PRESS BRIEFING ON MONEY-LAUNDERING

Press Briefing

PRESS BRIEFING ON MONEY-LAUNDERING

A study on financial havens, banking secrecy and money-laundering was launched at a Headquarters press briefing this morning by Jean-Francois Thorny, Manager of the Global Programme against Money-laundering of the United Nations Office for Drug Control and Crime Prevention.

He said the study was a preliminary report which should provide a solid basis for further discussions by States to address the problem. The study had not yet been discussed by States, and did not necessarily represent an agreed vision of the problem by the international community. Its aim was to alert United Nations Member States on the issue of bank secrecy and financial havens -- two problems requiring consideration and action, he said.

Mr. Thorny said the issue of money-laundering would be high on the agenda of next week's special session of the General Assembly on the world drug problem. Among issues related to money-laundering issues, was the role of off-shore financial centres in those transactions.

The Office for Drug Control and Crime Prevention had been working for months on the subject, he said. He recalled that the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances which required, among other things, that States adopt measures to identify and freeze or confiscate proceeds from the sale of illicit drugs and promote international cooperation against money-laundering. The agreement had been signed and ratified by 145 States but had not been fully implemented by all. On the specific case of bank secrecy, he said that only 40 States had really complied with the international standards set up to ensure transparency in banking practices. Bank secrecy continued to be carried out through a number of practices such as "walking accounts", international business corporations, trusts and mechanisms which in practice ensured its continuation.

He said criminal organizations channelled vast sums of money through financial havens. States which had developed important offshore sectors did not intend to facilitate the work of criminal organizations. The fact was that of the more than $1 billion laundered daily throughout the world, most passed through financial havens. In the era of globalization, some States had built their financial sectors by offering competitive and attractive financial services. "We don't have anything against it", Mr. Thorny said, and added: "What is questionable is that some of the services offered by these offshore centres are aimed at hiding the real ownership of the assets and their real origins. This is what makes it attractive to criminals." He said criminals took advantage of the services.

Mr. Thorny called for a code of conduct in financial transactions. In the world of globalization, he said it was very important that everybody accepted to play by the rules of the game. "We cannot accept that a part of the world jeopardized the efforts of the fight against money-laundering."

He said the study drew attention to the absence of regulation of the offshore business and the legal possibility for the creation of shell companies in those centres. No specific recommendations were made by the study which gave a picture of the global situation in the field of banking secrecy and financial havens and suggested that States should give further consideration to some of the key issues involved. "It's now up to the international community and to Member States of the United Nations to decide what priority they intend to give to these issues and how they want to address them." The special session would relay at the global level those concerns through the adoption of a special action plan against money-laundering.

The Office of Drug Control and Crime Prevention and its Global Programme against money-laundering would continue to monitor the situation and to alert Member States to the weaknesses in the global financial systems. "These weaknesses have offered too many possibilities, and too many opportunities to traffickers, criminal organizations and money-launderers", he said.

Asked whether his Office was trying to obtain more funding for its operations, he said that it was obvious that money was needed to counter a problem that was worth more than $400 billion a year. The Global Programme was currently financed by up to $5 million, and to be more efficient in the assistance it provided States, the Programme required more funding, he said. It was developing a capacity to assist States in criminal investigations by putting together a team of international investigators and providing technical advice for investigations.

Responding to a question, he said that his Office did not want to put a blame on offshore financial centres, adding that they were "perfectly legitimate". He noted that many western banks had branches in those centres. His Office was merely drawing attention to the problem posed by money- laundering.

To a question about the names of the States which had complied with the Vienna Convention provisions, he said many had now taken serious steps to set up the machinery to combat money-laundering. His Office was helping countries to do so but putting legal machineries in place in many countries was a long process.

Replying to another question, he said that sanctions against money- laundering would come from the markets themselves. Legitimate investors wanted their investments to be safe and clean, and did not want them placed in establishments linked with organized crime. "Naturally they will try to avoid places which are open to that kind of dirty business." He recalled that two

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weeks before the Vienna Convention was signed, major central banks adopted a code of conduct or standards to ensure that their institutions were not used for the purpose of money-laundering. Those banks did not take that action because they were forced, but, as stated in their declaration, they did not want their reputation to be damaged by involuntary involvement in criminal investigations, he said. That attitude was the same for offshore financial centres. Many were already taking steps to develop mechanisms to sort out the dirty money from the clean. From his contacts through training programmes organized by his Office, he said banks lived in fear of one day finding their institutions appearing in criminal investigation cases. Their reputation was much more important to them.

Asked whether the big international banks were not involved in money laundering, he said the real problem was that in some countries one could set up a bank without being subject to any kind of regulatory control, capital guarantees, auditing or accounting. The only demand was that the operation should be carried out from outside. "This is what is not acceptable."

Asked again by the correspondent whether it was his view that some big banking institutions in the United States were not involved in money- laundering, he said, "I'm not saying they're not involved. I'm just saying that the real problem is the absence of control and offshore banks. We will like financial havens to make sure that they apply the same kind of controls they institute against their own (domestic) banks".

Asked for estimates of laundered money flowing through the major banks of the United States as opposed to shell companies set up elsewhere, he said he had no figures. He referred the correspondent to today's report which said there were about 700,000 electronic transfers of money a day amounting to $2 trillion. In those global flow of money, about 0.05 per cent to 0.1 per cent could be dirty money of about $1 billion.

A correspondent quoted a United States Central Intelligence Agency report on the Russian Federation as stating that 25 per cent of the banks there were owned by criminal elements. She asked how such a situation could be controlled. Mr. Thorny said his Office had serious concerns with the situation in Eastern Europe. The development of organized crime in the region had taken a very serious turn. There was evidence that they had infiltrated financial institutions and owned banks. They were also setting up offshore banks. It had been estimated that the assets of Eastern European organized crime in Swiss banks amounted to $60 billion, he said.

Asked whether money-laundering was related to drug trafficking, he said there were very powerful criminal organizations, well structured, which were concentrating on revenues from drug trafficking. Law enforcement officials were concerned about the economic power that some criminal organizations could have. "This is the real problem. That is why we want to concentrate our efforts in addressing the problem of organized crime black market" economy.

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Observing that 20 per cent of Bolivia's gross national product derived from money-laundering, a correspondent asked whether there was a figure for the entire Latin American region. The correspondent also observed that banking institutions in Mexico that had recently been named in money- laundering investigations were not offshore entities. He replied that regional assessments of money-laundering would be undertaken by his Office. He said a consultant was working on the study and a report might be issued next September.

What did his Office intend to do about Internet financial transactions? a correspondent asked. He said it was today becoming a "megabyte" world. About 80 per cent of the offshore banks had no physical presence, no employees and no cashiers. They were just registered there, "but they do make a lot of business, especially through the Internet". He told a questioner that American organized crime owned estimated assets of about $50 billion, equivalent to that of the Russian organized crime.

He told another correspondent that the study being released had estimated that there were more than 1 million businesses around the world which could be described as shell companies. Asked who were behind those activities, he said they were very well organized and were making use of very experienced professionals who were in legitimate private practice. They were also making use of specialized skills in financing law.

Responding to another question, he said that what was worrying was the huge amount of money concentrated in the hands of criminal elements which posed a threat to economies and gave them the power of corruption. They could influence the financial markets negatively, particularly small or emerging economies. He quoted some experts as saying that organized crime had a role in the recent financial crisis.

According to the report, there had been a number of developments in the international financial system in recent decades that had made finding, freezing and the forfeiting of criminally-derived income and assets all the more difficult. Those were dollarization of black markets, the general trend towards financial deregulation, the progress of the Euromarket and the proliferation of financial secrecy havens.

The report stated that fueled by advances in technology and communications, the financial infrastructure had developed into a perpetually operating global system in which "megabyte money" (that is money in the form of symbols on computer screens) could move anywhere in the world with speed and ease. The world of offshore financial centres and bank secrecy jurisdictions was a key part, but it could also be understood as a system with distinct but complementary and reinforcing components, many of which were readily amenable to manipulation by criminals.

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