Buy Your Own Offshore Bank

W A S H I N G T O N, Mar. 1, 2001 -- The latest in personal finance: Now you canhave your own offshore bank for only $9,999, in eight weeks or lessand without a background check, ads on the Internet entice.

The offshore status of the banks means their foreign owners maybenefit from tax breaks, exemption from currency controls andconfidentiality.

Senate investigators see the ads as a new money-launderingdanger because the "personal" banks may offer links to accountsat American institutions. They say many large U.S. banks haveunwittingly become conduits for dirty foreign money.

The new banks licensed by Montenegro, for example, are touted asoffering correspondent accounts at the national Bank of Montenegro— which in turn is said to have accounts with major banks inSwitzerland and other countries.

Correspondent banking, a lucrative activity in which banksprovide each other services such as moving funds or exchangingcurrencies, allows banks to conduct business in countries in whichthey have no physical presence.

Senate Probe

The Senate investigators found in a yearlong inquiry that manybig U.S. banks have failed to take adequate steps to preventlaundering of money from drug trafficking and other illicitactivities through their correspondent bank accounts. A report onthe subject, by the Democratic staff of the Senate PermanentSubcommittee on Investigations, was released in early February.

The panel, part of the Senate Governmental Affairs Committee,was opening three days of hearings today. Witnesses includeexecutives of U.S. giants Citibank, Bank of America and Chase Manhattan as well as officials at the Justice and Treasury departments.

"The hearings will show … why U.S. banks should not extendthe lifeline — a correspondent bank account — that keeps thesebanks in business," Sen. Carl Levin of Michigan, the subcommittee's senior Democrat, said Wednesday.

Several U.S. banks have said they have tightened controlsagainst use of correspondent accounts for moving dirty money.

New Concern

Montenegro's government is establishing a Free Economic Zone,including an "international offshore center" that will providebusiness, tourist and other services to foreign companies,according to one of the online ads.

"Everybody knows how much money there is to be made in thebanking business. You've heard that money makes money … and banksmake money with other people's money!" says the advertisement."If you're looking to open a FULLY LICENSED BANK which isauthorized to carry on all banking business worldwide, the MOSTATTRACTIVE JURISDICTION is currently the REPUBLIC OF MONTENEGRO!"

In addition to the $9,999 setup fee, an offshore bank costs$4,000 in annual fees, according to the ad.

Then there's Anguilla, a long-established offshore haven in theCaribbean, where $9,500 will buy a new bank, another ad says,noting that "No previous banking experience is required."

Anguilla is among several Caribbean countries and territoriesidentified by the Organization of Economic Cooperation andDevelopment as tax evasion centers.

The banks offered in the ads are shell banks, without any realoperations, unregulated and posing a money-laundering risk, theinvestigators say.

The Senate subcommittee does not have legal authority to shutdown Web sites that advertise for such banks. The Democratic staffis recommending, however, that U.S. banks be prohibited bylegislation from opening accounts for any shell banks.

The American Bankers Association says the U.S. industry has "anexcellent track record" of detecting and preventing moneylaundering, and no new laws or rules are needed.

Citibank, which was listed in the ad as having a correspondentaccount with the Bank of Montenegro, closed that account late lastyear, bank spokesman Richard Howe said Wednesday.

"We no longer have an account for Bank of Montenegro," he saidby telephone from New York. Regardless of what country might beinvolved, he said, "This kind of a third-party Web site makes usuncomfortable" because interests other than Citibank customers mayuse them to solicit business.

Money laundering, in which profits from illegal activities aremoved through a series of bank or brokerage accounts to disguisethem as proceeds of legitimate business activity, is estimated toabsorb close to $600 billion a year. That equates to 5 percent ofthe world's gross domestic product.