During the next few days, the Permanent Subcommittee on Investigations will examine the complex world of correspondent banking, and the extent to which the correspondent banking system can involve U.S. banks in money laundering, allowing criminals to exploit our financial system. These hearings, initiated by the Ranking Minority Member, Senator Levin, are the culmination of a lengthy investigation into correspondent banking by his staff, and represent the second phase of the Subcommittee s examination of money laundering and its effect upon our financial system. Typically, the respondent bank has no physical presence in the jurisdiction in which it maintains a correspondent account. Correspondent banking thus enables the respondent bank to provide services to its customers that otherwise would be unavailable because of geographic limitations.
Correspondent banking is an integral part of the domestic and international banking systems.
Without correspondent banking, in fact, it would often be impossible for banks to provide comprehensive nationwide and international banking services among them, the vital capability to transfer money by wire with amazing speed and accuracy across international boundaries. For this reason, U.S. banks maintain thousands of correspondent relationships, through which billions of dollars move daily. To other clients, U.S. banks also offer credit-related products, such as loans, credit extensions, and lines of credit. Not surprisingly, money launderers have capitalized on this relative lack of scrutiny for non-credit relationships. In other words, the money launderers gamble that the U.S. banks will not notice or perhaps not scrutinize the source of the funds flowing through their correspondent accounts.