FRENCH PARLIAMENT ACCUSES MONACO OF MONEY LAUNDERING

Principality Condemned As A 'Non-Cooperative Territory'

The French parliament's Information Mission on Financial Crime and Money
Laundering in Europe last week published an explosive report on Monaco. The
report, The Principality Of Monaco And Money Laundering: a territory that
turns a blind eye under French protection, will mark a milestone in
relations between the two states.

France's protection of Monaco must now surely be called into question.
It goes back to the Treaty of Péronne, signed in 1641 by Louis
XIII and Honoré II, and is based on a series of bilateral agreements.

The mission, whose proceedings were directed by two Socialist party
MPs, its president, Vincent Peillon, and his rapporteur, Arnaud
Montebourg, urges the French government to "seriously consider a
complete review of our agreements" with Monaco.

The report bluntly describes the principality as "an offshore centre
conducive to money laundering". It explains the strategy used by
Monaco to attract capital in huge amounts without being too fussy
about its origin. Prince Rainier's state "can in no sense be regarded
exclusively as a tax haven, since the principality gives those who use
it all the advantages of a banking, fiduciary and judicial haven".

The report does not hold against Monaco the fact that it has chosen,
as it is entitled to do, a tax system that is highly attractive to
private fortunes.

However, it does consider that "the inevitable influx of capital
resulting from the existence of a favourable tax system necessitates
in return the implementation of a rigorous banking system, the
existence of legislation that makes it possible to guard against the
anonymity of transactions, and a guarantee that [Monaco] will in
criminal cases allow effective international judicial and police
cooperation".

Monaco, a mini-enclave that is a member of the franc zone, does not
provide any such guarantee, says the report. After a detailed
examination of legislation and practices current in Monaco, it
describes its criminal and financial legislation as "full of holes,
and a sham".

Money laundering has, it is true, been regarded as a crime under
Monegasque law since 1993. "But this legislation should not be allowed
to obscure the practical inadequacies of the system, and in particular
the absence in Monaco of a centralised bank-account database," says
the report. In France, by contrast, the Banque de France's database
allows it to obtain details of all bank accounts held in the same name
within hours.

The report argues that Paris is directly responsible for Monaco's
laxity: "France, a member of the European Union that is deeply
committed to such international bodies as the Financial Action Task
Force (FATF) [a group of 26 nations set up in 1989 at the initiative
of the G7 countries] and the Stability Forum in the campaign against
money laundering and financial crime, cannot possibly continue to be
involved in the workings of Monaco's decision-making
structures."

Most senior posts in Monaco's civil service and government - the
minister of state (head of government), the government adviser for the
interior, and the heads of the fiscal and judicial departments - are
occupied by French officials, while Monaco-based credit institutions
are under the control of the Banque de France.

The report argues that Monaco has "deliberately placed itself on the
fringes of a community of states it wishes to join", by applying for
membership of the Council of Europe and of the euro zone. It feels
that "it would be difficult to consider any such membership unless at
the same time certain provisions of Monaco's internal legislation,
which make it conducive to money laundering, are reviewed".

The "reproaches" directed at Monaco are, the report argues, all the
more serious because it has acquired a dynamic money market in the
past few years. In 1990, although it had only about 30,000 inhabitants
(5,000 Monegasques, 12,000 French and 12,900 foreigners), its
financial establishments handled 340,000 accounts, of which 61% were
in the names of non-resident individuals and legal entities.

Monaco has since become a financial centre that operates chiefly for
the benefit of a wealthy international clientele. In 1998, 49 credit
institutions (17 of them branches of French-registered banks) were
established there.

"Overall", the report notes, "there are 10 times more current accounts
in Monaco than there are residents", and "65% of funds handled there
belong to the non-residents".

The sum of these shortcomings lead the report's authors to describe
Monaco as a "non-cooperative territory" in the international drive
against money laundering.

Coming at precisely the time when the FATF is about to draw up the
list of territories it regards as "non-cooperative" in the anti-money
laundering drive, the parliamentary mission's report asks an important
political question: are France and Britain prepared to lean on the
sovereign entities that are attached to them, namely Monaco and the
Channel Islands? The report strongly recommends that the French
government reform two areas of Franco-Monegasque cooperation in
particular. It feels that the secondment of 15 French magistrates to
the principality "is no longer vitally necessary", and that the annual
payment by France of 800m francs ($120m) of value added tax to Monaco
should be halted.

The report notes: "This curious and little-known effort on the part of
French taxpayers to the benefit of the principality" is "highly
questionable, especially since its aim is to allow some of the
wealthiest people in the world to live in Monaco without paying tax".