by Lucy Komisar
American Reporter Correspondent
New York, N.Y.
December 18, 2000
EVEN WITH LOOPHOLES, ANTI-CRIME TREATY MOVES AGAINST MONEY-LAUNDERING
NEW YORK, Dec. 15, 2000 -- For more than a decade, the international community has been wrestling with the issue of what to do about the worldwide bank secrecy system through which drug traffickers, fraudulent business operators and tax cheats launder their money.
The United Nations treaty signed by 118 countries Dec. 12-14 in Palermo, Italy, is a major first step in the effort to stop international money laundering.
It also includes some giant loopholes, which apparently were big enough to win concurrence by Austria, Liechtenstein, Switzerland, Luxembourg, Monaco, Israel, Cyprus, the Seychelles and Panama, all major bank secrecy centers, and Russia, one of the world's biggest users of those services.
Thirty of the tax havens targeted by the OECD didn't sign. Some are dependencies of the U.S. or U.K., but others are independent countries such as Antigua and Nahru.
Among the key provisos: Countries must require banks to get verifiable identification for customers, keep accurate records of accounts, and report suspicious transactions. Anonymous bank accounts are banned, and accounts must be open to inspection by domestic law-enforcement officials. Money-laundering is criminalized, with sanctions against the people who do the laundering, counsel it, or acquire the ill-gotten gains.
The agreement calls for law-enforcement co-operation, collection and exchange of information, and extradition of criminals. States that recover laundered funds could keep them or share them with other countries to pay compensation or restitution to victims.
Jack Blum, who was counsel in the U.S. Senate investigation of BCCI and co-authored the 1998 UN report, "Financial Havens, Banking Secrecy and Money Laundering," called it "a breakthrough - a first real assault on the secrecy problem by the international community as a whole." He said it would help expand a creaky international machinery built on bilateral legal assistance treaties which makes it difficult to deal with crimes involving multiple jurisdictions.
"The fundamental problem," he explained, "is that ever since the 1700's, states have viewed criminal laws as a purely territorial matter. That all the relationships involved in criminal law are the relationships of people with their own governments and that it's a matter of territory and citizenship. When criminal law is involved, everything has to go state to state. You get caught up in issues of sovereignty: we can't let your cops find out anything about what's going on in our place. Finally, we have some people who say we've got to recognize that higher levels of not only cooperation, but working together are required."
There are some big loopholes. The treaty stops at tax evasion. States can't refuse requests for legal assistance or extradition on the sole ground that the crime also involves taxes. Criminals often claim they are tax cheats in order to avoid being turned in by tax havens. Bank secrecy cannot be used to shield criminal activities. But the crime of money-laundering exists only if the act is tied to is a crime in the place where the act was committed. Tax havens and secrecy jurisdictions - Switzerland prime among them - routinely don't consider tax evasion a crime, so bank secrecy can protect tax cheats.
It also doesn't deal with correspondent accounts, set up to commingle the funds of numerous bank branches and customers, so that money arrives there and departs anonymously. Millions of dollars stolen by Raul Salinas, the jailed brother of Mexico's ex-president, moved from Mexico to Switzerland through a Citibank correspondent account in New York. Republicans leaders in the U.S. Congress have blocked legislation to ban such anonymous pass-throughs.
International exchange of information would occur within the conditions prescribed by a country's domestic law, again allowing the tax-evasion loophole. A states can refuse to cooperate if it considers giving assistance will "prejudice its sovereignty, security, public order or other essential interests."
There's no requirement that "shell companies" list verifiable names of true owners rather than nominees, often supplied by banks and company registration firms, even though such shells usually have bank accounts.
The accord carries out the OECD Fiscal Committee's recommendation last April that members ban anonymous accounts and require identification of customers. However, it doesn't implement the suggestion that countries reexamine practices (presumably with an eye toward changing them) that don't permit tax authorities to have access to bank information for purposes of exchanging it in criminal tax prosecutions.
Blum says, "Are there others things that have to come? You bet, but we're starting down the road. There are too many countries still very nervous about opening the books. There are countries that still make their livings assisting people evading taxes somewhere else. That's a very sticky issue. We started out talking only about drugs. Now, we can talk about all kinds of other offenses and nobody bats an eye." He said the treaty-writers focused on "where can we make progress, as opposed to how do we get mired in something we know we can't solve."
The treaty's effectiveness depends on eliminating weak links that attract illegal money looking for unassailable secrecy. Countries that don't sign could get a dose of what the U.S. did to Antigua last year (1999): have the financial powers advise their banks to treat them with suspicion and extra due diligence.
The anti-money laundering provisions are part of the UN Convention Against Transnational Organized Crime, approved by the General Assembly in November. It goes into effect when 40 countries ratify it.
The following nations are treaty signatories (in order of signing): Austria, Italy, Albania, Bolivia, Mauritius, Tajikistan, Colombia, Guatemala, Russia, Seychelles, Bosnia- Herzegovina, Togo, Liechtenstein, Uganda, Switzerland, Iran (Islamic Republic of), Finland, Zimbabwe, Czech Republic, China, France, European Community, The Netherlands, Germany, Saudi Arabia, Indonesia, Slovenia, Japan, Algeria, Denmark, Luxembourg, Portugal, Sweden, Ukraine, Poland, Former Yugoslav Republic of Macedonia, Argentina, Paraguay, Belgium, Brazil, Yugoslavia, Azerbaijan, Kuwait, Croatia, Lithuania, Nigeria, Thailand, Republic of Korea, Bulgaria, Malawi, Australia, Angola, Principality of Monaco, Israel, Cyprus, Sri Lanka, Singapore, Latvia, Spain, Chile, Namibia, Turkey, Dominican Republic, Senegal, United States of America, Tunisia, Iceland, Benin, Kazakstan, Kirghizstan, Uzbekistan, Syria, Georgia, Haiti, Uruguay, Ecuador, Greece, Cameroon, Egypt, Vietnam, Norway, Tanzania, Ireland, Cape Verde, Panama, Cuba, Mexico, Morocco, Slovakia, Lesoto, San Marino, Congo, Nicaragua, Romania, Malta, United Kingdom, Philippines, Belarus, Honduras, Ethiopia, Estonia, Venezuela, South Africa, Hungary, Rwanda, Equatorial Guinea, Burundi, Madagascar, Peru, Pakistan, Canada, El Salvador, New Zealand, Moldavia, Guinea Bissau, Swaziland, Gambia, Afghanistan.