What are the legal, ethical and management issues in the Salinas situation?
Amy Elliot had assisted Raul Salinas to secretly transfer $100 million out of Mexico to a Switzerland account contrary to the Citibank’s “know your customer policy.” When Raul is arrested a year later by Mexican authorities on charges of money laundering, illegal enrichment and murder, Swiss authorities gave advice to Elliot to set a trap for Raul’s wife, but Elliot is in dilemma whether to follow on the advice, which would mean she avoids legal punishments, but again she has the obligation to protect her client’s identity based on the Swiss Bank Secrecy laws. The client is also alleged to have been falsely implicated by his political enemies.
In what ways is private banking vulnerable to money laundering?
The absence of an official regulation in the “know your customer” policies contributes to the inconsistencies regarding the regulator’s appraisal of the private banking area. The private banking characteristics such as profit orientation, the culture of confidentiality and the application of secrecy jurisdictions, the lax internal controls and the competitive nature of the business, as well as the influence of powerful clients and the significant profit potential for the bank, may make the banking team to overlook the idea of conducting due diligence on the prospective account holders.
To whom or to what groups does Amy Elliot have responsibilities and what are these responsibilities? As Amy Elliot, what would you do?
Amy Elliot bears responsibility for the fate of Raul Salinas, her client, to the Swiss authorities, the United States authorities and the former employee, who had been sentenced to 10 years imprisonment for managing the account of a convicted money launderer. She has the responsibility of doing background checks, visiting the client’s premises and protecting her client’s privacy based on the Swiss Bank Secrecy laws. Elliot should have refused to bear witness because her position was compromised by the imposition of the Swiss officials.
To whom or to what groups does the bank have responsibilities and what are these responsibilities?
The bank has a responsibility to answer to their clients and the government authorities, by knowing the client in terms of their backgrounds, source of wealth, the expected bank activity, and safeguarding their privacy. The bank must also answer to the authorities in cases where they wish to know the financial whereabouts of any of the clients when investigating certain criminal acts. The Federal law requires banks to disclose all financial transactions over $10,000 to the IRS-Internal Revenue Service and report any transactions that are believed to be suspicious in nature.
From the perspective of the bank’s CEO reviewing the situation at the end of the case, recommend a plan of action and explain why you favor that course of action?
“Know your customer” policy is deemed to be the most effective of the self monitoring measures to be implemented by the private banks because the clients have to submit bank references and some information related to their wealth. The bank should always carry out background checks, even after the evidence of the source(s) of wealth and the bank references are provided. This is on the basis that the relationship between the bank CEO and the President might have played a big role in waiving the background checks.