Money Laundering in
Wake of September 11 AttacksRegulation
The least important trend is tightening of financial regulations and establishment or enhancement of compulsory (as opposed to industry or voluntary) regulatory and enforcement agencies.
New legislation in US which amounts to extending powers of CIA domestically and of DOJ extra-territorially, was rather xenophobically described by a DOJ official, Michael Chertoff, as intended to "make sure American banking system does not become a haven for foreign corrupt leaders or other kinds of foreign organized criminals." Privacy and bank secrecy laws have been watered down. Collaboration with off shore "shell" banks has been banned. Business with clients of correspondent banks was curtailed. Banks were effectively transformed into law enforcement agencies, responsible to verify both identities of their (foreign) clients and source and origin of their funds. Cash transactions were partly criminalized. And securities and currency trading industry, insurance companies, and money transfer services are subjected to growing scrutiny as a conduit for "dirty cash".
Still, such legislation is highly ineffective. The American Bankers' Association puts cost of compliance with laxer anti-money-laundering laws in force in 1998 at 10 billion US dollars - or more than 10 million US dollars per obtained conviction. Even when system does work, critical alerts drown in torrent of reports mandated by regulations. One bank actually reported a suspicious transaction in account of one of September 11 hijackers - only to be ignored.
The Treasury Department established Operation Green Quest, an investigative team charged with monitoring charities, NGO's, credit card fraud, cash smuggling, counterfeiting, and Hawala networks. This is not without precedent. Previous teams tackled drug money, biggest money laundering venue ever, BCCI (Bank of Credit and Commerce International), and ... Al Capone. The more veteran, New-York based, El-Dorado anti money laundering Task Force (established in 1992) will lend a hand and share information.
More than 150 countries promised to co-operate with US in its fight against financing of terrorism - 81 of which (including Bahamas, Argentina, Kuwait, Indonesia, Pakistan, Switzerland, and EU) actually froze assets of suspicious individuals, suspected charities, and dubious firms, or passed new anti money laundering laws and stricter regulations (the Philippines, UK, Germany). A tabled EU directive would force lawyers to disclose incriminating information about their clients' money laundering activities. Pakistan initiated a "loyalty scheme", awarding expatriates who prefer official bank channels to much maligned (but cheaper and more efficient) Hawala, with extra baggage allowance and special treatment in airports.
The magnitude of this international collaboration is unprecedented. But this burst of solidarity may yet fade. China, for instance, refuses to chime in. As a result, statement issued by APEC last week on measures to stem finances of terrorism was lukewarm at best. And, protestations of close collaboration to contrary, Saudi Arabia has done nothing to combat money laundering "Islamic charities" (of which it is proud) on its territory.
Still, a universal code is emerging, based on work of OECD's FATF (Financial Action Task Force) since 1989 (its famous "40 recommendations") and on relevant UN conventions. All countries are expected by West, on pain of possible sanctions, to adopt a uniform legal platform (including reporting on suspicious transactions and freezing assets) and to apply it to all types of financial intermediaries, not only to banks. This is likely to result in ...
The decline of off shore financial centres and tax havens
By far most important outcome of this new-fangled juridical homogeneity is acceleration of decline of off shore financial and banking centres and tax havens. The distinction between off-shore and on-shore will vanish. Of FATF's "name and shame" blacklist of 19 "black holes" (poorly regulated territories, including Israel, Indonesia, and Russia) - 11 have substantially revamped their banking laws and financial regulators. Coupled with tightening of US, UK, and EU laws and wider interpretation of money laundering to include political corruption, bribery, and embezzlement - this would make life a lot more difficult for venal politicians and major tax evaders. The likes of Sani Abacha (late President of Nigeria), Ferdinand Marcos (late President of Philippines), Vladimiro Montesinos (former, now standing trial, chief of intelligence services of Peru), or Raul Salinas (the brother of Mexico's President) - would have found it impossible to loot their countries to same disgraceful extent in today's financial environment. And Osama bin Laden would not have been able to wire funds to US accounts from Sudanese Al Shamal Bank, "correspondent" of 33 American banks.
