Global Policy Forum

15 Countries Named as Potential Money-Laundering Havens


By Joseph Kahn

New York Times
June 23, 2000

WASHINGTON, June 22 -- The world's leading industrial nations named 15 countries and territories today, including Israel, the Philippines and Russia, as potential havens for ill-gotten wealth.

The list is the culmination of a decade-long effort to act against money-laundering centers. It was issued after United States and European officials grew concerned that bank secrecy and weak regulation in some nations contributed to the devastating financial turmoil in Asia and Latin America in the late 1990's.

The action does not punish the named countries or cut them from the world financial system. But it effectively warns banks and brokerage houses to scrutinize all financial transactions with customers in those countries as possibly linked to crime or high-risk transactions.

The United States and several European nations said they would follow up with bank advisories and criminal sanctions that would have the effect of driving legitimate financial business from the listed centers, depriving them of a lucrative source of tax revenue.

Most of the havens were well known in banking circles, but wealthy nations had not agreed to identify them publicly. One concern was diplomatic protocol. Some countries, like Israel and Russia, have long been spared serious scrutiny because of their influence. Some smaller island nations and territories relied on former colonial masters like Britain and France to protect them from criticism.

The list of "noncooperative" nations was drawn up by the Financial Action Task Force, a body created in 1989 by the Group of 7 wealthy countries to fight money laundering.

The listed countries and territories are the Bahamas, the Cayman Islands, the Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, the Marshall Islands, Nauru, Niue, Panama, the Philippines, Russia, St. Kitts and Nevis and St. Vincent and the Grenadines.

Switzerland, which has a reputation for jealously guarding banking customers' identities with a numbered system, no longer shields criminal assets and generally cooperates with foreign investigators, United States officials said. It is a member of the group that drew up the list.

Governments decided to pressure laundering centers in part because the sheer volume of transactions by drug cartels, mafias and corrupt officials has expanded dramatically, to at least $600 billion a year, United States officials said.

The greater impetus was from a succession of market-shaking crises made possible, the thinking goes, by the ease of moving giant sums of money around the globe without oversight. Speculators used financial havens to shield themselves from scrutiny as they focused on Asian and Latin American currencies, government officials said.

Destabilizing capital flight from Russia, most notably the $7 billion handled by the Bank of New York and investigated by United States officials last year, was impossible to stop, because some nations, including Russia, did not have laws against laundering.

Closer to home, leading banks and regulators knew little about transactions that Long-Term Capital Management, a giant Connecticut hedge fund, had worked on because the fund did much of its business through offshore centers. Long-Term Capital melted down in late 1998, rattling markets and prompting a $3.6 billion Wall Street bailout.

Treasury Secretary Lawrence H. Summers, who made combating laundering and tax evasion a high priority for the Clinton administration, hailed the list. Washington "welcomes this landmark step to limit the capacity of drug dealers, terrorists, organized criminals and corrupt foreign officials to launder their ill-gotten gains through safe havens," Mr. Summers said.

The final list was selected from 29 nations or territories that do not criminalize laundering or that have serious deficiencies in their banking regulation. The other 14, including Cyprus, Gibraltar and Malta, have reformed their systems or passed legislation to do so.

Israel, which has a first-world system in most respects, appeared on the list because its Parliament has failed to pass legislation to make laundering illegal and to set up an enforcement mechanism, United States officials said.

Some Israeli politicians have opposed tough money-laundering laws, arguing that Russian Jews, who have transferred billions of dollars to Israel in recent years, might be less willing to do so, sacrificing Israel's status as a financial haven.

Clinton administration officials said they hoped that Israel would act on laundering legislation soon.

Finance Minister Laurent Fabius of France said his country would lobby other industrialized nations to pressure the 15 havens if they do not act to be taken off the list. One option, Mr. Fabius told reporters, is to ban all financial transactions between those countries and banks and brokerage houses elsewhere.

Jonathan M. Winer, a former State Department official who specialized in fighting money laundering, said most major nations preferred to jawbone financial havens behind closed doors and long resisted the so-called "name and shame" approach.

Several nations objected to being on the list. Many issued no formal statements. Officials in Liechtenstein said it was being unfairly singled out for practices that are common elsewhere.

A statement by the Cayman Islands said that it was "astonished" that it was on the list after having worked hard to comply with demands from the task force. The government said that it had repeatedly invited representatives of the group to visit the Caribbean territory, but that the invitation had been ignored.

"While no one can claim to be perfect," Financial Secretary George McCarthy said, "we are entitled to be accorded reasonable opportunity to make our case."

The Bahamas issued a similar statement.

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