CRACKDOWN ON GLOBAL MONEY LAUNDERING SEEMS TO BE WORKING

LAST June Treasury Secretary Lawrence Summers did something unusual: He
agreed to join U.S. trading partners in placing Israel on a list of 15
countries that lacked adequate legal safeguards against money laundering.

That put Israel in some pretty unsavory company. Other nations on the list
included the Cayman Islands, Panama, Lebanon, Liechtenstein, the
Philippines and Russia. The Israelis protested loudly, but the Clinton
administration went ahead anyway, because of longstanding concerns that
Russian mobsters were using Israel to hide their ill-gotten loot.

Summers wanted to demonstrate that the United States was serious about
cracking down on money laundering -- even to the point of going after one
of America's closest allies. He had the crucial backing of his deputy,
Stuart Eizenstat, who carries enormous credibility with Israel because of
his role over the past two years in negotiating compensation for families
of Holocaust victims whose assets were kept after World War II by Swiss banks.

Though Treasury's decision went almost unnoticed at the time, it may have
marked a small turning point in the fight against global corruption. The
so-called ``naming and shaming'' list was duly announced in late June by
the Financial Action Task Force, a group initially created by the Group of
Seven leading industrial countries.

Then some interesting things started to happen. First, the financial
markets began pressuring countries to clean up their act. Standard and
Poors, for example, lowered its bond rating for a top bank in Liechtenstein
that's partly owned by that country's royal family. Big U.S. and European
financial institutions, meanwhile, moved to close correspondent
relationships with banks in some countries on the suspect list.

Other G-7 countries -- assured that the United States wasn't playing
favorites -- began pushing reform on their friends and allies, too. France
leaned on its tiny neighbor, Monaco. Britain pressured its former colonies
and territories, including the Caymans, the Bahamas, the Channel Islands
and Bermuda.

Most important, the money-laundering havens themselves began changing their
policies. Israel promptly passed new laws to criminalize money laundering
and allow closer scrutiny of suspect bank accounts there. Six other
countries on the list also adopted new rules. The Cayman Islands, for
example, agreed for the first time to require mandatory identification of
who has deposited money in numbered accounts. That change will affect a lot
more people than just drug dealers and mobsters -- the Caymans is reckoned
to be the fifth-largest financial center in the world.

The G-7 countries laudably have kept the pressure on. While commending the
reforms in Israel and elsewhere, the task force hasn't yet removed any of
the 15 countries from the list, and it's considering adding more countries.

Special deals for friends would undermine the crackdown, but so far the G-7
countries seem to be resisting the temptation. The United States, for
example, is said to have spurned a recent suggestion by Panama that it
would grant asylum to former Peruvian intelligence chief (and onetime CIA
ally) Vladimiro Montesinos, in exchange for getting off the ``naming and
shaming'' list.

The G-7 squeeze on money laundering is part of a broader crackdown on
global financial crime. There's a simultaneous push against tax havens by
the 29-member Organization for Economic Cooperation and Development. The
OECD recently published its own ``Hall of Shame'' list of 35 tax havens --
a pressure tactic that helped persuade the Caymans, Cyprus, Bermuda and
several other countries to change their policies and thereby escape being
listed.

Leading the charge against tax cheats is France, which is tired of seeing
its citizens dodge the tax man by funneling money to nearby countries such
as Switzerland, Monaco and Luxembourg. French pressure helped persuade the
European Union last week to enact new rules against tax evasion. But those
rules won't take effect unless non-EU members such as Switzerland agree to
go along, too -- so don't hold your breath.

The amazingly quick success of the anti-corruption campaign shows what's
possible when leaders of the global economy decide to take a problem
seriously. Until recently, the crooks had seemed to be gaining the upper
hand, with criminal syndicates from Russia to Latin America looting their
countries and stashing the money in secret accounts.

Crime is still rampant around the world. But in a global economy -- where
every bank must be connected to the electronic central nervous system, or
die -- it's going to be a lot harder for the pirates to hide.

David Ignatius writes for the Washington Post.