US should explore own back yard for money launderers

The US is getting hot under the collar about money laundering. This subject could have all sorts of repercussions, especially for the Middle East.

The Americans are going through one of their financial puritanical phases, it seems. After the US President Barack Obama's recent onslaught on banks and bankers' bonuses, they are now getting hot under the collar about money laundering. This subject could have all sorts of repercussions, especially for the Middle East. There is already a stack of US legislation designed to tackle fraud, corruption and other financial crimes in the international arena.

The "war on terrorism" after the attacks on New York and Washington was accompanied by an equally determined assault on illicit or unregulated money transfers, which were deemed to be the enabling mechanism for the September 11 hijackers. All of this is not enough, judging by a recent report from the US senator Carl Levin. Last week, in his capacity as the chairman of the investigations unit of the committee on homeland security, Mr Levin submitted a lengthy paper entitled "Keeping Foreign Corruption out of the United States" to illustrate how easy it is for money launderers and other criminals to breach US financial security. It makes illuminating reading.

But first, a reminder of the criminal lineage of money laundering. The origins lie back in another era of official US puritanism, the 1920s, the heyday of the gangster Al Capone. When the Feds eventually put Capone behind bars it was on the offence of tax evasion, because he had not declared his (illegally-earned) income. Money laundering was an offence relating to the proceeds of organised crime.

In the modern world, and especially in the age of international terrorism, its meaning has widened. Now it is a financial transaction relating to any asset derived from an illegal act. In trying to understand America's increasingly vigilant stance, this is a crucial difference, as Mr Levin's report makes clear. The Democratic congressmen for Michigan takes us through four case histories in which powerful foreign officials, which he calls "politically exposed persons" (PEPs), or their relatives and close associates could manipulate the US financial system to import into the country funds that may be the product of foreign financial offences.

All four involve African politicians, or their families and friends, using the US financial system to launder suspect funds. They were assisted, unwittingly in some cases, by an army of lawyers, property agents, lobbyists and banks in the US. Some of the biggest-name banks in the world ended up as recipients of funds that Mr Levin says were obviously of dubious origin: HSBC, Citibank and Bank of America are all named.

The sums involved in the four cases amounted to more than US$300 million (Dh1.1 billion), but working on the principle that enforcement agencies probably only catch 10 per cent of the proceeds of any illicit deal, whether for cash, narcotics or arms, it represents the tip of the iceberg. Having looked at Africa, some experts in the US believe that authorities there are gearing up for closer scrutiny of the Middle East as an origin of "dirty" money.

The region is an easy target in many ways. It fits into the political agenda of those American politicians who want to demonise any dealings with the Arab world (the same politically motivated bigots who agitated against the sale of P&O to DP World in 2006). In the "hawala" system of money transfer, which by its nature is informal and unregulated, there is a convenient and obvious focus for US scrutiny.

In addition, the booming foreign-exchange industry between the Middle East and the West, in the course of which billions of petrodollars from the Gulf countries are invested and recycled in the global financial system, provides US investigators with a rich vein, enough to keep several congressional committees busy for years. It is easy to see why the Middle East has such a bad reputation with regard to money laundering.

Its proximity to the world's big narcotics producing countries such as Afghanistan and Pakistan, its position as a global centre for world commerce and trade, and the political tensions within the region all conspire to raise the suspicions of international investigators and enforcement agencies. Dubai, as the leading commercial centre in the region, has taken stringent measures to tackle the problem.

Legislation was put in place to counter money laundering in 2002, and there have been several instances since then of high-profile "busts" in the emirate against would-be launderers. In the end, as with narcotics or terrorism, money laundering is a global problem. The US "war on money laundering" after the September 11 attacks inevitably focused on the Middle East, but it was quickly realised that banks in Europe and North America had also been used to "wash" the dirty money that funded the attacks. London, in particular, was a conduit through which suspect funds passed undetected and unhindered.

But that will not stop American politicians such as Mr Levin turning their gaze to the Middle East, once they've finished with Africa. @Email:[e-mail]