Dirty Money Takes Caribbean Cruise

Pick up any out-of-date spy novel and you probably will find a tired stereotype of the Swiss banking system: A man with no name opens a numbered account in Zurich. He deposits millions of dollars in U.S. currency with no questions asked.

Well, it just is not that easy anymore. Most people do not realize that Switzerland abolished anonymous accounts in 1977 – more than 20 years ago. Recently, more steps have been enacted to curb the financial activity of criminals in the tiny nation.

After blistering criticism about its handling of Holocaust victims’ accounts and years of catering to unscrupulous dictators and drug dealers, the Swiss government voted to clean up its act. According to many experts, the new Swiss Money Laundering Act (MLA), which went into effect April 1998, sets an even higher standard than U.S. money laundering controls.

Recommendations from the Financial Action Task Force (FATF), a group of 28 member countries including the United States and most of Europe, set the wheels in motion for passing the Swiss MLA. FATF recommendations focused on two main objectives:

1. To make laundering profits from drug trafficking and other serious crimes illegal in all member countries (It should be noted that fraud is not considered a serious crime in all member countries.); and
2. To set up reporting requirements for all banks whereby legal authorities are notified of suspicious transactions or unusual operations. Banks must identify their clients by name and keep accurate records. The banks also are granted exemption from any legal or civil liability for reporting these transactions.

In Switzerland it already was a criminal offense if one failed to exercise due diligence when acting as a party to any financial transaction. This had been the law since 1990. Article 305b of the Swiss Penal Code further defines money laundering as an act that only takes place after another offense generates money. Title 18 of the U.S. Code, Section 1956 and 1957, also establishes that it is only illegal to launder the proceeds of a specified unlawful activity (SUA). Unless a case involves drug proceeds, it is almost certain that the SUA being used as the basis for a money laundering charge in the United States must have occurred in the United States. Drug cases usually can cite conspiracy being conducted inside the United States. There is no such provision under Swiss law. The underlying or prior offense could have been committed entirely outside the country.

Most impressive about the new Swiss MLA is its wide scope. The reporting requirements do not just apply to banks. They apply to all financial intermediaries, including persons or entities that:

• undertake credit transactions including mortgages, leases, or financing commercial transactions;
• provide electronic transfers for third parties or issue credit cards or travelers checks;
• trade in bank notes, cash, money market instruments, precious metals, or derivatives;
• offer or distribute shares in funds;
• undertake asset management;
• make investments as an advisor; or
• keep or manage securities.

This broad and far-reaching definition of a financial intermediary and the amount of responsibility placed upon the intermediary for due diligence in reporting suspicious transactions has moved Swiss banks to the forefront of money laundering control. It also has sparked an exodus of money launderers from Switzerland.

Swiss authorities now are freezing hundreds of suspect accounts and investigating Russian criminal groups that brought billions of dollars into Swiss accounts during the 1990s. Because of the high amount of corruption in their respective countries, Russian, Ukrainian, and Nigerian accounts receive automatic attention. Swiss federal Prosecutor Carla Del Ponte and her Russian counterpart, Prosecutor-General Yuri Skuratov, pledged to work together to fight Russian organized crime in the Swiss financial centers, according to Reuters in Berne, Switzerland. Consequently, a joint working group on Russian money laundering was established.

For these reasons, Russian and Ukrainian criminal groups have begun to move their operations away from Switzerland in favor of the Caribbean, sacrificing stability for ease of operation. As was once the case in Switzerland, these groups are exploiting the Caribbean bank secrecy laws and lax government oversight. According to a 1997 FATF report, the Caribbean serves as an important transit point for drugs originating in Latin America bound for the United States, and is the location for many offshore banks and financial institutions. Even when anti-money laundering legislation is enacted within the Caribbean islands, liberal laws regarding company formation and business conduct within free zones make this region attractive to money launderers. According to a special report published in the July 4, 1998, issue of the Miami Herald, there are many tens of thousands of shell companies incorporated in the region, whilst the number of free zones is increasing. The result is that the limited resources of regulatory authorities cannot monitor effectively the business activity taking place.

The FATF report also revealed a trend of Russian organized crime seeking to launder profits from extortion, prostitution, arms sales, and fraud into the Caribbean. The report also suggested that Russian crime groups were forming alliances with other criminal groups operating in the region such as the Italian Mafia and Colombian drug cartels. This, obviously, created considerable risk for the integrity of the region’s banking system.

The Big Four 

It is common knowledge among many investigators who track money laundering cases that Antigua, Dominica, Belize, and St. Kitts have had the heaviest influx of financial criminal activity due to their offerings of “economic citizenship.” Citizenship status can be obtained in as little as three weeks by paying the government from $25,000 to $50,000. Many of the people who apply for economic citizenship do not settle in their new country. They use their new passports to travel to America and some 50 other countries without a visa.

Antigua is a tiny island of only 63,000 people located southeast of Puerto Rico. The island’s search for offshore capital and business has attracted many banks and casinos. Eleven Russian banks opened on Antigua between 1993 and 1998. Four of these Russian banks later were closed by the government. While Antigua’s government has tried to pass laws requiring sufficient capitalization for banks to reduce its attractiveness to money launderers, there always will be one problem: the passage of legislation, no matter how well-intended, will do nothing until it is complemented by a comprehensive effort to enforce its provisions. Antigua has passed laws, but has yet to create the regulatory institutions to implement them. According to The Miami Herald, there are now 9,700 Russian companies registered in Antigua.

Antigua has requested assistance from the United States and the European Union with training and equipment in developing these regulatory agencies. However, if history is a clue to the future, receiving cooperation from Antigua may prove difficult. Since 1994, the U.S. Justice Department has endeavored to enforce a $7.5 million forfeiture order from a case tried in Boston, Mass. That year, John Fitzgerald, who held an account at Swiss American Bank in Antigua, was convicted of racketeering. When served with the forfeiture order, the Antiguan government removed the $7.5 million from Fitzgerald’s account at Swiss American Bank and deposited it directly into the Antiguan National Treasury, according to a January 1998 article published in Money Laundering Alert.

Belize, located south of Cancun on Mexico’s Yucatan Peninsula, also gives economic citizenship. Application forms are to be submitted along with the following documentation:

• eight passport photos;
• two character references;
• birth certificate;
• passport;
• marriage certificate (if applicable);
• medical exam certificate (no AIDS);
• criminal record certificate;
• receipt showing payment of $25,000 USD registration fee paid into the Central Bank of Belize. (In addition to this, applicants are required to make a $25,000 USD contribution to a “special fund” upon approval of their application. This is considered to be symbolic of the applicant’s commitment to the Nation of Belize. It is, of course, non-refundable.)

About 500 applications for economic citizenship are approved each year in Belize. Five percent, or about 20 per year, are granted to Russians. On St. Kitts, an island southeast of Puerto Rico, about 25 economic citizenship applications are granted each year to Russians. But it is Dominica, just south of Antigua and St. Kitts, which offers the most sought-after service of all: applicants for economic citizenship can have their new passports issued in whatever new names they would like to adopt. More than 100 Russians have taken advantage of this service in the past four years.

While these small countries are benefiting from doing business with all newcomers, this type of activity extracts a heavy toll. The Bahamas is a prime example of corrupt investments leading to disaster. In the 1980s, money laundering and drug trafficking resulted in the government being labeled corrupt: the financial service companies left, and the tourism industry went from upscale to down market. Outside investment all but dried up.

The Caribbean Financial Action Task Force (CFATF) was formed in 1996 to try to crack down on money laundering. The task force, however, does not seem aggressive in its stance when compared with the FATF. According to Attorney General Dancia Penn of the British Virgin Islands, who was once quoted on the matter in The Island Sun, a Caribbean newspaper, “the basic mandate of the CFATF is to have its members observe, in a sustained way, all of the current anti-money laundering measures in the world.” Dancia further explained that one way they keep current is by conducting workshops.

Belize’s 1996 Money Laundering [Prevention] Act is not as encompassing or stringent as the Swiss MLA. Some in the industry have called it a “progressive attitude toward countering money laundering activities;” however, the penalty imposed on convicted money launderers in Belize is a fine ranging from $12,500 to $50,000, or a prison term of three to six years. Also, when financial institutions in Belize report suspicious transactions, they report to the Central Bank of Belize – not the police. The Central Bank of Belize then decides if there are reasonable grounds to refer the information to law enforcement authorities.

In the event that a conviction is obtained against someone, an application can be made to the Supreme Court of Belize to freeze the proceeds being laundered. Upon conviction, the court may order the proceeds forfeited and disposed of in whichever manner the country’s finance minister may direct.

Switzerland has responded to pressure from the rest of the world to stop catering to the criminal element by passing a comprehensive law requiring due diligence by financial intermediaries, which are broadly defined under Swiss MLA. Switzerland also has targeted Russian and Ukrainian accounts for examination, causing these groups to flee to the Caribbean – specifically Antigua, Belize, St. Kitts, and Dominica – due largely because these countries offer economic citizenship. Bank secrecy laws still provide protection from outside investigations, and the laws passed against money laundering are only as good as their enforcement.

While Switzerland moves to the forefront in the fight against money laundering, far more difficult obstacles are being deployed in the Caribbean. Until those nations decide to follow the example of Switzerland, the criminal element will continue to flock to their shores with their tainted money.

Joel Bartow, Associate Member, is the director of the Philadelphia office of AMSEC International, a global security and investigations company that specializes in loss recovery and prevention. A former special agent for the FBI, Bartow specializes in money laundering and Russian investigations.