Money Laundering Efforts
Abandoned by Bush

Various ex-presidents of Mexico; Fujimori of Peru; Idi Amin of Uganda; Mobutu Sese Seku, the late kleptocrat head of Zaire; Suharto of Indonesia; the late Shah of Iran -- all have skimmed millions if not billions of dollars out of their countries' economies, and most of them then headed off for la dolce vita in foreign parts.

The Bush administration is now backing away from international efforts to reduce money-laundering, a banking procedure used by drug cartels, arms traffickers and terrorist groups, as well as crooked dictators. In the current issue of Foreign Affairs, William Wechsler, who worked on these problems as special adviser to the secretary of the treasury from 1999 to 2001, has a fascinating account of the progress that has been made over the years in building international cooperation against rogue banking. I am indebted to him for all the following information unless otherwise indicated. Until this administration, the United States has been the leader in trying to stop money-laundering.

Several organizations work to stop this and other banking abuses -- the G-7's Financial Stability Forum, the Financial Action Task Force, and the Organization for Economic Cooperation and Development (OECD), http://www1.oecd.org/fatf/index.htm along with the IMF. To give you an idea of how big this problem is, the U.S. Treasury loses $70 billion annually through offshore tax evasion by individuals. That leaves the rest of us with more than our share of the tax burden and less money for schools, the military and quite a few other things. Wechsler reports, "According to the Russian Central Bank, $74 billion was transferred from Russian banks to offshore accounts in 1998, the year of the ruble devaluation and the Russian financial meltdown."

The most popular new havens, in addition to the usual suspects, are small islands in the South Pacific, Nauru, Niue and Vanuatu. Some $70 billion of the Russian money went into accounts of banks chartered in Nauru. In the old days -- 10 years ago -- money-launderers needed to be near the banks that kept their secrets: Europeans could easily get to Switzerland with a suitcase full of cash, Americans to the Cayman Islands. But with the advent of banking by Internet, many small, poor countries around the world realized that all they need do was establish strict bank secrecy, criminalize the release of customer information and ban international law-enforcement cooperation -- and the money would roll in. It makes life much safer for Osama bin Ladin, Saddam Hussein and other charmers. The international community gradually figured out a strategy to combat this new plague -- "name and shame." The FSF (11 nations with advanced financial systems) and FATF (29 nations) slowly developed criteria for international banking, focusing on bank regulation, customer identification, the reporting of suspicious activity, international cooperation and the criminalization of money laundering. The FATF developed a list of 15 non-cooperating nations and another 14 with serious banking deficiencies. The only way these efforts can succeed is with multilateral countermeasures, with penalties ranging from stronger warnings up to economic sanctions, including the wholesale restriction of financial transactions. Unfortunately, Bush's chief economic adviser, Lawrence Lindsey, is opposed to legislation to deter international money-laundering, apparently because he is generally opposed to banking regulation. As Wechsler notes, there are legitimate privacy concerns that do need to be addressed, but this is not a choice between privacy and law enforcement, but a question of how to balance them both.

Treasury Secretary Paul O'Neill told The Washington Times he shares "many of the serious concerns that have been expressed recently about the direction of the OECD initiative" and "the project is too broad, and it is not in line with this administration's tax and economic priorities." That mind-boggling gobbledy-gook is an indication that the United States will not go along with the OECD on multilateral sanctions. So far, all O'Neill had done is the classic bureaucratic dodge of instituting a thorough study of the situation. Unfortunately, the study is headed by Dina Ellis, formerly senior lawyer at the Senate banking committee under Phil Gramm, no friend to banking regulation he. According to The Financial Times of London, political pressure is being put on the administration by a coalition of small bankers (especially from Texas), privacy advocates and libertarians.Here we move off the radar and into the wiggy conspiracy theories of the U.N.-black-helicopter set. We are talking here about an international anti-crime effort that involves more transparency, not less; more accountability, not less. Why should we make life easier for kleptocratic dictators, drug traffickers, arms dealers and terrorists?