NO MORE HIDEOUTS FOR CRIMINAL MONEY

On Tuesday President Bush froze the assets of suspected terrorist groups in
the U.S. and announced that U.S. allies in the war on terrorism would be
expected to work to root out the financial sources of terrorists at home.
He also promised that foreign financial institutions that do not cooperate
would be subject to sanctions. This is an important response to the mass
murder carried out on Sept. 11. That terrorist strike was an attack on the
citizens of over 60 countries; the civilized world should unite to back Mr.
Bush's initiative.

Many of the world's most heinous criminal activities involve the same two
key ingredients: people and money. Finding the people responsible for the
recent acts of terror and bringing them to justice are no easy tasks and
will require patience, creativity and cooperation amongst nations. A
critical task that can be addressed more immediately is going after the
criminals' money.

Despite the fact that estimates of the cost of individual terrorist acts
can be quite low, it is also clear that terrorist organizations rely on
substantial assets to support their activities. Some analysts expect an
increase in the scope and intensity of violence in the future, which will
require enormous sums of money. If the main governments of the world get
together it should be possible to find this money. The technology and
systems that would allow us to do so already exist. Nowadays, there is
practically no limitation on our capacity to track and cross check data.
While a major effort in international cooperation will be needed, the time
has come for us to move ahead swiftly.

Such an effort would strike terrorists where even they would hurt: in the
wallet. Also, as a byproduct, it would hit other targets of great
importance such as drug and illegal arms trafficking, corruption and tax
evasion. Directly and indirectly, over time, these activities cost more
lives than the deadly attacks of Sept. 11, though they don't look so
dramatic on television. Drugs ruin lives in a visible way, but tax evasion
and corruption also cost lives, particularly in the developing world, where
public resources are often all that stands between life and death for the poor.

How do we go about this? Multilateral groups such as the Financial Action
Task Force, in particular, but also the Financial Stability Forum, the
International Monetary Fund, the Organization for Economic Cooperation and
Development and the Bank for International Settlements are already doing
good work. The FATF was created by the G-7 back in 1989. It fosters a
world-wide anti money-laundering network as well as the development of
regional bodies called Financial Intelligence Units. The FIUs are
responsible for the implementation of the task force's 40 recommendations
for combating money laundering. (Brazil is one of only 10 countries that
have complied with all 40 recommendations.) With all these organizations
already operating, one could argue that an adequate number of initiatives
exist and we do not need any new ones. But we still lack something
important: focus.

What is needed is a simple goal for a group of significant nations --
perhaps the G-20 -- to pursue together. The goal should be to eliminate
places where dirty money can hide.

Many of the guidelines necessary to actively work toward this goal are
already in place but they need to be assigned greater priority by key
governments across the globe. It is high time, for instance, that
regulators enforce requirements that financial institutions really know who
their customers are on a global basis. This requires globally coordinated
action on the part of central banks and supervisory authorities.
International sharing of high-quality information in these areas is
urgently needed.

An example may be useful. Say a criminal organization invests its resources
in certificates of deposit of an "offshore bank," understood here as a bank
based in a jurisdiction that does not cooperate with the free world. This
bank must, in turn, invest those assets. The money is not invested in
coconuts, but goes somewhere else -- usually to the developed world, where
it can be safely parked. Estimates of the annual flow of money laundering
reach into the high billion-dollar range. This implies that there are
billions, possibly trillions, of dollars hidden away in phony offshore
corporations and invested in phony offshore banks.

The developed world should not allow criminals to use its financial parking
lot. Global coordination is key here. If only a few countries refuse to
follow the rules, the money will end up going where no questions are asked.
The solution is simple in theory, and doable in practice: Every penny
invested in Treasury bills, bank CDs, stocks and all other financial
instruments in the free world should belong to someone who is known to play
by the rules. This will stimulate transparent practices all over the world,
without in any way harming countries' legitimate competitive advantages or
restricting their policy choices.

This does not mean that bank regulators have to take on a Big Brother role.
Freedom and privacy are two of the civilized values that we are mounting
efforts to preserve. But it is unacceptable that dirty money so easily
finds places to hide inside the free world. Surely a point of balance can
be found between individual privacy and public safety.

This is an issue that civilization has to face openly and dispassionately.
Law-abiding citizens of the world have nothing to fear. They remain free to
move around personally and financially, but only transparency and effective
banking oversight can ensure that criminal elements do not use the
international financial system to facilitate their murderous acts. While we
should take every precaution to avoid abuses, there is no reason we cannot
go far beyond our present state, in which it appears terrorists feel free
to speculate in financial derivatives and futures contracts related to
crimes they are planning.

One area where the leaders of the free world can take action right away is
easier than most: the issuance of large-denomination paper currency. This
should stop immediately. In this world of ever-growing electronic money,
which is far easier to use, only crooks need these bills as a way of
covering their tracks. The countries that issue such money benefit from the
seigniorage revenue they collect, but undoubtedly, in the interest of
preserving modern liberty and democracy, they can live without it. There is
no reason these days to issue $100 bills. The European Union could do its
part and reconsider the future issuance of large-denomination Euro bills as
well.

President Bush said just a few days ago that "we will rout [the terrorists]
out of their safe hiding places." He is calling for us to go after the
terrorists' funding as well. In doing so, we will achieve much more,
because we will make the lives of other criminals more difficult. We must
all pull together to achieve this goal in order to help build a better and
safer world.