Cleaning up Money Laundering

There are the traditional methods of controlling illegal activity - but they are of limited effectiveness against criminal networks that have globalized as effectively as any corporation. From banking to - telecommunications, groups like Al Qaida have learned to exploit all the tools of the global economy.

And that has made the international financial system a crucial front in the campaign against terrorism.

Not long after the September 11 attacks, the US Defence Secretary Donald Rumsfeld said that the uniforms in the new conflict would be as much banker's pinstripes and the computer programmer's grungy jeans as any military camouflage.

These pinstripes are surely out in force this week in Washington, where an international task force on money laundering is holding an extraordinary meeting to discuss ways of shutting off terrorist financing.

Drug deals, arms smuggling, unlicensed gambling - wherever the money comes from, the same problem always arises - illegally generated income has to be laundered to disguise its origins, and in such a way that the attention of the authorities is not attracted.

For decades, it was easy for tax-evaders and other criminals to move millions across borders. Switzerland, Luxembourg and Lichtenstein were the countries of preference. Now controls have become more stringent, and, in some countries, the old tradition of strict banking secrecy has long ceased to exist.

Nevertheless, there are still safe havens for such transactions. A common example: a middleman registers a so-called post-box company in the Caribbean, and opens a bank account there. Money transfers, if they remain small, command little attention, provided the bank considers the account owner reliable.

All these methods have one factor in common: the money is transferred. Someone shifts the cash from A to B. But there is another way; where it's the owner of the money who is transferred, rather than the cash itself. This has the advantage of leaving no tracks.

Doing it the Hawala way

The basis for this underground system is trust, and originates in the south Asian Hawala system where payment is made without using actual cash. The middlemen run small front businesses, such as travel agencies.

The middleman receives a sum in cash. No receipt is given - at most a code changes hands. The sender then informs the end receipient, who may be anywhere in the world, who then goes to his middleman, and is then given the money. So the cash does change hands, but there's no money-transfer involved. The middlemen work out the transactions with each-other - thereby circumventing controls.

Hard-currency in Billions is moved around the world in this manner. It's not always for criminal purposes; but criminals, including Osama bin Laden's Al-Qaida also use the Hawala sytem.

Germany has outlawed such shadow-banking methods. But there are many ways of disguising the origin of dirty money and introducing it into the legitimate economy, and the ingenuity of money-launderers knows no bounds.

The International Monetary Fund has estimated the total volume of laundered money in circulation as up to five percent of the world's gross domestic product - that's up to a trillion dollars and well over the total output of a wealthy country such as Spain.

As home to some of the world's leading banks, Germany has taken on a leading role in the push for new measures to detect and stop illegal transactions.

But that appears to be changing. The United States has released a new list of some 200 individuals it suspects of having links to September's attacks and even Switzerland's secretive private banks have reportedly agreed to check those names against their client rosters.

When Switzerland, and particularly Zürich is mentioned, one automatically thinks of banks; banks that have for decades been a thorn in the side of financial investigators.

Numbered accounts, safe-deposit boxes - money from around the globe, money quite possibly from Osama bin Laden's terrorist network.

Switzerland's banks have come under increasing pressure for more transparency since the September 11th. Even the most respected financial papers are concerning themselves with terrorism, and the necessity stop the cash-flow to Bin Laden and his associates.

Switzerland is making sure it's financial measures in the War against International Terrorism are seen to be of high priority. In accordance with UN orders and at the request of Washington, the Secretary of State for Economics in Bern has presented Swiss banks with a list of around 200 suspicious account holders. Most prominent amongst them: Osama bin Laden.

Othmar Wyss, State Secretariat for Economic Affairs Federal Department of Economy: "The greatest problem with this terrorist money is that the contents of the list were known before the US president published the names and then went to the UN with them. In that space of time, the money has been withdrawn."

Switzerland's famous banking secrecy looks as though it will soon be no tradition behind which terrorist money can hide. Then again, will the banks in Zurich, Geneva and Lugano really risk the anger of their big customers by allowing inspection of their accounts? Swiss banks have often turned a blind eye to good business that involves income of dubious origin.

In the Federal Assembly, the usually critical Social Democrats are being careful on the issue.

Hildegard Fäller, Sozialdemokratische Partei: "Basically, all our bank and finance companies are very much concerned with the maintenance of Switzeland's good banking reputation. Such activities ruin the country's good name as a banking centre."

Should the banks react to governmental pressure and crack-down on suspect accounts, the terrorists will be forced to find different ways of stashing their money. A move that the Swiss investigative authorities fear has already long been made.