The Many Faces of Money Laundering By Annan Boodram

An agency waging an international crusade against money laundering issued an ultimatum to Russia, the Philippines and the tiny Pacific isle of Nauru to clean up their act by the end of September or face sanctions.
The three countries were singled out in a longer blacklist issued by the Financial Action Task Force (FATF), a Paris-based agency backed by most of the world's industrial nations, after a review of banking centers worldwide.
The full list included the Cook Islands, Dominica, Egypt, Guatemala, Hungary, Indonesia, Israel, Lebanon, Marshall Islands, Myanmar, Nigeria, Niue, St. Kitts and Nevis and St. Vincent and the Grenadines.
France, one of the most vociferous backers of the FATF, said its government would issue a statement to its financial institutions, advising "reinforced vigilance" in dealings with the listed places.
The FATF issued a list of "uncooperative jurisdictions" for the first time in June 2000 and the revised list published on June 22 let a few off the hook but added several others.
The Cayman Islands, Bahamas, Panama and Liechtenstein were removed from the renegade ranks. Those added were Hungary, Egypt, Indonesia, Nigeria, Guatemala and Myanmar.
Also remaining blacklisted are the Caribbean islands of Dominica; St. Kitts and Nevis; and St. Vincent and the Grenadines. In Central America, Guatemala was added to the list.
Many of the offshore financial centers have balked at being forced to enact legislation dictated by the world's wealthy nations. But, rattled by the implied threat of economic sanctions should they fail to go along, they have tried to comply.
ENHANCING LAWS
The Bahamas passed a package of news laws in December to bolster its legal restrictions and regulatory oversight.
It has also revoked the licenses of 19 banks including Suisse Security Bank & Trust.
Some small offshore financial centers contend that the Financial Action Task Force's list overlooked good-faith efforts that had been made in the past.
For instance, the Cayman Islands already had a mutual legal assistance treaty with the United States and had provided information to Washington on 180 investigations since 1990.
The Financial Action Task Force said it found the Cayman Islands "has significantly increased the human and financial resources dedicated to financial supervision and to its financial intelligence unit.''
The task force also said that although it was keeping them on the list, it was heartened by progress made by Dominica, St. Kitts and Nevis, and Niue, a self-governing atoll in the South Pacific that is associated with New Zealand.
Other Caribbean nations have also taken initiatives of their own relating to better supervision of and tighter control over their offshore financial services.
Barbados recently announced a "sting" operations to ferret out scams. Although it didn't spell out the details of its plans, Barbados has made it clear that undercover operations designed to catch crooks, prevent illegal activity and preserve the country's "impeccable record" in the international and local investor community will become a priority. And Barbados used a paid supplement in the widely circulated Economist magazine to get the word out.
Antigua & Barbuda amended its money laundering legislation to levy a 3% tax on gross income and gross handle of businesses regarded as financial institutions such as casinos with a physical presence, Internet gaming operations, sports books and virtual casinos. The amendment contains provisions dealing with freezing the ownership of property that has been disguised by employing complex corporate or trust structures, or has been passed off as belonging to a third party. Furthermore, the law will allow Antigua's prosecution authorities in the country easier access to statements and official documents from other countries during their investigations. These actions resulted in both England and the US dropping Antigus and Barbuda from their list.
The Grenada International Financial Services Authority has revoked the licenses of 25 of its offshore banks while the Dominica government has revoked the licence of the British Trade and Commerce Bank (BTCB). The last six licences to be revoked by Grenada were Anglo-American Limited, Rahab Trust and Management company, Wellington Bank and Trust, Caribbean Merchant Bank, Crown Meridian Bank and Bern Savings
And four Caribbean nations - Anguilla, the British Virgin Islands [BVI], Montserrat and the Turks and Caicos Islands - recently agreed to endorsed the OECD's call to improve financial transparency, co-operate better with overseas tax authorities and scrap laws that international investors provided OECD members observed the same standards they were demanding of the havens.
At the same time, through the Canadian International Development Agency (CIDA), Canada will contribute Can$8-million to create the Caribbean Regional Technical Assistance Centre that will open in July. The new centre will supply technical expertise to Caribbean countries in areas such as budget management and financial sector supervision.
In addition, Canada has commited to providing Can$5-million a year to help strengthen the integrity of financial sectors in the Caribbean and elsewhere.
Meanwhile Caribbean offshore jurisdictions are awaiting the Organisation for Economic Cooperation and Development's (OECD) next move after the grouping and a number of conservative Republican leaders /institutions including the Center for Freedom and Prosperity, a conservative thank-tank led by Andrew Quinlin.

The Caribbean has also been stirring controversy as a tax haven for international crimminals. And related to this haven are activities such as offshore banking and money laundering, drug pushing and economice citizenship.
While there is no hard figure for the amount of illicit cash pumped through bogus bank accounts by the underworld, the FATF says estimates, while unreliable, go as high as $1.5 trillion a year -- as much as France's annual gross domestic product.
The U.S. Internal Revenue Service estimates that Caribbean tax havens alone drain away at least $70 billion a year in personal income tax revenue.
And the International Monetary Fund concluded in 1999 that offshore banking played a sometimes "catalytic" role in Asian, Russian and Latin American financial crises by hiding losses in ways that regulators and auditors were unable to penetrate.
But tax havens also cost poor countries at least $50bn a year in lost revenues - equivalent to the entire aid budget of the West, a new report from Oxfam said.
Oxfam is calling for a "poverty focused" rethink of the system that provides tax sanctuary for elite corporations and individuals.
The report says:
o Tax havens allow rich companies and individuals to avoid tax, to under-report profits and to move vast sums of capital. This limits the ability of governments to raise revenues and invest in social services. Poor countries are forced into a race to offer foreign investors ever-lower tax rates.
o Many tax havens provide sanctuary for the proceeds of crime and corruption. Much of the $55bn looted from Nigeria remains in European bank accounts today.
o Tax havens are central to the operation of global financial markets, with currency instability and rapid surges and reversals of capital flows. This volatility contributed to the Asian financial crisis; nearly three years on, the economies of Thailand and Indonesia continue to struggle under the public debt the crisis created.
Western action had concentrated on smaller tax havens such as Jersey, the Caymans, Bahamas and the Seychelles, ignoring London, New York, Singapore, Hong Kong and Switzerland.
"If there is going to be a blacklist, these centres should figure prominently. They should be named, shamed and changed as well." said Mr Bloomer.
Another dimension is the fact Caribbean offshore banks, are helping to boost the bottom line of some of America's most respected private banks.
They do so through corresponding banking relationships, which the offshore banks have with such major financial institutions as J.P. Morgan Chase, Bank of America and Citibank.
That picture has emerged from the results of a United States Senate investigation, which raised the possibility of money laundering by major United States banks and their offshore financial partners.
But the trouble is that while the Caribbean faces punitive sanctions by some of the world's richest nations, the well-known banks on Wall Street, in London and Paris are not even getting the proverbial slap on the wrist.
The failure of U.S. banks and regulators to track transactions with foreign banks enables criminals to route billions of dollars from drug sales, Internet gambling, tax evasion or other illegal activities into the United States each year, a new Senate subcommittee report concludes.
United States Senator Carl Levin, the leading Democrat on the Senate's Permanent subcommittee on Investigations described corresponding banking as "a gateway into the United States financial system for criminals and money launderers".
Four such profitable relationships between Citibank, J.P. Morgan and Citibank and offshore financial operations in Antigua, the Bahamas and the Cayman Islands were recently scrutinised by the Senate in Washington and the findings have forced top executives of some United States banks to admit that they were lax in the way they handled the relationships with their Caribbean partners.
"There should have been more due dilligence," said David Weisbrod, vice president of Treasury Services at J.P.Morgan Chase.
Bank of America also offered a mea culpa. "Obviously, we should have done something differently," declared James Christie, Bank of America's Senior Vice President of Global Treasury risk management.
But there is also another side to the issue of money laundering. Consider the list of imported goods into a Caribbean, European or Latin American nation.
A bulldozer with a price tag of less than $4; watches that normally go for $5 000 being listed at $5 each; and a crate of women's underwear for $50.
On the flip side of the ledger, there are the pencils priced at $1 000 a piece; spark plugs for over $300; and a toy truck at an unusually high price.
While the average shopper is unlikely to come across such bargains in a shopping mall in Barbados or high-priced lands on the docks at the Bridgetown Port or one of Miami's busy ports, the unusual transactions are among the creative ways people in the United States are using to launder money in the Caribbean, Ireland, Europe, Latin America, India, Canada and elsewhere.
Two professors of finance at Florida International University, John Zdanowicz and Simon Pak, told a recent meeting at Miami's Fontainebleau Hotel that research into the methods being employed to launder money showed that ingenious methods are allowing corporations and individuals in the United States to underreport taxable income.
"I look at money laundering, tax evasion and import duty fraud like a balloon," said Dr. Zdanowicz. "You squeeze one end and the other gets bigger."
In short, as the banks come in for closer scrutiny, the wrongdoers find another way to get the job done.
"What we have found consistently, this activity is continually increasing over the year, as money launderers realise the banks are being monitored," said the finance professor. "They realise no one is monitoring the trade transaction price. We see this as the money laundering technique of the future."
As the experts explain it, the system would work like this:
A company in the United States wants to launder $1 million in cash. It uses the money to buy 200 expensive watches at roughly $5 000 each and then exports them to Russia, India, the Bahamas, Ireland, Ghana, Barbados, Brazil, Jamaica, Italy, France or Israel, listing them at $5 each. The importer at the other end of the transaction in the foreign country then sends a cheque to the United States exporter for $1 000 and turns around and sells the watches at the market value.
Through that transaction "you've basically moved $1 million out of the United States," explained Dr. Zdanowicz.
The more than 600 participants in the conference, including some from the Caribbean, heard how the Internet, electronic banking and debit cards are helping to move money around the world. At the same time, the new innovations are making it easier to launder money so much so that the experts are now calling it cyber-laundering.
Then, there are the insurance annuities, trading stock on Wall Street or London and buying and selling money on the black market in Latin America, all are being used to get dirty money into the legitimate financial system anywhere in the world.
"There are literally thousands of places for these people to go," said Jose' Marrero, a special agent in charge of the Internal Revenue Service's Criminal Investigation Division in Florida.