The Dilemma of Dirty Money.

AuthorMalkin, Lawrence

Whether protected by the stolid, self-righteous stone frontage on Zurich's Bahnhofstrasse, or secluded off the quais of the Rhone in Geneva, banks make Switzerland. This national myth began more than two centuries ago when Swiss Calvinists sheltered the wealth of the aristocracy fleeing the wrath of the revolutionaries across the mountains in France. Today, a client enters a spacious hall filled with purposeful people humorlessly conducting the serious business of changing, storing, and guarding money, then glides past the tellers to the last window and whispers the name of a bank officer. An electric buzzer opens a discreet door. A private elevator rises above the busy banking hail.

Upstairs, an obsequious flunky awaits, nodding the guest into a carpeted room with a hushed atmosphere. Finally, an anonymous man appears with a file of numbers. No names, please. He presents papers to transfer money, buy or sell securities, deposit or withdraw cash. Signatures are exchanged. No piece of paper need ever leave the premises, and any French client would risk his liberty by taking home even a slip with a number on it. Crossing the Swiss border, a prosperous-looking French taxpayer is as likely to be stopped and even body-searched as a black driver on the New Jersey Turnpike.

Numbered Swiss accounts must have seemed to offer this cosseted kind of shelter to the incongruously named Col. Vladimiro Lenin Montesinos, chief of intelligence under President Alberto Fujimori of Peru. During the past decade, Montesinos or his representatives forwarded some $50 million in arms commissions, bribes, and other kinds of dirty money to the Zurich offices of the Canadian Imperial Bank of Commerce and two Israeli banks, Bank Leumi and First International Bank of Israel. Until, that is, one of the three--Swiss authorities will not say which bank--raised an alarm last November to Switzerland's central money laundering office. [1]

The Zurich public prosecutor, empowered by a criminal complaint from Lima that had been prompted by no less than the Swiss ambassador, promptly froze the accounts. Even in hiding Montesinos could no longer touch his now exposed wealth. But the most surprised character in the drama was probably Fujimori himself, who had conducted a public search for Montesinos in a vain attempt to blame the corruption on him. Peruvians assumed that Montesinos could never have amassed such huge sums without the knowledge and probably the collusion of his patron. Fujimori was forced to flee across the Pacific to the land of his ancestors, and his autocratic regime collapsed, a victory for democracy and human rights from an utterly unexpected source. Mere numbered accounts, as many have learned to their chagrin, do not provide sufficient protection against serious crimes of state; secret Swiss accounts of several Serbian cronies of Slobodan Milosevic have been frozen, as well as more than a hundred linked to various schemes of t he Russian kleptocracy.

Only a few years ago this would have provided little more than the raw material for the plot of an implausible political thriller. These now are seen as textbook cases by officials trying to illuminate this dark side of financial globalization. Because of the public obloquy heaped on them for their shameless behavior in stealing Holocaust victims' accounts after World War II, the Swiss have been in the vanguard of dealing with a problem that has far outgrown its original impetus, which was not Jewish money seeking a safe haven but drug money fleeing the law. This now is estimated at only one-third to one-half of the world's criminal finance, which has long depended on international banking and the cooperation of political elites. [2]

Jonathan Winer, recently deputy assistant secretary of state for enforcement in the Clinton administration, prosecuted a man in a 1970s banking scam who later turned up laundering money for one of the Reagan administration's adventures in Central America. In a more notorious example, the original expertise of the terrorist Osama bin Laden did not lie in killing infidels. As the well-connected scion of a Saudi construction millionaire, his principal job in the Afghan resistance during the 1980s, according to American Treasury officials, was funneling Arab and CIA arms money through a network of banks. Now the ruling Taliban protects him, in part because he helps market Afghanistan's main cash crop, which is opium.

The Clinton administration's point man on money laundering was William Wechsler, a young policy wonk who began in a junior position in the National Security Council. Early on, he reasoned that if he could pierce financial secrecy by ensuring that banks knew the real owners of every major account, he could do more to alleviate poverty in countries ruled by corrupt dictators than an army of nongovernmental organizations (NGOs). Later, he was brought into the Treasury by then Secretary Lawrence Summers to work full time on the issue, which Summers made a priority.

Suprisingly few human rights groups have stooped to examine this kind of corruption. A rare exception is Oxfam, which estimates that $50 billion a year is drained from poor countries by offshore banks. [3] Last October, Transparency International, a Berlin-based NGO, belatedly persuaded a dozen big international banks to agree publicly to monitor the accounts of public officials and their families, which was partly a preemptive strike against stronger government action. By far the most persistent pressure comes from the U.S. Senate Permanent Subcommittee on Investigations. It has illuminated the mysteries of private and offshore banking through expert studies and public hearings conducted with rare bipartisanship by Sen. Susan Collins, a Republican from Maine, and Sen. Carl Levin, a Democrat from Michigan. In opening hearings this March on money laundering, Sen. Levin, the bulldog of the two, remarked, "We can't fight human rights in all parts of the globe, and then let corrupt public officials steal from th eir own people and place corrupt funds in U.S. bank accounts to enjoy the safety and soundness of the U.S. banking system. Money laundering not only finances crime, it pollutes the international banking system, impedes the international fight against corruption, distorts economies, and undermines honest government."

To the discomfort of many major international banks, governments are increasingly taking the view that the front line of defense runs through the banks themselves. As banks have globalized, their profits in handling huge and anonymous money transfers have pushed old-fashioned banking principles into disuse. The officially approved remedy, in a consensus that is coalescing far more rapidly than could have been foreseen even a year ago, is the revival of the classic banking principle of not doing business with dubious people. The policy goes by a phrase whose implications are familiar to devotees of the Frank Capra classic, It's a Wonderful Life. Bankers call the rule "Know Your Customer," and it was easier to apply when Jimmy Stewart was the banker tugging at your heartstrings instead of a Wall Street analyst tweaking the bottom line.

Billions now move covertly with the stroke of a computer to desert island banks that are no more than a server sheltered by a corrugated metal roof, and then to the protection of more sturdy financial institutions. These are known as "correspondent banks" for the big banks that actually hold the money. The Senate subcommittee found major American banks such as Chase, Bank of America, and Citicorp unaware--and perhaps unconcerned until investigators drew it to their attention--of the real nature of their offshore partners and the need for computer software and other screens against money laundering. [4] The South Pacific island of Nauru, recently featured in a picturesque New York Times Magazine article, is said to have been the conduit for $70 billion skimmed from Russia by oligarchs. [5] That is ten times the amount of Russian loot that passed through the Bank of New York and resulted in little more than a legal slap on the wrist for...

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