THE BELIEF OF THE US AND BRITISH GOVERNMENTS THAT THEY COULD SEIZE DIRTY MONEY THOUGHT TO BE FINANCING TERRORISM HAS MERELY DIVERTED SCARCE POLICE RESOURCES FROM THE PURSUIT OF CRIMINAL MONEY LAUNDERING.
The Clearstream scandal, which is currently roiling the French political establishment, exposes two aspects of financial globalisation: the promise of transparency and the potential for money laundering. Indeed, the very name of the Luxembourg-based clearing house suggests both transparency and a cleansing flow.
It was originally assumed that the information revolution and omniscient, self-regulating markets would provide their own defence mechanisms. But huge black holes soon appeared in a world in which "the language is coded, the uninitiated excluded and the rules seldom written and communicable" (1).
Senator John Kerry, in his 1998 book The New War: The Web of Crime That Threatens America's Security, wrote: "The opening of borders to international commerce and the information highway have benefited terrorists every bit as much as they have helped legitimate businesspeople and criminals" (2). In 2005 Moises Naim, editor of Foreign Policy, observed that illicit activities were not limited to the margins of the international economy and that crime (the most lucrative business) has been a leading beneficiary of globalisation. Terrorism, nuclear proliferation, arm sales, drug dealing, counterfeiting, piracy, human trafficking, tax evasion and money laundering have all exploded (3).
In a system based on speed, efficiency and anonymity, shadowy operators have an advantage over political and judicial authorities, especially considering the ground lost by national regulators to the World Trade Organisation, the International Monetary Fund, the World Bank, the Bank for International Settlements, the Financial Action Task Force (FATF) or the Basle Committee.
The rules of the game are now largely determined by the world's most powerful nations, especially the United States, in cooperation with little-known private companies such as Clearstream, of which its former boss, André Lussi, said: "Banks have customers and our customers are the banks. We are the notaries public of the world" (4).
In 2004 Lussi was indicted in Luxembourg for money laundering, manipulation of financial statements, fake accounting, financial fraud and tax evasion. The Clearstream affair testifies to the potential for dissimulation and manipulation among those new notaries.
The role of anti-money laundering measures was to fight such dysfunctions. Money laundering integrates funds derived from criminal activities into the legitimate financial system: it cleans dirty money. According to some sources, it goes back to the 1920s (when the gangster Al Capone bought laundromats to help disguise the criminal origin of his hard cash). But the idea, just like as the war against it, is of more recent vintage. The media began to mention it at the time of Watergate (1972-74), which revealed how the Nixon administration had adeptly hidden the origin and destination of funds. The phrase first appeared in legal proceedings only in 1982.
In 1986 the US became the first country to criminalise money laundering, as part of the escalating war on drugs. The idea was that, since profit motivates drug dealers, going after the money would damage the drug trade. The money trail also promised to yield useful clues and unmask vast conspiracies. None of the "three stages of money laundering" - placement (the introduction of funds into the financial system), layering (multiple conversions and movements designed to confuse the money trail) and integration (when the funds re-enter the legitimate economy) - is illegal in itself. But it is illegal to combine them to hide the criminal origin of funds.
The 'crime of the 1990s'
Money laundering was the "crime of the 1990s" and throughout that decade money laundering laws and regulations grew exponentially. Beyond drug dealing, the range of crimes covered expanded to include almost 200 offences, among them racketeering, theft, trafficking in human organs and endangered species, and, of course, terrorism. In parallel, the US effort against dirty money was internationalised through the FATF, created by the G7 in Paris.
As it expanded, the anti-money laundering apparatus was criticised: the supply of illegal drugs had steadily increased while the amounts of dirty money seized by the government were negligible. In 2001 Paul O'Neill, the Bush administration's first Treasury Secretary, noted that there was little to show for the $700m a year spent by the government on money laundering: over 15 years there had been only one substantial catch. Although the apparatus gave law enforcement agencies plenty of opportunities to go after smalltime dealers, major drug lords, who could afford to skirt the rules and use the services of the best lawyers, remained elusive.
The Spanish investigating judge, Baltasar Garzon, said that judges felt like mammoths chasing leopards in their battle against major financial criminals: "By the time the mammoth reaches his hideout, the leopard is already far away, laughing" (5).
The 1998 bombings of American embassies in Kenya and Tanzania led to more concentration on dirty money. It was said that Osama bin Laden had a $300m war chest; and a cottage industry developed in which self-proclaimed "experts" purported to reveal the whereabouts of that fortune. In reality, Saudi Arabia had seized Bin Laden's wealth in 1994, and his assets in Sudan were confiscated in 1996 when he was forced to leave (6). Terrorist financing was the result of permanent fundraising within Islamist networks (7).
In the late 1990s the Clinton administration attempted without success to introduce "know your customer" rules which would have forced banks (already bound to disclose suspicious transactions) to scrutinise their clients. It also undertook, in conjunction with the Organisation for Economic Cooperation and Development, to crack down on tax havens. As soon as he became president in 2001, George Bush scuttled that initiative and took steps to diminish the anti-money laundering regime until the 9/11 attacks resulted in a major policy U-turn. With the zeal of new converts, those who had been intent on dismantling financial controls presided over an unprecedented expansion of the anti-money laundering apparatus.
The war on terror began with finance when Bush announced "a strike on the financial foundation of the global terror network" on 24 September 2001. The president and top officials kept repeating that money was the oxygen of terror and that acts of terror could not be conducted without an important financial infrastructure (8).
The USA Patriot Act ("uniting and strengthening America by providing appropriate tools required to intercept and obstruct terrorism"), passed in October 2001, had a major anti-money laundering component. That month, at an extraordinary meeting in Washington, the FATF, which the administration had spurned until then, saw its prerogatives officially expanded from money laundering to terrorist financing.
The two activities became interchangeable. A new acronym, AML-CFT ("anti-money laundering - combating the financing of terrorism"), was instantly and uncritically adopted, joining two fundamentally different issues. Money laundering is based on crime-for-money; it involves large sums and transforms illegally obtained cash into seemingly legitimate funds. Terrorist financing, by contrast, is a political phenomenon, involving relatively small amounts, and, at least since 9/11, the financing happens outside international banking channels.
Terrorist financing is more like money soiling than laundering, since small sums of clean money (not illegally obtained) are used to fund acts of terror (9). None of the post-11 September attacks has cost more than $20,000. The London attacks of 7 July 2005 cost less than $1,000 (10); their "terrorist financier" was one of the suicide bombers who made a living as a substitute teacher. In Iraq, more than half of US casualties have been the result of cheap roadside improvised explosive devices .
Yet the financial terrain, vast and little understood, offers political advantages. In the days after 9/11 swift action was not immediately possible against Afghanistan, which harboured Osama bin Laden and al-Qaida. No contingency plans existed and military action took weeks (11). Bush was attracted to financial strikes because freezing accounts was the one seemingly bold action the US could take immediately. An added advantage was that the financial front was conducive to what he called a scorecard logic. He gave the order to "seize some assets, and quickly".
The Treasury general counsel, David Aufhauser, later described the subsequent frantic weekend search: "It was almost comical. We just listed out as many of the usual suspects as we could and said, let's go freeze some of their assets" (12).
Such financial strikes have since become routine. Not surprisingly, they have done little to dent terrorism (13). Easy and often innocent victims were targeted, such as the Somali remittance group Al-Barakaat. The first 100-day progress report of the war on terror set the tone: "The US and its allies have been winning the war on the financial front" and "denying terrorists access to funds is a very real success in the war on terrorism" (14).
In reality, shifting resources from money laundering to terrorist financing caused terrible mismatches. Those trained to spot global financial crime, and Spanish-speaking specialists in the Latin American drug trade, found themselves chasing Islamic terrorists, leaving the business of money laundering unattended.
(1) Denis Robert and Ernest Backes, Révélations, Les Arènes, Paris 2001.
(2) Simon and Schuster, New York, 1997.
(3) Moises Naim, Illicit: How Smugglers, Traffickers and Copycats are Hijacking the Global Economy, Doubleday, New York, 2005.
(4) Denis Robert, La boîte noire, Les Arènes, Paris, 2002.
(5) Denis Robert and Ernest Backes, op cit.
(6) Jonathan Randal, Osama: The Making of a Terrorist, Alfred A Knopf, New York, 2004.
(7) See The 9/11 Commission Report, Thomas H Kean, chair, and Lee H Hamilton, vice chair, authorised edition, WW Norton, New York, 2004; John Roth, Douglas Greenburg and Serena Wille, Monograph on Terrorist Financing, National Commission on Terrorist Attacks Upon the United States, Staff Report to the Commission, 2004.
(8) "President Freezes Terrorists' Assets," remarks by the President, Secretary of the Treasury O'Neill and Secretary of State Powell, The White House, Office of the Press Secretary, 24 September 2001.
(9) See Ibrahim Warde, "Clean money, just a little soiled", Le Monde diplomatique, English language edition, November 2001.
(10) Ibrahim Warde, The Price of Fear: The Truth Behind the Financial War on Terror, IB Tauris, London. 2006.
(11) Bob Woodward, Bush at War, Simon and Schuster, New York, 2002. (12) Ron Suskind, The Price of Loyalty, Simon and Schuster, New York, 2004.
(13) Daniel Benjamin and Steven Simon, The Age of Sacred Terror, Random House, New York, 2003.
(14) http://www.whitehouse.gov /news/rele...
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