Close Loopholes for Hiding Dirty Money

Two weeks ago MyPrivateBanking published a research brief with estimates of the sum of illegal assets from Africa or the Mid East invested or deposited with the banks of developed countries. At least USD 225 bn of the USD 1.5 trillion offshore assets from Africa and the Middle East are linked to corruption and government fraud.

Since then, the EU, the Swiss government and the US have taken measures to freeze the assets of Messrs. Ben Ali, Mubarak, Gaddafi and their respective friends and families. Governments are making plain that they‘re taking prompt, thorough steps to prevent (ex-) dictators from getting access to assets and property brought under their control through corruption, fraud and outright theft whilst in office.

But can this be enough? It often takes years, even decades until a court decides what should happen to frozen assets. In the mean time, the banks take their cut in fees and the money is often neither sensibly invested nor returned to the new, more legitimate governments. Moreover, (former) dictators like Gaddafi, Mubarak , Ben Ali and others are smart enough to invest the lion’s share of their offshore assets through a sophisticated network of straw men, business organizations or trust funds, often through complicated, interlocking structures across national borders.

Switzerland, for instance, has an excellent anti-money-laundering-law. Banks have taken additional steps to close potential gaps of their own initiative. The laws of EU countries are comparable, even though in some countries regulation is less strict. Yet, it is still possible for corrupt politicians to deposit or hide money in Europe, the USA or in Asian financial centers. Furthermore, banks are expected to refuse money from African politicians even though their respective governments happily promote weapons sales to the same corrupt politicians and take the money without a second thought?

From our perspective, three important steps are required:

1. Banks and financial intermediaries (including real estate agents) around the world must fully comply with the recommendations of the FATF (Financial Action Task Force), especially with regard to “know your customer policies”. As of today, the banks in only a minority of countries are in full or almost full compliance with FATF recommendations.

2. There should be a definitive list of all PEPs worldwide (politically exposed persons, such as politicians, business people, military personnel , civil servants - and their relatives) who are banned from depositing money in personal accounts, trust funds or similar facilities, offshore. At present this information function is only performed by a number of commercial databases, which are of varying quality.

3. There should be a clear procedure in place for freezing, seizing and returning stolen assets to legitimate governments once a corrupt government or dictatorship has been toppled and a legitimate successor established.

All three measures should act as a deterrent to corrupt and autocratic politicians around the world enriching themselves by exploiting their populations;  they’d know that they would have no opportunity to enjoy their stolen wealth in exile in the event of being driven out of their countries by revolution, by elections or even after stepping down voluntarily.