June 04, 2007

Europe becoming a haven for crooks

By M.D. Nalapat

Internationally, thanks to the network of financial institutions that accept money without getting an assurance that it was made legally, scams such as the current smuggling of oil out of Iraq multiply. Those within the region say that at least $ 5 billion in slush funds is getting generated by such illegal sales of oil from that tortured country, and the actual sums may be much more. However, as yet, the international media has ignored this trade.

Terrorists need to be fought on both the military as well as the monetary fronts. So long as funds continue to flow into their hands, terrorists will continue to survive assaults on them, recruiting new zealots and rebuilding infrastructure. As much as the Home Ministry, it is Finance Ministry that needs to work overtime to ensure that terrorist strikes get reduced and finally eliminated. The US has been conspicously successful in this regard, combing through money transfers worldwide to check for suspicious activity. As a result, several terrorist financiers have been arrested, and their beneficiaries identified. Unfortunately, in India, the Income-tax Department looks the other way when friends of the state governments in the north-east and Kashmir acquire huge properties. India needs to follow the example of the US in tracking down terrorist funding, including through narcotics and other mafias, who often partner with extremists to create a network of interlocking entities designed to create both mayhem and money.

Where the present government has been totally remiss is in ignoring the link between administrative corruption and terror. The fact that several officials helped the perpetrators of the 1993 Mumbai blasts to land RDX and pay off mercenaries shows that there is a clear link between corruption and (lack of) security. It is the cheats and the crooks working for the government who help terrorists, because of cupidity or blackmail. There is therefore a need to zero in on slush funds with the same intensity as is now being paid to moneys directly linked to terrorist operations. However, one problem is that a lot of these funds get sent to overseas destinations, especially in Europe. While organisations, such as Transparency International, perform a service by computing estimates of the degree of graft prevalent in countries across the world, what they fail to do is to apportion blame also to governments of the countries where such funds get parked. What they need to do is to trace the money trail to its tip, and it may come as a surprise to know that a large percentage of slush funds lands up in Europe, specifically in havens such as Lichtenstein, the Isle of Man, Switzerland, Guernsey and the Virgin Islands. The other destination of choice is the Middle East, followed by Macau and Hong Kong, where many banking entities ask as few questions about the origin of deposits.

Internationally, thanks to the network of financial institutions that accept money without getting an assurance that it was made legally, scams such as the current smuggling of oil out of Iraq multiply. Those within the region say that at least $ 5 billion in slush funds is getting generated by such illegal sales of oil from that tortured country, and the actual sums may be much more. However, as yet, the international media has ignored this trade. However, what needs to be understood is that such smuggling has a direct effect on the security situation in Iraq, for instead of going to the Iraqi people, the proceeds from smuggled oil go to a few shadowy entities, in the process, damaging the security environment and the future of that conflict-wracked country. Although few of such funds may get used for terrorist activities, yet the maladministration and graft that is the source of such wealth are themselves contributing factors towards the prevalence of terrorism in Iraq. In india as well, it is not an accident that Kashmir and the north-east—which are among the most corrupt administrations in the country—are particularly violence-prone. In other states, graft is an important contributory factor towards the control of Naxalites over more than a hundred districts in the country. While Manmohan Singh rides on his hobby horse of the nuclear deal and giving concessions to Pakistan, the country he is in charge of deteriorates every month, because of the spreading corruption that has inflitrated into its very core. The separation now being made between money got through and for acts of terror and that made through graft needs to be broken down. And one way of fighting graft would be for Finance Minister Chidambaram to ask European governments for information on Indian nationals who are parking their money in banks there. At the same time, he can bring forward a scheme that makes it possible for such funds to return to the country after payment of tax. Indian nationals are estimated to hold about $300 billion in foreign banks, and even 20 per cent of that would make a huge dent in unemployment, if invested in industry.

India should take the lead in calling for a world-wide system that would make transparent to concerned governments the identities of nationals who park funds abroad. Whether it is the Swiss or the Lichtensteinians, or the Guernsey and Virgin Islanders, all are characterised by high personal standards of ethics. Hence an explanation for why they have thus far not looked into the origins of the funds flowing into their banking networks may be that they believe that those making such deposits have the same moral standards as they themselves have. Switzerland and other banking havens need to be informed about the use of their banking system by crooks from India, and the need to help the authorities access such accounts. Such a step would be in conformity with the value system that is claimed to be followed in such countries, if Transparency International is correct. An international system designed to prevent such inflows needs to be created.

The effect of graft can be seen in stark detail in India, where public projects take much longer time to get completed than almost anywhere else on the globe. Roads get surfaced with amalgams designed to wash off during monsoon rains, thus ensuring another lucrative tender. Defence equipment for the Indian military usually costs much more than for other countries, although inconsequential “design improvements” get added on to justify the markup. Types of aircraft that are out of date in Europe or North America get purchased in bulk. Suspiciously, the price of petroleum products imported by India is often higher than the rates charged from developed countries, even as domestic exploitation of oil and gas reserves lags far behind both need and capacity. Along with India, the countries of the Middle East have a high “graft permium” on equipment imported from abroad, and any supplier who refuses to hand out the commissions asked for would lose the contract. Most of the cash made by corrupt local officials in South Asia and the Gulf find their way to European financial centres, an aspect that thus far Transparency International has said little about. In the case of China, crooked officials mostly invest their illegal pickings in real estate and other investments in locations such as the US, Canada, Singapore and Hong Kong, while those in India or the Gulf usually keep them as cash in banks. Were each bank worldwide to ask for a declaration of the nationality of each person actually making a deposit, and share this information with the concerned government, there would be a check on such transactions. Rather than remain anonymous behind legal cutouts, crooks in Asia and Africa need to reveal their identities, or risk forfeiture of the funds parked.

The EU has always been—correctly—pointing to the need for clean government. A good way of ensuring this would be to ensure that no location in Europe remains a haven for money got through graft or worse. Funds that come from or go directly to terror networks are only a small proportion of the total money that can potentially be put at the service of “al Qaeda” and other such entities. If the menace is to be choked off at the root, corruption needs to be identifued as a crime that renders the doer legally unfit to hold on to the money secured, if parked in any location in Europe, a continent that needs to set high standards that can serve as an example for the rest of the world. Needless to say, similar standards need to be enforced elsewhere as well. Dubai is making a credible start in this direction by offering to bring its banking industry in line with US standards. India, China and other emerging economic powerhouses need to follow, but clearly the most pressing need to unearth funds that have their origins in graft is in Europe, which today has become a haven where crooks and cheats from across the world can park the proceeds of crime and corruption.

That this is a problem in European countries as well is shown by the Litvinenko case, which involved the radioactive poisoning of a Russian in London. This murder indicated the extent to which Russian mafias have infiltrated into the UK. Many Russian crime syndicates prefer London as their international financial base, and bring with them the musclemen, prostitutes and other collateral manpower of their trade. Thus far, the Blair government has done little to examine the profusion of Russian cash into the UK, an act of negligence that could in time bring as much trouble as permitting “Londonistan” did. Several Islamist organisations operated freely in the UK, many—such as the Kashmir groups—getting support from MPs and others in their activities. Some prominent Labour politicians went to the extent of lending their presence to jihadist groups active in operations in Kashmir and elsewhere in India, without once getting rebuked for such patronage of terror groups. Both London as well as Framkfurt need to do much more to identify and isolate funds that come from crime syndicates in China, South Asia and Russia, if they are to roll back the criminal infrastructure that is being created as a result of the money flows. Several hundreds of billions of dollars of slush funds are now clogging up banking systems across Europe, and as a result, these countries are now part of the problem of the linked issues of graft and terrorism. Europe needs to be true to its principles and do its utmost to ensure that slush funds can no longer find a safe haven within any country in the region. The International Monetary Fund has, like the United Nations, outlived its utility. What is needed is an international entity that can locate and sterilize cash flows that originate in illegal activity worldwide, and for this to happen, Europe needs to take the initiative to clean up its banking system of funds got through graft.

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