Foreign diplomatic missions in New York and in Washington face the prospect of stuffing their cash under their mattresses as US laws to combat money laundering and terrorism have prompted banks to refuse their accounts.
JPMorgan Chase notified more than 150 ambassadors in September that their accounts would be closed as of March 31, but the issue grew into a budding diplomatic crisis this month as embassies scrambling to open accounts elsewhere were turned away.
“It really is a problem,” Baso Sangqu, the ambassador from South Africa, said on Thursday. “We cannot get banking services.”
Chase and other major banks — including Bank of America, Citibank and HSBC — refused to comment publicly on changes in their diplomatic banking business. The letter Chase sent in September said its “business decision does not reflect on your organization” and noted that personal accounts were not affected.
Privately, banking officials said the cost of complying with the regulations and the potential large fines if they did not were not matched by the earnings diplomatic accounts generate.
Efforts to more closely monitor foreign bank transfers to combat money laundering started around 1990, but took on renewed urgency to block terrorism financing after the Sept. 11, 2001, attacks.
Banks must ask customers to specify the sources of large or suspicious transfers from abroad and report them to the government. For now, transfers over US$10,000 must be reported, but the US Treasury Department has proposed requiring reports on all foreign transfers.
Several recent events have probably prompted the banks to act. A report by the US Senate Permanent Subcommittee on Investigations in February criticized Bank of America and HSBC for what it called lax policing on a few African accounts, including some from Angola and Equatorial Guinea. Last fall, the US Federal Reserve also singled out HSBC for lack of vigilance.
The US State Department dispatched Under Secretary for Management Patrick Kennedy as well as a senior US Treasury Department official, to the UN on Thursday to brief diplomats from about 100 nations on efforts to solve the problem. Kennedy said the US government had approached Chase about the issue, but stressed that ultimately US banks were private enterprises that made business decisions free of government intervention.
The envoys left unimpressed.
“I don’t think it is providing any solution at this time,” Sangqu said.
Larger countries, like China and France, said they did not anticipate difficulties finding other banks. However, smaller countries, or those under sanctions like Iran and Cuba, are expected to face problems.
Mohammed Khazaee, the ambassador from Iran, said that without bank accounts, the entire business of the UN risked grinding to a halt as member states would be unable to make the financial transfers needed to pay for costs ranging from their annual dues to peacekeeping operations.
“Missions cannot function,” he said.
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