Permanent Subcommittee on Investigations
"The Permanent Subcommittee on Investigations is one ofthe few institutions in Congress that's still working. Carl Levin is a big reason why." National Journal, February 11, 2012.
Senator Levin has been a member of the Permanent Subcommittee on Investigations, the Senate’s premier investigating committee, since 1999. He has chaired the subcommittee from June 2001 to January 2003 and from 2007 to the present.
The Permanent Subcommittee on Investigations (PSI) has jurisdiction to conduct investigations into a broad range of issues, including federal waste, fraud and abuse, corporate crime, offshore banking and tax practices, energy markets, corruption, and national security.
In 2010, Senator Levin led Congress’ most in-depth examination into Wall Street and the financial crisis. He has also investigated the credit card industry, shell companies, abusive tax schemes and offshore tax havens. The PSI investigations have made major contributions to several laws including the Wall Street Reform and Consumer Protection Act, the Credit CARD Act, and the Patriot Act.
Click each section title below to learn more about it.
The Permanent Subcommittee on Investigations, under the chairmanship of Sen. Levin, conducted an 18 month investigation into the causes of the financial crisis. The investigation culminated in a series of four hearings chaired by Sen. Levin in April 2010. The hearings also provided the Senate with important information that helped craft the law to put a cop back on the beat on Wall Street.
The Wall Street Reform and Consumer Protection Act, signed by President Obama in July 2010, will do much to rein in the problems Sen. Levin identified in the four investigative hearings. It will rebuild the firewall between the worst high-risk excesses of Wall Street and the jobs and homes and futures of ordinary Americans by ending the era of lax regulation and returning a watchdog to Wall Street.
Now that Congress has passed strong new Wall Street reform legislation, it is up to federal regulators to enforce the law. If they adopt weak rules, or enforce them weakly, the reforms won’t work, and the economy and taxpayers will remain vulnerable to a repeat of the Wall Street abuses and excesses that helped throw the economy into recession.
One key battle is how regulators will implement and enforce the protections against risky financial trading and conflicts of interest – protections that Sen. Jeff Merkley of Oregon and Sen. Levin fought to include in the Wall Street reform bill.
Sen. Levin is closely following the rule-making process of the regulatory agencies charged with enforcing the Wall Street Reform and Consumer Protection Act. He has authored several letters (listed below) to the responsible agencies and has joined with Sen. Merkley and others in pushing the regulators to energetically implement the law.
A detailed description of the four April 2010 hearings on Wall Street and the Financial Crisis and links to associated information can be found after the letters to agencies.
Subcommittee Report and Related Press Releases
- Press release - Levin, Merkley Urge SEC to Adopt Rule Against Conflicts of Interest in Asset-Backed Securities - January 12, 2012.
- Press release - Senate Investigations Subcommittee Releases Levin-Coburn Report on the Financial Crisis - April 13, 2011.
- Report - Wall Street and the Financial Crisis: Anatomy of a Financial Collapse [PDF 6 MB] - April 13, 2011.
Letters to Agencies
- Letter to the Securities and Exchange Commission re the JOBS Act [PDF] - December 5, 2013.
- Letter to the Treasury Department re financial services regulations and the Transatlantic Trade and Investment Partnership (TTIP) [PDF] - July 22, 2013.
- Letter to the Securities and Exchange Commission re protecting investors while allowing for advertising for private securities offerings [PDF] - October 5, 2012.
- Letter to the Securities and Exchange Commission re proposed rule change to list and trade shares of the JPM XF Physical Copper Trust pursuant to NYSE Arca Equities Rule 8.201 [PDF] - July 16, 2012.
- Letter to Federal Reserve and four other regulatory agencies by 22 senators urging regulators to write and implement a strong Volcker Rule [PDF] - April 26, 2012.
- Letter to Securities and Exchange Commission re use of derivatives by investment companies [PDF] - March 19, 2012.
- Letter to Securites and Exchange Commission re disclosure of payments by resource extraction issuers [PDF] - February 17, 2012.
- Merkley-Levin Letter to OCC, Federal Reserve, FDIC, SEC, CFTC re the Volcker Rule [PDF] - February 13, 2012.
- Letter to the Securities and Exchange Commission re proposed rule to prohibit conflicts of interest in asset-backed securitizations [PDF] - January 12, 2012.
- Letter to the IRS and Treasury re implementing the Foreign Account Tax Compliance Act [PDF] - January 11, 2012.
- Letter to the Financial Accounting Foundation re plan to establish the Private Company Standards Improvement Council [PDF] - January 11, 2012.
- Letter to the Public Company Accounting Oversight Board re support for amendments on disclosing audit engagement partners [PDF] - January 3, 2012.
- Letter to the Commodity Futures Trading Commission by Sens. Levin and Dianne Feinstein on reinstating trading criteria for exclusion from the commodity pool operators (CPO) definision [PDF] - November 30, 2011.
- Letter to the Securities and Exchange Commission re business conduct standards for security-based swap dealers and major security-based swap participants [PDF] - August 29, 2011.
- Letter to the Securities and Exchange Commission re rules for credit rating agencies [PDF] - August 8, 2011.
- Letter to Treasury and Office of the Comptroller of the Currency re OCC's proposed rules on preemption [PDF] - July 13, 2011.
- Letter to regulators re credit risk retention [PDF] - June 28, 2011.
- Letter to IRS re reporting bank deposit interest paid to nonresident aliens [PDF] - April 12, 2011.
- Letter to the CFTC and SEC re Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues [PDF] - April 8, 2011.
- Letter to the Commodity Futures Trading Commission re position limits for derivatives [PDF] - March 28, 2011.
- Letter to the Commodity Futures Trading Commission re definitions of swap dealer, security-based swap dealer, major swap participant and eligible contract participant [PDF] - March 4, 2011.
- Letter to the Securities and Exchange Commission re disclosure of payments by resource extraction issuers [PDF] - February 2, 2011.
- Letter to the Securities and Exchange Commission re private funds registration requirements [PDF] - January 25, 2011.
- Letter to the Commodity Futures Trading Commission re procedures by futures commission merchants and introducing brokers [PDF] - January 24, 2011.
- Letter to the Commodity Futures Trading Commission re speculation in oil and commodity markets [PDF] - January 12, 2011.
- Letter to the Commodity Futures Trading Commission re antidisruptive practices authority and prohibition on market manipulation [PDF] - January 3, 2011.
- Letter to the Securities and Exchange Commission re ownership limitations and governance requirements [PDF] - December 20, 2010.
- Letter to the Treasury Department re exempting foreign exchange swaps and forwards from regulation under the Commodities Exchange Act [PDF] - November 29, 2010.
- Letter to the Securities and Exchange Commission re improved disclosure of short-term borrowing activities [PDF] - November 29, 2010.
- Letter to the Securities and Exchange Commission re shareholder approval of executive and golden parachute compensation and disclosure of related proxy votes [PDF] - November 18, 2010
- Letter to the Commodity Futures Trading Commission re requirements for derivatives clearing organizations, designated contract markets, and swap execution facilities regarding the mitigation of conflicts of interest [PDF] - November 17, 2010.
- Letter to the Securities and Exchange Commission re asset-backed securities repurchasing disclosures and enforcement of representations and warranties [PDF] - November 15, 2010.
- Letter to Securities and Exchange Commission re asset-backed security reviews [PDF] - November 15, 2010.
- Letter to the Financial Stability Oversight Council re implementing the Merkley-Levin provisions on proprietary trading and conflicts of interest [PDF] - November 4, 2010.
- Letter to the Commodity Futures Trading Commission re exempting Exchange Traded Funds [PDF] - November 1, 2010.
- Letter to the Financial Stability Oversight Council re implementation of the Merkley-Levin provisions on proprietary trading and conflicts of interest [PDF] - October 28, 2010.
- Letter to Federal Reserve, SEC, CFTC, FDIC and OCC re implementation of Merkley-Levin provisions [PDF] - August 3, 2010.
The financial crisis was not an act of nature; it was a man-made economic assault that cost millions of jobs, evaporated billions of dollars in retirement savings, and put our nation in the worst economic tailspin since the Great Depression.
In April 2010, the Permanent Subcommittee on Investigations held a series of hearings in order to examine some of the causes and consequences of the crisis. The goals of the hearings were threefold: to construct a public record of the facts to deepen public understanding of what happened and to try to hold some of the perpetrators accountable; to inform the legislative debate about the need for financial reform; and to provide a foundation for building better defenses to protect Main Street from the excesses of Wall Street.
The hearings were based on an in-depth bipartisan investigation that began in November 2008. The Subcommittee conducted over 100 detailed interviews and depositions, consulted with dozens of experts, and collected and initiated review of millions of pages of documents. Given the extent of the economic damage and the complexity of its root causes, the Subcommittee’s approach has been to develop detailed case studies to examine each stage of the crisis.
The first hearing examined the role of high risk home loans and the mortgage backed securities that those loans produced, using as a case history the policies and practices of Washington Mutual Bank.
The second hearing examined the role of the banking regulators charged with ensuring the safety and soundness of the U.S. banking system, again using Washington Mutual as a case history.
The third hearing focused on the role of the credit rating agencies (CRAs), specifically the two largest CRAs: Moody's and Standard and Poor's.
The final hearing focused on the role of investment banks, using Goldman Sachs as a case study.
Hearing One: The Role of High Risk Home Loans
The first hearing, April 13, 2010, focused on the role of high risk loans, using Washington Mutual Bank as a case history. It showed how the bank originated and sold hundreds of billions of dollars in high risk loans to Wall Street in return for big fees, polluting the financial system with toxic mortgages.
The Subcommittee investigation reached the following findings of fact:
- High Risk Lending Strategy. Washington Mutual (“WaMu”) executives embarked upon a high risk lending strategy and increased sales of high risk home loans to Wall Street, because they projected that high risk home loans, which generally charged higher rates of interest, would be more profitable for the bank than low risk home loans.
- Shoddy Lending Practices. WaMu and its affiliate, Long Beach Mortgage Company (“Long Beach”), used shoddy lending practices riddled with credit, compliance, and operational deficiencies to make tens of thousands of high risk home loans that too often contained excessive risk, fraudulent information, or errors.
- Steering Borrowers to High Risk Loans.WaMu and Long Beach too often steered borrowers into home loans they could not afford, allowing and encouraging them to make low initial payments that would be followed by much higher payments, and presumed that rising home prices would enable those borrowers to refinance their loans or sell their homes before the payments shot up.
- Polluting the Financial System. WaMu and Long Beach securitized over $77 billion in subprime home loans and billions more in other high risk home loans, used Wall Street firms to sell the securities to investors worldwide, and polluted the financial system with mortgage backed securities which later incurred high rates of delinquency and loss.
- Securitizing Delinquency-Prone and Fraudulent Loans. At times, WaMu selected and securitized loans that it had identified as likely to go delinquent, without disclosing its analysis to investors who bought the securities, and also securitized loans tainted by fraudulent information, without notifying purchasers of the fraud that was discovered.
- Destructive Compensation. WaMu’s compensation system rewarded loan officers and loan processors for originating large volumes of high risk loans, paid extra to loan officers who overcharged borrowers or added stiff prepayment penalties, and gave executives millions of dollars even when its high risk lending strategy placed the bank in financial jeopardy.
- Levin-Coburn memo - Wall Street and the Financial Crisis: The Role of High Risk Home Loans [PDF] - April 13, 2010
- Opening Statement - PSI Hearing on Wall Street and the Financial Crisis: The Role of High Risk Home Loans - April 13, 2010
- Exhibits - PSI Hearing on Wall Street and the Financial Crisis: The Role of High Risk Home Loans [PDF 51 MB] - April 13, 2010
- Hearing information - Homeland Security and Governmental Affairs Committee website - April 13, 2010
- Press release - Senate Subcommittee Launches Series of Hearings on Wall Street and Financial Crisis - April 12, 2010
Hearing Two: The Role of Bank Regulators
The second hearing, on April 16, 2010, focused on regulators, using as a case study the role of the Office of Thrift Supervision (OTS), and the Federal Deposit Insurance Corporation (FDIC) in exercising oversight of Washington Mutual Bank.
Feeble oversight by regulators, combined with weak regulatory standards and agency infighting, allowed Washington Mutual Bank, a $300 billion thrift and the sixth largest U.S. depository institution, to engage in high-risk and shoddy lending practices and the sale of toxic and sometimes fraudulent mortgages that contributed to both the bank’s demise and the 2008 financial crisis.
The Subcommittee investigation reached the following findings of fact:
- Largest U.S. Bank Failure. From 2003 to 2008, OTS repeatedly identified significant problems with Washington Mutual’s lending practices, risk management, and asset quality, but failed to force adequate corrective action, resulting in the largest bank failure in U.S. history.
- Shoddy Lending Practices. OTS allowed Washington Mutual and its affiliate Long Beach Mortgage Company to engage year after year in shoddy lending and securitization practices, failing to take enforcement action to stop its origination and sale of loans with fraudulent borrower information, appraisal problems, errors, and notoriously high rates of delinquency and loss.
- Unsafe Option ARM Loans.OTS allowed Washington Mutual to originate hundreds of billions of dollars in high risk Option Adjustable Rate Mortgages, knowing that the bank used unsafe and unsound teaser rates, qualified borrowers using unrealistically low loan payments, permitted borrowers to make minimum payments resulting in negatively amortizing loans (i.e., loans with increasing principal), relied on rising house prices and refinancing to avoid payment shock and loan defaults, and had no realistic data to calculate loan losses in markets with flat or declining house prices.
- Short Term Profits Over Long Term Fundamentals. OTS abdicated its responsibility to ensure the long-term safety and soundness of Washington Mutual by concluding that short-term profits obtained by the bank precluded enforcement action to stop the bank’s use of shoddy lending and securitization practices and unsafe and unsound loans.
- Impeding FDIC Oversight. OTS impeded FDIC oversight of Washington Mutual by blocking its access to bank data, refusing to allow it to participate in bank examinations, rejecting requests to review bank loan files, and resisting FDIC recommendations for stronger enforcement action.
- FDIC Shortfalls. FDIC, the backup regulator of Washington Mutual, was unable to conduct the analysis it wanted to evaluate the risk posed by the bank to the Deposit Insurance Fund, did not prevail against unreasonable actions taken by OTS to limit its examination authority, and did not initiate its own enforcement action against the bank in light of ongoing opposition by the primary federal bank regulators to FDIC enforcement authority.
- Recommendations Over Enforceable Requirements. Federal bank regulators undermined efforts to end unsafe and unsound mortgage practices at U.S. banks by issuing guidance instead of enforceable regulations limiting those practices, failing to prohibit many high risk mortgage practices, and failing to set clear deadlines for bank compliance.
- Failure to Recognize Systemic Risk. OTS and FDIC allowed Washington Mutual and Long Beach to reduce their own risk by selling hundreds of billions of dollars of high risk mortgage backed securities that polluted the financial system with poorly performing loans, undermined investor confidence in the secondary mortgage market, and contributed to massive credit rating downgrades, investor losses, disrupted markets, and the U.S. financial crisis.
- Ineffective and Demoralized Regulatory Culture. The Washington Mutual case history exposes the regulatory culture at OTS in which bank examiners are frustrated and demoralized by their inability to stop unsafe and unsound practices, in which their supervisors are reluctant to use formal enforcement actions even after years of serious bank deficiencies, and in which regulators treat the banks they oversee as constituents rather than arms-length regulated entities.
- Levin-Coburn memo - Wall Street and the Financial Crisis: The Role of Bank Regulators [PDF] - April 16, 2010
- Opening statement - PSI Hearing on Wall Street and the Financial Crisis: The Role of Bank Regulators - April 16, 2010
- Exhibits - PSI hearing on Wall Street and the Financial Crisis: The Role of Bank Regulators [PDF 25 MB] - April 16, 2010
- Hearing information - Homeland Sercurity and Governmental Affairs Committee website - April 16, 2010
- Press release - Senate Subcommittee Holds Second Hearing on Wall Street and the Financial Crisis: The Role of Bank Regulators - April 15, 2010
Hearing Three: The Role of Credit Rating Agencies.
The third hearing, on April 23, 2010, focused on the role of the credit ratings agencies (CRAs). Moody’s and Standard and Poor’s, the two largest credit ratings agencies, rated tens of thousands of residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) that were based on high-risk home loans.
While making record profits from 2004 to 2007, CRAs –which are paid by the issuers of the securities they rate—gave the highest possible ratings to securities underpinned by high-risk home loans. In 2007, after delinquencies rose and the subprime market began to collapse, the CRAs had to massively downgrade many of these securities, resulting in major shocks to the financial system.
The Subcommittee investigation reached the following findings of fact:
- Inaccurate Rating Models.From 2004 to2007, Moody’s and Standard & Poor’s used credit rating models with data that was inadequate to predict how high risk residential mortgages, such as subprime, interest only, and option adjustable rate mortgages, would perform.
- Competitive Pressures.Competitive pressures, including the drive for market share and need to accommodate investment bankers bringing in business, affected the credit ratings issued by Moody’s and Standard & Poor’s.
- Failure to Re-evaluateBy 2006, Moody’s and Standard & Poor’s knew their ratings of residential mortgage backed securities (RMBS) and collateralized debt obligations (CDOs) were inaccurate, revised their rating models to produce more accurate ratings, but then failed to use the revised model to re-evaluate existing RMBS and CDO securities, delaying thousands of rating downgrades and allowing those securities to carry inflated ratings that could mislead investors.
- Failure to Factor in Fraud, Laxity, or Housing Bubble. From 2004 to 2008, Moody’s and Standard & Poor’s knew of increased credit risks due to mortgage fraud, lax underwriting standards, and unsustainable housing price appreciation, but failed adequately to incorporate those factors into their credit rating models.
- Inadequate Resources. Despite record profits from 2004 to 2008, Moody’s and Standard & Poor’s failed to assign sufficient resources to adequately rate new products and test the accuracy of existing ratings.
- Mass Downgrades Shocked Market Mass downgrades by Moody’s and Standard & Poor’s, including downgrades of hundreds of subprime RMBS over a few days in July 2007, downgrades by Moody’s of CDOs in October 2007, and downgrades by Standard & Poor’s of over 6,300 RMBS and 1,900 CDOs on one day in January 2008, shocked the financial markets, helped cause the collapse of the subprime secondary market, triggered sales of assets that had lost investment grade status, and damaged holdings of financial firms worldwide, contributing to the financial crisis.
- Failed Ratings. Of [12,000] RMBS that, from 2006 to 2007, received AAA ratings from Moody’s or Standard & Poor’s, about [one-third] have since received a rating downgrade, some within 6 months of their initial rating.
- Statutory Bar. The U.S. Securities and Exchange Commission is barred by statute from conducting needed oversight into the substance, procedures, and methodologies of the credit rating models.
- Levin-Coburn memo - Wall Street and the Financial Crisis: The Role of Credit Rating Agencies [PDF] - April 23, 2010
- Opening statement - PSI Hearing on Wall Street and the Financial Crisis: The Role of Credit Rating Agencies - April 23, 2010
- Exhibits - PSI Hearing on Wall Street and the Financial Crisis: The Role of Credit Rating Agencies [PDF 23 MB] - April 23, 1010
- Hearing information - Homeland Security and Governmental Affairs Committee website - April 23, 2010
- Press release - Senate Subcommittee Holds Third Hearing on Wall Street and the Financial Crisis: The Role of Credit Rating Agencies - April 22, 2010
Hearing Four: The Role of Investment Banks.
The final hearing, held on April 27, 2010, focused on the role of investment banks, using Goldman Sachs as a case study. Goldman Sachs and other investment banks played a crucial role in building and running the conveyor belt that fed toxic mortgages and mortgage-backed securities into the financial system.
For Goldman Sachs, this role included underwriting securities backed by or related to mortgages from some of the most notorious subprime mortgage lenders, including Long Beach. Goldman Sachs also designed and sold billions of dollars of collateralized debt obligations (CDOs) that further spread the risks associated with toxic mortgages, and issued derivative financial products, such as synthetic collateralized debt obligations (CDOs), which had no underlying assets and were merely bets that referenced mortgage-backed securities. In several cases, Goldman was marketing deals to its clients as good investment opportunities while simultaneously betting that these very same deals would fail.
The Subcommittee investigation reached the following findings of fact:
- Securitizing High Risk Mortgages. From 2004 to 2007, in exchange for lucrative fees, Goldman Sachs helped lenders like Long Beach, Fremont, and New Century, securitize high risk, poor quality loans, obtain favorable credit ratings for the resulting residential mortgage backed securities (RMBS), and sell the RMBS securities to investors, pushing billions of dollars of risky mortgages into the financial system.
- Magnifying Risk. Goldman Sachs magnified the impact of toxic mortgages on financial markets by re-securitizing RMBS securities in collateralized debt obligations (CDOs), referencing them in synthetic CDOs, selling the CDO securities to investors, and using credit default swaps and index trading to profit from the failure of the same RMBS and CDO securities it sold.
- Shorting the Mortgage Market.As high risk mortgage delinquencies increased, and RMBS and CDO securities began to lose value, Goldman Sachs took a net short position on the mortgage market, remaining net short throughout 2007, and cashed in very large short positions, generating billions of dollars in gain
- Conflict Between Client and Proprietary Trading. In 2007, Goldman Sachs went beyond its role as market maker for clients seeking to buy or sell mortgage related securities, traded billions of dollars in mortgage related assets for the benefit of the firm without disclosing its proprietary positions to clients, and instructed its sales force to sell mortgage related assets, including high risk RMBS and CDO securities that Goldman Sachs wanted to get off its books, creating a conflict between the firm’s proprietary interests and the interests of its clients.
- Abacus Transaction.Goldman Sachs structured, underwrote, and sold a synthetic CDO called Abacus 2007-AC1, did not disclose to the Moody’s analyst overseeing the rating of the CDO that a hedge fund client taking a short position in the CDO had helped to select the referenced assets, and also did not disclose that fact to other investors.
- Using Naked Credit Default Swaps. Goldman Sachs used credit default swaps (CDS) on assets it did not own to bet against the mortgage market through single name and index CDS transactions, generating substantial revenues in the process.
- Levin-Coburn memo - Wall Street and the Financial Crisis: The Role of Investment Banks [PDF] - April 26, 2010
- Opening Statement - PSI Hearing on Wall Street and the Financial Crisis: The Role of Investment Banks - April 27, 2010
- Exhibits - PSI Hearing on Wall Street and the Financial Crisis: The Role of Investment Banks [PDF 43 MB] - April 27, 2010
- Hearing information - Homeland Security and Governmental Affairs Committee website - April 27, 2010
- Press release - Senate Subcommittee Holds Fourth Hearing on Wall Street and the Financial Crisis: The Role of Investment Banks - April 26, 2010
Shell Companies »
Currently, nearly two million corporations and limited liability companies (LLCs) are formed within the United States each year. The States generally form these corporations without asking for the identity of the corporation’s beneficial owners, and numerous law enforcement problems have resulted when some of these corporations have become involved with money laundering, tax evasion, or other misconduct.
The potential problems are illustrated by a 2000 report, prepared at the Subcommittee’s request by the Government Accountability Office (GAO), which examined an individual who set up over 2,000 Delaware shell companies, opened bank accounts for those companies, and then moved $1.4 billion dollars through those bank accounts, all without revealing who was behind these transactions.
In 2006, GAO prepared another report at the Subcommittee’s request entitled, “Company Formations: Minimal Ownership Information Is Collected and Available.” This GAO report reviewed the legal requirements in all 50 states to set up corporations and LLCs, found that most states failed to request beneficial ownership information, and reported that the absence of this ownership information impeded law enforcement investigations of suspect corporations.
The Subcommittee has collected examples of the problems caused by U.S. shell companies with hidden owners, including the following:
- The Manhattan District Attorney’s Office recently announced several cases which involved the movement of funds through New York banks by entities controlled by the Iranian military, and two related matters in which U.S. shell companies were established to hide secret Iranian interests.
- The Immigration and Customs Enforcement (ICE) arm of the Department of Homeland Security (DHS) uncovered a network of nearly 800 U.S. companies in 2004, that were located in nearly all 50 states, were engaged in hundreds of millions of dollars in suspect money transfers, and were associated with shell entities in Panama, an offshore secrecy jurisdiction. None of the 800 incorporation forms identified a true company owner. Nearly 200 had been formed in Utah by the same Utah company formation agent, which told ICE it had formed them at the request of a Delaware company formation agent. Neither the Utah nor Delaware company formation agent could provide information on the true company owners, since that information is not required by law. The ICE investigation was unable to proceed due to the lack of ownership information.
- A U.S. company formation agent called Corporations Today Inc. recently advertised on the Internet: “We have the largest inventory of aged shell corporations in the United States.” Among other corporations, Corporations Today offered for sale, for a price of nearly $6,000, a Wyoming shell company with 4 years of tax returns and an Employer Identification Number issued by the IRS, even though that company had never actually engaged in any business operations. Selling such corporations invites fraud by enabling hidden owners to pretend they’ve had a corporation operating in the United States for years when they haven’t.
- A 2005 analysis by FinCEN of suspicious activity reports indicated that as much as $18 billion in suspicious transactions occurred through international wire transfers utilizing U.S. shell companies.
Moreover, in recent years, the U.S. Department of Justice and DHS have received, but have been unable to answer, hundreds of requests from foreign law enforcement agencies for beneficial ownership information on U.S. companies suspected of criminal misconduct.
In July 2006, the Financial Action Task Force on Money Laundering (FATF), which is the leading international organization combating money laundering, issued a report criticizing the United States for failing to comply with a FATF standard requiring the collection of beneficial ownership information and urging the United States to correct this deficiency by July 2008. In response, the United States has repeatedly urged the States to strengthen their incorporation practices by obtaining beneficial ownership information for the corporations and LLCs formed under their laws. The States, however, have not changed their incorporation practices.
In 2008, Sen. Levin, then Sen. Norm Coleman, R-Minn., and then Sen. Barack Obama, D-Ill., introduced the Incorporation Transparency and Law Enforcement Assistance Act (S. 2956) to help law enforcement stop the misuse of U.S. corporations. The bill was reintroduced in March 2009, as S. 569, by Sen. Levin, Sen. Charles Grassley, R-Iowa, and Sen. Claire McCaskill, D-Mo. This bill has been endorsed by numerous law enforcement associations, including the Federal Law Enforcement Officers Association, the Fraternal Order of Police, and the National Association of Assistant United States Attorneys, as well as by organizations that support transparency and good governance, such as Citizens for Tax Justice, Global Financial Integrity Program, and Public Citizen.
On June 18, 2009, the Senate Homeland Security and Governmental Affairs Committee held a hearing to examine the state incorporation practices and discuss S. 569. The Honorable Robert M. Morgenthau, District Attorney for the County of New York, New York, offered his endorsement of S. 569 in written testimony:
“S. 569 provides a minimalist and direct answer to a difficult problem. It places almost no burdens on the states or on business, while simultaneously addressing our security needs. I urge the Committee to adopt it and recommend its passage”
Witnesses from the Departments of Justice and Homeland Security emphasized the threat posed by a lack of transparency in corporate filings, and stated that their ability to obtain beneficial ownership information is key to their abilities to thwart money laundering and other criminal activity.
More Information on Shell Companies:
- Letter to Financial Crimes Enforcement Network on customer due diligence requirements for financial institutions [PDF] - June 1, 2012.
- Op-ed by Robert Morgenthau - A no-brainer bill to fight crime: Require corporations to disclose who runs them [PDF] - Published in N.Y. Daily News, June 29, 2009.
- Written testimony - The Honorable Robert M. Morgenthau, District Attorney for New York County, State of New York [PDF] - June 18, 2009.
- Committee statement - Levin Statement at Homeland Security and Governmental Affairs Committee Hearing on State Business Incorporation Practices: A Discussion of the Incorporation Transparency and Law Enforcement Act - June 18, 2009.
- Press release - Thursday: Hearing on Levin-Grassley-McCaskill Bill to Stop Misuse of U.S. Companies - June 17, 2009.
- Press release - Levin-Grassley-McCaskill Bill Introduced to Stop Misuse of U.S. Companies - March 11, 2009.
- Legislation - S. 569, Incorporation Transparency and Law Enforcement Assistance Act [PDF]
- GAO report - Company Formations: Minimal Ownership Information Is Collected and Available [PDF] - April 2006.
- Press release - GAO Report Finds Anonymous U.S. Companies Pose Risk - April 25, 2006.
Credit Card Industry Investigation »
In 2005, as Ranking Member of the Permanent Subcommittee on Investigations, Senator Levin initiated an in-depth investigation into abusive and unfair practices in the credit card industry. The Subcommittee’s investigation and hearings became a key catalyst for comprehensive legislative reform culminating in President Obama’s signing the Credit Card Accountability Responsibility and Disclosure Act of 2009 [PDF], also known as the Credit CARD Act, on May 22, 2009.
The Credit CARD Act prohibits a number of abusive and unfair practices exposed by the Subcommittee’s investigation, including retroactive repricing of credit card debt, phantom grace periods in which interest is unfairly charged against debt that has already been paid, and unfair fees and interest rate hikes.
Important provisions of the Credit CARD Act include the following:
- No Interest on Debt Paid on Time. Prohibits interest charges on any portion of a credit card debt which the card holder paid on time during a grace period.
- 45-Day Notice. Requires 45-day notice to impose a higher interest rate.
- Higher Interest Rates Only for Future Debt. Requires higher interest rates to apply only to future credit card debt, and not to debt incurred prior to the increase, unless a payment on that prior debt is more than 60 days late.
- Credit Limit Election. Prohibits card issuers from charging any over?limit fee unless the cardholder has elected to allow transactions that exceed his or her credit limit.
- Restrictions on Over-Limit Fees. Prohibits the imposition of more than three over-limit fees for any single instance of exceeding a credit card limit.
- No Pay-to-Pay Fees. Prohibits charging a fee to allow a payment on a credit card debt, whether the payment is by mail, telephone, electronic transfer, or otherwise.
- Fair Billing Practices. Requires credit card issuers to provide bills at least 21 days before the due date, requires that the due date be the same day each month, and allows payments until 5:00 p.m. on the due date.
- Fair and Prompt Crediting of Card Holder Payments. Requires payments to apply first to the credit card balance with the highest rate of interest.
- Improved Disclosures. Requires credit card issuers to disclose the period of time and total interest needed to pay off a card balance if only minimum monthly payments are made, and other enhanced disclosures.
- Prevents Deceptive Marketing of Credit Reports. Requires a Federal Trade Commission rulemaking to prevent deceptive marketing of free credit reports.
- Protects Young Consumers from Credit Card Solicitations. Requires card issuers soliciting persons under the age of 21 to obtain the signature of a parent, guardian, or other individual who will co-sign for the debt or proof the applicant can independently repay the debt. Prohibits providing gifts as an incentive to sign a credit card agreement.
- Strengthens Oversight of Credit Card Industry. Requires the Federal Reserve Board to review the terms of credit card agreements and the practices of credit card issuers and the cost and availability of credit to consumers.
The passage of the Credit CARD Act is the culmination of years of work by Senator Levin, Senator Chris Dodd, D-Conn., chairman of the Senate Committee on Banking, Housing and Urban Development, and others working for credit card reform.
Senator Levin initiated his Subcommittee’s investigation into unfair credit card practices in 2005, by asking the Government Accountability Office (GAO) to conduct a study of credit card finance charges and disclosures to consumers.
In 2006, GAO released a 125-page report which, for the first time in years, provided a detailed description of the various fees, interest rates, and disclosure practices associated with 28 popular credit cards and the profits they were producing for the six largest U.S. credit card issuers.
In 2007, Sen. Levin held two hearings in March and December that examined a host of unfair credit card practices and introduced legislation to stop the abuses. The March 2007 hearing chaired by Senator Levin focused on three fundamental credit card issues: grace periods, interest rates, and fees.
- Grace Periods. Although many consumers think that all credit cards provide them with a grace period before interest is charged, the investigation disclosed that, in fact, most credit card issuers do not provide a grace period to cardholders unless they pay their credit card balances in full each month. If a consumer owes any balance on a card from the prior month, there is no grace period on new purchases -- every purchase racks up interest charges from day one.
- Interest Rates. Credit cards used to bear one interest rate that applied to all transactions, but the investigation found that, today, credit card issuers typically apply multiple interest rates to the same card, depending on the circumstances. For example, the credit card industry typically uses one interest rate for cash advances, another for regular purchases, a third for balance transfers, and if a cardholder pays late or exceeds a credit limit, the company may substitute a so-called penalty interest rate that can exceed 30 percent. These interest rates may vary if they rise and fall with the prime rate. Multiple interest rates that change over time make it nearly impossible for consumers to track their finance charges. In addition, when a consumer pays off a portion - or even the majority - of a monthly balance, the investigation disclosed that credit card issuers charge interest on the entire amount previously owed, including the portion that was paid on time. Sen. Levin believes it is indefensible to charge interest on money that is paid on time.
- Fees. In addition to interest, credit card issuers impost a host of fees on card holders, including late fees, over-limit fees, and fees charged for paying a bill over the telephone. The March 2007 hearing featured an Ohio consumer who exceeded the $3,000 limit on his card by $200, and was then charged 47 over-limit fees totaling $1,500, an amount seven times greater than the amount for which he was being penalized. He was also charged $1,100 in late fees. This example illustrates the use of excessive fees in the credit card industry. These high fees are made worse by the industry practice of including all fees in a consumer’s outstanding balance so that they incur added interest. It’s one thing for a company to charge interest on funds lent to a consumer; charging interest on penalty fees as well goes too far.
The December 2007 hearing chaired by Senator Levin focused on the problem of unfair interest rate increases, in particular the industry practice of increasing interest rates on card holders who have paid their credit card bills on time, stayed below their credit limits, and paid at least the minimum amount due. Three consumers described their experiences.
- Janet Hard of Freeland, Michigan, had her Discover credit card interest rate increased from 18% to 24% in 2006, even though she had made payments to Discover on time and paid at least the minimum amount due for over two years. Discover applied the 24% rate retroactively to her existing credit card debt of $8,300, increasing her minimum payments and increasing the amount that went to finance charges instead of the principal debt. The result was that, despite making steady payments totaling $2,400 in twelve months and keeping her purchases to less than $100, Ms. Hard’s credit card debt went down by only $350.
- Millard Glasshof of Milwaukee, Wisconsin, a senior citizen on a fixed income, made a $119 monthly payment for years to Chase to pay off a credit card debt of about $5,000. In December 2006, Chase increased his interest rate from 15% to 17%, and then hiked it to 27%. Retroactive application of the 27% rate to Mr. Glasshof’s existing debt meant that, out of his $119 payment, about $114 went to pay finance charges and only $5 went to reducing his principal debt. Despite making payments totaling $1,300 over twelve months, Mr. Glasshof found that, due to high interest rates and excessive fees, his credit card debt did not go down at all.
- Bonnie Rushing of Naples, Florida, had a Bank of America card with an interest rate of about 8%. In April 2007, despite a history of timely payments, Bank of America nearly tripled her interest rate to 23%. Ms. Rushing closed her account and complained to the Florida Attorney General, Senator Levin’s subcommittee, and her card sponsor, American Automobile Association. Bank of America eventually restored the 8% rate on her closed account.
In May 2007, Senator Levin introduced the Stop Unfair Practices in Credit Cards Act, S. 1395, [PDF] in an effort to ban the unfair practices exposed in this investigation and to protect consumers who seek to pay off their debts in good faith.
In April 2008, Senator Levin cosponsored a comprehensive credit card reform bill introduced by the chairman of the Banking Committee, Senator Dodd. The bill, the Credit Card Accountability, Responsibility and Disclosure Act of 2008, incorporated nearly all of the provisions of Senator Levin's credit card bill and added other important consumer protections.
In May 2009, Congress passed, and President Obama signed, the Credit CARD Act of 2009. The bill is based largely on the Dodd-Levin bill of 2008. The bill passed with broad bipartisan support, and though it is not a strong as the original Dodd-Levin bill, it is nonetheless a comprehensive reform effort that ends many abuses, is supported by a vast array of citizen and consumer groups, and represents unprecedented reform of an industry that had long seemed to be immune to consumer concerns and government oversight.
The Credit CARD Act became fully effective in February 2010.
More Information on the Credit Card Industry Investigation:
- Credit Card Accountability Responsibility and Disclosure Act of 2009, Public Law 111-24, May 22, 2009. [PDF]
- Levin Statement on Final Passage of Credit Card Legislation - May 19, 2009.
- Senate Floor Speech on Credit Card Reform Bill - May 11, 2009.
- Statement of Senator Carl Levin on Credit Card Reform Bill - May 11, 2009.
- Levin Cosponsors Comprehensive Credit Card Legislation- February 11, 2009.
- Levin Statement on Fed Vote on New Credit Card Rules: Good First Step, But Not Enough to Prevent Abusive Practices - December 18, 2008.
- Senate Floor Statement on the Introduction of "The Credit Card Accountability Responsibility and Disclosure Act" - July 10, 2008.
- Senator Levin Cosponsors Comprehensive Credit Card Legislation - April 30, 2008.
- Senator Levin's opening statement at the PSI hearing: Credit Card Practices: Unfair Interest Rate Increases - December 4, 2007.
- Senator Levin's press statement on the Federal Reserve proposal to improve credit card disclosures - May 23, 2007.
- Press release on the introduction of S. 1395 - May 15, 2007.
- Summary of the Stop Unfair Practices in Credit Cards Act, S. 1395 - May 15, 2007
- The Stop Unfair Practices in Credit Cards Act, S. 1395 [PDF] - May 15, 2007.
- Senator Levin's Senate floor statement introducing S. 1395 - May 15, 2007.
- Senator Levin's opening statement at the PSI hearing: Credit Card Practices: Fees, Interest and Grace Periods - March 7, 2007.
- Press release summarizing the credit card hearing - March 7, 2007.
- GAO report commissioned by Senator Levin about credit card practices [PDF] - September 2006.
- Senator Levin's letter [PDF] commenting on the Federal Reserve's proposed amendments to Regulation Z, which implements the Truth in Lending Act - October 12, 2007.
- Senator Levin's letter [PDF] commenting on the Office of Thrift Supervision's proposed strengthening of rules to prohibit unfair or deceptive acts in consumer lending - November 5, 2007.
- Senator Levin's letter [PDF] commenting on the Federal Reserve’s proposed strengthening of rules to prohibit unfair or deceptive acts involving credit cards - August 4, 2008.
If you have a specific credit card problem and would like to seek immediate help, you may want to consider contacting Consumer Action. Consumer Action is a national, non-profit education and advocacy organization that provides free, non-legal advice and referrals on a number of consumer issues, including credit cards.
To get help from Consumer Action, you must leave a message with their hotline either by phone, online or email. There will not be a live person when you leave the message, but they will have a counselor review your complaint and follow up with you.
More Information on Consumer Protections:
- Comment letter - Letter by Senator Levin to the Federal Reserve supporting a proposed Fed rule to protect credit card safeguards from erosion [PDF] - January 3, 2011.
- Press release - Levin Helps Introduce Legislation to Stop Abusive Overdraft Fees - October 19, 2009.
- Press release - Levin: GAO Report on Credit Card Debt Collection Problems Highlights Need for Consumer Financial Protection Agency - October 21, 2009.
- GAO report - Credit Cards: Fair Debt Collection Practices Act Could Better Reflect the Evolving Debt Collection Marketplace and Use of Technology [PDF] - October 21, 2009.
Abusive Tax Schemes »
Senator Levin continues to lead investigations into abusive tax shelters and offshore tax havens used by businesses and individuals to dodge payment of their U.S. taxes.
Offshore tax havens and secrecy jurisdictions today hold trillions of dollars in assets. While these jurisdictions claim to offer clients financial privacy, limited regulation, and low taxes, too often these jurisdictions have instead become havens for tax evasion, financial fraud, and money laundering. A sophisticated offshore industry, composed of a cadre of international professionals including tax attorneys, accountants, bankers, brokers, corporate service providers, and trust administrators, aggressively promotes offshore jurisdictions to U.S. citizens as a means to avoid taxes and creditors in their home jurisdictions.
These professionals, many of whom are located or do business in the United States, advise and assist U.S. citizens on opening offshore accounts, establishing sham trusts and shell corporations, hiding assets offshore, and making secret use of their offshore assets here at home. Experts estimate that Americans now have more than $1 trillion in assets offshore and illegally evade between $40 and $70 billion in U.S. taxes each year through the use of offshore tax schemes. U.S. corporations are estimated to illegally evade another $30 billion in taxes each year through offshore tax dodges. America’s working people bear the burden of this $100 billion tax gap
In July 2008, the Senator Levin chaired a hearing entitled, Tax Haven Banks and U.S. Tax Compliance, that examined how tax haven banks facilitate tax evasion by U.S. clients, hide client and bank misconduct behind the cloak of bank secrecy laws, and add to the offshore abuses that cost U.S. taxpayers an estimated $100 billion dollars each year. The Subcommittee also released a report by the same name.
In September 2008, Senator Levin chaired a hearing, Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends, that examined how some financial institutions have designed, marketed and implemented transactions to enable foreign taxpayers, including offshore hedge funds, to dodge millions of dollars of taxes on U.S. stock dividends each year. The hearing followed a year-long bipartisan investigation.
PSI Press Releases and Reports on Abusive Tax Schemes:
- Letter - Financial Crimes Enforcement Network on customer due diligence requirements for financial institutions [PDF] - June 1, 2012.
- Press release - Levin Unveils Stop Tax Haven Abuse Act - July 12, 2011.
- Speech - Keynote Address at the Conference on Increasing Transparency in Global Finance: A Development Imperative Sponsored by the Task Force on Financial Integrity and Economic Development - September 16, 2009.
- Press release - Levin Calls for Action on Offshore Tax Abuse - September 15, 2009.
- Committee statement - Senate Finance Committee Hearing on Tax Issues Related to Ponzi Schemes and an Update on Offshore Tax Haven Legislation - March 17, 2009.
- Press release on President Obama's Support of the Stop Tax Haven Abuse Act - March 3, 2009.
- Press release - Senate, House Members Introduce Stop Tax Haven Abuse Act - March 2, 2009.
- Press release - Senator Levin, Reps. DeLauro, Doggett and Levin Urge the Administration to Address Tax Haven Abuse in Budget - February 20, 2009.
- Press release - Dorgan, Levin Release GAO Study on Offshore Tax Haven Subsidiaries - January 16, 2009.
- Opening Statement - Senator Carl Levin at the PSI Hearing: Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends - September 11, 2008.
- PSI Report - Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends [PDF] - September 11, 2008.
- Press release - Permanent Subcommittee on Investigations Issues Report on Major Banks Helping Non-U.S. Clients Dodge U.S. Dividend Taxes - September 11, 2008.
- PSI Report - Tax Haven Banks and U.S. Tax Compliance [PDF] - July 17, 2008.
- Press release - Permanent Subcommittee on Investigations Issues Report on Tax Haven Banks Hiding Billions from the IRS - July 17, 2008
- PSI Report - Tax Haven Abuses: The Enablers, The Tools and Secrecy [PDF] - August 1, 2006.
- PSI Report - The Role of Professional Firms in the U.S. Tax Shelter Industry [PDF] - April 13, 2005.
- Government Accountability Office report - Tax Shelters: Services Provided by External Auditors [PDF] - February 2005.
- PSI Report - The U.S. Tax Shelter Industry - The Role of Accountants, Lawyers and Financial Professionals [PDF] - November 18, 2003.
- PSI hearing report - The U.S. Tax Shelter Industry - The Role of Accountants, Lawyers and Financial Professionals.
Legislation supported by Senator Levin to address these problems:
- Senate Floor Statement on the Stop Tax Haven Abuse Act - July 12, 2011.
- Summary of S. 1346, the Stop Tax Haven Abuse Act - July 12, 2011.
- Senate Floor Statement on the Stop Tax Haven Abuse Act, Part I - March 2, 2009.
- Senate Floor Statement on the Stop Tax Haven Abuse Act, Part II
- Summary of S. 506, the Stop Tax Haven Abuse Act - March 2, 2009.
- S. 506, the Stop Tax Haven Abuse Act - Introduced in the 111th Congress on March 2, 2009.
- Press release - Levin, Coleman, Obama Introduce Stop Tax Haven Abuse Act - February 17, 2007.
- Summary of Levin, Coleman, Obama Stop Tax Haven Abuse Act - February 17, 2007
- Senate Floor Statement of Senator Levin on the Stop Tax Haven Abuse Act, Part I - February 17, 2007.
- Senate Floor Statement of Senator Levin on the Stop Tax Haven Abuse Act, Part II - February 17, 2007
- S. 681, the Stop Tax Haven Abuse Act - Introduced in the 110th Congress on February 17, 2007.
Oil and Energy Prices »
The Permanent Subcommittee on Investigations has conducted a number of investigations into the pricing of energy commodities, including gasoline, crude oil, and natural gas. These investigations reflect a continuing concern over the sustained increases in the price and price volatility of these essential commodities, and, in light of these increases, the adequacy of governmental oversight of the markets that set these prices.
In 2001, Senator Levin directed the subcommittee to begin an investigation into recent gasoline and crude oil price spikes. Senator Levin chaired hearings in the spring of 2002 detailing how U.S. retail gasoline prices are set. The hearings and a 400-page staff report identified several factors responsible for rising prices and frequent price spikes, including oil industry mergers, refinery closings, tight gasoline supplies, and regional pipeline limitations. In March 2003, the subcommittee released a second staff report detailing the operation of crude oil markets that affect the price of not only gasoline, but also key commodities like home heating oil, jet fuel, and diesel fuel. The report warned that these markets are vulnerable to price manipulation. The report also warned that ongoing large deposits of oil into the Strategic Petroleum Reserve while oil prices are high and oil supplies are tight have increased prices but not overall U.S. energy security.
The Subcommittee's report, The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put a Cop on the Beat [PDF], released in June 2006, found that the traditional forces of supply and demand no longer fully account for sustained increases and price volatility in the oil and gasoline markets. The report determined that market speculation contributed to rising oil and gasoline prices, perhaps accounting for $20 out of a $70 barrel of oil, and that too many energy trades occurred without regulatory oversight. The report recommended new laws to increase market oversight and stop market manipulation.
PSI Gasoline and Crude Oil Reports:
- Excessive Speculation in the Natural Gas Market [PDF] - June 25, 2007.
- Appendix - Excessive Speculation in the Natural Gas Market [PDF] - June 25, 2007.
- The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put a Cop on the Beat [PDF] - June 27, 2006.
- U.S. Strategic Petroleum Reserve: Recent Policy Has Increased Costs to Consumers but Not Overall U.S. Energy Security - March 5, 2003.
- Gas Prices: How Are They Really Set? (Link is to GPO Website - See S. Hrg. 107-509, Report appears on p. 322 of hearing record entitled "Gas Prices: How are They Really Set?" held on April 30 and May 2, 2002).
Legislation supported by Senator Levin to address these problems: :
- Senate Floor Statement - Introduction of the Prevent Excessive Speculation Act, S. 447 - February 13, 2009.
- Press Release - Levin Introduces Bill to Crack Down on Excessive Speculation in Energy and Agriculture Markets - February 13, 2009.
- Press Release - Summary of the Prevent Excessive Speculation Act - February 13, 2009.
- Senate Floor Speech - Introduction of the Over-the-Counter Speculation Act, S. 3255 - July 11, 2008.
- S. 3255, Over-the-Counter Speculation Act of 2008
- S. 2642, Oil and Gas Traders Oversight Act of 2006
- 2005 Levin-Collins amendment requiring market principles to be used in buying oil for the Strategic Petroleum Reserve, in Public Law 109-58, Energy Policy Act of 2005 [PDF]
Related Efforts to Stop Excessive Speculation:
- Letter - Levin Feinstein Comment Letter to the CFTC [PDF] re Rule 4.5 registration exemption - November 30, 2011.
- Hearing Statement - Opening Statement at PSI Hearing on Excessive Speculation and Compliance with the Dodd-Frank Act - November 3, 2011.
- Hearing Statement - Opening Statement at Permanent Subcommittee on Investigation Hearing on Excessive Speculation in the Wheat Market - July 21, 2009.
- Press Release -Statement of Senator Carl Levin on CFTC Review of Speculation Trading Limits - July 7, 2009
- Press Release - Investigations Subcommittee Releases Levin-Coburn Report on Excessive Speculation in the Wheat Market - June 24, 2009
- Report - Excessive Speculation in the Wheat Market [PDF]- June 24, 2009
- Letter - Letter from Sen. Levin and 47 other senators to Minority Leader McConnell against cuts to the CFTC contained in H.R. 1 [PDF] - March 22, 2011.
- Letter - Letter from Sens. Levin and Jack Reed to President Obama re oil speculation [PDF] - March 22, 2011.
- Letter - Letter from Sen. Levin and 12 other senators to CFTC chairman re oil speculation [PDF] - March 16, 2011.
Money Laundering and Foreign Corruption »
From 1999 to 2001, the Subcommittee held a series of hearings on money laundering activities in the U.S. financial services sector, including in-depth examinations of money laundering activities in private banking, correspondent banking, and the securities industry. This investigative work provided the foundation of many of the anti-money laundering provisions in Title III of the Patriot Act.
In February 2003, the Subcommittee initiated a follow-up investigation to evaluate the enforcement and effectiveness of key anti-money laundering provisions of the Patriot Act, using Riggs Bank, a prominent bank that held the accounts of most of the foreign embassies in Washington , as a case study. A report released by Senator Levin's Subcommittee staff in July 2004, revealed that Riggs Bank maintained a dysfunctional anti-money laundering program and allowed or, at times, actively facilitated suspicious financial activity, using case histories involving Augusto Pinochet, the former President of Chile, and Teodoro Obiang, the President of Equatorial Guinea. The report detailed serious shortcomings in federal oversight of Riggs Bank, a regulatory failure particularly troubling in light of the potential for criminals and corrupt officials to misuse the U.S. financial system. The report also made a series of recommendations to correct the regulatory and legislative deficiencies it identified.
PSI Hearings and Reports on Money Laundering and Foreign Corruption:
- Opening Statement - PSI Hearing on U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History - July 17, 2012.
- Report - U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History [PDF - 2 MB] - July 16, 2012.
- Executive Summary - U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History [PDF - 639 KB] - July 16, 2012.
- Press release - HSBC Exposed U.S. Financial System to Money Laundering, Drug, Terrorist Financing Risks - July 16, 2012.
- Letter to Financial Crimes Enforcement Network on customer due diligence requirements for financial institutions [PDF] - June 1, 2012.
- Money Laundering and Foreign Corruption: Enforcement and Effectiveness of the Patriot Act [PDF], Supplemental Staff Report on U.S. Accounts Used by Augusto Pinochet, March 16, 2005
- Money Laundering and Foreign Corruption: Enforcement and Effectiveness of the Patriot Act [PDF], July 15, 2004
- Correspondent Banking: A Gateway for Money Laundering (Link is to GPO Website - See S. Hrg. 107-84, Report appears on p. 273 of Volume 1 of Hearing records entitled "Role of U.S. Correspondent Banking in International Money Laundering" held on March 1, 2, and 6, 2001)
- Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities (Link is to GPO Website - See S. Hrg. 106-428, Report appears on p. 872 of hearing record entitled "Private Banking and Money Laundering: A Case Study of Opportunities and Vulnerabilities" held on November 9 and 10, 1999)
Legislation supported by Senator Levin to address these problems:
- S.AMDT 3867, requiring a cooling off period for federal bank examiners, enacted in Public Law 108-458, the Intelligence Reform and Terrorism Prevention Act of 2004 (S.AMDT is on page S10118.)
- Title III, USA Patriot Act, Public Law 107-56 (107th Congress) (H.R. 3162)
- Summary of key anti-money laundering provisions in the U.S. Patriot Act, H.R.3162/P.L. 107-56 [PDF]
Federal Contractors' Tax Delinquencies »
For the past three years, the Subcommittee has conducted an extended investigation into federal contractors that provide goods or services to the federal government but fail to pay their taxes. A 2004 hearing determined that 27,000 contractors with the Department of Defense had unpaid taxes totaling about $3 billion. A 2005 hearing determined that 33,000 contractors doing business with civilian federal agencies had unpaid taxes totaling $3.3 billion.
In March 2006, the Subcommittee held a hearing examined similar misconduct by contractors for the General Services Administration (GSA) and determined that 3,800 GSA contractors owed $1.4 billion in unpaid taxes. Further, the Subcommittee found that the federal government does not ask potential contractors if they have tax debt or unresolved tax liens before awarding them a contract. As a result, tens of thousands of contractors have been awarded federal contracts despite having outstanding tax debt.
PSI Reports on Federal Contractors' Tax Delinquencies:
- Hearing Statement - Opening Statement at the Permanent Subcommittee on Investigations Hearing on Medicaid Providers Who Cheat on Their Taxes and What Should Be Done About It - November 14, 2007.
- Hearing Statement - Opening Statement at the Permanent Subcommittee on Investigations Hearing on Medicare Providers Who Cheat on Their Taxes and What Should Be Done About It - March 20, 2007.
- GSA Contractors Who Cheat on Their Taxes and What Should Be Done About It - March 15, 2006.
- Civilian Contractors Who Cheat on Their Taxes and What Should be Done About It - June 16, 2005
- DOD Contractors Who Cheat on Their Taxes and What Should be Done About It - February 12, 2004
Misconduct in the United Nations Oil-For-Food Program »
The Subcommittee has conducted a three-year investigation into evidence of improper conduct associated with the United Nations Oil-for-Food (OFF) program and whether such misconduct negatively affected the interests of the United States.
In November 2004, the Subcommittee held a hearing that examined how Saddam Hussein's regime exploited and manipulated the OFF program. A hearing in February 2005, examined the operations of the independent inspection agents hired by the United Nations, as well as the operations and oversight of the OFF program by the U.N. Office of the Iraq Program and the U.N. Office of Internal Oversight Services.
In May 2005, a hearing and Subcommittee staff reports presented evidence that the Hussein regime awarded valuable allocations of oil to political allies, including Russian politician Vladimir Zhirinovsky, the Russian Presidential Council, British Member of Parliament George Galloway, and French senator Charles Pasqua. Senator Levin's staff released an additional report that examined open sales of oil from the Iraqi port of Khor al-Amaya outside of the OFF program, which took place with U.S. government knowledge.
In an October 2005 hearing, the Subcommittee considered the most effective manner to achieve meaningful reform at the United Nations and Senator Levin's Subcommittee staff also released a report on illegal surcharges paid to the Hussein regime by a U.S. company, Bayoil (USA), Inc.
PSI Reports on the United Nations Oil-for-Food Program:
- PSI hearing: Corruption in the United Nations Oil-for-Food Program: Reaching Consensus on United Nations Reform - October 31, 2005. (Link is to GPO website. See S. Hrg. 109-247.)
- Bayoil Diversions of Iraqi Oil and Related Oversight Failures - October 31, 2005. (Link is to GPO website. See S. Hrg. 109-247. The report of the PSI Minority Staff appears on page 396 of the hearing record.)
- Report on Illegal Surcharges on Oil-for-Food Contracts and Illegal Shipments from Khor al-Amaya - May 17, 2005. (Link is to GPO website. See S. Hrg. 109-185. The report of the PSI Minority Staff appears on page 459 of the hearing record.)
In 2002, Senator Levin led a bipartisan, in-depth examination into the collapse of Enron. The Permanent Subcommittee on Investigations reviewed over two million pages of documents and conducted over 100 interviews. Senator Levin chaired four hearings probing the causes of the Enron debacle.
The Subcommittee also issued two bipartisan reports, one examining the role of Enron Board of Directors, and the other examining the role of certain major U.S. financial institutions, in Enron's use of misleading financial accounting. The reports concluded that the Enron Board of Directors and some U.S. financial institutions had contributed to Enron's accounting deceptions, corporate abuses, and ultimate collapse.
The Subcommittee's investigative work contributed to passage of the Sarbanes-Oxley Act in July 2002, enacting accounting and corporate reforms.
PSI Enron Reports:
- Oversight of Investment Banks' Response to the Lessons of Enron - December 11, 2002 (Link is to GPO Website - See Hrg. 107-871)
- The Role of the Financial Institutions In Enron's Collapse - July 23 and 30, 2002 (Link is to GPO Website - See Hrg. 107-618)
- The Role of the Board of Directors in Enron's Collapse - May 7, 2002 (Link is to GPO Website - See Hrg. 107-511)
- Report on Fishtail, Bacchus, Sundance, and Slapshot: Four Enron Transactions Funded and Facilitated By U.S. Financial Institutions [PDF]
- Report on The Role of the Board of Directors in Enron's Collapse (Link is to GPO Website - See S. Prt. 107-70)