Global Policy Forum

By William Keegan

Is the financial world suddenly going to get a cleaner as a result of the US government's attempt to crack down on terrorist funds? One has one's doubts.

Ritual paragraphs condemning terrorism and money laundering have been standard features of communiques from the G7 group of leading industrialised nations for years now. They did not seem to stem the flow of funds from America to terrorists in Northern Ireland.

The appalling atrocities of September 11 have literally brought home to the US the seriousness of the terrorism problem, and the struggle against terrorism has been transformed into a war. But if the G7 are serious about international financial crime, they will have to alter the mindset of the entire banking system.

There are three obvious categories of international finance that raise ethical questions. One is the existence of tax havens where criminals and otherwise legitimate businesses can evade domestic taxes. The second is the practice - in these havens or elsewhere - of "money laundering", where ill-gotten gains are transformed into innocent-looking bank deposits. The third is the age-old banking practice of not asking too many questions about the source of deposits, whether they are being elaborately "laundered" or merely kept in covert accounts.

Europe has traditionally been more secretive than the US. For years, transactions involving more than $10,000 (£7,000) have had to be declared by US banks to the US regulatory authorities, but there are an awful lot of transactions of over $10,000, and the policing of US financial crime has not been easy.

Europe is the continent where Swiss banks gave sanctuary to Nazi funds during and after the second world war, and where the secret files of central banks are said to make interesting reading with regard to dealings with both wartime Germany and South Africa under apartheid.

There have been crackdowns in recent years, and the one declared by President George Bush this week is the most extensive yet. The US said it will seize the US assets of any charity, individual or financial institutions with links to terrorists and pressure other countries to do the same. The administration has already ordered some 5,000 banks to immediately freeze all accounts belonging to 27 individuals, groups or companies allegedly connected to the recent attacks.

"We will starve the terrorists of funding, turn them against each other, root them out of their safe hiding places and bring them to justice," Mr Bush said. That is tough talk indeed, but it may be too late. Well-informed European bankers have been highly suspicious of the way the Swiss franc has strengthened so markedly in recent weeks. Is Switzerland merely seen as a "safe haven" for legitimate funds, or is something else going on? If something fishy is going on, then those famous Swiss numbered accounts are coming in very useful once again for unsavoury characters.

The City of London is the centre of the international eurobond market. For years it has been a joke in London that one of the great attractions of the euromarkets is the prevalence of "bearer bonds" that conceal the identity of the owner. One of the mythical owners of these bonds was supposed to be the tax-dodging "Belgian dentist". But one can think of other characters for whom anonymity is a great attraction.

It was an eye-opener for me when the subject of Russian mafia money came up at a select gathering of international bankers early in the 1990s, after the collapse of the Soviet Union. The prevailing view was that one should not ask too many questions. If the US wants to win the financial war against terrorism, it will have to persuade international bankers to show a great deal more curiosity than they have in the past.

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