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U.S. Senate Report: Tackle Money Laundering to Curtail Drug Trafficking

Clark Gascoigne, +1 202 293 0740 ext. 222

Bipartisan Study Features GFI Research, Endorses Eliminating Phantom Firms

Senate Drug Caucus Report Quotes GFI’s Heather Lowe, Highlight’s GFI’s Research on Trade-Based Money Laundering

WASHINGTON, DC / LONDON – A bipartisan Congressional report published Thursday by the U.S. Senate Caucus on International Narcotics Control (Senate Drug Caucus) emphasizes cracking down on money laundering as key to curtailing the illicit drug trade.  Quoting heavily from Global Financial Integrity (GFI) experts and research, the study endorses eliminating anonymous U.S. shell companies through the passage of the bipartisan Incorporation Transparency and Law Enforcement Assistance Act, bolstering enforcement of existing anti-money laundering (AML) policies, and strengthening anti-money laundering laws through passage of the bipartisan Combating Money Laundering, Terrorist Financing and Counterfeiting Act.

“You simply cannot curtail the drug trade without curtailing drug money,” said GFI Director Raymond Baker, a longtime authority on financial crime.  “The UN estimates that worldwide, over 40 percent of cocaine is seized somewhere between production and consumption.  However, less than half of one percent of laundered criminal money is interdicted globally.  We’ve put the cart before the horse, and the Senate Drug Caucus clearly recognizes that.”

Eliminating Anonymous U.S. Shell Companies

Co-chaired by U.S. Senators Dianne Feinstein (D-CA) and Chuck Grassley (R-IA), the panel endorsed banning the anonymous incorporation of U.S. companies through adoption of the bipartisan Incorporation Transparency and Law Enforcement Assistance Act.  The recommendation followed statements Wednesday from the United Kingdom, France, and Germany, who all endorsed the elimination of phantom firms in letters to the European Union—adding to global momentum against anonymous shell companies worldwide.

“Anonymous shell companies are the most widely used method for laundering the proceeds of crime, corruption, and tax evasion,” noted Mr. Baker. “It has unfortunately become routine for law enforcement investigations into violent drug traffickers to be stymied by anonymous U.S. companies.  The United States is the easiest place in the world next to Kenya to open an anonymous shell company.  Roughly two million companies are formed in the U.S. each year and almost none of them are required to disclose the true, human owner of those firms.  We’re basically inviting crime into our financial system.”

Lax AML Enforcement Fueling Crime

Titled “The Buck Stops Here: Improving U.S. Anti-Money Laundering Practices,” the report also recommended stronger enforcement of anti-money laundering laws by the U.S. Department of Justice (DOJ).  The DOJ came under heavy criticism in recent months for failing to indict HSBC—or even a single one of its employees—despite the bank’s own admission that it failed to apply anti-money laundering controls to $200 trillion in wire transfers between 2006-2009, $881 million of which was known drug cartel money.

“As recent events illustrate, large American banks are failing to comply with anti-money laundering rules,” said Heather Lowe, GFI’s Legal Counsel and Director of Government Affairs, who’s quoted repeatedly throughout the report.  “From HSBC to Wachovia, we have repeatedly seen large financial institutions failing to implement the legally required controls.  It’s happening time and again, and not one bank—not even one banker—has been indicted.  This failure to fully enforce our laws sends the signal that the U.S. banking system is open to business for criminals looking to launder their money.”

“Money laundering is taking the proceeds of crime (“illegitimate” money) and bringing it into the legitimate financial system so that the criminals can use that money without being tied to those terrible crimes – crimes like manufacturing and distributing drugs, selling people into the sex trade, trafficking in illegal weapons, and selling knock-off, unsafe products like toys with high levels of lead paint into the marketplace,” wrote Ms. Lowe in a January op-ed for the Thomson Reuters Foundation.

Ms. Lowe adds, “Criminals cannot operate without being able to launder their money.  In failing to enforce our anti-money laundering laws, we all become accomplices to the heinous crimes committed by these drug cartels, and it is our families and our communities that suffer the consequences.”

Further Recommendations

Prepared as U.S. financial regulators are conducting a thorough review of the nation’s anti-money laundering policies and enforcement, the Drug Caucus study further recommends:

  • Making pre-paid cards (known as stored value) subject to cross-border reporting requirements;
  • Closing a loophole that makes armored cash carriers exempt from reporting requirements;
  • Passage of the bipartisan Combating Money Laundering, Terrorist Financing and Counterfeiting Act to close gaps in anti-money laundering laws; and
  • Full enactment of the 2007 National Money Laundering Strategy, including the requirement that all money service businesses register with the Treasury Department’s Financial Crimes Enforcement Network.

GFI’s Mexico Report Cited

The Senate report additionally cites GFI’s research on illicit financial flows from Mexico, noting the heavy toll that trade-based money laundering has on the Mexican economy.  Authored by GFI Lead Economist Dev Kar, a former senior economist at the IMF, GFI’s report found that trade mispricing was the dominate method to illegally move money out of Mexico, facilitating the illicit outflow of $642.9 billion from 1970-2010.


Notes to Editors:

  • To schedule an interview with Mr. Baker in Washington, Ms. Lowe in London, or other GFI spokespersons, contact Clark Gascoigne at +1 202 293 0740, ext. 222 / On-camera spokespersons are available in Washington, DC (Everyday) and in London (Friday).
  • Click here to read the joint press release from Senators Dianne Feinstein (D-CA) and Chuck Grassley (R-IA), co-chairs of the Senate Caucus on International Narcotics Control, announcing the new report.
  • Click here (PDF) to download the full Senate report, “The Buck Stops Here: Improving U.S. Anti-Money Laundering Practices.”
  • The Senate report was endorsed by Senate Drug Caucus members Dianne Feinstein (D-CA), Chuck Grassley (R-IA), Tom Udall (D-NM), Sheldon Whitehouse (D-RI), James E. Risch (R-ID), and John Cornyn (R-TX).
  • Click here to read a July 2012 op-ed by GFI Director Raymond Baker and former Guatemalan Vice President Rafael Espada, titled “Time to tackle the money behind drug cartels,” published in the San Antonio Express-News.
  • Click here to learn more about the bipartisan Incorporation Transparency and Law Enforcement Assistance Act, which is yet to be introduced into the current Congressional session.
  • Click here for more on the UK, Germany, and France calling for an end anonymous shell companies on Wednesday.
  • Click here to read Heather Lowe’s January 2013 op-ed, “Money Laundering and HSBC – How it affects you,” published by the Thomson Reuters Foundation.
  • Click here to read Heather Lowe’s June 2012 speech, “Players: The Role of Facilitators and Super-Fixers,” discussing the Wachovia money laundering case, delivered at the National Defense University.
  • Click here to read a joint statement from November 2012 by GFI, Global Witness, and the FACT Coalition welcoming the U.S. government’s on-going anti-money laundering review.
  • Click here to read more about GFI’s January 2012 research on illicit financial flows from Mexico.


Clark Gascoigne
+1 202-293-0740 ext.222


Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system as a means to global development.

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