Journal of Financial Crime Vol. 10 No.

2
Global Financial Business and the Implications for
Eective Control of Money Laundering in
Oshore Centres
Richard Pratt
This paper discusses the eect of globalisation of
nancial markets, with particular reference to the
impact of various international initiatives to facilitate
nancial probity and stability in oshore centres.
1
It will be argued here that this eect is wholly posi-
tive on oshore centres. Contrary to what other small
jurisdictions may say, they are not victims of some
plot by rich, powerful and prosperous countries.
Such talk is not only nonsense, it is demeaning. It is
always a mistake to seek to blame others for
challenges that have to be faced. It is a substitute for
taking responsibility for action.
Jersey and this is also true of the other Crown
Dependencies, Guernsey and the Isle of Man is
totally committed to the principles enunciated by
the various international nancial regulatory stan-
dard setting bodies. Jersey is happy to be judged
against those standards by anyone who cares to
visit. And Jersey is proud to be invited to join the
process of standard setting.
First the matter of globalisation. Everyone
agrees that the markets are increasingly global. In a
sense, they are. One impact of this is to make the con-
cept of an `oshore centre' meaningless. Globalisation
means that all nancial centres are oshore. As John
Moscow of the New York County District Attor-
ney's Oce said: `New York is oshore to Russia.'
2
London certainly has more non-UK business than
domestic. So London is clearly an oshore centre.
Indeed, everyone is oshore now.
But, in fact, globalisation has not really gone far
enough. The barriers to a truly free ow of nance
a system where capital really could ow to
where it earned the greatest return are legion. If
DG XV of the European Commission were asked
whether they think there is currently a single
market in nancial services in Europe they will
laugh (or cry). Europe is so far away from such an
ideal that they are seeking to invent a new decision-
making machinery to speed up the process the
four-level approach recommended by Baron Lamfa-
lussy's committee of wise men.
And if the EU is a long way from a barrier-free
nancial market, the rest of the world is even
further. The World Trade Organisation (WTO) is
again starting to seek to tackle the issues. It has con-
spicuously failed to make much progress up to
now.
And, of course, regulators have to concede that,
although there has been good progress in agreeing
international standards, they are implemented in
very dierent ways throughout the world. But,
when it comes to the threats to the nancial system,
globalisation appears to be further advanced. In par-
ticular, globalisation has clearly gone far enough to
enable the money launderer, the nancial fraudster
and the investment scamster to operate with great
eciency.
The international initiatives are designed to set and
impose common standards of bank supervision;
securities and insurance regulation; anti-money laun-
dering defences and other matters. It can be argued
that Jersey meets these standards handsomely. If
anyone has any doubts about Jersey's nancial regu-
lation, they should look at the website,
3
which
shows regulatory requirements and includes assess-
ments of its compliance with standards (both self-
assessments and third-party endorsements by organi-
sations and individual countries). The website also
shows how Jersey can help other countries in regula-
tory and criminal investigations and gives statistics as
to the number of times it has done so. There is even
an e-mail user group set up as a result of a seminar
held in Jersey last year designed to improve inter-
national cooperation on regulation and law
enforcement.
A particular issue arising from the globalisation of
nancial markets needs to be addressed here. That is
the use of the nancial system by public gures to
launder money they have taken in bribes or stolen
from their national treasuries. These cases have
received some notoriety, eg Abacha, Marcos and
others. Many of these people put money in a series
of oshore centres like London, Switzerland, New
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Journal of Financial Crime
Vol. 10, No. 2, 2002, pp. 130132
Henry Stewart Publications
ISSN 1359-0790
York and others before standards were as rigorous as
they are now. One or two of them (but not all) came
to Jersey. Many of them hid behind the names of
friends, relatives and cronies. Regulators and law
enforcement agencies are tracking down the money
and tackling any failings in the nancial institutions
that took the money.
As with any other money laundering problems,
the response is two-fold:
To erect defences, essentially by insisting that
nancial institutions know their customers and
report anything suspicious to the police;
To have eective powers to deal with those who
breach those defences.
Jersey has these defences and these powers. It has
issued new guidance to pass on the lessons learned
from the cases that have been run.
The international community can do more if it acts
together. One theme is developed here. The aware-
ness of banks and other institutions about the
danger of corruption money has been raised in
recent years. Jersey has done its part. The excellent
Transparency International have done a good job
here. The Wolfsberg Principles partly brokered
by Transparency International have described
international best practice as it is now.
As awareness has increased, banks and other nan-
cial institutions get better at detecting corruption
money. But this leads to a conundrum. Most
money laundering suspicious transaction reports
result in cooperation with the police in the country
where the money launderer lives. With luck and
good police work, he or she can be brought to justice.
But if the money launderer is a senior corrupt
ocial in the government perhaps even the head
of state what then? The police in that state are
hardly going to cooperate with the police in the
jurisdiction that has found the money. Indeed, the
government may reject any hint of wrongdoing
and say the practices giving rise to the suspicious
transaction report are normal behaviour. `What's
more', says the potentate, `you have no business
freezing my money. Obey my instructions as to its
disposal.'
What should a bank, or a jurisdiction like Jersey do
then? Many people have argued that, in these circum-
stances, the bank and the jurisdiction have done their
duty. They can do no more. They should obey any
instructions to pay the money away and exit the
relationship. This is not tenable. If someone were to
say: `Look. We found Abacha's money when he
was salting it away. We raised it with him. He said
it was quite all right and he was behaving normally
according to Nigerian law.' The international com-
munity, still less the current Nigerian government,
would certainly not be impressed now.
These are not theoretical constructs. Cases like this
are going on currently. The problem must be dealt
with. But a jurisdiction like Jersey cannot do it
alone. First, and at the very least, there must be a
clearinghouse for the information. Interpol must be
invited to give a higher prole to its willingness to
store information and intelligence about current cor-
ruption cases that, for the reasons described above,
cannot be used to track down the crook, for the
moment. There would at least be an audit trail.
Secondly, it should be considered whether or not
an escrow account should be established into which
funds should be paid in these circumstances. Of
course, proper legal process must be allowed, so
that the potentate has an opportunity to persuade a
court (in the jurisdictions where he has placed the
money) that it is his or hers. If that case is not
proved, then the money could be passed to the
international account to be used for the benet of
the country concerned when the opportunity arose.
Perhaps it could be administered by the UN, or
one of the international nancial institutions.
Such an arrangement would be highly unpopular.
Any country that set such a thing up on its own
would be at an enormous disadvantage. Any promi-
nent (even a legitimate) person with assets would be
reluctant to put their assets in a jurisdiction if they
thought that there was a danger that they would
have to keep proving in open court that the assets
were theirs. So it would only work if all decent
jurisdictions were to adopt such a system.
Finally, a number of countries are vulnerable to
corruption. Transparency International have shown
who they are in their index. In such countries,
accusations of corruption are part of the normal
currency of political debate. Such accusations
may well sometimes be correct. Sometimes they
are not.
However, the fact that one leader accuses his or her
predecessor of corruption does not mean that the
current regime is free of it. It would be a sad irony
if increased ability to hunt down and seize the funds
of one corrupt leader only resulted in making it
easier for the successor regime to steal it. Would it,
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Global Financial Business and Money Laundering in Oshore Centres
in retrospect, have made sense to have handed back
the money that was found from Marcos, to Estrada?
There is no way in which a single jurisdiction can,
or should make judgments about whether or not a
regime deserves to receive seized assets of current or
former corrupt leaders. Perhaps it would make
sense for all those jurisdictions whose institutions
hold money from a corrupt leader to form a club
to assist each other. That assistance could establish
patterns of behaviour to speed up the investigation.
In addition, the club could consider whether or not
it would make sense to hand the assets over to the
international escrow fund described above. The
administrator of that fund be it the UN, the
IMF, World Bank or whoever it is, could then
judge whether or not just to hand it back, or spend
it on specic projects where corruption can be
monitored and controlled. The money would go
to the country to which it was due. But the
people of that country might be more likely to
benet from it.
These suggestions raise a myriad of legal dicul-
ties. And some will argue that it is just a plot for
big banks to retain the money. A moment's thought
shows that it is not that. But it may be convenient for
some so to characterise it. It is important to ignore the
knee jerk reactions and consider whether or not it
makes sense. It is one further way in which money
laundering in the global nancial market can be
made more dicult.
That, after all, is what the international initiatives
referred to this paper are designed to achieve.
REFERENCES
(1) The author makes particular reference to Jersey, in his
capacity as Director General to the Jersey Financial Services
Commission.
(2) Personal communication.
(3) www.jerseyfsc.org.
Richard Pratt, Director General, Jersey
Financial Services Commission
# Richard Pratt
Benecial ownership of unlisted
companies: Greater disclosure
considered
There is scope for greater disclosure of the true
ownership of assets held by corporate vehicles
in the view of the UK government, which,
through the Treasury and the DTI, has issued a
consultation document, `Regulatory impact
assessment on disclosure of benecial ownership
of unlisted companies', accompanying the publi-
cation of a regulatory impact assessment (RIA)
on the disclosure of benecial ownership of
unlisted companies. This follows up recommen-
dations made on the issue in the report `Recover-
ing the proceeds of crime' published by the
Cabinet Oce Performance and Innovation Unit
(PIU) in June 2000.
Further disclosures were necessary in the PIU's
view to help law enforcement agencies combat
the use of criminal nances, particularly the use of
shell companies in complex money laundering
operations. Criminals have beneted from both
the ease of incorporation in the UK and from the
maintenance of secrecy of benecial owners of
UK companies; terrorists could also make use of
the situation to conceal their nances.
The RIA seeks to establish whether what the PIU
regarded as the clear law enforcement benets of
publicly registering benecial owners would justify
the additional burden placed on companies. Work-
ing on the basis that listed public companies already
have to disclose all interests, including benecial
ownership, to the UK Listing Authority (the
FSA), the RIA focuses on new measures for:
Private companies, who would be subject to
both a mechanism for the disclosure of owner-
ship and a system for ling that information at
Companies House; and
Public companies whose shares are not listed,
who would be subject to a new requirement
to le information with Companies House.
Private companies are already obliged to keep a
register of the legal owners of shares, and give
details of all shareholders annually to Companies
House. All those with interests in the shares of
public companies must in addition disclose those
interests when they amount to 3 per cent of the
total, and upon any 1 per cent change thereafter.
Public companies must keep a register of interests,
and have powers to investigate their share
ownership.
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Pratt