Dirty Money by Nicholas Shaxson

Consider this: it is not unlawful for a United States bank to receive funds derived from alien smuggling, fraud, racketeering, handling stolen property, contraband, environmental crimes, trafficking in women, transport for illegal sexual activity, slave trading- and many other evils....Can this really be true?...


I could not believe it at first, and I checked. But it is true. The only catch is that the crimes must be committed abroad. U.S. anti-money laundering laws involve a long list of prohibitions on proceeds from crimes- including the above- committed at home, but a very short list for those committed overseas. Welcoming dirty money is profitable for American companies, and it helps fill the current-account deficit. And Europeans, it seems, are hardly better behaved... but how big is the problem?

Try this for size. the OECD reckons that about half of all the world's cross-border trade involves structures for concealing money, involving about 70 tax havens (the French call them 'fiscal paradises"), as corporations and rich individuals shuffle profits around to avoid taxes and for yet more nefarious reasons. Assets held offshore by rich individuals, beyond the reach of effective taxation, equal one-third of global assets- or $11 trillion, conservatively estimated, costing governments over $250 billion a year in tax revenues. This is more than twice the global aid budget for developing countries. A U.S. Senate report estimated - when the problem was smaller- that up to a trillion dollars is laundered through banks each year, half of it through U.S. banks.

There are basically three forms of dirty money. One is criminal money: from drug dealing, say, or slave trading or terrorism. The next is corrupt money, like the late former Nigerian dictator Sani Abacha's looted oil billions. The third form, commercial money- what out finest companies and richest individuals hide from our tax collectors- is bigger. The point- and this is crucial- is that these three forms of dirty money use exactly the same mechanisms and subterfuges: tax havens, shell banks,shielded trusts, anonymous foundations, dummy corporations, mispricing schemes and the like all administered by the "pinstripe infrastructure" of mainstream banks, lawyers, and accountants.... U.S. Treasury officials told Raymond Baker that in a good year they caught 0.1 percent of illicit inflows into the country- a 99.9 percent failure rate.

In this parallel secret universe the world's biggest and richest individuals and firms- News Corporation, Citigroups, and, yes ExxonMobil - can quite legally cut themselves loose from pesky full taxation and grow explosively, leaving smaller competitors, who pay their full dues along with the rest of us, choking in the dust. This undermines the very notion of capitalism: the big companies' advantage has nothing to do with the quality or price of what they produce. If you are worried about the power of big global corporations, don't always attack them directly, but attack bank secrecy instead.

Much of the problem could be eliminated with a few well-aimed legislative strokes. One might make it a criminal offense for U.S. Banks to receive proceeds of overseas slavery, say, or credit fraud. Another might forbid banks from operating in jurisdictions where they are protected from foreign tax and judicial authorities. There are others. What is missing is political will.

One adversary will be what Eva Joly* calls the "media-industrial complex"- news outlets that themselves shuffle huge profits around tax havens to avoid taxes.