Centre for Research on Globalisation

Globalization's Shadow Financial Network and its Defenders

A Three-part Series


 Bush Administration Undermines Global Anti-money Laundering Efforts,

Protects a Shadowy Criminal Financial Network

by  Kyle F. Hence

Centre for Research on Globalisation (CRG),  globalresearch.ca , 19 April 2002

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Part I

"Money laundering provides the fuel for drug dealers, terrorists, and arms dealers to operate and expand their operations…left unchecked, money laundering can erode the integrity of our nation's and world's financial institutions." --The US Department of the Treasury Financial Crimes Enforcement Network

"Money makes the world go around; at least so far." -- Anonymous

Shortly after George W. Bush took office, his administration, representing the world's most powerful and sophisticated economy, made the decision to withdraw from, and thus stall, the most recent and aggressive international effort to crack down on international tax havens. There is a story behind this story that involves Enron and an even bigger story behind Enron. What ties all these stories together is a sordid money trail that reveals one of Globalization's darkest secret, an international shadow financial network that facilitates not just mere tax evasion but the most heinous of crimes around the globe.

At the end of a money trail that starts from the office of Enron's Andrew Fastow lies a system of financial wizardry and secrecy that is exploited by drug traffickers, terrorist insiders, corporate criminals and the extremely wealthy alike. Lying between Enron's special purpose entities (SPEs) and globalization's system of shadowy financial byways, shell companies and coded accounts is a jumble of bungling, ineffective or suspect government regulators, weak or ignored laws, crooked or creative accountants and special interest lobbyists seeking to maintain the status quo of doing little or nothing. These are its defenders and system bunglers.

On May 10 of last year the Bush administration caved from months of lobbying pressure and reversed several years of Clinton support of the 30-nation Financial Action Task Force (FATF) of the OECD (Organization of Economic Cooperation and Development).

The St. Petersburg Times reported January 19, 2002 that "allies of Enron Corporation helped orchestrate a campaign that eventually crippled an international crackdown on offshore tax havens." The lobbying effort was led by those close to Enron including Lawrence Lindsey, a White House advisor who had received a $50,000 consulting fee from Enron, and Texas Senator Phil Gramm who had received $97,350 in Enron campaign contributions. [Center for Responsive Politics] In ongoing Congressional hearings, it has been revealed that Enron used the offshore system to hide hundreds of millions of dollars in losses while unscrupulous executive insiders enriched themselves at others expense. In one of the more extreme examples, one insider in an offshore 'special purpose entity' reportedly 'invested' $5800 and 60 days later pocketed a profit of $4.8 million.

A case could be made that, by their inaction and lack of support for the tax haven clamp down, the Bush administration gave continued, perhaps unwitting 'cover' for offshore SPEs (Special Purpose Entities) that were key to the criminal financial machinations of the Enron Corporation, and likely many others. And thus also the bilking of hundreds of thousands of employees and pensioned citizens who lost their 401ks and savings when the giant firm collapsed. Current hearings on Enron have only revealed the likely criminal dealings of a handful of some 3000 of these offshore entities set up by Enron executives. In all likelihood, this handful is indicative of a practice employed by many corporations. In which case, we are only seeing the tip of the iceberg. The bulk and worst of the criminal activity likely remains lurking below the surface, as yet unmolested.

Drug related violence…global terrorism…massive tax evasion…corporate fraud…capital flight. Each is perpetrated and perpetuated with the aid of what most people know as offshore "tax havens." Nauru (a tiny Pacific Island), the Cayman Islands, and Anguilla evoke romantic images of swaying palm trees and long sandy beaches while Switzerland brings to mind the majestic snow capped alps. These are four of some sixty 'jurisdictions' globally that act as tax havens. But, tax havens is a simplistic misnomer. The façade of waving palms and bronze corporate plaques on sun-bleached shacks belies a far darker and suspect reality. 'Tax haven' is far too innocuous and deceptive a term for a legitimized financial shell game that enables highly sophisticated international crime to go largely undetected and unprosecuted.

Money makes the world go around; and these tax havens allow the lifeblood of an underworld of global criminals, white-collar and otherwise, to flow unimpeded to the tune of US $1.5 trillion annually. The Enron scandal has opened the can of worms that is money laundering, now the world's third largest 'business' behind foreign exchange and oil. [Dirty Dealing: The Untold Truth about Money Laundering, January 2001]. Funds, clean and dirty, pass through a huge and growing 'private banking' system. This is dangerous and growing beast in the belly of globalization that few want to look at and many want to protect.

According to a 1999 report issued by Senator Carl Levin following a year long bipartisan investigation by the Senate's permanent subcommittee on investigations, private banking units manage approximately US $15.5 trillion worldwide for wealthy clients who wish to secretly avoid taxes or other issues with concerned governments. This represents perhaps the least dangerous of crimes enabled by this globalized network.

At issue now are shadowy financial dealings that far more dangerous and insidious than tax evasion. In the case of 9-11 and global drug trafficking, we are talking about a system of financial mechanisms which directly facilitates the terrorist massacre of thousands of people and the flow of drugs that destroys lives, property and communities. People pay with their lives because a legitimized financial network allows criminals to hide their money, pay for, and profit from, their crimes. In each case, the perpetrators are 'making a killing;' but not just in the Wall St. bravado sense of clearing huge profits. These master manipulators behind the secret bank accounts, shell corporations and cleansing wire transfers leave death, destruction and suffering in a wake of rolling profits; profits that only increase their power and escalate a cycle of violence and moral decay.

In an age of globalization, drug money, terrorist financing and the ill-begotten profits of white collar criminals all flow through, and take advantage of, the same channels and protections offered by these offshore entities and the network of corresponding relationships they have with 'legitimate' on-shore banks, brokerages and corporations. This shadowy international financial 'system' supports, and allows for the protection of, the individuals who profit the most from both white-collar and more heinous violent crimes. This is the dark underbelly of globalization and few have the courage to talk about it openly or challenge regulators or policy makers to address it with the requisite force and effectiveness. On this note, the Bush Administration fell well short of the mark.

Howevery, money laundering by drug traffickers, arms dealers and others has been widely documented and occassionally prosecuted, however leniently, in a scandals that have included Savings & Loan, Banamex/Citigroup, HUD and BCCI. Jonathan Beaty and S.C. Gwynne wrote of BCCI in The Outlaw Bank: "It was a conspiratorialist's conspiracy, a plot so byzantine, so thoroughly corrupt, so exquisitely private, reaching so deeply into the political and intelligence establishments of so many countries, that it seemed to have it only precedent in the more hallucinogenic fiction of Ian Fleming, Kurt Vonnegut or Thomas Pynchon. As tales of it global predations were splattered across headlines all over the world, its apparent influence reached almost absurd proportions."

Despite these shocking revelations, this shadow financial network, in which BCCI and its many branches operated, has been allowed to flourish in the years since. Feeble, watered-down and sporadic efforts by elements of the international community to 'clamp down' on the system of secrecy and protection provided transnational criminals have done little to stem the rising tide. Acquiescence to the sanctity of bank secrecy allows terrorist, drug kingpin, and ultra-wealthy alike to continue in all manner of dangerous, nefarious and illegal activity. When does acquiescence become complicity by inaction?

Lack of crackdown leaves drug traffickers with freer reign Unfortunately, on closer analysis this link to the Enron scandal may be part of another serious problem, but in a different and far more dire sense. In withdrawing U.S. participation from an aggressive campaign against the money laundering system, the Bush administration may have not only effectively protected Enron's use of offshore havens, but worse, protected the far more heinous crimes of drug traffickers who exploit the same financial system.

Could the Bush Administration's lack of action against tax havens make them complicit, by effect, in drug trafficking? A sin of omission? To be fair, any international anti-money laundering effort, no matter how aggressive, would not instantly stem of tide of illegal drugs. But, it is also fair to ask how many innocent lives could have been saved from drug-related violence had such an effort succeeded in even a single prosecution of a drug-traffic linked money-laundering tax haven? We may never know as long as 'special interest' lobbyists from the likes of Enron and pliant leaders continue to stonewall or frustrate any genuine attempts at challenging an extraordinarily entrenched global system. In the case of drug trafficking, crime in the streets may proceed from crime in the suites, aided and abetted by those who halt crackdowns on the financial tools of the trade.

Delays and inaction on terrorist front raises serious questions Creative accountants, corporate tax evaders and global drug traffickers are not the only ones who may have 'benefited' from lack of aggressive and effective action by Bush or previous administrations. Global terrorist networks, including Al-Qeada, would also have been left freer to pursue their deadly agenda moving around funds to carry out their attacks of 9-11. This is now a far more grave issue, one of national security, largely neglected by the press.

It wasn't only the U.S. withdrawal from the FATF international effort that may have left terrorists and others unmolested in the lead up to 9-11. In October of 2000, eleven months prior to the 9-11 attacks, Congress authorized formation of the Foreign Terrorist Asset Tracking Center. At the time of the hijackings, it was still being organized. It was only after the attack that Treasury officials rushed to get the program operational. This led Senator Charles E. Grassley (IA), the ranking Republican on the Finance Committee to ask whether the long delay "is indicative of larger problems" with the "use of financial data to target criminals." ["Experts Accuse U.S. Agencies of Footdragging Before Sept. 11;" Myron Levin and Josh Meyer, Los Angeles Times, October 15, 2001]

Following 9-11, the war on terrorism's financial infrastructure is finally galvanizing concerted action. After the attacks, the administration did an about face on the issue by supporting congressional efforts to strengthen U.S. anti-laundering laws. For months in Congress, the Grassley-Levin anti-money laundering bill lay dead; that is, until 9-11. Provisions of the Patriot Act, signed into law in October 2001, incorporated portions of the Grassley-Levin Bill which gave added powers to the US Treasury to pressure non-cooperating offshore 'jurisdictions' to come into compliance and thus assist in the crack down on the individuals and organizations financing global terror networks.

Bush fervently promised to "starve the terrorists of funding", to follow the money trail and to seize the assets of terrorists around the globe. And to the credit of the Administration and the collaboration of authorities, as of March, 2002 $100 million in assets have been frozen worldwide, according to testimony by Treasury Dept. officials before Congress in January.

$100 million seized globally by the Bush Administration is a drop in the bucket Clearly the government's new commitment to "starve terrorists of funding" is translating into action. However, it is far from adequate. $100 million is again, just the tip of an iceberg. Even if estimates of the total money laundered annually ($1.5 trillion) are over-inflated by half, there is likely billions of dollars of dirty terrorist and related heroin money that is still moving through the system to finance the next attack; one that authorities insist is imminent. If that's the case, the $100 million is a drop in the bucket and might do little to interfere with the plans of determined terrorists. Any proclamations the $100 million seized is evidence of winning the war is pure propaganda. The reality is they hardly scratched the surface. So, how might authorities strike deeper?

In the week prior to 9-11 traders and market watchers around the world were shocked by what they tracked on their computer monitors. They charted historically unprecedented and suspicious spikes of concentrated short selling. In the aftermath of the attack on the World Trade Center, a pattern began to emerge which pointed investigators down a money trail to insider traders who profited on an attack they knew was coming.

Copyright ©  Kyle F. Hence Newport, Rhode Island. 2002. Reprinted for fair use only

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CRG's Global Outlook, premiere issue on  "Stop the War" provides detailed documentation on the war and the "Post- September 11 Crisis."

Order/subscribe. Consult Table of Contents