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New ways to monitor kleptocrats

Eleven large banks sign an agreement that makes it harder for corrupt officials to hide ill-gotten gains.

During his 32 years ruling the former Zaire (now the Democratic Republic of the Congo), Mobutu Sese Seko became a symbol of corrupt excess.

The leopard-skin adorned dictator built 11 palaces, collected European villas, and amassed a personal fortune conservatively valued at more than $3 billion. During that same period, his country - rich in diamonds, gold, and other minerals - didn't fair nearly as well. Shortages of medicine closed the state's hospitals and a lack of paper shuttered the government news agency.

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Zaire had 31,000 miles of main roads at independence in 1960. Twenty years later, only 3,700 miles remained navigable. An unrepentant Mr. Mobutu told his 26 million subjects, "It is better to die of hunger than to be rich and a slave to colonialism."

For decades such kleptocracy - or rule by thieves - has been supported by some of the biggest and most respected banks in the United States and Europe, which accepted billions of dollars from highly suspect sources with no questions asked.

Now, 11 of the world's largest private banks have agreed on key anti-money-laundering principles, which include not accepting money believed to be the product of corruption or bribery. The agreement is part of an initiative by Transparency International, a Berlin-based nongovernmental group dedicated to curbing corruption worldwide.

"It is a very laudable first step in the fight against money laundering," says Raymond Baker, an expert on corruption with the Center for International Policy in Washington. "We are finally beginning to address the issue." He estimates that more than $500 billion in illegal funds are laundered each year in New York, London, Zurich, Switzerland, and other financial centers.

Between $20 and $40 billion of that amount is thought to have been siphoned from the treasuries of some of the world's poorest countries by corrupt leaders. The remainder is related to bribes, drug syndicates, mob activities, and tax evaders.

Even banks that signed the agreement say it is not an easy sell. "We don't want to grill our clients," says Jochem van de Laarschot, spokesman for ABN AMRO Bank in Amsterdam. "We cannot and do not want to know every detail of their lives. But now we have to be able to judge their activities.... As a bank you want to be very careful. But at the same time, you want to make money."

At a summit in Japan last July, the Group of Eight industrialized nations discussed efforts to combat money laundering and tax evasion. Several Caribbean countries are tightening banking laws after appearing on a list put out by a group linked to the Organization for Economic Cooperation and Development. The 15 nations and territories judged "noncooperative" includes the Bahamas, Cayman Islands, Cook Islands, and Dominica as well as Russia and Israel. Caribbean leaders complain, however, that the list is a bullying tactic by wealthy states to crack down on tax evaders. They argue that their tax advantages are needed to offset the damages of globalization.

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The Transparency International campaign, for its part, spotlights the secretive world of private banking, where clients usually open an account with a minimum $1 million deposit. The "private banker" may make house calls, set up shell companies on distant islands, and refer to clients, on request, by a code name to protect their identity.

While increased financial openness won't necessarily prevent pilfering, supporters say it could be used to influence decisions on lending to corrupt regimes, and could help track funds once reformist governments come to power.

"[Money laundering] is a worldwide problem," says Fritz Heimann, a Transparency International director. "It undermines development. It undermines the rule of law.... In the poorest countries, the consequences are even more severe."

Consider the case of Sani Abacha. From 1993 to 1998, he ruled Nigeria, the most populous country in Africa and one of the most promising. During that time his family and friends are accused of diverting billions of dollars from the Treasury to private accounts in Europe and the US. The effect is palpable. Though their nation is the world's 10th-largest oil producer, Nigerians regularly experience fuel shortages and blackouts.

Since Mr. Abacha's death two years ago, the new democratic government has recovered $750 million from the Abacha clan. It is still trying to track down more secret accounts.

Similarly, El Hadj Omar Bongo, president of Gabon since 1967, is alleged to have stashed away $130 million - much of it suspected bribes from a French oil company. A Citibank client profile for him, dated Aug. 12, 1996, explains his source of wealth as, "head of state for over 25 years ... self-made as a result of position. Country is oil producer."

Such earnings do not violate US law. In the 1980s, Congress prohibited banks from laundering money for drug lords and mafia figures. But suspect foreign officials are not subject to the same legal scrutiny. American and European banks actively solicit such lucrative clients - squirreling away billions for leaders from the Philippines to Pakistan.

Recently, several pieces of legislation have been proposed to change this. "Many activities which Americans find reprehensible and which can destabilize regimes and economies are not currently illegal," said a statement released by Sen. Carl Levin (D) of Michigan, a sponsor of one of the proposals. "America can't have it both ways. We can't condemn corruption abroad ... then tolerate American banks making fortunes off that corruption."

The proposals are opposed by some sectors of the banking industry, eager to continue profitable private bank operations and anxious to protect client privacy rights.

Few experts suggest the Transparency International agreement, signed weeks ago, will stop corruption on its own. But most hope that as more banks join, money laundering will become increasingly difficult. Using the same tactics as activists trying to halt trade in "blood diamonds" - gems that finance insurgencies in Africa - Transparency International plans to continue to pressure and shame nations, territories, and institutions to accept its principles.

The Wolfsberg Principles

Eleven banks, to date, have agreed to follow a set of principles designed to curb international money laundering, including to:

- Collect and check information about bank clients and their source of wealth.

- Apply extra scrutiny to public officials, CEOs, and their families, as well as funds from countries identified as having inadequate money-laundering prevention standards, or that present a high risk for crime and corruption.

- Establish a training program for employees on the identification and prevention of money laundering.

Banks that have agreed to follow the principles: ABN AMRO Bank N.V.; Barclays Bank; Banco Santander Central Hispano, S.A.; The Chase Manhattan Private Bank; Citibank, N.A.; Credit Suisse Group; Deutsche Bank AG; HSBC; J.P. Morgan; Societe Generale; UBS AG.

Source: Transparency International (www.transparency.org)

(c) Copyright 2000. The Christian Science Publishing Society