Feb 24 2011

Money-laundering: dictators are the small fry

Posted by: Nick Shaxson in: Thoughts

Well, almost. While writing Treasure Islands, a couple of friends would refer to my “book about money-laudering” and I would have to correct them, saying something along the lines of ‘no, this is about something much, much bigger than money-laundering. It’s about tax havens.’

Anthea Lawson of Global Witness, one of the great organisations tackling the scourge of dirty money, has an excellent piece in the FT, looking at the oceans of money salted out of Tunisia, Egypt and Libya (and others). There’s tons to recommend in the article – notably this sentence, which is a killer:

“Discussion has so far centred on how this money might be returned to the countries it came from to benefit ordinary people and promote economic development. But the real question is, what was the money doing in banks in France and Switzerland in the first place? If there is enough evidence of corruption to freeze Mr Mubarak’s or Mr Ben Ali’s funds now that they have been forced from office, why was it not sufficiently obvious at the point when they were accepted?”

Just as I’ve been saying recently: she’s quite right. And Global Witness know a thing or two about this. But there’s another point that’s absolutely essential to understand – to never forget, in fact. It concerns the Financial Action Task Force which is supposed to be looking at money laundering, and is currently considering changes to global rules. First of all, some potentially good news

“Some of the proposals are excellent, such as ensuring that tax evaders and those who advise them and bank their money can be prosecuted for money laundering.

It would be a great step forwards for the world if the FATF could make tax evasion, and the provision of tax evasion services, a  money-laundering offence. Next, from Anthea Lawson, is this:

But the FATF wants to remove officials’ “family members and associates” from the list of those on whom banks must perform extra checks. To make this suggestion is to misunderstand graft. Corrupt rulers do not just distribute money to family members and cronies in order to help launder it; this is part of their means of staying in power.”

Exactly – just as was reported on CNN the other day:

“The exercise of power is an expensive business in corrupt countries and a dictator will have many supporters to pay off,” said Shaxson. “Without wanting to minimize the amount of money allegedly plundered from Egypt by Mubarak, they should be chasing his supporters too.”

In my previous book, Poisoned Wells, about oil and politics in Africa, The late President Omar Bongo of Gabon commented on this system of patronage, as some call it (or corruption.) “I don’t know if this system is good,” he said. “But there is no other way.”

This system definitely isn’t good. But the realities of power, especially in an oil-producing country, will inevitably lead to this kind of behaviour. And this is where Lawson’s last point is so important. My best guess is that of Egypt’s looted tens of billions of dollars, Mubarak himself and his close family are likely to have only taken a minor share of that – low single digit billions, at the most, in my opinion (though I obviously have no way of knowing.) The big money will be far more widely dispersed throughout the membership of the old power structures and elites — especially in the upper echelons.

What happens, though, is that when the dirty money really hits the fan, people focus on the leader, the figurehead, possibly do a crackdown on their money, amid great fanfare – ‘look how clean we are!’ –  then quietly leave the much, much bigger sums that are held by a more dispersed elite to go unpunished and undisturbed. And what’s currently happening is worrying: to repeat Lawson:

“the FATF wants to remove officials’ “family members and associates” from the list of those on whom banks must perform extra checks.”

With moves like this, the drain of trillions of dollars out of developing countries will continue, hardly disturbed.

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