Mutual evaluations periodically conducted by FATF or CFATF represent one

indication of how well the organizations’ recommendations are being

Page 16 GAO/GGD-98-154 Money Laundering
B-279710 

addressed by individual jurisdictions.19 All seven offshore jurisdictions

that are members of FATF or CFATF have been assessed through a mutual

evaluation (see table 3). Four jurisdictions were evaluated by FATF and

three by CFATF. According to summaries of these evaluations, the Cayman

Islands, Luxembourg, and Switzerland were viewed as having adequately

addressed applicable recommendations, but Hong Kong and Singapore

were noted as still in the process of implementing recommendations. The

summary for Hong Kong identified some gaps in the jurisdiction’s

legislative framework for combatting money laundering. The summary for

Singapore indicated that although it had begun to address most of the

recommendations, the extent to which they would be implemented was

still uncertain. The mutual evaluations for Panama and the Bahamas had

not been formally summarized at the time of our review.

Table 3: KYC Policies, Suspicious

Activity Reporting Requirements, and

Mutual Evaluations for Nine Offshore

Jurisdictions

Jurisdiction has

KYC policies or

guidelines for banks

Jurisdiction requires

banks to report

suspicious

transactions

Jurisdiction has had

a mutual evaluation

Jurisdiction Yes No Yes No Yesa No

Bahamas • • b

Bahrain • • N/A

Cayman Islands • • 1996

Channel Islands • • N/A

Hong Kong • • 1994

Luxembourg • • 1995

Panama • • b

Singapore • • 1995

Switzerland • • 1993

Note: N/A indicates not applicable because the jurisdiction is not a country member of either

FATF or CFATF.

aYear noted in this column indicates the year in which the mutual evaluation was summarized in

the task force’s annual report.

bAt the time of our review, a mutual evaluation had been conducted but not formally summarized,

according to a CFATF official.

Source: International Financial Law Review, documents published by the Institutional Investor,

Inc., and various papers presented during the 7th International Conference on Money

Laundering, Cyberpayments, Corporate and Bank Security, and International Financial Crimes.

Also, interviews with officials from FATF, CFATF, and offshore jurisdictions.

19FATF and CFATF have developed a peer review process known as mutual evaluations to monitor

members’ adherence to the groups’ recommendations. The results of these evaluations are

summarized in the two groups’ annual reports. Individual evaluation reports by jurisdictions are also

issued, but we were unable to review these individual reports because they are subject to restricted

access.

Page 17 GAO/GGD-98-154 Money Laundering
B-279710 

Industry Concerns

Regarding Regulatory

Access to Beneficial

Owner

Documentation

Officials from 15 banks we surveyed expressed a number of concerns over

FRBNY’s request that they provide its examiners with documentation on the

beneficial owners of PICs and other offshore entities that maintain U.S.

accounts. One of their most prevalent concerns related to perceived

inconsistencies within and among regulators regarding requests for access

to beneficial owner documentation, which was of concern to 10 of the 15

bank officials. Some officials observed that only banks supervised by

FRBNY were asked to provide access to this documentation, but banks

supervised by the Federal Reserve in Atlanta and OCC were not.

Officials from 9 of the 15 banks also expressed concerns over

compromising their clients’ confidentiality. They indicated that providing

FRBNY with access to documentation on the beneficial owners of PICs and

other offshore entities that maintain U.S. accounts would likely displease

their clients, who typically regard confidentiality as a valuable means of

ensuring that their banking information is inaccessible to their home

governments or to litigants filing lawsuits. Officials from 6 of the 15 banks

were also concerned that if they complied with FRBNY’s request, their

banks could be held liable for breaching confidentiality in the offshore

jurisdictions.

Another concern, which was expressed by officials from 7 of the 15 banks,

involved a potential loss of business because of the “uneven playing field.”

They believed beneficial owner documentation requirements created an

additional burden for banks compared to other financial institutions,

including securities broker/dealers, that are engaged in private banking

activities, such as managing and maintaining accounts for PICs. Although

these firms are engaged in private banking activities similar to those

offered by banks, they are not yet subject to regulations requiring the

reporting of suspicious transactions.20

Bank officials also expressed concerns over the effect pending KYC

regulations might have on regulatory access to beneficial owner

documentation. We sought the views of bank officials on two possible

approaches to regulatory access to such documentation. The first

approach would be for banks to routinely retain records in the United

States on the beneficial owners of offshore entities that maintain U.S.

private banking accounts. The second approach would be for banks to

bring records on the beneficial owners of these offshore entities into the

20The Securities and Exchange Commission and Treasury’s Financial Crimes Enforcement Network

are working together to develop regulations for broker/dealers regarding suspicious activity reports,

according to officials from both agencies. At the time of our review, these regulations had not yet been

issued.

Page 18 GAO/GGD-98-154 Money Laundering
B-279710 

United States only if requested during an examination. We found that both

approaches caused a similar level of concern, with some bank officials

stating that the bank would need to make the same changes to how it

maintains documentation on the beneficial owners of offshore entities in

either case. Bank officials believed that for the most part, under both

approaches, their banks would be at a competitive disadvantage with

other financial institutions (e.g., securities broker/dealers, foreign banks)

not subject to the same requirement. To a great extent, bank officials also

said that either of these approaches would cause them to lose the business

of foreign clients. See appendix II for the banks’ views on these two

approaches.

Banks Changing

Procedures to Provide

FRBNY With Access to

Beneficial Owner

Documentation

In spite of their concerns, officials from 11 of the 15 banks surveyed

indicated that their banks had changed the way they maintain

documentation on the beneficial owners of offshore entities that have U.S.

accounts. Officials from the remaining four banks indicated that their

banks already had such documentation in their U.S. files as a matter of

bank policy. We found that 6 of the 11 banks that changed the way they

maintain beneficial owner documentation were in the process of obtaining

confidentiality waivers from their clients who were the beneficial owners

of PICs and other offshore entities. Officials from the remaining five banks

indicated that their banks could reconstruct information on the beneficial

owners of these offshore entities from information they already maintain

in their U.S. files.

Too Early to Determine

Impact of Changes on

Banks’ Private Banking

Business

We found that of the 11 banks that changed the way they maintain

documentation on the beneficial owners of offshore entities that have U.S.

accounts, 9 were unable to provide us with specific information on the

impact these changes have had on their private banking business. Officials

from five of the nine banks indicated that it was too early to determine the

impact because they had only recently begun this process. Officials from

two banks were able to provide us with some preliminary information. In 1

case, the bank requested confidentiality waivers from 16 clients and

reported that 15 of the clients agreed to sign waivers. The single client who

refused to sign a waiver reportedly closed his account. In another case, the

bank asked 116 clients to sign confidentiality waivers. In this case, 31 of

the 116 clients, or 27 percent, did not sign the waivers. Twenty-six of these

31 clients transferred their accounts to the bank’s offshore affiliates; the

other 5 clients closed their accounts, according to the bank officials we

surveyed.

Page 19 GAO/GGD-98-154 Money Laundering
B-279710 

Agency Comments

and Our Evaluation

The Federal Reserve and OCC provided written comments on a draft of this

report. (See apps. III and IV). Both agencies generally agreed with our

analysis and observations on the oversight of private banking activities

involving offshore jurisdictions. We also obtained oral comments of a

technical nature from the Federal Reserve and OCC that have been

incorporated in the report where appropriate.

As agreed with your office, unless you announce the contents of this

report earlier, we plan no further distribution until 30 days after the date

of this letter. At that time, we will send copies of this report to the Ranking

Minority Member of your Subcommittee and to the Chairmen and Ranking

Minority Members of other interested congressional committees, the

Chairman of the Federal Reserve Board, the Comptroller of the Currency,

and the Chairman of the Federal Deposit Insurance Corporation. We will

also make copies available to others on request.

Major contributors to this report are listed in appendix V. Please call me

on (202) 512-8678 if you or your staff have any questions about the report.

Sincerely yours,

Susan S. Westin

Associate Director, Financial Institutions

 and Markets Issues

Page 20 GAO/GGD-98-154 Money Laundering
Page 21 GAO/GGD-98-154 Money Laundering
Contents

Letter 1

Appendix I 

Methodology for

Identifying Banks

Actively Involved in

Offshore Private

Banking

24

Appendix II 

Alternative

Approaches to

Regulatory Access to

Beneficial Owner

Documentation

27

Appendix III 

Comments From the

Federal Reserve

Board

30

Appendix IV 

Comments From the

Office of the

Comptroller of the

Currency

31

Appendix V 

Major Contributors to

This Report

32

Page 22 GAO/GGD-98-154 Money Laundering
Contents

Tables Table 1: Extent of U.S. Regulatory Access to Bank Information in

Nine Offshore Jurisdictions

13

Table 2: Nine Offshore Jurisdictions’ Membership in International

Supervisory Groups or Anti-Money-Laundering Task Forces

16

Table 3: KYC Policies, Suspicious Activity Reporting

Requirements, and Mutual Evaluations for Nine Offshore

Jurisdictions

17

Abbreviations

BSA Bank Secrecy Act

CFATF Caribbean Financial Action Task Force

FATF Financial Action Task Force

FRBNY Federal Reserve Bank of New York

KYC know your customer

OCC Office of the Comptroller of the Currency

PIC private investment company

Page 23 GAO/GGD-98-154 Money Laundering
Appendix I 

Methodology for Identifying Banks Actively

Involved in Offshore Private Banking

We found in our prior work on private banking that there was no

comprehensive database on the extent of private banking activities, let

alone offshore private banking activities, by banks or other financial

institutions operating in the United States.21 We also found that the most

recent information identified on private banking in the United States was a

general overview of the area, which did not consistently identify the

providers that were engaged in international, specifically offshore,

activities.22 Given this constraint, we attempted to identify banks that were

actively involved in offshore private banking activities by first identifying

banks with large amounts of assets in selected offshore jurisdictions, then

determining through input from regulators if these banks were engaged in

offshore private banking activities involving these jurisdictions. Our

methodology is described in greater detail below.

We identified 16 banks that were actively involved in offshore private

banking activities. We supplemented this group of banks with information

from the Federal Reserve Bank of New York (FRBNY) on banks in its

district involved in private banking activities. This FRBNY information

helped us identify an additional nine banks actively involved in offshore

private banking activities. In total, we identified 25 banks for our review. It

should be noted that these banks do not represent all banks that may be

involved in offshore private banking activities, only a subset of banks with

a significant level of offshore assets in certain jurisdictions identified to be

particularly susceptible to money laundering.

Methodology to Identify

Banks Actively Involved in

Offshore Private Banking

Activities

We applied the following steps to identify banks actively involved in

offshore private banking activities.

Step 1: Identified offshore jurisdictions that represent areas particularly

susceptible to money laundering.

We identified 17 offshore jurisdictions that were viewed as financial

secrecy havens and particularly susceptible to money laundering. We

identified these jurisdictions using information from the Internal Revenue

Service, the Department of State, and the Economist Intelligence Unit of

the United Kingdom.

21See Private Banking: Information on Private Banking and Its Vulnerability to Money Laundering

(GAO/GGD-98-19R, Oct. 30, 1997).

22Private Banking Register, 1996, Worth Magazine Supplement.

Page 24 GAO/GGD-98-154 Money Laundering
Appendix I 

Methodology for Identifying Banks Actively

Involved in Offshore Private Banking

Step 2: Identified which of the 17 offshore jurisdictions had a “significant”

amount of assets managed or controlled by banks operating in the United

States.

We identified nine jurisdictions—the Bahamas, Bahrain, the Cayman

Islands, the Channel Islands, Hong Kong, Luxembourg, Panama,

Singapore, and Switzerland—that had a significant amount of assets

managed or controlled by banks operating in the United States. We

identified these jurisdictions on the basis of a minimum threshold of

$1 billion in total U.S. bank branch or subsidiary assets. Our source of

asset information was a report generated by the Federal Reserve on

foreign branches and subsidiaries of U.S. banks.

Step 3: Identified banks with a significant amount of assets in one or more

of the nine offshore jurisdictions identified in step 2.

We used two thresholds, one for domestic banks and the other for foreign

banks, to determine which banks had a significant amount of assets in any

of the nine offshore jurisdictions selected for review. For domestic banks

we identified 29 banks that met a minimum threshold of $1 billion. For the

foreign banks we identified nine banks that met a minimum threshold of

$10 billion. Our key sources of information were reports generated by the

Federal Reserve on foreign branches and subsidiaries of U.S. banks and on

non-U.S. branches that are managed or controlled by a U.S. branch or

agency of a foreign (non-U.S.) bank.

Step 4: Determined if banks identified in step 3 were engaged in offshore

private banking activities involving any of the nine offshore jurisdictions.

We asked banking regulators to verify whether the banks identified in step

3 were actively involved in offshore private banking activities. They

identified 16 banks as actively involved in offshore private banking

activities. Ten of these banks were supervised by the Federal Reserve, and

the remaining 6 were supervised by the Office of the Comptroller of the

Currency.

Page 25 GAO/GGD-98-154 Money Laundering
Appendix I 

Methodology for Identifying Banks Actively

Involved in Offshore Private Banking

Page 26 GAO/GGD-98-154 Money Laundering
Appendix II 

Alternative Approaches to Regulatory

Access to Beneficial Owner Documentation

As part of our survey of 15 banks that had been examined by FRBNY during

its private banking initiative, we sought the views of bank officials on two

approaches that were being considered by the Federal Reserve to

regulatory access to documentation on the beneficial owners of PICs and

other offshore entities that maintain U.S. accounts. The first approach

would be for banks to routinely retain records in the United States on the

beneficial owners of offshore entities that maintain U.S. private banking

accounts. The second approach would be for banks to bring records on

the beneficial owners of these offshore entities into the United States only

if requested during an examination. We found that bank officials had a

similar level of concern with both approaches, with some officials stating

that the bank would need to make the same changes to how it maintains

documentation on the beneficial owners of these offshore entities under

either approach.

Below are the questions from our survey that we used to solicit the views

of bank officials on the two approaches to regulatory access to beneficial

owner documentation. The tables show the number of bank officials who

responded in a given category. Bank officials did not consistently provide

their input on all of the categories; therefore, the responses in each row do

not always add up to 15, the total number of banks surveyed.

Page 27 GAO/GGD-98-154 Money Laundering
Appendix II 

Alternative Approaches to Regulatory

Access to Beneficial Owner Documentation

“If your bank were to routinely maintain records on the beneficial owners

of offshore accounts in the United States for regulatory oversight

purposes, how likely or unlikely would the following occur? (Please check

one box in each row.)”

Very

likely

Somewhat

likely

As likely as

unlikely

Somewhat

unlikely

Very

unlikely

No basis to

judge

Change the way you do business (e.g., ask clients

to sign confidentiality waivers up-front) 9 1 3 1

Lose business to other banks and/or financial

institutions (e.g. brokerage houses) that do not have

this requirement 8 3 1 2

Lose business primarily of foreign clients who value

their confidentiality 11 1 2

Transfer accounts of foreign clients to offshore

affiliates 5 2 3 1 2

Change your approach to the private banking

business (e.g, reduce the size or eliminate the

bank’s private banking business in the United

States) 5 2 2 5

Other changes: Trust company in offshore location

would have to counsel its clients to direct their

assets elsewhere (i.e., outside of the United States) 1

Other changes: Increase in civil litigation against

clients because information will be readily available. 1

Other changes: Lose account officers to other

financial institutions with less stringent requirements. 1

n = 15

Note: A few officials suggested that other changes were somewhat likely to occur, including

added system requirements to track accounts and an increase in compliance staff, the cost of

doing business, and the amount of training required of client advisors.

Page 28 GAO/GGD-98-154 Money Laundering
Appendix II 

Alternative Approaches to Regulatory

Access to Beneficial Owner Documentation

“Alternatively, if your bank were to bring records on the beneficial owners

of offshore accounts (e.g., PICs, trusts, offshore mutual funds) into the

United States only upon request during an examination, how likely or

unlikely would the following occur? (Please check one box in each row.)”

Very

likely

Somewhat

likely

As likely as

unlikely

Somewhat

unlikely

Very

unlikely

No basis to

judge

Change the way you do business (e.g., ask clients

to sign confidentiality waivers up-front) 8 2 1

Lose business to other banks and/or financial

institutions (e.g. brokerage houses) that do not have

this requirement 7 1 2 1

Lose business primarily of foreign clients who value

their confidentiality 8 2 1

Transfer accounts of foreign clients to offshore

affiliates 6 1 1 1 2

Change your approach to the private banking

business (e.g, reduce the size or eliminate the

bank’s private banking business in the United

States) 5 1 2 3

Other changes: Trust company in offshore location

would have to counsel its clients to direct their

assets elsewhere (i.e., outside of the United States) 1

Other changes: Increase in civil litigation against

clients because information will be readily available. 1

Other changes: Lose account officers to other

financial institutions with less stringent requirements. 1

n = 15

Page 29 GAO/GGD-98-154 Money Laundering
Appendix III 

Comments From the Federal Reserve Board

Page 30 GAO/GGD-98-154 Money Laundering
Appendix IV 

Comments From the Office of the

Comptroller of the Currency

Page 31 GAO/GGD-98-154 Money Laundering
Appendix V 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Tamara E. Cross, Senior Evaluator

Office of the General

Counsel, Washington,

D.C.

Rachel DeMarcus, Senior Attorney

San Francisco Field

Office

Kane A. Wong, Assistant Director

Evelyn E. Aquino, Evaluator-in-Charge

José R. Peña, Senior Evaluator

Gerhard Brostrom, Communications Analyst

(233542) Page 32 GAO/GGD-98-154 Money Laundering
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