Global Policy Forum

Getting Serious About Money Laundering


By David Ignatius

International Herald Tribune
December 4, 2000

Paris Treasury Secretary Lawrence Summers did something unusual last June. He agreed to join U.S. trading partners in placing Israel on a list of 15 countries that lacked adequate legal safeguards against money laundering. That put Israel in unsavory company. Other nations on the list included the Cayman Islands, Panama, Lebanon, Liechtenstein, the Philippines and Russia. The Israelis protested loudly, but Washington went ahead because of long-standing concerns that Russian mobsters were using Israel to hide ill-gotten loot.

Mr. Summers wanted to demonstrate that the United States was serious about cracking down on money laundering, even to the point of going after one of America's closest allies. He had the crucial backing of his deputy, Stuart Eizenstat, who carries enormous credibility with Israel because of his role during the past two years in negotiating compensation for families of Holocaust victims whose assets were kept after World War II by Swiss banks.

Although Treasury's decision went almost unnoticed at the time, it may have marked a small turning point in the fight against global corruption. The so-called "naming and shaming" list was duly announced in late June by the Financial Action Task Force, a group created by the Group of Seven leading industrial countries. Then some interesting things started to happen. The financial markets began pressuring countries to clean up their act. Standard and Poors, for example, lowered its bond rating for a top bank in Liechtenstein that is partly owned by that country's royal family. Big U.S. and European financial institutions moved to close correspondent relationships with banks in some countries on the suspect list.

Other G-7 countries, assured that America was not playing favorites, began pushing reform on their friends and allies. France leaned on its tiny neighbor Monaco. Britain pressured the Caymans, the Bahamas, the Channel Islands and Bermuda. Money-laundering havens began changing their policies. Israel promptly passed new laws to criminalize money laundering and allow closer scrutiny of suspect bank accounts there. Six other countries on the list also adopted new rules.

The Cayman Islands, for example, agreed for the first time to require mandatory identification of who has deposited money in numbered accounts. That change will affect a lot more people than just drug dealers and mobsters. The G-7 countries laudably have kept the pressure on. While commending the reforms in Israel and elsewhere, the task force has not yet removed any of the 15 countries from the list, and it is considering adding more.

Special deals for friends would undermine the crackdown, but so far the G-7 countries seem to be resisting the temptation. The United States, for example, is said to have spurned a recent suggestion by Panama that it would grant asylum to the former Peruvian intelligence chief (and onetime CIA ally) Vladimiro Montesinos in exchange for getting off the "naming and shaming" list. The United States is also said to have abstained in a recent vote by the International Monetary Fund on financial assistance for the Philippines because of concerns about corruption there, according to local press reports.

Britain commissioned a tough new report by the auditing firm KPMG that highlighted questionable practices in places such as the Channel Islands. The G-7 squeeze on money laundering is part of a broader crackdown. There is a simultaneous push against tax havens by the 29-member Organization for Economic Cooperation and Development. The OECD recently published its own list of 35 tax havens, a pressure tactic that helped persuade the Caymans, Cyprus, Bermuda and several other countries to change policies.

Leading the charge against tax cheats is France, which is tired of seeing its citizens dodge the tax man by funneling money to nearby countries such as Switzerland, Monaco and Luxembourg. French pressure helped persuade the European Union last week to enact new rules against tax evasion. But those rules will not take effect unless non-EU members such as Switzerland agree to go along - so don't hold your breath.

The amazingly quick success of the anti-corruption campaign shows what is possible when the leaders of the global economy decide to take a problem seriously. Until recently the crooks had seemed to be gaining the upper hand, with criminal syndicates from Russia to Latin America looting their countries and stashing the money in secret accounts. Crime is still rampant around the world. But in a global economy, where every bank must be connected to the electronic central nervous system or die, it is going to be a lot harder for the pirates to hide.

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