Thus washed, the money is as odorless as Vespasian's coins. And there's not much the Bank of New York can do about it, claims CEO Thomas A. Renyi. The money doesn't have to be sent to Antigua, Guernsey, Gibraltar, Cyprus, Belgium or Luxembourg, where the strongest bank-secrecy laws make it impossible to find out even the names of the shell companies. New regulations wouldn't help, Mr. Renyi suggested. Heightened domestic surveillance in any one country may simply drive would-be wrongdoers to less stringent points of entry into the system.
Banking begins, more than half a millennium ago, with correspondent relations.
The Medicis, the Fuggers, the Rothschilds and the Morgans built their businesses on the security and competence of their correspondents. In the modern world, more open arrangements took over as clearinghouses were formed to permit participants to net their payments and deliveries. Banking regulators, seeking to fence off failures that might infect multilateral clearinghouses, have encouraged bilateral netting between banks in their correspondent accounts with each other. Other derivatives contracts have become convenient ways to launder money. At a conference of derivatives traders in London two weeks ago, where I gave a talk, several dealers complained that nobody was policing the flow of money on the derivatives chassis from Russia, Romania and Bulgaria.