Offshore Centres and Money Laundering
| DOI | https://doi.org/10.1108/eb027133 |
| Pages | 167-171 |
| Date | 01 February 1997 |
| Published date | 01 February 1997 |
| Author | Saul M. Froomkin |
| Subject Matter | Accounting & finance |
COUNTRY REPORTS
Offshore Centres and Money Laundering
Saul M. Froomkin
Journal of Money Laundering Control — Vol. 1 No. 2
There was a time in the tide of men, when
'off-
shore' jurisdictions were known as 'tax havens',
when 'money laundering' was an unknown phrase,
when 'insider dealing' was sport, when 'bank
secrecy' was applied only to Switzerland, and when
far flung islands offered only sun, sand and an
exotic holiday experience.
In the past few decades, 'tax haven' has become
a dirty word and these are now known as 'inter-
national financial centres'; 'money laundering' has
become a growth industry; 'insider dealing' has
become the crime of the 1990s; 'bank secrecy' has
become the rule, and islands offer comfort not
only to legitimate international financiers, tax plan-
ners and world-wide trading companies, but in too
many instances, to the criminals and parasites of
the international community.
That there is a legitimate and practical role that
an offshore centre can play in the international
community, there can be no doubt; that many of
our jurisdictions are being used and abused by
narcotics traffickers, international fraudsters,
terrorists and corrupt government officials, is
beyond argument.
These jurisdictions have been and are being
misused in a number of ways; however, the most
insidious encroachment involves financial institu-
tions in 'money laundering'. This phrase is used to
describe in general terms the means whereby
tainted money is passed,
inter
alia,
through financial
institutions, in order to conceal the source or
beneficial ownership of such funds. Bearing in
mind the latest 'guesstimates' that suggest some
US$500bn is generated by organised crime, nar-
cotics traffickers and international fraudsters, and
must be laundered in such a way as to ultimately
appear legitimate, it is simple to focus on the mag-
nitude of the problem.
This need to legitimise ill-gotten gains becomes
the Achilles heel of the drug trafficker, the fraud-
ster and the corrupt official. Until such time as the
funds can be passed through one or more financial
institutions in a jurisdiction or jurisdictions with
impenetrable secrecy provisions, the criminal and
his funds are at risk.
When those involved in the Pizza Connection
case several years ago for example were generating
some two million dollars a day, all of which had to
be 'laundered', it is obvious that the very bulk of
the currency creates a problem. In 1991, the Los
Angeles Times reported that Pablo Escobar of the
Medellín cartel, according to DEA agents monitor-
ing an undercover meeting in Guadeloupe, had
$400m in the basement of a Los Angeles house,
which because he was unable to launder it became
waterlogged and rotted.
In 1994, through operation Dinero, a sting oper-
ation carried on by the DEA, the IRS, the FBI,
with the cooperation and assistance of law enforce-
ment in the UK, Canada, Italy and Spain, and
started with the assistance of the Governor of
Anguilla, the DEA set up a chartered offshore bank
in Anguilla, with an office in Atlanta. Between
June 1994, when the bank became chartered and
December 1994, when it was finally closed down,
the operation resulted in 88 arrests, the seizure of
some 9 tons of cocaine, 40 tons of hashish, and
over US$100m in cash. The first of the bank's big
customers told the undercover agents that he
needed to launder his profits from the previous
year which exceeded US$500m.
Offshore jurisdictions are used to launder
money since, in most cases (Bermuda is an excep-
tion),
statutory bank secrecy is, in effect, prohibit-
ing disclosure to foreign investigators. In some
cases,
IMLATs (International Mutual Legal Assist-
ance Treaties) have been entered into between the
USA and offshore jurisdictions, permitting dis-
closure in cases involving the proceeds of narcotics
trafficking.
Page 167
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