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  June 29, 2000  

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Pressure on Pacific to stop money-laundering
By Kalinga Seneviratne

SYDNEY - Pressure is mounting on tiny South Pacific island nations, in bad need of foreign exchange revenue, to cooperate with Western attempts to stamp out money-laundering by criminal syndicates, especially from Russia.

Already, the Paris-based International Financial Action Network this month named four Pacific Island nations as being among 15 countries around the world that are centers of concern in international money-laundering rackets. They are the Cook Islands, Nauru, Niue and the Marshall Islands. France has threatened to impose sanctions against these countries, unless they begin to cooperate with the international fight against money-laundering.

Earlier this month, Australian Justice Minister Amanda Vanstone told a meeting of the Asia-Pacific Group on Money-Laundering that evidence existed of Russian mafia syndicates laundering billions of dollars through offshore banking systems in the Pacific. She warned the small Pacific nations that their financial systems and stability could be threatened by these crime syndicates, unless they are willing to take action to prevent laundered money infiltrating their economies. ''Money launderers look to jurisdictions where regulations are the weakest, so they can exploit loopholes in identification and reporting requirements,'' said Vanstone. ''The international community cannot tolerate governments doing business with organized criminals who are attempting to launder their proceeds of crime.''

In an unprecedented action in December, a group of leading international bankers placed a ban on US-dollar denominated transactions involving three Pacific island nations - Nauru, Palau and Vanuatu. The bankers accused them of laundering money for the Russian mafia and the South American drug cartels.

Offshore financial center income is the major source of foreign exchange revenue for many tiny Pacific Island nations, which otherwise have very little or no resources to export. Those Pacific Island countries operating these financial centers have come under intense pressure from the United States, Australia, New Zealand and British governments in the last year.

Nauru, Palau, Vanuatu, Cook Islands, Niue and Marshall Islands have all come under pressure to scale down offshore banking operations, which are usually done through International Business Companies (IBCs). IBCs are companies formed under offshore financial center laws that require minimum information and almost no public disclosure of its ownership or shareholders. These companies can be used to open onshore bank accounts, and are commonly used to avoid tax in another country.

Major IBC jurisdiction centers are Hong Kong, with 474,000 companies, and the British Virgin Islands, with 360,000 companies. The tiny Pacific island of Niue, which has only 2,000 people has 6,000 registered IBCs. It makes about $500,000 a year from these registrations, which is a major foreign exchange earner for the country. Niue has come under the suspicion of western nations because its IBC operations are controlled by a Panamanian law firm, with a solitary Niuean employee based in the island.

An unnamed American government source told the Fiji-based Island Business magazine recently that since money-laundering centers in Europe and the Caribbean had been curbed, Russian mafia and South American drug cartels are now looking for other locations to do business. ''We are concerned that some offshore centers in the South Pacific are vulnerable to misuse,'' he said.

Nauru, a country of 10,000 people, has been singled out for criticism because it has licensed electronic banking operations that allow the international transfer of funds on an enormous scale. Last year, the deputy chairman of the Russian central bank, Victor Melnikov, claimed that $70 billion was transferred from Russian banks to accounts of banks chartered in Nauru, primarily to dodge taxes. Most of these transactions have been done via the Internet through the government's Nauru Agency Corporation.

The US State Department's International Narcotics Control Strategy Report (INCSR) said earlier this year that Nauru had 400 offshore finance centers registered to a single post box.

Nauru's new President Bernard Dowiyogo, after taking office in late April, said that his government will take immediate action to combat money-laundering by reforming and improving Nauru's offshore banking regime.

Recently, the Cook Islands hit back at the western agencies who are accusing it of aiding international criminal activity. Its offshore financial commissioner, Mathilda Uhrle, said that the INCSR report has accused her country of aiding Russian mafia activity using generalizations without any factual foundations. ''No evidence is provided to substantiate the alleged claims,'' said Uhrle. ''All trustee companies operating in the Cook Islands have refused over the past few years to accept business with Russian links.''

Vanuatu's financial services commissioner, Julian Ala, has also complained about generalized accusations about his country's alleged involvement in money-laundering. Vanuatu currently has 63 licensed offshore banks, and the international banking group's blacklisting of his country has damaged the operations of the Reserve Bank of Vanuatu in recent months. ''The problem is that they are blanket targeting Vanuatu and not specifying particular banks. If they were specific we have the resources to deal with the problem,'' he told Island Business recently.

The Russian mafia is believed to be operating in the region through American or Australian middlemen, which some observers in the region have pointed out indicates that the criminal activity originates from banks in the west and it should be plugged from there.

Speaking in New Zealand in March, Niue's Panamanian legal advisor Jurgen Mossack argued that western countries' concern was not money-laundering - but a desire to get into their coffers the tax revenue from monies flowing into offshore banking accounts such as those in Niue.

''It has been a cover for a long time. It is a cover to get offshore money onshore,'' he said, adding that US states like Florida, Nevada and California are also offering offshore banking similar to Niue's.

(Inter Press Service)

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