Follow the money.
That's the credo of any investigator out to uncover fraud and financial crime. But in the wild, high-tech world of offshore international banking, it can be an impossible task.
Within moments, a Russian mobster, say, can electronically send millions of dollars to an international corporation's bank account in Antigua. Minutes later, the money can be redeposited into another account in a different bank, then transferred to yet another corporation, with anonymous owners, who then deposit it in yet another bank.
"If you get enough of these offshore corporations and run the money through enough of their bank accounts in these secrecy havens, nobody can find the money," says Washington lawyer Jack Blum, an expert on international money laundering.
The marriage of high technology, the global economy, and the secretive offshore banking centers has created a money launderer's dream. Experts estimate that anywhere between $100 billion and $1 trillion dollars of ill-gotten gains are funneled through the international banking system annually. Many of the transactions can be completed with the click of a few computer keys.
"The technology and the international criminal activity are way ahead of the governmental response," says Miami lawyer John Mattes.
Top US law-enforcement officials admit that the system to deal with the problem is fragmented, at best. This week, experts from the Group of Seven countries and Russia met in Paris to discuss ways to remedy that. They're devising a set of agreements to allow law enforcement to track electronic communications that cross national boundaries. Their goal is to complete it by next year's Summit of the Eight in Birmingham, England.
"Figuring out how to enforce fair rules, regardless of where a transaction takes place, is going to be critical for the success of [economic] globalization," says Jonathan Winer, a deputy assistant secretary of State.
But even with a coordinated, international attack on the electronics of crime, the money trail can go cold as soon as it reaches the sunny, Caribbean offshore centers with their strict, confidential banking laws. In many of those countries, anyone can open an "international business corporation" and keep his identity private.
"To combat money laundering, you need as much transparency in the banking system as you can get," says Jeff Ross of the Justice Department's criminal division.
Over the past few years, the international community has pressured the world's 35 offshore centers to tighten their banking regulations, scrutinize their customers, and relax some secrecy laws. There's been some success.
Many have signed treaties that allow for limited cooperation with foreign governments when drug-money laundering is suspected. Others now require banks to report large cash transactions, similar to the reporting requirements in the US. The Cayman Islands, long criticized for confidentiality laws that lend themselves to money laundering, is also implementing a "suspicious activity" reporting law. It will require bankers to report any customer they suspect is involved in illegal activity. Similar laws have helped to clean up overt money laundering in US banks.
"The Caymans have gone further and provided the opportunity to share that information with foreign governments," says Peter Djinis of the Treasury Department's Financial Crimes Enforcement Network. "They're really becoming leaders in this region."
WHILE such successes look good on paper, no one is ready to declare victory. As long as confidentiality and corruption exist, the banking system will be vulnerable. And criminals will always be creative.
The Financial Action Task Force, set up by the G-7 countries in 1989 to combat international money laundering, has found that as banking regulations tighten, other financial institutions are increasingly being used to launder money. They range from money exchange bureaus to stocks and bond traders.
The US is developing new regulations to address the vulnerabilities in its financial-services sector. But law-enforcement officials are also concerned that drug traffickers and thieves are now turning to traditional businesses to launder money.
"The cheapest place to buy a computer isn't in Silicon Valley these days, it's Bogot, [Colombia]," says Michael Zeldin, former chief of the Justice Department's money-laundering section.
Drug dealers often set up a front company, say, ABC Computing, which uses drug money to buy thousands of computers from reputable wholesalers. Then, the computers are exported and sold abroad below cost. The money is sent back to the US in the form of profits from the resale of commodities, seemingly a perfectly legitimate business.
"Everyone in law enforcement keeps talking about how there's going to be some watershed prosecution against a seller of goods to get the attention of trades and businesses," says Mr. Zeldin. "But so far, we haven't seen that."
* The first article in the series appeared yesterday.