Politeía Digest

Quis custodiet ipsos custodes?

Banks Scrutinize Regimes’ Assets

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By Deborah Ball And Cassell Bryan-Low

ZURICH—Swiss banks have lodged 30 reports of possible money laundering by members of former Tunisian President Zine al-Abidine Ben Ali’s regime—but all came after the Swiss government froze Mr. Ben Ali’s assets, highlighting possible weaknesses in attempts to prevent such crimes.

Separately, asset-recovery experts say the U.S. and U.K. may be moving too slowly to freeze assets believed to belong to fallen regimes in Egypt and Tunisia, which could allow such funds to be moved to other countries. The cautious response is in contrast with that of Switzerland, which has moved more aggressively to freeze assets, even when, as with Egypt, it isn’t getting much support from the government.

Bern is moving quickly to stop any such money from slipping away, but the speed with which the Swiss banks identified money believed to belong to the Egyptian and Tunisian regimes raises questions as to whether they are doing enough to keep illicit money from flowing into their coffers in the first place.

Soon after Mr. Ben Ali was ousted last month, Bern ordered banks to freeze assets belonging to the former leader and 47 associates. In response, banks have frozen dozens of millions of francs. Switzerland’s Federal Police said Tuesday that since then, its money-laundering office has received about 30 reports—involving about 80 million francs ($76 million)—from financial institutions flagging possible illicit assets deposited by Mr. Ben Ali or his entourage.

Historically, lax money-laundering rules and strict bank secrecy made Switzerland a favorite for kleptocrats looking to stash stolen assets. According to transparency watchdog Global Financial Integrity, Swiss banks may hold as much as $150 billion in illicit assets.

Over the past decade, Switzerland has tightened money-laundering laws. Swiss banks must try to determine whether money comes from illegal activity before accepting it. But some question whether the banks apply the rules adequately.

Mark Pieth, a professor of criminal law at Basel University in Switzerland and chairman of the Organization for Economic Cooperation and Development’s Working Group on Bribery in International Business Transactions, says the speed of the seizures of Tunisian and Egyptian assets by banks globally shows “the system is not working. It is quite obvious that the rules are set but they are not applied diligently enough. It also means the regulators are not doing their jobs.”

In a 2009 report, the Financial Action Task Force, a money-laundering watchdog under the umbrella of the OECD, criticized Switzerland for the low number of money-laundering reports in a country that is the world’s biggest offshore banking center, with $2 trillion under management. In 2009, banks lodged a total of 896 suspicious activity reports, with two-thirds of the reports triggered by external information, rather than from inside the bank.

In response, Swiss financial regulator Finma says the quality of the reports is particularly high, with 89% forwarded to prosecutors for action. A Finma official concedes that banks are sometimes slow to file a report because they don’t want to lose a client.

“The fact that Swiss banks were able to respond so quickly to the order to search for and freeze these assets reflects the efficacy” of Switzerland’s due-diligence procedures, a spokesman for the Swiss Bankers Association said.

In 2000, Swiss regulators criticized five Swiss banks for having accepted about $660 million from the family of the late Nigerian military ruler Sani Abacha after Bern froze hundreds of millions of francs allegedly belonging to the regime.

But Switzerland is moving more quickly than its counterparts in the U.S. and U.K. to clamp down on assets from the regimes of Mr. Ben Ali and former Egyptian President Hosni Mubarak. It has done so despite a dearth of information from Cairo. Egypt’s new rulers sent a request to Bern last week to freeze money belonging to the Mubarak regime, but that request didn’t name Mr. Mubarak himself and contained “very, very little information,” with no bank-account details, according to a person familiar with the situation. Read more in The Wall Street Journal.


Written by Theophyle

February 23, 2011 at 11:11 am

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