WHY THE SECRET WORLD OF BELIZE BUSINESS ALARMED US DRUG AGENTS

Washington Fears The Offshore System Inspired By The Tory Party
Treasurer Is Being Exploited By Money Launderers

US documents obtained by the Guardian reveal for the first time why
the drug enforcement agency and other US authorities were so
concerned about millionaire Tory treasurer Michael Ashcroft's
offshore world in the 1990s.

The original discovery that references to the Florida-based Tory
donor existed in DEA files led to controversy two years ago. Mr
Ashcroft issued a libel writ against the Times, which published a
correction, and he declared there was nothing to support "allegations
that I am a drug runner and money launderer."

Mr Ashcroft was correct. No evidence exists to implicate him in
committing crimes. Nor was he investigated on suspicion of doing so.
What worried the Americans was that the Ashcroft-inspired tax haven
in Belize in central America was, as a side-effect, encouraging
fraud, money laundering, drugs and bribery in a small,
poverty-stricken jungle state with corruptible officials.

Mr Ashcroft had arrived in the small former British colony at the
beginning of the 1990s. He moved many of his interests there and
bought control of the largest local bank, the Belize Bank, and
encouraged local politicians to pass laws between 1990 and 1992 which
set up flags of convenience, and secretive offshore "international
business companies" and trusts, in return for paying annual
registration fees to the government.

Crimes that followed in the lawless atmosphere of Belize and alarmed
the Americans included:

* The Banner Fund. Two Californians exploited the Ashcroft-inspired
offshore legislation to set up a Belize offshore company in 1993
which swindled US and British citizens out of $6.5m (UKP 4.6m).

* The Ricke case. A US drug smuggler and his associates moved
$700,000 of drug proceeds into Belize offshore companies, US
authorities believed. One sum of $25,000 was allegedly paid into the
bank controlled by Mr Ashcroft (There is no evidence the bank or Mr
Ashcroft knew the money was tainted).

Corrupt Officials

* The half-ton of cocaine. The DEA saw a problem in the existence of
such tax haven legislation in a country vulnerable to corruption. A
DEA-backed triumph when they arrested in Belize a trafficker linked
to the Cali cartel ended in farce when, as the embassy reported "he
effortlessly escaped from prison" in 1995 with the help of corrupt
officials. Belize was subsequently listed by Washington as "a major
drug transit country".

The newly-installed DEA office in Belize sent an excoriating report
to Washington in April 1993 about the tax haven regime Ashcroft had
helped to set up, and which was operated by the local bank he
controlled. Anyone in the world could establish a company under the
1990 international business companies (IBC) act.

"Some members of the government and the business community are
sceptical regarding the act's real benefits to the country. They see
some benefits going to lawyers and accountants associated with Belize
Bank, but little benefit to the rest of the country," said the
report, which was disclosed by the US under the freedom of
information act.

"It is ... a mechanism whereby illicit activities could be disguised
by shrewd operators. The secrecy of information would allow drug
traffickers freedom in establishment of companies under the IBC act
to conceal or transfer drug proceeds. The confidentiality of
companies, names, officers and account information makes it almost
impossible ... to investigate any allegations of illegal activities."

The government's offshore registry had been sub-contracted to the
privately-owned Belize Bank. Although the bank carried this out
properly and efficiently, the legislation was flawed: "The lack of
[government] oversight could ... result in the Belize Bank allowing
almost anyone to become registered."

The report acknowledged that the legislation helped Belize to attract
overseas investors. But it warned that directors and shareholders
could remain anonymous, and could hold meetings anywhere in the
world, even by phone. "Money launderers never have to leave the
safety of their own countries, while enjoying the secrecy and
services that the IBC act offers."

These IBC companies were not required to be audited, "so a fake
company can declare whatever profits it wants and then transfer these
profits, tax free, to a legitimate bank account".

That was the US official view of Mr Ashcroft's offshore centre in
Belize. Mr Ashcroft himself had a different view. He appeared at the
US embassy in 1996 to complain that the Americans had inspired a
local press article implying he was involved in money-laundering.
"Ashcroft insisted that little, if any, money laundering is conducted
in Belize," the subsequent embassy cable recorded. He told the
ambassador most of his bank's dollar deposits came from US bank
accounts and were therefore subject to the US's own "thorough anti
money laundering precautions."

Mr Ashcroft also launched an anti-drugs charity, Crimestoppers. He
said: "I have always been violently opposed to drugs. Crimestoppers,
the anonymous tip-off service I set up, has led to the arrest of more
than 9,000 drug users and dealers."

In the same 1999 newspaper article, Mr Ashcroft boasted that "not the
slightest bit of evidence has been found" to support the theory that
the offshore centre he had set up in Belize had been used for money
laundering. "This is because there is none."

But what Mr Ashcroft told the British public seems to have been
mistaken, according to documents the Guardian has unearthed. These
show:

* The Banner Fund. It was in 1992 that two US fraudsters, Eddie
Blackwell and Lloyd Winburn decided to take advantage of the
"offshore centre", with its facilities for secret "IBC" companies,
and inaccessible offshore trusts.

With the promise of enormous returns, they were busy collecting cash
from 10,000 credulous US and British investors whom they referred to
contemptuously as Joe lunchbags. The money was supposedly to invest
in a unit trust, the Banner Fund International Offshore Arbitrage
Leveraging Program, run by their company, Swiss Trade & Commerce
Trust.

In the words of a subsequent federal court judgment: "They moved
Swiss Trade to Belize City where they established it as a Belizean
international business company." The money from the "Joe Lunchbags"
was lodged in irrevocable Belizean trusts, from which it was
impossible for them to recover it.

As the US securities and exchange commission drily noted, although
they advertised the fund as a phenomenal opportunity for the "little
guy", in fact "defendants failed to engage in any leverage or
arbitrage activity, but instead spent the money on real estate and a
shrimp farm in Belize, and on various trusts in the US engaged in
lending money to defendants' relatives and friends."

* The Ricke case. A major American drug trafficker, Thomas Ricke, was
believed by the DEA office in Phoenix, Arizona, who were
investigating him, to have sent $700,000 of drug proceeds to buy
property in Belize. They received intelligence that on one occasion,
a man had been sent to put $25,000 in cash into a Ricke account in
the Bank of Belize.

Ricke and others eventually pleaded guilty. But the US government
could not recover money Ricke invested in Belize properties. It was
found to be in the name of several anonymous IBCs, the ownership of
which could not be established.

It was as a result of these criminal activities by other people that
Mr Ashcroft's name started to crop up in DEA inquiries. The Phoenix
office of the DEA asked their newly-opened local branch in Belize for
information about Belize Bank.

Researchers found Mr Ashcroft's name had already been mentioned in
DEA files. This was merely because in 1989 he had been in the habit
of travelling from the US to Iceland in a private plane to hold
mid-Atlantic meetings with business associates.

His name was one of many checked out in a survey of the use of small
planes to ship drugs and drugs cash across the Atlantic - Operation
Icetrack. There was no suggestion he was involved in any wrongdoing.

And the 1993 Belize background report on Mr Ashcroft also gave him a
clean bill of health. It reported he was "acquiring significant
assets in Belize" and that ADT, his large second-hand car auction and
burglar alarm business had dealt with the occasional individual
suspected of drug dealing. The 1993 DEA report said this was
unsurprising, given the large size of the business. "There appeared
to be no evidence of criminal activity on the part of ADT."

The only other mention of Mr Ashcroft the next year, 1994, was again
in an innocent context, when a further DEA report was filed in
Savannah, Georgia, noting that he had used a private plane linked to
drug smugglers, to fly to Nassau in the Bahamas. (Mr Ashcroft says
the flight would have been chartered by others on his behalf, and was
entirely unconnected to drugs).

* The half-ton of cocaine. The US authorities' hostility seems to
have continued to focus on Mr Ashcroft's responsibility for the lax
Belize offshore financial system. In December 1995, the Belize
embassy's narcotics control report to Washington said Belize had a
"rudimentary infrastructure for combating drug trafficking".

Their solitary achievement (with DEA help) in 1995 had been to seize
536kg of Colombian cocaine and arrest a suspected Cali cartel member,
who had promptly bribed his way to freedom. "The potential exists for
Belize to become a major transhipment point for cocaine."

The report said although they had no evidence Belize was yet an
active money laundering location, "money laundering must still be
considered a major potential threat". The 1990 IBC act had been
"reportedly" drafted by Mr Ashcroft himself. No laws made money
laundering a crime. No laws regulated currency movements. Bearer
shares and bonds were allowed. There were "loose regulations".

Handing control over offshore registrations to Mr Ashcroft's bank had
led to "sidelining of the government of Belize's regulatory and
oversight responsibilities" and the embassy was continuing to receive
complaints about the fraudulent Banner Trust which had "left 10,000
depositors, mostly Americans, unable to access their funds".

Less Free Enterprise

The July 1996 cable, marked sensitive and headed "Ashcroft, BHI,
Offshore Services and money-laundering in Belize" called for "more
regulation and supervision and rather less free enterprise".

Although the "Wild West" offshore system was cleaned up to an extent
in 1996, after pressure from Britain and America, the US continues to
be upset by the situation Mr Ashcroft has brought about. In 1999, the
state department in Washington reported: "Money-laundering remains a
significant potential threat in Belize." Mr Ashcroft's secret IBC
company legislation still presented "viable loopholes for money
laundering". No one could discover the beneficial owners of offshore
trusts - "another serious weakness". The number of IBCs offering
secret facilities had risen in 10 years from zero to 16,000, each
having to do little more than pay US$100 a year for the privilege.

In 1999, a DEA foreign situation report said there was a potentially
dangerous threat of movement of currency through Belize and
"increasing movement on the black market of large amounts of US
currency". The offshore system was "originally created to provide tax
shelters for companies owned by Ashcroft" who also controlled Belize
Bank. "Intelligence ... indicates cash deposits made by the bank ...
increased dramatically." (Though it was not suggested the bank was
aware of any money laundering.)

This March the state department publicly registered its concern about
Belize publishing a report saying the offshore sector made it
"vulnerable to money laundering". Its report said not a single money
laundering case had been prosecuted by the Belize government, despite
passing their anti-laundering law under US pressure. The offshore
trusts were prevalent "because they do not have to be registered with
any regulatory body".

Yesterday, Alan Kilkenny, Mr Ashcroft's PR man, to whom the Guardian
put these points, said: "I'd ask you to demonstrate that money
laundering is taking place on a wide scale. Money laundering is
taking place elsewhere on a far wider scale. Why should Belize be
singled out?" He questioned whether the Banner Trust fraud was truly
a case of money laundering. Of the Ricke case, he said the $25,000
deposited in the Belize Bank was "peanuts". More money had gone
through other banks. Asked about the use of IBCs to launder the Ricke
money, Mr Kilkenney said: "All this is de minimis"

Last week, US government sources specialising in money laundering
issues, said: "The government of Belize knows very little about what
is going on... the US government has been putting pressure on the
Belize government for years to tighten up the regulation of the IBCs.
No one knew, or could know, how much money laundering was taking
place through the Belize IBCs because it is so furtive."

Experts believed 90% of money laundering in the world was probably
done through offshore havens. Given this, the sources said, "it is
highly unlikely that all the IBCs are clean".

These gloomy assessments, then, remain the Tory party treasurer's
Belize testament.