Problems with Current U.S. Policy.
The globalization of trade, finance, and communications has made it easier to transport illicit drugs, persons, and commodities of all kinds and to launder the proceeds. Many criminals invest simultaneously in ships and planes in order to facilitate their trade in humans, drugs, art, automobiles, endangered species, and money. The sheer volume of financial transactions, many via wire transfers or electronic messages between banks, is staggering. Within the U.S., more than 465,000 wire transfers--valued at more than $2 trillion--are handled daily. Another 220,000 transfer messages are carried in and out of the United States by an international messaging system known as SWIFT (Society for Worldwide Interbank Financial Telecommunication). The large number of transactions precludes effective policing without sacrificing normal commerce.
In 1995, the Office of Technology Assessment (OTA) estimated that within the U.S. approximately 0.05% of transfers (or roughly 250 transactions a day) involve money laundering. Although a wire transfer initially contains information about the sender or originator of the transfer, as the transfer passes through several banks before reaching the beneficiary's account, the identification of the originator is often dropped. Under regulations issued in 1996, U.S. banks are required to identify the originator and the beneficiary of wire transfers, and such information must travel with the message throughout the transfer. But foreign banks are not required to supply this information.
Launderers utilize diverse services offered by international banks, financial institutions, and a host of intermediaries and professions. Private banks, correspondent banks, off-shore banks, internet banking and gaming, international business companies, international trusts, wire transfers, concentration accounts, automated teller machines, pass-through accounts, mortgages, and brokerage accounts provide a rich source of tools by which criminals and their agents can launder money.
OFCs--through which large sums of money are shifted from one country to another--involve intricate networks of accounts used to purchase homes, businesses, and investments with laundered funds. The Cayman Islands, for instance, is now the world's sixth largest financial center, according to investigative reporter Ken Silverstein. Concentration accounts permit funds from various individuals to be commingled without divulging their origins. Private banks, little known subdivisions of every major U.S. financial institution, offer regulatory deference to wealthy clients. For instance, Citibank established private banking services for Raul Salinas, brother of former Mexican President Carlos Salinas, without following its own internal rules on due diligence for starting such accounts. Raul Salinas then laundered tens of millions of dollars in drug money.
Although the U.S. is one of the leading money laundering centers, very few U.S. money laundering cases are actually prosecuted--an indication that this crime is difficult to detect and that inadequate resources are being devoted to enforcement. In 1995, only 62 criminal money laundering cases were filed with U.S. attorneys; of the 138 defendants, 52 were convicted.
In May 1998, however, the Justice and Treasury departments announced the successful culmination of "Operation Casablanca," hailed as "the largest, most comprehensive drug money laundering case in the history of U.S. law enforcement." The three-year sting operation led to the arrest of 26 Mexican bank officials, the seizure of an estimated $150 million, and the freezing of over 100 bank accounts in the United States and Europe.
The case resulted in fierce diplomatic protests by Mexico, because the U.S. violated its sovereignty by conducting undercover operations in Mexican territory without Mexico's knowledge, approval, or participation, as required by various international and bilateral agreements. In April 2001, however, the Mexican government of Vicente Fox shifted course and signaled its willingness to allow U.S. intelligence and law enforcement officials unprecedented access to share intelligence.
The detection of money laundering is impeded by various national and international laws that protect individual rights to financial, communication, and data privacy. In the United States, the Right to Financial Privacy Act of 1978 provides many of the procedural protections for financial records guaranteed more broadly by the Fourth Amendment. The Electronic Communications Privacy Act of 1986 essentially prohibits the monitoring of wire transfers while in transit or in storage without a court order, warrant, or administrative subpoena.
In a significant number of countries, bank secrecy laws buffer the release of comprehensive data about financial transactions by prohibiting banking officials from divulging customer information to persons outside the financial institution or by blocking access by foreign law enforcement agencies on the grounds of national sovereignty. Additionally, under data protection laws such as the European Union's (EU) Data Protection Directive, information may be prohibited from leaving a signatory country if it is being sent to a country with less stringent data protection laws. The EU privacy rights require that records of suspicious transactions and intelligence information be destroyed after a period of years, unless prosecutors have taken enforcement action; the U.S. policy is to keep such information indefinitely.
* Despite numerous laws and treaties, large-scale drug trafficking and money laundering continues to thrive.
* The U.S. may have reached the point where new anti-money laundering impositions will adversely undercut civil liberties and normal commerce in the U.S. and abroad.
* Very few U.S. money laundering cases are actually prosecuted.
Bruce Zagaris <firstname.lastname@example.org> is a partner with the law firm of Berliner, Corcoran & Rowe, a founder and editor of International Enforcement Law Reporter. Scott Ehlers <email@example.com> is the director of research with the Campaign for New Drug Policies.
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|Publication:||Foreign Policy in Focus|
|Date:||May 22, 2001|
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