When the Culprit Becomes the Advisor

by Lucy Komisar

"Development cannot happen without resources, especially financial resources," Annan said when he made the appointment December 15. He said official development assistance has been in steady decline for well over a decade and that poor countries are so far in debt that many of them are paying more in interest and loan payments to industrialized countries than they are receiving in aid from those countries. Developing countries owe over $2 trillion to rich nations and international financial institutions such as the World Bank and the International Monetary Fund. Of that, the lowest-income countries in the world owe around $250 billion. Annan said, "It is vital that we turn the situation around," he said. "But how?"

Bryer might tell Rubin that one answer would be to change Citibank's practice of helping dictators and corrupt officials in developing countries to launder stolen public money and bribes and of making it easy for rich people and corporations doing business in those countries to avoid paying taxes. Oxfam said in a report this year that the money sucked out of developing countries to tax havens is $50 billion a year, nearly the size of the $57 billion annual global aid budget, six times the estimated annual costs of achieving universal primary education, and almost three times the cost of universal primary health coverage.

Citibank proclaims that its "private bankers act as financial architects, designing and coordinating insightful solutions for individual client needs, with an emphasis on personalized, confidential service." That is so colorless. It might better have boasted, "We set up shell companies and secret trusts and bank accounts and dispatch anonymous wire transfers so you can launder drug money, hide stolen assets, embezzle, defraud, cheat on your taxes, avoid court judgments, pay and receive bribes, loot your country.."

It might have gotten testimonials from past prominent clients, including the sons of late Nigerian dictator Sani Abacha; Asif Ali Zardari, the jailed husband of Benazir Bhutto, former Prime Minister of Pakistan; El Hadj Omar Bongo, the corrupt president of Gabon; and Raul Salinas, jailed brother of the ex-president of Mexico. They all had Citibank private bank accounts, minimum balance required: $5 million. Citibank Private Bank has 40,000 customers, with 350 of them officials or their families.

At a recent meeting between top officials of African and European states, when the Europeans accused the Africans of corruption, the Africans responded, "You're the ones that take the funds; give us our money back!" The European ministers agreed in the Cairo agreement to support return of the stolen money.

Oxfam figures that figures that $35 billion of the money lost to developing countries is tax money evaded by foreign corporations, often through "transfer pricing" that uses "creative accounting" to move profits to shell companies in tax havens. A company in country "A" sets up a subsidiary in tax haven such the Isle of Man or the Cayman Islands to act as a "marketing agent." It sells the product to the subsidiary at a low price, then the shell company sells it to the real buyer at the market price. Profits are minimal for tax purposes in country "A," and no taxes are required by the tax haven.

When Rubin was U.S. Treasury Secretary in the late 90's, he didn't show much interest in the offshore issue. At the G-7 finance ministers meeting in April 1999, he said publicly, "We are very worried about offshore havens," but privately he turned down a proposal by French Finance Minister Dominique Strauss-Kahn that offshore centers that fail to properly regulate accounts or cooperate with law enforcement be cut off by the world's financial powers. When I cited that to Rubin after a speech he gave in New York in October, he denied Strauss-Kahn's assertion but would not discuss his version.

Jonathan Winer, who during Rubin's tenure was Deputy Assistant Secretary of State for International Law Enforcement, told me, "Rubin's attitude was this was law enforcement, this was cops stuff. It wasn't where he lived. Treasury was looking to free up economies, not regulate them. There was a strong belief you needed to reduce regulation that could impair the free flow of capital."

Jack Blum, counsel to the U.S. Senate committee that investigated BCCI and co-author of a 1998 report for the UN, "Financial Havens, Banking Secrecy and Money Laundering," said U.S. policy was affected by the fact "the hot money from rest of world is fueling one of greatest booms in the stock market, a lot coming through private banking networks."

The panel, known as the High-level Panel on Financing for Development, will present recommendations for an early 2002 meeting involving the IMF, the World Trade Organization and the World Bank. The Fund and the Bank have issued a spate of reports urging attention to Third World corruption, which they say is blocking development. The reports don't mention the Western banks that work through the offshore system to launder looted money.