What a surprise - terror funds flowing freely

From the NY Times:

"While American officials have publicly been relatively upbeat about their progress in disrupting terrorist financing, the internal State Department cables, obtained by WikiLeaks and made available to several news organizations, offer a more pessimistic account, with blunt assessments of the threats to the United States from money flowing to militants affiliated with Al Qaeda, the Taliban, Hamas, Lashkar-e-Taiba and other groups."

The newspaper gets it that Saudi Arabia is a big sponsor, of course, and adds:

The dispatch and others offered similarly grim views about the United Arab Emirates (“a strategic gap” that terrorists can exploit), Qatar (“the worst in the region” on counterterrorism) and Kuwait (“a key transit point”). The cable stressed the need to “generate the political will necessary” to block money to terrorist networks — groups that she said were “threatening stability in Pakistan and Afghanistan and targeting coalition soldiers.”

The New York Times cites a list of problems that need addressing. But it would also have done well to turn to pages 173-191 of Raymond Baker's groundbreaking 2005 book Capitalism's Achilles Heel, which notes, among many other things, the intentional loopholes western governments have left in the international financial system, in order to attract financial capital (and frequently to benefit their own tax-evading ruling elites). He describes a U.S. Treasury official estimating a 99.9% failure rate to catch illicit money: $250 billion of illicit money into the U.S., that official estimated, and criminal seizures of just $250m.

"An official of the Swiss central bank added a digit and placed the percentage failure rate for his country at 99.99."

These figures are out of date now (the absolute sums are bigger, as Baker's Global Financial Integrity estimates) but the same principle remains in place. As long as the world fails to get serious about tax evasion and tax havens, it is impossible to crack down on terrorist finance.

"The fact is that laundered proceeds of drug trafficking, racketeering, corruption, and terrorism tag along with other forms of dirty money to which the United States and Europe extend a welcoming hand. These are two rails on the same tracks through the international financial system. Holes intentionally left in anti-money laundering laws provide a road map to foreigners, showing them how to relabel their money in order to get it into the western financial system. This is the reason western countries, by their own estimates, have better than a 99 percent failure rate in stopping deposits of laundered money.
. . .
The idea that we can successfully protect ourselves from a narrow range of dirty money we think hurts us, while at the same time cultivating a much broader range of dirty money we think helps us, is fundamentally unworkable."

And those who think that the latest so-called crackdown on tax havens was anything other than a whitewash may want to read some of the material here, and wait for new material from us that will become available in January. Or they may also want to look at our recent chat with a private banking insider, to get a sense of what is really going on in the world of dirty money.