Courtesy Reuters

Funny Money

By Raymond William Baker and José Miguel Aleman

To the Editors:

William Wechsler's comprehensive review ("Follow the Money," July/August 2001) suggests that the United States is aggressively leading a global charge against money laundering. Contrast this with an estimate by Treasury Department officials that 99.9 percent of laundered foreign criminal money presented for deposit in the United States readily finds secure accounts, making the country the largest recipient of ill-gotten gains in the world. How can so much effort produce so little success? The answer lies in the narrow focus and hollow content of the policy.

Dirty money flowing from abroad is criminal, corrupt, or commercially tax-evading at its source. Foreign crimes that qualify as a "predicate offense" under U.S. anti-money laundering legislation are essentially limited to drug trading, violent acts, and bank fraud. Money derived from other forms of crime, cumulatively far greater in amount, is not considered to be laundered. The corrupt component, stemming from bribes paid to and theft committed by foreign government officials, is not criminalized under U.S. anti-money laundering laws. Several bills that attempted to do so were blocked by Senator Phil Gramm, then chair of the Senate Banking Committee, in the last congressional session, reportedly influenced by southern Texas banking constituents. Handling the proceeds of commercial tax evasion in other countries is also not illegal, a fact buttressed by an implicit but flawed analysis that the intake of such money is good for the United States.

The question of privacy rights for U.S. citizens has unfortunately been interjected into the debate on strengthening anti-money laundering rules, resulting from overly broad "know your customer" recommendations presented by the Clinton administration and then quickly abandoned in 1999. The proposal, aimed at regulating banking oversight of questionable activities, should have been limited to foreign account-holders -- the proper target. Reactions were so strong against suggested "KYC" standards that the Bush administration, catering to emboldened financial lobbies, is now considering raising the cash transaction reporting requirement from the current threshold of $10,000 to $25,000 or more. If enacted, this move will seriously undermine the one success achieved by anti-money laundering endeavors: the crackdown on "smurfing" -- repeated cash deposits -- as a method of cleaning drug and other illegal profits.

The fallacy in U.S. and European anti-money laundering programs is that ineffectual controls are directed at a thin selection of particularly egregious foreign criminal inflows, while the door is kept open to a much larger range of similarly illegal, corrupt, and commercially tax-evading receipts. Until the whole spectrum of the dirty money problem is put squarely on the table, curtailing any significant part of it will be beyond reach. The proper measure of success is not the level of well-intentioned activity but how many billions of fraudulently acquired dollars are prevented from being legalized.

Raymond W. Baker

Senior Fellow, Center for International Policy

To the Editor:

William F. Wechsler states, with regard to former Peruvian intelligence chief Vladimiro Montesinos' arrival in Panama, that Panama "told the United States that it would give him asylum only if the United States would rescind its anti-money laundering advisory -- a deal that the United States quickly rebuffed."

This affirmation is untrue. The only factor that Panama took into account in considering Montesinos' petition for political asylum was the hemispheric mandate conferred in June of 2000 by the General Assembly of the Organization of American States (OAS) on the assembly president and the oas secretary-general to assist in strengthening democracy in Peru.

Pursuant to this mandate, Secretary-General Cesar Gaviria, together with several regional governments (headed by Washington), asked Panama to give serious consideration to Montesinos' asylum application. The region's leaders argued that Montesinos' continued presence in Peru was an obstacle to re-establishing democracy in that country. Before Panama issued a ruling on the asylum petition in late September, however, Montesinos returned to Peru of his own free will. At that point, Panama closed the matter.

The U.S. advisory against Panama was rescinded on June 1, 2001, shortly after the Group of Seven's Financial Action Task Force (FATF) withdrew Panama from its list of noncooperative countries in recognition of its government's efforts to improve its financial legislation and controls in compliance with international anti-money laundering standards.

Jose Miguel Aleman

Minister of Foreign Affairs, Panama

William Wechsler responds:

I participated in several of the meetings in which this offer was discussed and rejected. But one need not take my word for it: it was mentioned several times in the Panamanian press. On October 5, El Panama America reported that the Panamanian government "would reject the political asylum petition of former Peruvian presidential adviser Vladimiro Montesinos, if the United States did not succeed in removing Panama from the blacklist of nations uncooperative against money laundering." On October 12, 2000, to take another example, La Prensa ran an entire story under the headline "U.S. Rejects Exchanging Montesinos for Panama's Exclusion from Blacklist." The Panamanian government eventually changed its strategy and began strengthening its laws and regulations to comply with international anti-money laundering standards. And, as promised, once Panama changed its laws, the United States was its strongest ally in internal FATF discussions. The result, as Foreign Minister Aleman accurately notes, is that Panama is no longer on the FATF list and the U.S. advisory against Panama has been rescinded.

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