Two years ago President Bush told the world "you're either with us or against us in the fight against terror." Well, those against us may in fact be disguised as our allies.
From within a vault at the Zurich airport, vacuum-packed US bank notes were secretly shipped to the rogue nations of the world, including Iraq, between 2001 and 2003. The shipments eluded the US inspectors who routinely visited the site. While this sounds like a Robert Ludlum novel, it actually describes the actions of staffers of UBS of Zurich, Switzerland's largest bank. UBS took advantage of its contract with the Federal Reserve of New York to circulate new US notes and retire old ones. Under US and UN sanctions, the Swiss bank was to neither deliver nor accept dollar notes to or from banks in countries under US trade sanctions.
All told, an estimated $650 million found its way to safe houses along the Tigris River, according to a Federal Reserve Bank investigation.
A year has passed since American soldiers discovered the money in stashes near the Tigris River. Sequential serial numbers and markings from three Fed banks helped the Fed trace the notes to Switzerland. But the extent of Switzerland's involvement in the illegal transfer has only just surfaced. The Federal Reserve's investigation found that UBS had transferred between $4 billion and $5 billion to several countries under sanctions, including Cuba, Libya, Iran, and the former Yugoslavia.
Once more a Swiss bank has shown its propensity to thumb its nose at international law. Switzerland has a pattern dating back to World War II for banking with the bad guys. Look at the heavy involvement of Swiss banks in apartheid South Africa during the 1983-1992 international trade embargo: Switzerland extended credit to the apartheid government and was a stable investment center for South African state-owned corporations. Swiss reasoning then, as now, was that Switzerland doesn't mix political policy with economic policy. Despite reforms first undertaken in the early 1990s, the banks continue to operate as if they are a country unto themselves.
Initially the Federal Reserve Board fined UBS - which operates branches in the US and had been under contract with the Fed - $100 million for the currency violation, according to UBS. That's pennies for the bank, which just reported its second best yearly result ever - a 2003 net profit of $6.39 billion.
The New York Fed terminated its contract with UBS last October and the bank fired or disciplined employees involved. That's not enough. It's not credible that these employees acted on their own initiative in shipping billions of dollars to outlaw regimes. Investigation records show that these employees tried to conceal their actions from federal investigators. Their superiors - all the way up the UBS ladder - should be held responsible.
Consequences shouldn't be limited to the financial circle. Switzerland joined the UN in 2002 after a contentious debate. Swiss voters finally approved because they felt their country's stated principal of neutrality would be protected. But don't let the mask of neutrality fool you - it is money that allows the despots of the world to fuel their tyrannical regimes. Time and again - from trade with Nazi Germany to shipping cash to countries that cultivate terror - neutrality has proved a useful cover for commerce between Switzerland and pariah states.
Ironically, the Swiss Permanent Mission at the UN has a stated goal of promoting disarmament as well as international law. One would expect that the Swiss government would actually enforce laws and embargoes so that such criminal actions on the part of its banks would not happen.
Moreover, countries interested in and committed to fighting terrorism need to exert more pressure on Swiss banks. They should not stand idly by. The UN also needs to issue a resolution condemning the role of any banks in financing these regimes (Iran, Libya, former Yugoslavia) as well as sanction Switzerland for its actions. Furthermore, the US should take legal action and bring UBS officials to justice. Only then will it be clear that this kind of behavior is not tolerated.
• Cathryn J. Prince covered Switzerland and the UN for the Monitor in the 1990s.