BAD BANKING NEWS FOR DESPOTS AND DRUG TRAFFICKERS

NEWYORK---On Oct. 20 a posse of Swiss banking officials froze $114.4
million in bank accounts linked to Raul Salinas, brother of Mexico's
former President Carlos Salinas. After a three-year investigation,
Swiss officials allege tha. the former first brother essentially
controlled the vast Mexican cocaine-smuggling industry during his
brother's six-year term of office.

Facing relentless pressure from governments around the world and
aroused public opinion, Swiss banks and offshore banks everywhere are
gradually abandoning the concept of secret banking. This was
inevitable once the Holocaust banking scandals broke.

The only real moral justification for secret banking is that it
protects innocent victims, like the German Jews, from tyrannical and
confiscatory governments, like the Nazis. But when Swiss banks used
every trick in the book to avoid repaying Holocaust survivors and
their heirs after the war, while fighting hard to protect the assets
of Nazis, drug lords and various unsavory Third World dictators, a
worldwide wave of moral revulsion forced the banks to rethink their
approach.

The Holocaust scandal eroded public trust in bank secrecy laws,
accelenting a rocess already under way. To understand the erosion of
Swiss banking secrecy, we have to go back to the end of Philippine
President Ferdinand Marcos's regime in 1986.

The "people power" government of Corazon Aquino, who replaced Mr.
Marcos, did something that shocked the comfortable world of
international banking: It sued the Marcos family to get back assets
that the dictator had allegedly looted, and demanded that Swiss banks
freeze the Marcos accounts. The Filipinos ultimately arranged for the
return of approximately $400 million to the Philippine treasury.

Subsequent to the Marcos case, SwitzerLand passed a law limiting bank
secrecy and making it easier for foreign countries to pursue.claims
against fraudulent asset holders. The Swiss also outlawed the practice
of money laundering. After a recent set of reforms, Swiss banks can no
longer take "no questions asked" deposits of briefcases filled with
$100 bills.

That dictators don't trust the banks is clearer all the time. When
Mobutu Sese Seko left Zaire last year, instead of the tens of billions
that investigators expected to find in Switzerland, the Wall Street
Journal reported that they could trace only a measly $3.4 million.

That does not mean that money laundering has disap-. peared. No doubt
Mr. Mobutu took steps to safeguard his wealth from prying eyes. And
Russian gangsters seem to have done a rather good job getting money
out of the country.

Still, the new sense of discipline and order in international banking
has had a chilling effect. It is now clear that the Swiss banks, and
indeed all offshore havens where nervous depositors could hide money
from tyrants or national income tax authorities, must adjust to a new
public mood. The world's people do not like bankers who act as allies
Df tyrants and drug lords, and governments do not like seeing their
citizens evade taxes with the connivance of unscrupulous bankers.

All this flies in the face of the conventional wisdom that financial
globalization is undermining the power of national governments. With
trillions of dollars hurtling through cyberspace every day, say many
pundits, national governments can no longer track assets and collect
taxes. The wealthy can hide their assets in the Cayman Islands or
Switzerland, and drug kingpins and other bad guys can operate with
impunity, and governments will be powerless.

Well, no. What the conventional wisdom misses is another trend: the
growing effectiveness of international cooperation to police the
global financial market. As governments wake up to the threat that
unregulated secret banking poses to their ability to police their
borders and tax their citizens they are pressuring countries like
Switzerland to atlopt more transparent banking laws.

The current international financial crisis will result in even tighter
policing of the international banking system.

The growth of global capital markets means that the health of Western
banlcing systems depends in part on the transparency and honesty of
bankers in the developing world. We can now look forward to intense
pressure from the IMF, Western governments and Western central banks
to ensure that countries around the world adopt more uniform bank
laws, with strict and regular inspections by auditors and banking
authorities.

The writer is the senior fellow for U.S. foreign policy at the Council
on Foreign Relations. He contributed this comment to the Los Angeles
Times.

Checked-by: Patrick Henry