Follow the Money and Follow It Fast

By Anita Ramasatry

Jurist 

The movement of terrorist-linked money across borders was as much a factor in the events of September 11 as were lax airport controls, arguably more so. In the era of globalization, cross-border flows of capital can be as dangerous as cross-border flows of weapons of destruction. International cooperation and enforcement is the key to combating terrorism but this includes a fiscal fight as well as an armed conflict.

That is one reason why we need to pay more attention to the importance of preventing and detecting money laundering — the insertion of illegally obtained funds into the stream of commerce, so that "dirty" money appears "clean." Another reason we should focus on this issue is that the increasing globalization of financial services, wire transfers, and faster Internet payments arguably make the life of a money launderer easier, making detection even more urgent.

Globalizing the Fight Against Money Laundering

The events of September 11th have highlighted the link between money laundering and terrorist operations. In order to create an international network, which spans continents, terrorists need to move money around and often do so via normal commercial channels.

In the past, money laundering often seemed not to be directly our problem. The topic often came up in newspaper articles covering, for example, scandals involving the assets of deposed dictators such as Ferdinand Marcos, Jean Claude (Baby Doc) Duvalier and General Sani Abacha — who, we learned, secreted their money in Switzerland or in some offshore bank secrecy haven. But the issue, while it may have concerned those with an interest in international human rights, never truly hit home. Now, of course, that has changed.

The U.S. Congress and President Bush need to enact new money laundering legislation but that is not enough. They should also work not only for stronger domestic remedies, but also for better international financial efforts. And they should move quickly on both fronts — for they are truly fronts of the war on terrorism.

Freezing Assets Connected to Bin Laden and Al-Qaida — Better Late Than Never

On September 23, President Bush began this effort by signing an executive order on terrorist financing. The order blocked the property of a group of designated persons and business entities with links to Osama bin Laden and al-Qaida. At last count, the United States had frozen approximately $6 million in such funds in the U.S. alone.

This is admirable, but also disturbing — for it should have been done long ago. President Clinton ordered the Treasury Department to find bin Laden's wealth in an executive order issued on Aug. 20, 1998, 13 days after suicide-bomb attacks on the embassies in Kenya and Tanzania. But no money was frozen under that order.

This past summer, a prescient article appeared in Foreign Affairs, authored by William Wechsler, who served as Special Adviser to the Secretary of the Treasury from 1999-2001, during the Clinton Administration. Wechsler called upon the Bush administration to act decisively to continue multilateral efforts to combat money laundering, tax evasion and the emergence of rogue banking states — that is, offshore banking centers created by small island nations that often resist international efforts to tighten their banking laws.

In his essay, Wechsler pointed out that Osama bin laden and al-Qaida had been able to launder funds. He warned that stronger international measures were needed to prevent such groups from moving funds illicitly. How right he was.

I myself wrote an article in 1998 in the Vanderbilt Journal of Transnational Law that linked Swiss bank secrecy to the ability of war criminals to hide their assets, and noted the need for international efforts to combat this problem. During World War II, for example, the Nazi regime was able to funnel assets and plunder out of Germany into Swiss bank accounts. Terrorist and war criminals need money and will hide it wherever they can.

Domestic Solutions Matter, Too: Regulating Correspondent Banking

Of course, the United States still needs to strengthen its own investigation and enforcement capacity with respect to money laundering. U.S. banks have been implicated in money laundering in the past two years by virtue of their relationships with foreign "correspondent banks." (Correspondent banking involves one bank providing financial services to another bank in order to transfer funds across borders and to exchange currencies.)

Many banks in the U.S. have been cited as having established correspondent relationships with high-risk foreign banks. In March 2001, a U.S. Senate subcommittee report noted that several major U.S. banks — Bank of America, Chase Manhattan, Citibank, and The Bank of New York — had not conducted sufficient review of correspondent accounts held by foreign banks that were linked to money laundering, tax evasion, and fraud.

Current legislation before the House and the Senate contains provisions aimed to prevent American banks from working with risky foreign correspondent banks. These measures are not just good policy — they are a necessity.

The Importance of Money Laundering Enforcement

The government agencies that are charged with the fight against money laundering also need greater resources to do so. These agencies include the United States Department of Customs, the Financial Crimes Enforcement Network and the Department of the Treasury.

At the end of last week, the Senate approved antiterrorist legislation, known as the USA Act, that includes money-laundering measures. In contrast, the similar, competing House bill, the Patriot Act, does not include such measures.

The House does have proposed money laundering legislation pending, however, but it has kept the legislation separate from its antiterrorism legislation. It has done so because the money laundering bill contains provisions relating to Internet gambling, which are controversial among various industry groups.

The House should be careful to focus on what is important, and follow the Senate's lead in connecting antiterrorism efforts and the fight against money laundering. Whether the result is two bills or one is immaterial. What is important is that the squabble over Internet gambling does not obscure the crucial anti-money laundering effort.

The Financial Action Task Force and Other International Groups

Beyond fixing its own money laundering controls, the United States needs to focus at this opportune moment on working with the international community on the money laundering issue. In particular, the U.S. should concentrate on aiding developing and transition economies to ensure that they participate meaningfully in international anti-money laundering efforts.

The Financial Action Task Force (FATF) is best known among the international groups working to combat money laundering. FATF is a multilateral organization with 31 member states and it has 40 some-odd recommendations on how nations should combat money laundering. If nations fail to cooperate, they are branded and placed on a shame list by FATF.

Other multilateral, nongovernmental and intergovernmental organizations have also jumped on board the anti-money laundering bandwagon. The list is impressive, including the Organization for Economic Cooperation and Development (OECD), the Group of Seven Major Industrialized Countries (referred to as the G-7, and including Canada, France, Germany, Italy, Japan, the United Kingdom and the United States), the Group of Eight (referred to as the G-8 — the Group of Seven plus Russia), the International Monetary Fund and the Financial Stability Forum.

Each of these groups has produced countless reports and sets of "best practices" guidelines. And each has repeatedly condemned money laundering and called for increased vigilance by member states.

Unfortunately, while very well-intentioned, all of these documents together constitute an overlapping and often confusing array of requirements. What we need, instead, is a common standard with respect to money laundering and criminal enforcement.

The Need For Further International Efforts

FATF has the power to list countries, but it has no power to act — and that is a problem that should be remedied, by further empowering FATF, or some other international organization, to sanction non-complying countries.

At present, all FATF can do is to ask individual governments to act to impose sanctions against uncooperative nations. In June 2001, FATF cited three countries — Russia, the Philippines and the island state of Nauru — as jurisdictions that had done little in the past year to halt illegal flows of money through their financial systems. Other countries recently cited for not cooperating sufficiently include Burma, Egypt, Guatemala, Hungary, Indonesia, and Nigeria.

Particularly given the strengthening U.S.-Russia and U.S.-Indonesia relationships, President Bush should be able, at least, to convince many of these countries to do more. Improving money laundering enforcement also allows a country to join the fight against terrorism in a relatively low-profile, yet potentially highly effective way.

There are some international treaties that relate to money laundering in place, but none are comprehensive in their scope. Perhaps the most relevant is the International Convention for the Suppression and Financing of Terrorism, which was adopted by the General Assembly of the United Nations in December 1999. Last, but certainly not least, many nations are just now ratifying this convention, in the wake of the terrorist attacks. Japan and other nations agreed to ratify the Convention following a meeting of the G-7 in Washington DC in early October.

Why The Money Matters

Some commentators will note that following the money is not enough In fact; newspaper articles have mentioned that the recent attacks on the World Trade Center and the Pentagon were financed relatively cheaply, given the devastation they wrought.

Estimates differ, though, and some say the attacks cost up to $500,000. Still, some commentators argue, it will do little good to stop bin Laden's cash flow because the acts of violence can be done without recourse to much money.

One response to this is that the harder we make it for terrorists the better. Forcing them to resort to cheap means of terrorism may mean such means are, at least, smaller-scale. Moreover, in addition to the important aim of stopping the violence the money funds by freezing assets and making them inaccessible, stopping the money has several other important purposes.

First, freezing the assets creates a useful trail that helps reconstruct the actions and movements of persons prior to the incidents of September 11. Second, assets that are frozen may ultimately provide at least some redress for the families of victims of the World Trade Center and Pentagon attacks, as well as for the families of victims of previous bombings allegedly masterminded by the al-Qaida network

Just last week, a woman who lost her husband in the World Trade Center terrorist onslaught filed a lawsuit naming bin Laden as a defendant. The suit was filed late Thursday in U.S. District Court in Manhattan. The lawsuit also names Afghanistan, its Taliban leaders, and al-Qaida as defendants.

In two other lawsuits, Kenyan plaintiffs who were injured in the 1998 bombings of the U.S embassies in Kenya and Tanzania are also seeking damages from bin Laden, as well as from the United States government. Relatives of those killed by terrorist attacks may someday receive funds from the frozen accounts.

Money laundering, like tax evasion, is often seen by the public as a boring, complex or technical offense; tracking wire transfers will always be less exciting than tracking a criminal. Yet this image hides a destructive, often bloody reality.

Following the money can help end violence. Remember that Al Capone was jailed for tax evasion. And remember bin Laden, and the threat he poses, when you think of money laundering. We must wage a fiscal war on terrorism, too.