Pubdate: Mon, 11 October 1999
Source: Washington Post (DC)
Section: Front Page
Copyright: 1999 The Washington Post Company
Address: 1150 15th Street Northwest, Washington, DC 20071
Author: Douglas Farah, Washington Post Foreign Service


Critics Say Island Banks Shelter Criminal Funds

ST. JOHN'S, Antigua -- A government Web site on this tiny Caribbean island
has tried to attract offshore investors by bragging that Antigua is bucking
moves elsewhere "toward greater disclosure" of financial information. "The
emphasis on non-disclosure provides a high comfort level," it said.

The neighboring island of Nevis promises that companies set up on its
territory need file "no annual return or accounts." Anguilla's Web site said
companies can incorporate there in just 24 hours, while Dominica boasted of
the "absence of tax treaties or exchange agreements with any other country."

The small islands of the eastern Caribbean are aggressively trying to expand
their offshore financial industries by making it even easier for investors
to keep their business secret. Several are promoting the ultimate in
anonymity: They will sell citizenship along with the right to a new name on
a new passport.

The trend is arousing growing concern among U.S., British and other
international law enforcement agencies, which say the new policies are
attracting more money from drug trafficking and other criminal activities.
One senior U.S. official said that small countries like Dominica and
Grenada, by offering both strict bank secrecy and the easy change of
identities, are creating havens for "one-stop shopping" for international

"The growing use of offshore financial centers and economic citizenships for
criminal purposes pose a significant threat to the United States," Jonathan
Winer, U.S. deputy assistant secretary of state for narcotics and law
enforcement, said in an interview.

The trend has been especially enticing to Russians, a growing number of whom
are visiting the region. A March report by the State Department said the
island of Dominica had greatly expanded its offshore services in the past
two years and "between 200 and 300 Russians have reportedly purchased
citizenship, increasing suspicions of Russian money laundering activities on
the island."

The move to the eastern Caribbean has accelerated as such traditional
financial havens as Switzerland, Luxembourg and Liechtenstein have
grudgingly yielded to international pressure to open their books to
authorities under certain conditions. In response, many organized crime
syndicates are seeking less scrutinized locations for their money, according
to U.S. and European law enforcement officials.

The eastern Caribbean is eager to find new sources of business because it
has been in an economic slump in recent years, partly because its
traditional industries of banana growing and tourism have languished.
Experts report the region is getting a healthy share of an expanding flow of
money into offshore accounts.

A recent International Monetary Fund study estimated that the amount of
money in offshore havens around the world had grown from $3.5 trillion in
1992 to $4.8 trillion in 1997. Other experts say the amount of money
offshore, licit and illicit, now totals about $8 trillion.

About a third of the money is believed to be in the 17 Caribbean offshore
centers: Antigua and Barbuda, Anguilla, Barbados, the British Virgin
Islands, the Cayman Islands, Dominica, Grenada, Montserrat, the Netherlands
Antilles, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines,
and the Turks and Caicos Islands.

Much of the offshore money belongs to large companies and reputable
financial institutions, and much of it is placed legally by people or
companies seeking to protect assets that might otherwise be vulnerable to
higher taxes or lawsuits. But law enforcement experts in the United States,
Europe and the Caribbean say the offshore sector is attracting more money
derived from the sale of drugs, weapons or white-collar fraud schemes that
generate hundreds of billions of dollars a year. Regional experts, while
acknowledging that such estimates are inexact, said that one-third to
one-half of the offshore money in the Caribbean is the fruit of criminal

"There is no honest reason for being offshore," said Jack Blum, a money
laundering expert who studies offshore havens. "Bank secrecy and the
offshore money industry have no place in a globalized economy."

The offshore banks and companies have come under recent scrutiny as U.S. and
European enforcement officials probe allegations of Russian financial
corruption. In the high-profile inquiry into transfers of billions of
dollars from Russia through the Bank of New York, evidence suggests
significant amounts of the money passed through offshore accounts in the
Caribbean and elsewhere. Also, some passed through international business
corporations or IBCs, shell companies designed to make the true owners
impossible to identify.

Offshore banks accept money only from outside the country in which they are
located. Earnings on such accounts are not taxed and often are not even
reported. The host countries earn millions of dollars from annual licensing
fees to the banks and businesses registered in their jurisdiction.

Banking and law enforcement officials said the countries attract business by
making it a crime to divulge any information about the ownership of banks,
depositors or shareholders in offshore businesses.

After money obtained from illicit transactions is deposited in a bank or
moved through a company offshore, it can easily be disguised as a legitimate
business transaction and moved into the legal economy, thus "laundering" it
- -- hiding its illegal origin.

Many of the countries also now allow IBCs to be formed with stock in the
form of "bearer shares," a system under which the person in possession of a
share is its owner and the names of a company's shareholders are never
registered. This makes it virtually impossible for anyone to learn the
identity of the owner.

On most of the islands here, a few lawyers are the nominal shareholders of
hundreds, or even thousands of IBCs. Divulging who the real owner is, in
many places, is now a crime. One banker on this island said he incorporated
12,000 IBCs in the past two years.

And many offshore banks operate as several do in a strip mall here -- as
one-room outfits with one or two employees and a computer. The banks almost
never actually have any money because the cash moves in and out of accounts

The growth in the sector is driving the Clinton administration, Britain, the
United Nations and international financial institutions to try to impose
standardized regulations on the jurisdictions and to move toward eliminating
offshore havens entirely.

Eastern Caribbean nations say new regulations, comparable to those in most
European tax havens, would place them at a competitive disadvantage. A
senior British official said that attitude is "extremely unhelpful."

"Britain wants global standards," the official said.

But regional leaders say the pressure is hypocritical because Britain allows
offshore banking on the Isle of Man and many U.S. companies and banks have
offshore subsidiaries, branches or other components.

"The United States is determined to keep us out of the capital markets,"
said Lionel A. Hurst, Antigua's ambassador to Washington. "We need to
diversify out of tourism and agriculture, but if enough of us compete for
capital flight money that now goes to New York, it will make a difference in
the financial market, and the United States is fearful of that."

James Johnson, the Treasury Department's undersecretary of enforcement,
disagreed, saying the pressure is being applied because some countries of
the Caribbean are making it "easier rather than harder to launder money" and
that "extreme bank secrecy hinders our ability to get at the financial
underpinnings of organized criminal groups."

One financial crime case involving offshore banking was known as Operation
Risky Business. Customs agents and the FBI obtained convictions in a
massive, U.S.-based fraud scheme for which the perpetrators set up a bank in
Antigua specifically to hide the money.

U.S. investigators say $60 million is a conservative estimate of how much
money was taken in the scheme. In it, would-be entrepreneurs paid
"processing fees" ranging from $40,000 to $2 million to get access to
venture capital investment funds that never materialized.

According to an indictment issued last year, William W. Cooper, a U.S.
resident of Antigua "established and incorporated the Caribbean American
Bank in St. John's, Antigua" on Sept. 13, 1994. The sole purpose of the
bank, according to Mickey Pledger, the Customs agent who worked the case,
was to move and hide money from the sophisticated "advance fee" fraud.

"Antigua was chosen by the scammers because of its reputation as a tax haven
and bank secrecy country as well as because of relationships the scammers
had with government officials in Antigua," said a Customs statement.

According to court documents, a group of several hundred people led by
Donald Gamble and Lawrence G. Sangaree placed advertisements in U.S.
publications offering investment and venture capital loans. Gamble, Sanagree
and several others were convicted last year in the case.

Cooper, a well-known figure here, was indicted, but the initial extradition
request was denied by Antigua. In an interview, Cooper denied any wrongdoing.

Despite the convictions, Risky Business is an ongoing case, hampered by the
lack of access to Antiguan bank records, Pledger said. "We are still trying
to get the rest of the records from Antigua, but it has been several years
now, and we have only gotten some of what we asked for."

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