U.S. Bank Laws Fund Terrorists

By Lucy Komisar, Pacific News Service. Posted September 21, 2001.

The global money-laundering system used by terrorists has also served the U.S. government and banks for years, creating wealth and occasionally supporting U.S. political interests abroad. Changing U.S. bank secrecy laws to pierce that laundering system is as essential to stopping terrorism as military force and diplomatic moves.

Terrorist networks all over the world depend on the international bank and corporate secrecy system to hide and move their money. This structure is allowed to exist by agreement of the world's banks and financial powers, including the United States and its allies. Internationally, many make money from the system, including the owners and managers of banks that hide customers' deposits from tax authorities.

But the system also enables terrorists to funnel money for their activities in dozens of countries and pay for houses, salaries, transport, weapons and explosives. Terrorists need to move millions quickly and without detection, and transferring millions of dollars using secret bank accounts and shell companies is easy.

In many countries, known as "offshore" or "tax haven" countries, companies and open accounts can be established by individuals without using real names or identification. Phony banks that are just letter drops send money to real banks. In the United States, the real banks routinely ask no questions when the phony banks open "correspondent accounts" to move money here for their customers.

For example, currently there is nothing in U.S. law to stop the Al-Shamal Islamic Bank in Khartoum, Sudan, from opening an account in a U.S. bank to wire money for use here or in another country.

In fact, that bank was set up by Osama bin Laden. Even if a stop is put on the bank, funds might easily move through a third party in Nauru or Liechtenstein or some other offshore haven to other U.S. banks, which are not required to ask about the owners of money. The foreign banks bundle cash from numerous customers and send the lump sum to their correspondent accounts in the United States. Then they move the money wherever their clients order.

The Sunday Times of London has reported that a suspected bin Laden lieutenant, Saudi dissident Khalid al-Fawwaz, used an account at a branch of Barclays Bank in London to finance circulation of bin Laden's edicts and contacts through his global network. Khalid al-Fawwaz is being held awaiting extradition proceedings to the United States for participation in the conspiracy to murder Americans in the Sept. 11 attacks.

Swiss federal prosecutors are investigating whether any money linked to the terrorists flowed through its country's banks. According to the Blick newspaper, a Zurich daily, Al Taqwa Management Organization AG, a Lugano-based financial services company, had links with Osama bin Laden. Lugano, in southern Switzerland, is notorious as a home for "financial services companies" whose function is to move money discreetly, and for shell companies and secret bank accounts.

The system is no surprise to the U.S. government because Washington and its allies have used it, too. The Bank of Credit and Commerce International was a British-Pakistani bank that used secret offshore accounts to effect a global money-laundering fraud that cost victims $8 billion. Before it was shut down in 1991, it was used to fund the Mujahadeen, then fighting the Soviet-supported government of Afghanistan. The money came from U.S. and Saudi intelligence.

Now many of the formerly U.S.-supported Mujahadeen are members of bin Laden's network. They know all about how to launder money through the international bank secrecy system.

If Washington wants to stop the money flow that supports terrorism, it needs to cut that pipeline. The first step should be immediate passage of legislation sponsored by Sen. Carl Levin (D-MI). Levin's bill, which was opposed by Republican leaders last year, has two key elements. It would bar U.S. banks from providing banking services to foreign shell banks that have no physical presence in any country. And it would require U.S. banks to conduct in-depth investigations when opening accounts of $1 million or more for foreigners, as well as correspondent accounts for offshore banks or banks in countries with high money-laundering risks.

Other countries also need to change their practices. In London, a favorite center for Middle East money, banks connected to the Saudi royal family enjoy "sovereign immunity," which England grants to monarchies. These banks are exempt from the scrutiny of the Financial Service Authority, which tries to head off money laundering.

The United States needs to get behind efforts by the globe's main industrial economies, the Organization for Economic Cooperation and Development (OECD), and the G-7 to crack down on enclaves of bank and corporate secrecy. Washington should not be letting these financial institutions off the hook, as the OECD did this year in response to U.S. pressures.

Lucy Komisar has been writing on the international bank secrecy system since l997.

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