WRONG SIGNAL ON MONEY LAUNDERING

If Americans doubted the extent to which the country's banking system
is being used to launder the profits of global criminals, they
received fresh evidence this week with the arrest of the former
Peruvian spy chief, Vladimiro Montesinos. His hiding place in
Venezuela reportedly was exposed when he sent an emissary to Miami to
withdraw $38 million he had sequestered in various American bank
accounts. But now the Bush administration seems intent on weakening a
worldwide campaign to clamp down on money laundering. If it does,
coordinated global efforts to combat narcotics trafficking, arms
smuggling, terrorism and other forms of organized crime will suffer a
serious setback.

Ever since the first Bush administration, the United States has been a
leader in international efforts to crack down on money laundering ó
the main device by which criminals profit from and finance their
activities. Among the most important weapons are longstanding rules
that require banks to report any suspicious transactions to the
government, as well as cash deposits over $10,000 ó a figure that
Treasury Secretary Paul O'Neill might raise to $25,000. The
requirement that banks report suspicious activities has been an
especially effective deterrent to money launderers and a valuable
evidentiary tool for prosecutors. Mr. O'Neill, however, says that
these and other laws impose "significant cost on society," an apparent
reference to the paperwork required of banks. He has also questioned
the value of the $700 million the government spends annually to fight
laundering.

Rigorous scrutiny of costs and benefits is certainly appropriate, but
it must also take into account costs imposed on society by organized
crime. These include everything from drug addiction to human
smuggling, arms trafficking and official corruption. Over the years,
money laundering has also helped destabilize entire financial systems,
most recently in Asia and Russia.

Mr. O'Neill's decision to reassess broadly accepted rules has sent an
alarming signal to America's law enforcement community as well as to
the nation's allies even as Washington continues to join them in
pressuring nations like Russia and the Philippines to adopt the same
kinds of rules. The Treasury secretary's review is partly a response
to the wishes of some in the financial industry, a generous
contributor to George W. Bush's presidential campaign. A loose
coalition of banks, privacy and free-market advocates helped persuade
Mr. O'Neill a month ago to weaken a three-year effort by the
Organization for Economic Cooperation and Development to crack down on
offshore tax havens. They also helped to block legislation last year
that would have expanded rules that require banks to find out more
about individuals and foreign jurisdictions they are dealing with.

The legislation won bipartisan support, but was blocked by Senator
Phil Gramm of Texas, a foe of government regulation and a friend of
Texas banks, which fear losing business with Mexican banks.
Republicans cannot claim to be tough on crime as long as they continue
to sabotage domestic and international efforts to prevent criminals
from laundering their profits.