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U.S. Department of State

Great Seal Jonathan M. Winer
Deputy Assistant Secretary for International Narcotics
and Law Enforcement Affairs

Keynote Address to Seventeenth International Symposium on
Economic Crime
Jesus College, University of Cambridge, United Kingdom,
September 13, 1999

Blue Bar

The Coming Wave of Transparency Reform: A Tidal Shift

Over the past year, a series of international financial scandals have highlighted significant gaps in the global system which seeks to regulate and enforce global norms to protect the integrity of financial markets and services. Some of these scandals, such as the press allegations about billions of dollars being laundered from Russia through the Bank of New York, are still unfolding, and it may be some time before we can draw conclusions about what actually took place. Regardless, the information already public is accelerating already rapidly moving efforts by the United States, the G-7, and other key stakeholders in the global system to close those gaps. These efforts do not relate solely to the main regulated financial services industries and to jurisdictions perceived to be underregulated or uncooperative. They also take on the possibility of applying new standards relating to the responsibilities of lawyers, accountants, auditors, company formation agents, and notaries to the governments that license them and to their fellow citizens, in addition to those responsibilities they have to the private sector clients who have engaged them. The development of these and the other new standards is still in process and will require intensive consultations in the months to come between governmental institutions and those in the private sector most affected by such standards. But inside the government, the debate is not whether we will build broader protections against financial crime, but how far to go and whom we will hold responsible for undertaking the work.

When Long Term Capital Management collapsed last September, neither its lenders nor their regulators had any idea of the magnitude of the firm's speculative leverage in currency markets. The opacity of Long Term Capital's arrangements was due in part to the fact that it was deliberately licensed offshore, in the Grand Caymans, where U.S. regulators had no available window of transparency to see the losses occurring, until they put at risk a number of the U.S.'s most significant financial institutions, and the Federal Reserve intervened to ensure an arrangement to prevent massive default.

Accompanying the lack of transparency were excessive leverage in the form of notional control of some $1.25 trillion, or 1,000 times the capital held by the firm, insufficient prudential controls, and the lack of effective oversight by any one nation of hedge funds and other large users of over the counter investment derivatives that have global operations.

As the head of the U.S. Commodity Futures Trading Commission, Brooksley Born, acknowledged last October:

"This lack of basic information about the positions held by [hedge funds] about the nature and extent of their exposures potentially allows [them] to take positions that may threaten our regulated markets, or indeed, our economy, without the knowledge of any federal regulatory authority.1"
The problem, according to Federal Reserve chairman Alan Greenspan in testimony before the U.S. Congress, was one inherent in the new technologies that have accompanied financial globalization. "Most hedge funds," testified Chairman Greenspan, "are only a short step from cyberspace." Try to regulate them, he warned, and they flee to less regulated jurisdictions. Regulatory arbitrage is the term economists sometimes use. At best, according to Greenspan, countries like the U.S. can regulate global market entrepreneurs like Long Term Capital only by regulating the domestic sources of their funds.2

Just four days after Chairman Greenspan's testimony, the G-7 issued findings on needed changes in the International Financial Architecture that had been generated by the previous year's financial problems in Asia. The findings, based on work undertaken by experts of more than 20 countries, concluded that greater transparency was essential to protect the integrity of global financial markets. Such transparency was required not only by major international financial players in the private sector, but also by changes in the approaches of national authorities and by international financial institutions like the IMF. As the experts found, regulators and market participants both needed financial information that was timely, complete, and consistent, so that risks were disclosed. Firms with international activities needed to have effective systems of internal control and financial statements reviewed annually by independent auditors. And international cooperation needed to be improved, overcoming the fragmentation of supervision of the global financial system through enhanced information exchanges among regulators and law enforcement.3

In January 1999, IMF staff issued a report concluding that offshore banking had played a sometimes "catalytic" role in recent Asian and Latin American financial crises and that global offshore assets and liabilities had grown by over 6% annually during the mid-1990s to about $4.8 trillion U.S. dollars. The IMF staff working paper found that services provided by Offshore Centers, and the banks, lawyers, accountants, and company formation agents working with those Offshore Centers, had contributed to global financial crises by hiding risk and loss that professional home country supervisors and auditors were unable to penetrate. For example, the IMF study found that in Argentina, some $3-4 billion were lost or hidden offshore by April 1995; in Venezuela, billions in problem loans were moved offshore in 1994; in Korea, insider dealings offshore circumvented regulatory limits on bank lending from 1993 through 1996; in Thailand, poor lending decisions were "rolled over" offshore from 1993 through 1996; and in Malaysia, some $10 billions in losses were hidden offshore in 1997. In each case, as in the case of Long Term Capital Management, the IMF found that the offshore sector had created a problem of inadequate transparency and fragmented regulation, which "increases the potential for dubious activities and contributes to weakening good governance in banks and corporations."4

The following month, transparency issues again arose when just days before being fired for his own alleged corruption, Russia's chief prosecutor, Yuri Skuratov, charged that an off-shore subsidiary of Russia's Central Bank called FIMACO, which handled booking operations for the Central Bank through the Isle of Jersey, was used to hide money from the IMF and Russia's creditors.5 The booking operation meant that the Isle of Jersey was not in a position to verify whether the books of FIMACO accurately reflected financial transactions which actually took place elsewhere, nor did other regulators or institutions other than Russia's Central Bank have an accurate understanding of the entire picture. A subsequent review by PriceWaterhouseCoopers commissioned by the IMF demonstrated that Russia's Central Bank used FIMACO to park government liabilities offshore, artificially boosting its balance sheets by some $1.2 billion, with the result of misleading the IMF into believing Russia's currency reserves were stabilizing. The PriceWaterhouse review, while incomplete, also suggested that Russia's Central Bank had secretly speculated on its own bonds, generating $383 million in profits, priming the pump, and potentially misleading other buyers of the Russian bonds or "GKOs" as to their liquidity and value.6

The questions regarding the implications of the FIMACO scheme intensified later in the year, as IMF Vice President Stanley Fischer concluded that the Russian Central Bank had misled the IMF through FIMACO. Soon thereafter, New York Times reporters Raymond Bonner and Timothy L. O'Brien broke the story that over the past two years, the Bank of New York allegedly had been used to launder more than $4 billion in funds from Russia through a small, obscure trading company called Benex. According to press accounts, Benex had been operated by the husband of a senior Bank of New York employee since fired by the bank for "gross misconduct" in what the newspapers suggested may prove to be the largest money laundering case in history.7

During the same period, the new civilian government of Nigeria went to the United States, the United Kingdom, and the International Monetary Fund for help in recovering some $55 billion said to be stolen by the previous military regime, and hidden through offshore mechanisms, of which some 1% has been traced and recovered to date.8

What ties all of these issues together is one common theme: disappearing electronic money and the inability of governments, regulators, law enforcement agencies, and the most important and prestigious international organizations to trace it when something goes radically wrong.

Together, these scandals suggest that the protectors of the international financial system have not had the tools or the system in which to use those tools necessary for them to carry out their jobs in light of the magnitude of transborder financial transactions and the general rules regarding bank secrecy and financial confidentiality.

In the United States and many other countries, anti-money laundering provisions originally based on the principle of tracking laundered currency, were being asked to protect against new forms of money laundering, principally consisting of money being laundered -- and apparently even initially generated -- in electronic form.

Thus, in its magnitude and implications, the Benex case, like the case of Long Term Capital Management, has raised fundamental questions about the additional steps that will be needed to make it more likely that the world's financial supervisors and enforcers can effectively protect markets and nations against abuses of electronic money, easily the dominant form of money in the coming digitalized 21st century.

While much remains to be done, no one should believe that this field has remained, as it was in the past, underexplored and obscure. Over the past year, the problem of lack of transparency and oversight of international financial markets and institutions has been taken up not only by the IMF but in new initiatives of the G-7, the G-8, the 26 nation Financial Action Task Force, the in its work on harmful tax competition and on Principles for Corporate Governance, the United Nations in Vienna through its offshore initiative and its negotiations over a transnational organized crime convention, the Basel Committee for Banking Supervision, the European Commission with its 2nd Directive on Money Laundering, the 41 nations of the Council of Europe, the International Association of Insurance Supervisors, and the International Organization of Securities Commissions (IOSCO).9

While the details differ among the different fora, there are broad areas of consensus rapidly being reached. They include both diagnoses of the problem and recommendations as to solutions. The global systemic problems most commonly identified include:

Second, beyond the systemic problems of an inadequate global system, there is an additional sectoral problem: the absence of international standards governing the obligations of accountants, attorneys, notaries, and other licensed professionals to discourage them from becoming, wittingly or unwittingly, facilitators of serious transnational financial crime.

There can be no doubt that under the current rules, accountants, attorneys, notaries, company and trust formation agents, and other licensed professionals can facilitate serious international economic crime through providing advice and services to their clients. One of the most significant developments of the past months is the growing recognition of this problem by key nations and institutions accompanied by intensifying efforts to do something about it by imposing the same kind of obligations on licensed professionals that they have already imposed on financial institutions.

Finally, we come back to the ongoing problem posed by what the Financial Action Task Force is terming "noncooperative jurisdictions." These jurisdictions have tended to include microstates, with small populations, who in effect, have chosen to license their sovereignty to those looking for loopholes in financial regulations. They have in common no or inadequate regulations and supervision of financial institutions, inadequate licensing and creation rules for financial institutions, and inadequate customer identification requirements for financial institutions. They permit bearer shares or anonymous accounts in fictitious names, ineffective obligations for financial institution recordkeeping and reporting, grossly ineffective or no requirements on reporting of suspicious transactions, and legal and material obstacles to access by administrative and judicial authorities of other countries seeking information with respect to the identity of the beneficial owners of accounts.

Action is currently underway to address each of these three areas: global supervision and enforcement, the problem of facilitation by government licensed professionals such as attorneys and accountants, and the problem of non-cooperative jurisdictions.

Countering Fragmented Supervision

To counter fragmented supervision within countries by sector, nations are beginning to consider further integrating of regulatory agencies into super-regulators, of which the British Financial Services Authority is to date the first and best potential example, although implementation of its broad jurisdiction remains incomplete.

In the offshore area, the U.K. Government has likewise pioneered a comprehensive approach in the carefully written and cogent analysis undertaken by Andrew Edwards last October on Financial Regulation in the Crown Dependencies. Full implementation of the Edwards report recommendations would go a great distance to further protecting the Crown Dependencies from abuses or controversy of the kind that has most recently surfaced in connection with FIMACO's use of Jersey in misleading the IMF.10

In the U.S., differential supervision between state and federal bank regulators, as well as between banks and non-bank financial services businesses, continues to represent a potential vulnerability for exploitation by financial criminals. Differential supervision at the domestic level creates the potential for what economists refer to as "regulatory arbitrage" in which those seeking out increased return opt for increased risk by structuring their transactions to place themselves into the lesser-regulated sector. This strategy may work well until the risks come home to roost. It is certainly undesirable.

The problems created by fragmented supervision among countries became highly visible in the wake of the BCCI scandal, where neither the British, Luxembourg, nor Caymans regulators considered BCCI to be their responsibility.11 The gaps evident after BCCI's collapse produced a series of actions in the U.S., with the passage of the Foreign Bank Supervision Enhancement Act, in the European Union with the passage of the first European Commission Money Laundering Directive, and with the issuance by the Basel Committee in July 1992 of new standards. Among the most important of these recommendations is the principle that all international banks should be supervised by a home country authority that capably performs consolidated supervision including effective monitoring of all of the activities of the banks it licenses worldwide.12 It has been on the basis of these Basel Recommendations, as applied to the U.S., that the Federal Reserve and U.S. regulators have continued to refuse licensed Russian banks to do business in the United States due to the deficiencies in the ability of Russian banking regulators to conduct effective consolidated supervision. While much remains obscure about the Benex case, it is already prompting in the United States a new recognition of the degree to which regulators must be ready to review the operations of U.S. financial institutions wherever they may be located, including the law enforcement exposure they may face in handling correspondent banking activities of less well-regulated jurisdictions. The U.S., like other countries, could take further actions to impose restrictive measures, such as imposing special reporting requirements for U.S. institutions on transactions involving the institutions of underregulated jurisdictions. Such actions could be modeled on the bank advisory to all U.S. financial institutions this past March advising them to exercise special diligence in dealing with matters pertaining to Antigua and Barbuda, home to a regulatory system deemed by the U.S. Treasury to be inadequate.

Countering Secrecy Laws

Efforts to bring about change to a global system widely perceived to impede the sharing of information among jurisdictions and between regulators and law enforcement authorities that is essential for them to meet their responsibilities are many and cascading.

Over the past 2 years, the G-7 Finance Ministers undertook ground-breaking work in articulating 10 Key Principles on Information Sharing and Disclosure for gateways among regulators and law enforcement agencies on issues pertaining to cross-border transactions.13

The European Commission has sued one of its member states, Austria, for its failure to meet the standards of the EC's First Money Laundering Directive in its handling of "sparbuch" anonymous accounts, forcing change not only in Austria, but in neighboring companies that are potential EU accessor states.

The U.S., European Union, and OSCE countries, such as Switzerland, cooperated in moving beyond secrecy laws to enforce with some effectiveness sanctions against money-movements by Serbia and the government of Slobodan Milosevic.

This summer, the Basel Committee on Banking Supervision came out with new draft recommendations for a new capital adequacy framework, dryly noting that "the world financial system has witnessed considerable economic turbulence over the last two years." The framework would promote safety and soundness in the financial system in part by constituting a more comprehensive approach to addressing risks through greater transparency and disclosure, "that reflects more accurately the risks to which banks are exposed."14

Most remarkable is the concept, buried in Paragraph 23 of the draft Accord, that would require banks to set aside greater reserves for credit risk on lending to institutions based in countries that have not taken sufficient steps to provide for transparency and integrity. The concept would go upon the current ratings systems for government bonds to in essence, reward good jurisdictions and punish bad ones by making it less costly to lend to institutions in "good jurisdictions" than in "bad ones." While the Basel Committee has not made a decision regarding this concept, the U.S. is considering it very seriously. As then-U.S. Secretary of the Treasury Robert E. Rubin stated in a speech this past April 21:

"As we strengthen risk management in the major financial centers, we also need to do more to make sure that these efforts are not undercut by lax practices in offshore financial centers. A variety of incentives could be used to press offshore centers to improve their standards, including a higher risk weighting on bank lending to counterparties operating out of an offshore jurisdiction that does not adhere to the regulatory standards of major market centers or provide adequate supervision."15
This concept, when applied to the problem of inadequate transparency and integrity of both the regulators and the regulated, has the potential dramatically to reduce the current systemic risks to the global financial system posed today by the fact that money has had no barriers. Today, profits can readily be booked by institutions in well-regulated jurisdictions, masked by obscurities among the less well regulated jurisdictions, in transactions and practices that ultimately proved to be risky and unsound. Under this new system, risk weighting would be given to the regulatory and enforcement regimes of sovereign states. In the same way that corporate rating services rate the quality of government debt, regulatory and law enforcement organizations would rate the quality of government regulation and law enforcement in assessing risk. Organizations like the G-7, the Bureau of International Settlements, and the Financial Action Task Force, could articulate risks, and then national regulators would be responsible for weighting that risk in accord with sound supervision over their banks. The result would be higher borrowing costs for anyone doing business in an underregulated, non-cooperative, or non-transparent jursidiction. The concept is an evolution from existing Basel Standards. Its impact, however, on international finance and banking, could be revolutionary, by making it unprofitable for hedge funds or others to incorporate in jursidictions that due to their regulatory and enforcement regimes are vulnerable to unrecognized financial risk.

In this regard, it will be important to monitor the work of the Financial Stability Forum of the G-7. The Forum is currently considering in its Offshore Working Group a serious of recommendations which have yet to reach their final form, but which will clearly break new ground and create new standards for transparency, recordkeeping and the disclosure of information by private sector entities to governments. In addition to new standards, the Forum may well recommend establishing a global system for monitoring compliance with existing and emerging new norms for the sharing of information among regulators and law enforcement. The Forum is due to make its reports to the G-7 over the next few months for possible agreement by Finance Ministers at next summer's summit in Okinawa, Japan.

Insuring the Integrity of Electronic Money With New "Know Your Customer" Rules

Money can be created through sustainable and legitimate means. It can also be created by credit manipulation, fraud, theft, collusion between governments and the financial industries they regulate, even by illusions. Markets are not always immediately able to tell the difference between licit and illicit money. Yet illicit money remains imbedded with risks, although these risks may be hidden beneath the veneer of money that looks clean.

With electronic money, once money is "created" it is all technically equal, regardless of its provenance. The Clearinghouse Interbank Payments System (CHIPs) and SWIFT systems do not distinguish between clean and illicit money, nor should they. But somewhere in the chain there need to be mechanisms to enable the market to trace money backwards to its creation in order that real risks, including the risk that the money itself is fraudulent in origin, are conveyed accurately along with the digits.

The decision by the United States to add suspicious reporting requirements to currency reporting requirements in 1994 was prompted in part by the recognition that more and more money was being layered through the United States by electronic means, and that cash was not the sole mechanism by which the proceeds of illicit activity could be introduced into U.S. financial systems. In this area, the U.S. was a follower, rather than a leader, as such countries as Australia had already recognized this by putting in systems requiring both currency and suspicious activity reporting, and under certain circumstances, unusual transactions. The transparency initiatives of the Basle Committee, the Financial Stability Forum of the G-7, and the Offshore Ad Hoc Group on Noncooperative Jurisdictions of the Financial Action Task Force will all address in part the emerging problem of insuring the integrity of electronic money. But more will be required by self-regulation on the part of financial services institutions themselves, as well as a deepened understanding of the meaning of "Know Your Customer."

Last spring, U.S. bank supervisory agencies withdrew proposed "Know Your Customer" regulations that would have standardized current U.S. anti-money laundering procedures, in the face of a campaign mounted on the Internet in which some 250,000 persons opposed the regulations as a massive invasion of their financial privacy. Ironically, the withdrawal of the regulations in no way eliminated the obligation of financial institutions to know their customers as a consequence of legal obligations they have arising through legislation and judicial determinations which the regulations merely would have codified. More importantly, the rules would not have given the U.S. Government access to data on the bank accounts of millions of Americans; rather, they would have made more systematic something that banks should already be doing -- knowing their customers in order to reduce their losses from potential bank fraud and other risks.16

The creation of money through illicit means is likely to intensify as part of the shake-up in European banking undertaken in connection with the creation of the Euro in what is being called Euroland, during the period in which banking regulators and enforcement agencies transition to new systems capable of protecting against Euro fraud, Euro counterfeiting, Euro money laundering, and Euro electronic financial crime.

For both the U.S. and for the countries using the new Euro, the best possible protection against being victimized by electronic financial crime of any kind is to know the true identity and true business of any party to whom one is exposed in a transaction, from one's customer to one's correspondent bank. This principle will be true not only for banks, but for all other financial intermediaries engaged in transnational or significant electronic financial activity. In the age of the Internet, no other approach will be workable. If banks are regulated, and their competitors are not similarly regulated, their competitors will engage in unregulated bank-like activity. We are already seeing the first stages of this with the problem of Internet casino gambling, where gambling institutions provide credit card, debit card, and wire transfer services for their customers. To be effective, the "know your customer" requirements of the original Basel Committee recommendations of a decade ago will need to be updated, broadened to cover those who offer banking-like services, and targeted through partnership with the regulated industries to insure that "Know Your Customer" rules are effectively tailored to counter risk and not unduly burdensome. Countries that lag behind in undertaking this approach, either through self-regulation, government regulation, or a mixture of the two, will find themselves and their financial institutions home to the riskiest transactions, and over time, their economies will pay the price.

Broadening International Standards to Cover Unregulated Service Providers in Cross-Border Finance

Extending "know your customer" beyond banks to all those who provide banking-like services remind us of the fact that today banks, even offshore ones, face a considerable body of standards applying to their operations, beginning with the lengthy 40 recommendations of the Financial Action Task Force. By contrast, there are no international standards governing the incorporation and licensing exempt companies, shell companies, international business companies (IBCs), offshore trusts, offshore insurance and reinsurance companies, or of offshore fund vehicles, including but not limited to hedge funds.

Although an increasing number of jurisdictions that have tough anti-money laundering laws in place applied to the banking industry, many nevertheless provide for anonymity and multi-layered structures in company formation. For example, in the Channel Islands, Jersey and Guernsey permit bearer shares for companies registered elsewhere, such as in Dependent Territories, but not for companies registered in the Channels themselves. The Crown Dependencies also permit offshore trusts that have the potential to conceal assets behind an essentially impenetrable shield.17 The result may be the inability for anyone investigating cases of serious financial crimes to establish a suitable paper trail sufficient to penetrate who the beneficial owner of a company is, and the facilitation of criminals to hide their money from legitimate private creditors and legitimate government inquiries alike.

The opportunity to extend standard making into these areas is obvious. A Code of Conduct already exists in the British Virgin Islands for registered agents, providing for annual audits, training, and various rules to insure proper paper trails in all cases. In making recommendations to the U.K. regarding the Channel Islands last fall, Andrew Edwards proposed a similar Code of Conduct for trust service providers, and a sketch of overarching legislation to register and regulate trust and company service providers.18 This valuable work could provide an excellent basis for a global standard in this area, as the FATF considers other measures for counter money laundering measures in the areas of commercial law and customer identification.

Enhancing the Responsibilities of Lawyers, Accountants, and Other Professionals

Financial criminals depend upon market professionals to assist them in carrying out their criminal activities. While the market professionals may often keep arms-length from knowledge about the illicit sources of the funds, it is neither practical nor fair to ask banks and bank regulators to protect themselves and the rest of us through due diligence if a body of professionals is busily working to create mechanisms to make due diligence impossible. The ability of intelligent lawyers, accountants, and company formation agents to make use of bank secrecy regimes, various forms of offshore corporate formations such as asset protection and mini-trusts, and other special purpose vehicles to facilitate serious economic crime well outpaces the abilities of law enforcement agencies to penetrate their craft.

Lawyers, accountants, auditors, company formation agents, and notaries can be prosecuted in many countries for knowing facilitation of money laundering, although such cases are sometimes difficult to prove. But there is as a general rule no system in place to insure that they too must report suspicious transactions.

The time has come for the consideration of rules under which all the licensed professions whose services can be abused by financial criminals come under the same obligations as banks. We need to find mechanisms to facilitate suspicious transaction reporting by company formation agents, accountants, auditors, notaries and lawyers, and consider making the intentional failure to file such reports a punishable offense. These standards need to create clear guidelines that distinguish between zealous representation of a client and facilitation of criminal activity. To accomplish this in a means that is fair to professionals and does not put them in a place in which their obligations to client and to country clearly conflict, we will need to convene groups representing governments and professional groups jointly to develop clear standards and procedures to govern conduct in this area. In a globalized financial services environment, it is time for us to move beyond the wink and a nod that too often has come to pass among those in the learned professions for the due diligence our citizens deserve.

Responding to Lack of Cooperation Between Offshore and Onshore Regulators and Supervisors

This is the core issue under consideration by the Ad Hoc Group on Non-Cooperative Countries or Territories of the Financial Action Task Force. Like the G-7's Financial Stability Forum, this is a work in progress. The FATF is first identifying bad practices which impair the effectiveness of money laundering prevention and detection systems, then developing criteria for defining the ones deemed to be non-cooperative, and finally agreeing to what actions should be taken internationally to encourage compliance with identified non-cooperative jurisdictions. A number of approaches are being discussed at the FATF, the Financial Stability Forum Working Group on Offshore Centers, the UN's Offshore Group, and other fora. Potentially, these include compiling a public list of non-complying jurisdictions, an approach sometimes designated "name and shame," which has so far been used by the FATF against a single jurisdiction, the Seychelles. Alternatively, the FATF, IMF, BIS, or another body could compile a white list for jurisdictions rather than a black list, providing for preferential regulatory treatment for entities licensed in those jurisdictions. Membership in international groups like the International Organization of Securities Commissions (IOSCO), the International Association of Insurance Supervisors (IAIS), the Offshore Group of Bank Supervisors (OGBS), or the FATF, could be explicitly linked to assessments requiring compliance with their standards.

Conclusion

As new standards and means for assessing compliance are being discussed, key players in the international financial regulatory and enforcement community are also discussing the possibility of even more stringent sanctions. These include determining whether it may be possible and useful to create financial cordon sanitaires that would prohibit financial transactions with non-cooperative jurisdictions partially or entirely, until they come into compliance with international norms to protect against financial crime. Such an approach might have been unthinkable in a period when the principal goal of Western economists was to insure the free flow of capital throughout the world's economies. By contrast, the risks posed by illicit flows have indeed engendered a counter-current, one which may yet become something of a new tidal wave.

_______________________

1 The Lessons of Long-Term Capital Management L.P. remarks of Brooksley Born, chairperson Commodity Futures Trading Commission, Chicago Kent-IIT Commodities Law Institute, Chicago, Illinois, October 15, 1998.

2 Testimony of Federal Reserve Chairman Alan Greenspan before the Committee on Banking and Financial Services, U.S. House of Representatives, October 1, 1998.

3 Summary of Reports on the International Financial Architecture, The Working Group on Transparency and Accountability, the Working Group on Strengthening Financial Systems, and the Working Group on International Financial Crises of the Group of Seven, released October 5, 1998.

4 Lucia Errico and Alberto Musalem, Offshore Banking: An Analysis of Macro- and Micro Prudential Issues, IMF Working Paper (WP/99/5), January 1999.

5 See e.g. "Central Bank Hid Investments of Russian Funds, Audit: Data on Profits Missing, David Hoffman, Washington Post, March 8, 1999, p. A-1.

6 PriceWaterhouseCoopers, Report to V.V. Gerashenko, Chairman, Central Bank of Russia, re: FIMACO, August 4, 1999.

7 "Activity at Bank Raises Suspicion of Russian Mob Tie," Raymond Bonner with Timothy L. O'Brien, New York Times, August 19, 1999.

8 "Obasanjo To Recover Stolen Wealth," The Post Express, Lagos, April 1, 1999; "Recovery of Stolen Funds," Lagos Guardian, July 4, 1999.

9 See e.g. Statement of G-7, June 18, 1999; "Strengthening the International Financial Architecture," Report of the G-7 Finance Ministers," June 18-20, 1999; "Financial Havens, Banking Secrecy and Money-Laundering, UN ODCCP, New York, May 1998; and numerous recent analytic documents of the Basel Committee available on the website of the Bureau of International Settlements (BIS).

10 Andrew Edwards, Review of Financial Regulations in the Crown Dependencies, Presented to Parliament by the Secretary of State for the Home Department, November 1998.

11 For an extended discussion of this issue see Chapter 12 in The BCCI Affair: A Report to the Committee on Foreign Relations United States Senate by Senator John Kerry and Senator Hank Brown December 1992 102d Congress 2d Session Senate Print 102-140, pp. 329-366, available on the Internet at www.fas.com

12 Supervision of Cross Border Banking, Report by a Working Group Comprised of Members of the Basle Committee and the Offshore Group of Banking Supervisors, Basle, October 1996.

13 Ten Key Principles on Information Sharing and Disclosure and Ten Key Principles for the Improvement of International Co-operation Regarding Financial Crime and Regulatory Abuse, Finance Ministers of the G-7, June 1999.

14 A New Capital Adequacy Framework, Basel Committee on Banking Supervision, at www.bis.org/publ/bcbs50.htm, July 1999.

15 Speech on Reform of International Financial Architecture by U.S. Secretary of the Treasury Robert E. Rubin, School of Advanced International Studies, April 21, 1999.

16 A useful presentation of the U.S. banking industry's position on this issue is found in the American Bankers Association letter to U.S. regulators of March 8, 1999, re: Proposed "Know Your Customer" Regulation.

17 Edwards Report, ibid., 10/14, "bearer shares;" 12.6, "Risks and abuses."

18 Ibid, Box 12.1, Box 12.2, and Box 13.1

[end of document]

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