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How Wall Street Banks Help Tyrants Loot Their Countries

Give us your tired, your poor, your huddled kleptocrats yearning to stay rich:

Even as governments freeze assets tied to regimes in Libya, Egypt and Tunisia, U.S. banks are resisting efforts to tighten international rules to prevent the flow of money from corrupt politicians.
The proposal would make banks not only verify the identity of an accountholder, but also determine who is benefiting from the money. Foreign leaders and their families commonly mask their control of funds by managing accounts through trusts and shell corporations.

Although banks are supposed to notify the authorities if they believe such funds were illegally gained, in reality they have little incentive to perform thorough background checks. Why? Because discovering that one of your biggest customers is looting billions from his subjects is embarrassing, not to mention a potential violation of money-laundering laws.

Despots such as Libya's Col. Muammar Gaddafi love the U.S. Although most of the country's sovereign wealth fund money appears to be stashed in Europe, it also recently had hundreds of millions of dollars, and possibly more, parked in American banks, according to confidential data disclosed by WikiLeaks. The fund's current or previous bankers include Citigroup (C), Goldman Sachs (GS) and JPMorgan Chase (JPM).

Corrupt African leaders have long been known to funnel plundered assets through U.S. and other Western banks. Since 1970, the amount of illicit funds flowing out of the continent is estimated at upwards of $1.8 trillion, according to a Global Integrity, a consulting firm specializing in money-laundering.

The Obama administration has vowed to stop such looting. But some experts are unconvinced:

Jason Sharman, a respected money-laundering specialist at Australia's Griffith University, says that "the educated guess is that there's more corrupt money in the United States than in any other country in the world" and "the gap between U.S. rhetoric on this issue and follow-through is huge."
Our man in Cairo
Case in point: the White House's reluctance to block Hosni Mubarak -- a long-time American ally -- from absconding with a vast personal fortune believed to have been largely pilfered during his three decades in office. Shortly before being deposed, the former Egyptian president is thought to have moved much of his wealth into secret overseas accounts. Curiously, the Treasury Department has refused calls to freeze any assets he might have in the U.S., only instructing banks to watch for signs of illegal activity.

By contrast, even Switzerland, a notoriously safe haven for autocrats' dirty money, has moved to lock down Mubarak's accounts in the country. Over the last four decades, including under Mubarak, Egyptian leaders are estimated to have illegally siphoned off more than $70 billion in state funds.

Some critics say the new money-tracing rules are too weak. Perhaps. But that would be a moot point if U.S. banks, which are reportedly leading the fight against the new regulations, actually cooperated with global efforts to crack down on kleptocratic regimes.

Image from Wikimedia Commons, CC2.5; thumbnail from Flickr user Abode of Chaos
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