Bearing witness to financial crime, across party lines
10 Dec 2018

If it seems like an odd recipe for financial oversight, it’s also a surprisingly effective one: take five to ten congressional staffers, exile them to a squalid basement office with “hard-boiled” charm in the U.S. Senate’s oldest building, give them access to subpoena powers and a seemingly endless series of byzantine topics to investigate, and task them with incentivizing banks to drop some of their most lucrative practices.

That formula, replete with its David-and-Goliath connotations, can yield big results even in a deadlocked Congress, according to Elise Bean, the former staff director and chief counsel for the Permanent Subcommittee on Investigations (PSI) whose recently published Financial Exposure: Carl Levin’s Senate Investigations into Finance and Tax Abuse provides a cogent, informative, and entertaining how-to for lawmakers and their aides.

Entertaining? No, that’s not a typo in an article about legislators and financial corporations.

Bean, who focuses primarily on the 15 years in which Levin held court in the storied subcommittee, has a knack for weaving together the esoteric details of international money flows with stories about private bankers on the lam, Caribbean bank presidents suffering from dengue fever, questionable relationships between regulators and financial institutions, and hundreds of millions of dollars in drug money finding its way into the world’s largest banks.

Part of the draw of Financial Exposure is following Bean and her colleagues as they chance upon individuals and information that reveal widespread criminal exploitation of the banking sector.

When a former New Jersey pool salesman informs PSI staffers that he can’t find the $5 million he swindled from senior citizens in an investment scam, Bean and a colleague track down a self-described art dealer in a London prison—“a wiry elderly man who could’ve played Fagin in Oliver Twist”—who helped funnel the money out of New York through multiple correspondent accounts leading to Hanover Bank, a financial institution incorporated in Antigua but run out of a residence in Ireland. The funds, they discovered, had disappeared in a web of wire transfers and offshore accounts.

PSI’s broader investigation and subsequent report concluded that virtually every U.S. bank examined by the committee had opened correspondent accounts for high-risk offshore institutions like Hanover with “minimal screening and monitoring.”

Three days of highly publicized PSI hearings exacted verbal promises of reform from financial institutions, but legislation drafted by Levin to address the problem seemed to stall in committee.

Then came 9/11 and the Senate anthrax attack of October 2001, which mobilized lawmakers to adopt a raft of anti-money laundering and counterterrorism financing proposals as part of the Patriot Act.

“Our first PSI legislative victory arose out of the bitter aftermath of both events,” Bean writes.

Two years later, the fortuitous mention of a private banker previously interviewed by PSI in a news story on suspected embezzlement by Equatorial Guinea dictator Teodoro Obiang Nguema Mbasogo triggered an investigation into Washington, D.C.-based Riggs Bank.

The probe led to the discovery that Riggs had accepted at least $700 million in suspicious funds linked to Obiang and his family and had maintained aggregate accounts valued at up to $8 million for former Chilean dictator Augosto Pinochet.

Following Pinochet’s 1998 house arrest in London, the bank quietly moved $1.6 million to the United States to help Pinochet circumvent a court-ordered asset freeze.

The subcommittee ultimately discovered nearly 100 accounts held for Pinochet at Citibank, Bank of America, the U.S. affiliate of Banco de Chile, and other institutions, many of which had been opened under one of three passports using variations of his name.

PSI’s findings, including the subcommittee’s scrutiny of failures by the U.S. Office of the Comptroller of the Currency to effectively supervise Riggs, led to bipartisan legislation barring regulators from immediately taking jobs at the institutions they oversee and cost the bank and its owners $50 million in various monetary penalties.

While a subsequent sale of Riggs netted its owners hundreds of millions of dollars, not every high-level employee walked away scot-free. A year after the investigation, a Levin staffer realized that a hotel concierge he was speaking to had once been a Riggs banker working for Pinochet.

Financial Exposure is replete with such anecdotes, yet its real value lies not in its stories but in its analysis.

Underpinning the book, and answered throughout, is the question “How can lawmakers use their power to effectuate meaningful change absent passing legislation?”

Bean gives us part of the answer in the title: exposure.

Over and over again, readers get to see PSI finetuning its reports, its hearings, its line of questioning, with the goal of maximizing the exposure financial institutions and regulators face for failing to stop criminality.

It is a tactic that her boss, Senator Levin, famously exploited in hearings that dominated news cycles because of his relentless and meticulous questioning of C-Suite executives.

But like Levin, Bean is keen to emphasize another side of PSI’s work: bipartisan cooperation.

Over the years, even as public politics has degraded, the subcommittee has been a rare place in Congress for Republicans and Democrats alike to work together to fight corruption.

That, according to Bean, has been PSI’s biggest accomplishment, and it’s one that we might all hope is better emulated.

The book ‘Financial Exposure: Carl Levin’s Senate Investigations into Finance and Tax Abuse’ by Elise J. Bean’ is published by Palgrave Macmillan (2018), and is out now.

On Tuesday 11 December, KYC360 hosted a webinar discussing Elise’s new book and a variety of key related issues. The webinar will be posted on soon.

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