Toward a New Foreign Policy.

Although various international standards have been written to guide governments in adopting anti-money laundering policies, not all jurisdictions have implemented regulations. "Soft law" standards, in the form of recommendations, should be transformed into hard law through international conventions with effective enforcement provisions.

Regulations and procedures for banks and other financial institutions need to be evenhanded and in close conformity with those of other countries. Washington should reconsider the advisability of unilateral extraterritorial sanctions and operations, unless the U.S. has exhausted all means of cooperative approaches to kingpin and related sanctions. The Bush administration should, for instance, respond to the Vicente Fox government's new openness in sharing intelligence not by unilaterally operating inside Mexico but by building collaborative procedures for detecting and prosecuting international money laundering, corruption, and drug trafficking. And the White House should follow the recommendations of the congressionally created Judicial Review Commission on Foreign Asset Control, whose January 2001 report, based on the Foreign Narcotics Kingpin Designation Act (Kingpin Act), recommended that the Office of Foreign Asset Control (OFAC) adopt greater openness and responsiveness and submit to more formal administrative review of its final actions.

Washington should realize the limitations of harsh enforcement policies, such as anti-money laundering measures and economic sanctions, on illicit drug trafficking. These regulations can only have a minor effect on curtailing money laundering. In 1995, the OTA found that anti-money laundering regulations do not work, because the number of money laundering transactions is believed to be relatively small, insufficient information is contained in wire transfers, and it is difficult to characterize a typical money laundering transaction, rendering identification and profiling very problematic. In addition, a tougher system would, as noted by the Judicial Review Commission, also pose a serious threat to privacy and constitutional protections.

The illicit drug trade funds powerful criminal organizations, resulting in widespread corruption, violence, and an undermining of the rule of law. This, in turn, impedes the prosecution of these organizations, weakens the judicial system, and prevents the effective implementation of anti-money laundering controls in the banking system. Weak legal structures and social instability also thwart legal commercial development. The allocation of enforcement resources to combat international drug money laundering and drug trafficking is disproportionate to the harm from the trade and restricts the ability of law enforcement bodies to focus on violent forms of crime, such as terrorism, weapons trafficking, and trafficking in human beings.

Rather than simply increasing the enforcement regime against money laundering and drug trafficking, greater emphasis should be placed on actions and resources that address the fundamental causes of the problem--namely, the demand for drugs and the lack of economic opportunities in both developing countries and U.S. urban centers. In the U.S., more emphasis should be placed on addiction treatment and urban development in an effort to curb drug demand and sales. This would, in turn, reduce the proceeds to drug traffickers. Although drug trafficking and money laundering will be reduced if the demand for illicit drugs is reduced in consumer countries and if alternative forms of development are implemented in source and transit countries, drug consumption will continue to exist. The artificially high profits from supplying drug consumers serve to impede alternative forms of development.

Ultimately, the UN Conventions on Illicit Drugs (1961, 1971, 1988) must be revised to allow for signatory parties to experiment in regulating the distribution and sale of certain illicit drugs. Unfortunately, recent actions by the UN make it dear that such experiments will not be considered. A UN counterdrug plan proposed to the 1998 General Assembly Special Session on Illicit Drugs is useful in promoting crop substitution programs, but it sets the wholly unrealistic goal of eradicating the world's entire production of heroin, cocaine, and marijuana by the year 2008.

There are a variety of regulation schemes that could be implemented to control access to drugs while removing the profits from criminal enterprises. Ideally, the aim should be to minimize the harm that drugs cause to users and society at large, to shrink the size of the black market, and to obviate the need to launder illicit funds.

Key Recommendations

* Strengthen anti-money laundering cooperation and regulations, reduce unilateral extraterritorial enforcement actions, and safeguard the rule of law and fundamental rights under both the Constitution and international human rights statutes.

* Increase funding for addiction treatment and economic development programs in both the U.S. and source countries to reduce drug production, sales, consumption, and trafficking.

* Revise U.S. and international policies and laws to permit governments to experiment in the regulated distribution of currently illicit drugs.

Bruce Zagaris <[e-mail]> is a partner with the law firm of Berliner, Corcoran & Rowe, a founder and editor of International Enforcement Law Reporter. Scott Ehlers <[e-mail]> is the director of research with the Campaign for New Drug Policies.