Money Laundering

Observations on Private Banking and Related Oversight of Selected Offshore Jurisdictions Gao ID: T-GGD-00-32 November 9, 1999

This testimony provides an overview of money laundering in relation to private banking and highlights some regulatory issues involving the vulnerability of selected offshore jurisdictions to money laundering. GAO focuses on the following four areas: regulators' oversight of private banking in general, regulators' oversight of private banking in selected offshore jurisdictions, barriers that have hampered regulators' oversight of offshore banking, and future challenges that confront regulators' efforts to combat money laundering in offshore jurisdictions.

GAO noted that: (1) federal banking regulators have overseen private banking through examinations that, among other things, focus on banks' "know your customer" policies; (2) these policies enable banks to understand the kinds of transactions a particular customer is likely to engage in and to identify any unusual or suspicious transactions; (3) federal banking regulators have examination procedures that cover private banking activities conducted by banks operating in the United States; (4) in cases that involve private banking activities conducted by branches of U.S. banks operating in offshore jurisdictions, examiners rely primarily on banks' internal audit functions; (5) GAO found that the key barriers to U.S. regulators' oversight of offshore banking activities are secrecy laws that restrict access to banking information or that prohibit on-site examinations of U.S. bank branches in offshore jurisdictions; and (6) an important challenge that confronts efforts to combat money laundering is the extent to which such secrecy laws will continue to be barriers to U.S. and foreign regulators.

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