By Lucy Komisar
eCountries.com, Dec 15, 2000
The net around money launderers may be getting a bit tighter, with a new treaty signed in Palermo under the auspices of the UN. It’s a step in the right direction, but a lot remains to be done to effectively combat what has become a global plague.
For more than a decade, the international community has been wrestling with the issue of what to do about the worldwide bank secrecy system that allows drug traffickers, fraudulent business operators and tax cheats to flourish.
A major first step has been taken in Palermo, where 118 countries – including major bank secrecy centers such Austria, Liechtenstein, Switzerland, Luxembourg, Monaco, Israel, Cyprus, the Seychelles and Panama, as well as Russia – signed a UN treaty designed to fight international money laundering.
The provisions are part of the UN Convention Against Transnational Organized Crime, approved by the General Assembly in November, which will go into effect when ratified by at least 40 countries.
Jack Blum, counsel in the U.S. Senate investigation of BCCI and co-author of the 1998 UN report, Financial Havens, Banking Secrecy and Money Laundering, says the treaty is a breakthrough – a first real assault on the secrecy problem by the international community as a whole.
The new treaty follows the OECD Fiscal Committee’s recommendation of last April that members ban anonymous accounts and require identification of customers. Countries must also require banks to keep accurate records of accounts and report suspicious transactions.
In addition, 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 treaty should also help track down money launderers around the world, thanks to provisions regarding law-enforcement co-operation, collection and exchange of information, and extradition of criminals.
The fundamental problem, says Blum is that ever since the 1700s, 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.
According to Blum, the treaty will help expand the existing creaky international machinery – built on bilateral legal assistance treaties – which makes it difficult to deal with crimes involving multiple jurisdictions.
The treaty, however, is far from being waterproof. A notable weakness lies in the fact it does not address tax evasion. Although bank secrecy cannot be invoked to shield criminal activities, tax havens and secrecy jurisdictions – Switzerland prime among them – routinely don’t consider tax evasion a crime.
In addition, the treaty does not go as far as the OECD’s recommendation that countries reexamine existing practices – presumably with an eye toward changing them – that prevent tax authorities to have access to bank information for purposes of exchanging it in criminal tax prosecutions.
And the treaty doesn’t deal with correspondent accounts. These accounts pool funds from numerous bank branches and customers, which means they remain anonymous and can come in quite handy to move funds around discreetly.
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 US Congress, however, have blocked legislation to ban such anonymous pass-throughs.
Shell companies will also still get away with concealing the names of true owners and instead list nominees, whose names are often supplied by banks and company registration firms.
So the treaty may slam a few doors in the face of money launderers, but many are still open. As Blum puts it, are there other 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.
It’s a good start though. We started out talking only about drugs. Now, we can talk about all kinds of other offenses and nobody bats an eye, says Blum. According to him, 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.
In the meantime, countries that decline to sign the treaty could get a dose of what the US did to Antigua last year: have the financial powers advise their banks to treat them with suspicion and extra due diligence. Hardly good publicity.