Chaired by Senator Susan Collins, the Permanent Subcommittee on Investigations examines issues predominantly connected with financial crime....

Chaired by Senator Susan Collins, the Permanent Subcommittee on Investigations examines issues predominantly connected with financial crime. Topics given consideration recently include: Phony IDs and credentials via the Internet - an Emerging Problem, Fraud on the Internet, Money Laundering, Emerging Securities Fraud, Mortgage Fraud and, of course, the investigation into correspondent banking.

The subcommittee consists of a number of members. It is a cross bench committee and it is notable that remarkably little inter-party politicking goes on. However, the subcommittee is engaged in politics and it appears to have a tendency to form a theory and then to seek out the evidence to support it. For example, the chairman, in the first sentence of her opening statement made on 19 May 2000, referred to "a new and disturbing trend - the use of the internet to manufacture and market counterfeit identification documents and credentials." There is therefore a statement, purportedly of fact, that it is possible to use the internet to manufacture something. That statement is both open to question on both legal and technical grounds. However, the internet is used to "market" items. The term "manufacture" permeates the statement and therefore militates against the effectiveness of some of the other comments made.

However, the statement provides an important overview of how easy, and low risk, it is both to purchase false documents and to run a business to produce them - and gives a series of basic reasons why there is a trade in them: the use of the term "basic" is not pejorative - it is surprising how much of life depends on proof of identity and the ability to prove that you are someone else is very attractive to all sorts of people, from under-age drinkers to money launderers.

From 1998, the subcommittee’s work on Fraud on the Internet has focused on traditional fraud perpetrated over the internet (1998) and securities frauds on the internet (1999), and in 2000, identity fraud was the primary issue. In Emerging Securities Fraud, the committee has examined the prevalence of day trading and the abuses of what had become something of a fashion among unsophisticated investors who were doomed to lose most if not all of their investments.

The main motivator in the investigations into money laundering is senator Carl Levin. He has led two major inquiries and has produced some extremely lucid examinations of law and fact. His more recent report, the "Correspondent Banking Gateway", is rather more lurid and excitable in its formulation than his previous work and that it is unfortunate because the value of the work is overshadowed by the style in which it is presented. Levin's work reaches deep into the corpus of the US banking system, touching raw nerves and exposing vitals that many would rather remained hidden.

His first report, in 1999, examined private banking. Importantly, Levin used the term correctly: the provision of high quality, near personal banking services to high net-worth individuals. There is no doubt that his report was at least in part instrumental in the formation of the Wolfsberg Principles. Levin's 1999 report also drew attention to the use of the US banking service to harbour proceeds of foreign corruption: in the climate shortly after the passing of the federal Foreign Corrupt Practices Act, Levin said: "America can't have it both ways: we can't condemn corruption abroad … and then tolerate American banks making fortunes off that corruption." He specifically referred to "officials taking bribes or looting their treasure" and it is notable that since that report, it has become recognised that such activities do not count as predicate crimes for US money laundering purposes.

Accordingly, so far as the US banking community is concerned, the Wolfsberg Principles, which require signatory banks to take steps to protect against such moneys passing into their accounts, is a voluntary code to address shortcomings in national legislation.

The report "Private Banking and Money Laundering: Case Study of Opportunities and Threats", published November 1999 is the result of a carefully conducted inquiry which included a detailed examination of banks, regulators and customers. The conclusion was that the private banking sector was vulnerable to money laundering and that "sound controls and active enforcement" are necessary to prevent the use of private banking facilities by money launderers. There are headline-grabbing comments in the report but it is, largely, a balanced and fair assessment of the relevant issues.

Levin does claim of the Money Laundering Control Act 1986 "this law was the first in the world to make money laundering a crime". This is debatable because the UK's Drug Trafficking Offences Act 1986 (in force July 1986) contained, at s24, provisions making it an offence to assist another to retain his proceeds of drugs trafficking and other jurisdictions have laws which predate 1986 and can be interpreted as making illegal the dealing in proceeds of crime.

Phase three of the subcommittee’s investigation will focus on the money laundering in the securities industry.