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New Global Crackdown on Money-Laundering


Members of Colombia's Cali cocaine cartel thought they had found a perfect way of transforming their ill-gotten cash into legal tender: a crooked bank on the Caribbean island of Antigua willing to accept their deposits. As it turned out, they made a big mistake.

The "bank" was run by Drug Enforcement Administration and Internal Revenue Service agents. When they sprung their elaborate trap at the end of 1994, the agents netted more than $50 million in cash, paintings by Rubens and Picasso, nine tons of cocaine, and 88 arrests.

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Operation Dinero was a signal event: It was the first time American officials attacked narcotics traffickers by setting up a phony bank to intercept cash from drug sales before it could be turned into legal assets. But while it dealt a blow to the Cali cartel, the operation stemmed only a trickle in a rising tide of laundered money that criminals worldwide are employing to buy governments, fund terrorist operations, and corner growing shares of global economic power.

Acknowledging what many experts regard as a looming threat to international political and financial order, a group of 26 governments is stepping up the fight against money-laundering.

"Money-laundering is an ever-changing activity," notes Ronald Noble, a former assistant United States Treasury secretary and outgoing president of the Financial Action Task Force (FATF), which met in Washington last week. "The ever-changing nature of money-laundering is like the ever-changing nature of technology."

Corruption at home

Many independent experts, however, contend that there is little governments can do to curb money-laundering unless their root out their own internal corruption first.

"Official corruption is rampant throughout the world. There is no political will to do something because political leaders are co-opted by money," says Charles Intriago, the publisher of Money Laundering Alert, a Florida-based trade journal.

No firm estimates exist on the amount of "hot cash" that is "washed" every year, although it is estimated to be in the tens of billions of dollars. The methods of turning illicit cash into legal assets have grown more sophisticated as the US and other governments have made harder for criminals to transform their profits.

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No longer able to deposit dufflebags of currency in banks in many countries, crooks are buying commodities for sale abroad, setting up their own banks and foreign-exchange houses, and laundering their cash through insurance companies, casinos, and the purchase of real estate and securities.

"Clearly the reach of anti-money-laundering laws need to be broadened," says Stanley Morris, director of the Financial Crimes Enforcement Network, a branch of the US Treasury Department.

In its most far-reaching action, the FATF agreed that governments should extend anti-money-laundering regulations to foreign exchange dealers, brokerage firms, and other non-bank financial institutions. These rules require the reporting of suspicious transactions and transactions exceeding $10,000.

The organization, which includes the US, Canada, Singapore, Hong Kong, Australia, and a host of Western European nations, also said all governments should require banks to report suspicious transactions. Such disclosures are mandatory in many countries, including the United States. But some, including Switzerland and Canada, make it voluntary, while others prohibit it under bank "secrecy" laws.

In another decision, the FATF is making anti-money-laundering statutes target the illegal proceeds from all crimes, not just narcotics trafficking, which is widely regarded as being the largest source of illicit cash in much of the world.

It is the first time the FATF has adopted stricter standards since it was formed at the 1989 summit of the world's leading industrialized powers, or Group of Seven, with the aim of fighting drug smuggling by promoting strong international anti-money-laundering controls. The FATF cannot impose its decisions, but shames governments into adopting them by publicizing lax controls, dubious practices, and alleged corruption.

Beyond slapped wrists

Some experts say the US and other countries must take even sterner action if they want to stem money-laundering. This includes imposing sanctions on governments, such as those of Colombia and Mexico, that take soft lines on the practice and tolerate the massive corruption it breeds.

"Few governments have tackled this problem," says Mr. Intriago. "Official corruption is a major barrier. The people who are interested in weak enforcement or no laws are those who are accumulating large amounts of money and use some of it to pay off public officials."

Experts point out that even the US is having its own problems controlling money-laundering despite having the world's toughest anti-money-laundering laws.

Tighter regulations, they say, drive criminals to greater evasive measures. In fiscal 1995, for instance, US Customs agents intercepted almost $204 million in cash and negotiable instruments being smuggled out of the country by road, sea, and land for laundering abroad. That compares with a total of $171 million for the entire four-year period beginning in September 1990.

Mr. Nobel acknowledges the enormous difficulties in combating money-laundering, saying, "it's an impossible task" to eliminate it. But he says, tougher policies that "raise the cost of money-laundering" force criminals to use riskier methods that increase the chances they will be caught.

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