U.S. DEPARTMENT OF STATE
INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT MARCH 1996:
FINANCIAL CRIMES AND MONEY LAUNDERING

United States Department of State

Bureau for International Narcotics and Law Enforcement Affairs

EXECUTIVE SUMMARY

THE YEAR IN REVIEW

Presidential Decision Directive announced in October through which US agencies intend to identify and, if necessary, impose sanctions on the most egregious offenders among governments and banks which analysis indicates are facilitating the movement of proceeds of a variety of serious crimes, including drug trafficking, arms smuggling, sanctions violations and other offenses;

agreements on standards and objectives reached through the communique issued at the conclusion of the Summit of the Americas Ministerial Conference on Money Laundering, which established an action plan for the 34 governments of this Hemisphere;

continued progress of the Financial Action Task Force, including the conclusion of the first round of mutual evaluations of each of its 26 members; consideration of proposals to update FATF's universally- accepted 40 recommendations to reflect new typologies and methodologies; the beginning of evaluations of members of the Caribbean FATF; the further enhancement of the Asian outreach program; the creation of a common forum for major international bankers and government policymakers; and the convening of an international conference of financial intelligence units;

continued effectiveness of US agencies in cooperation with foreign governments on major money laundering cases; and

several financial center governments, such as the Bahamas and Panama, adopted broad, new anti-money laundering policies and/or laws, while a number of governments were in the final stages of presenting/adopting new legislation.

On October 21, 1995, President Clinton signed Executive Order 12978 utilizing the sanctions authority of the International Emergency Economic Powers Act (IEEPA) for the first time against 80 designated individuals and businesses found to be significant foreign narcotics traffickers, including those who assist in laundering trafficker proceeds via financial transactions. The Order blocks the assets in the United States and US banks overseas of these traffickers, their front companies and individuals acting on their behalf and prohibits US persons from commercial and financial dealings with them. The Treasury Department published a list of target companies and individuals and notified US companies and banks to block their assets and prohibit trade with them.

Even as these impressive initiatives were undertaken, the problems confronting policymakers and enforcement agencies were becoming ever more complex and pervasive.

MONEY LAUNDERING: A CHANGING SCENARIO

Organized crime groups are increasingly a factor in major money laundering schemes -- and the multiple sources of their proceeds compounds the difficulty of linking the monetary transaction to a unique predicate offense like drug trafficking. Moreover, criminal organizations have distinct patterns of operation which vary from one part of the globe to the next. Russian "mafiya" groups have enlarged their presence in the Western Hemisphere, and are becoming as much a concern as the traditional Italian/Sicilian "mafia", Colombian cartels or the Asian triads and yakuza.

Meanwhile, an increasing number of drug traffickers do not directly manage the laundering or conversion of their proceeds, but rely predominantly on professional money brokers.

Such brokers are increasingly crafting effective schemes to evade normal monitoring, detection and reporting devices.

To understand money laundering as it is practiced today on a global basis, one has to appreciate money as a commodity. Professional money launderers differ little in this respect from corporate money managers. A corporate money manager enters the money markets of various countries where the corporation will need national currencies during the next year and buys/sells currencies in a constant effort to improve the manager's average position at the time of payment. Similarly money launderers use a bidding system to buy/sell drug proceeds, especially US dollars. Just as a sound investment portfolio will contain stocks, bonds and other monetary instruments, the money brokers vary their holdings.

How Money Is Laundered. Like institutional investors who put a percentage of their money into hedge funds, money brokers and the drug traffickers and other criminals who employ them collaborate to minimize risk. The Cali Cartel, for example, minimizes risk by selling a substantial portion of the drug proceeds it earns from the sale of cocaine in the United States. Mexican traffickers in heroin, cocaine and marijuana do the same, often selling to the same money brokers in behalf of Cali or for their own account. These brokers will convert proceeds for a fee, or, they will buy the proceeds at a discount. Given the high profit margins of the drug trade, discounts of 7-10 percent or even higher, depending upon risk, are common. At the end of the day, Cali and other trafficking groups may own or control 50% or less of the initial drug proceeds.

The following hypothetical example illustrates the options available. Assume that the Cali Cartel is moving $100 million over the rather porous border from the United States to Mexico and operating on a 75% profit margin (earnings minus costs). Just $25 million must reach Colombia to replenish the operating budget. Cali wants to net $60-65 million from the bulk of the cash, or $85-90 million in total. Brokers have a bid or discount range of 10-15%. Cali agents will attempt to sell $25 million on the gray market -- supported by Latin and even US businessmen who want to convert pesos or other currencies into dollars - - and go into the gray market to avoid exchange rates, or avoid taxes, or, when profit margins are narrow on US goods which can be sold in their countries, to realize higher profits. These currencies, especially pesos, can be readily returned to Colombia. The amounts over which Cali or Mexican traffickers retain actual control will be influenced by prevailing discount rates, investment opportunities, current risk dynamics, and gray market demand, more than it will by the presence or absence of laws. At the same time, the need for fluidity and convertibility, influenced by the strength/weakness of the Mexican peso and the status of US investor confidence, among other factors, will leverage the rate at which Mexican banks will do business with brokers.

Perhaps $25 million more will be "consigned" to allegedly licit importers who use various invoice schemes, at a discount, to legitimatize the return of dollars to their countries. The textile trade is a typical cover. For example, a South American clothing manufacturer working with Cali will obtain a permit to export $20 million of suits to New York. The manufacturer actually ships $6 million worth of suits to the Aruba Free Zone, where they are repackaged and sent back to Colombia, and sold at discount. Meanwhile, the manufacturer's agent picks up $20 million in drug proceeds in New York and returns it to Colombia, covered by a export license.

The bulk of the $100M will be deposited in Mexican banks, after which a number of schemes can be used. Commonly, the money will be wire- transferred to accounts in the United States. The Mexican banks will then issue checks drawn on its US accounts, payable to individuals or corporations. These checks can be batched for resale in Latin America, or deposited into foreign bank accounts. Enforcement officials believe that as much as $10 billion in Mexican bank drafts is laundered through such schemes each year in Panama alone. While some of the trade is in contraband goods, these checks, certificates of deposit, and other financial instruments have also been used to pay for legitimate shipments. Gold trade in the Aruba Free Zone amounts to more than $200 million a year. The Mexican banks will also issue their own dollar- denominated checks, up to a level which they think will not cause inquiries.

Such brokers offer as much as $500 million to a bank or another broker at a point or two below the official exchange rate. The offer is probably not for a single transaction, but reflects the amount of money this broker has at his disposal. However, transactions are increasing in size. One recent transfer reportedly involved $78 million which went through a US bank in a single transaction.

Why then don't US reports and economic indicators reflect this volume of money transfer? The answer is fairly simple: these kinds of transactions are designed to fall outside the scope of Treasury and other reporting. For example, US banking law does not require reports on bank to bank transfers, let alone transfers from branch to another of a bank.

Some of this flow shows up in physical movements of currency back to the US. Flows from Latin America, especially Panama, Paraguay and Mexico, to Federal Reserve Banks are in fact in excess of the levels which can be explained by traditional commerce. However, currency does not have to leave a placement site physically. Banks are at least one generation or more beyond the period in which physical money was moved to settle accounts. Dollar settlements are accomplished through reciprocal balances. For example, a Mexican bank wires $50 million to a bank in New York, which gives the Mexican bank instant credit on the latter's New York account because the Mexican bank has simultaneously given the New York bank credit for $50 million at the latter's Mexican facility. Rather than moving physical cash to New York, the Mexican outlet is more likely to transfer physical cash south, as individual checks wend their way through various payment schemes. However, some cash does move back to the US in bulk, carried by Mexican transfer agents who are not required to declare currency when crossing the US border north.

The US economy is one unintended beneficiary of the kinds of swaps and schemes carried out in Mexico. The gray market enables Latin businessmen to buy goods and services here, and pay for it dollars which originated in the US drug market.

In sum, the schemes are real, and in fact are becoming more complex and are being played out on a wider world stage.

Are the Laws Being Implemented? In the seven years since the 1988 UN Convention was adopted, and particularly since FATF issued its 40 money laundering recommendations in April 1990, dozens of governments have statutorily enacted various countermeasures, as indicated by the charts in this chapter.

The pace of implementation of these laws, and the scope of their application varies. A review of results reported by key financial centers relative to the generation of suspicious transaction reports indicates that several such centers have reporting ratios which are disproportionately small, given the volume of financial activity and diversity of enterprises in their systems. Such minimal results could be an accurate reflection of a low level of suspicious activity, but, such results could also indicate a law which is drawn too narrowly or a banking system which is not giving a full faith compliance.

In addition, it has been difficult to assess the degree to which newer electronic banking practices may render banks more or less vulnerable to money laundering. Few governments have control mechanisms adequate to identifying and tracing such transactions should they occur.

Apart from financial institutions in which officials are complicit in the money laundering transaction, financial institutions are rendered most vulnerable by the combination of correspondent banking relations and electronic transfers. In 1995 the twin problems of regulating wire transfers and tracing wire transfers in pursuit of an investigation were on the threshold of some containment because FATF had reached agreement with the dominant system (SWIFT) and its key members on including in each message critical information needed to identify transmitters and receivers and especially beneficial owners of transactions. Recordkeeping may have improved, however, over the past year there has not appeared to be any diminution of electronic transfers of illicit proceeds. Control efforts are being sorely challenged by the creation of new, independent wire transfer services, some which service small clusters of banks.

Correspondent Banking. Regulators, money laundering investigators, and international policymaking bodies like FATF are facing profound challenges from a banking world which not only knows no geographic horizons and is open 24 hours a day, but is increasingly inter- connected, as large multinational banks extend their reach not only through branch and subsidiary networks but through correspondent relationships that cross the globe.

The concern is not with the growth or dominance of the largest banks, or the extension of their networks, but, whether standards of prudential supervision are met at every juncture in this web of correspondent banking. The emergence of active financial service industries in every jurisdiction capable of becoming active players on the electronic highway of super-banking, places ever more emphasis on vetting transactions at the bank of origin. There is not the confidence today that the scope of current know-your-customer policies are sufficient to actually cover most financial transactions at origination.

The scope of international banking was made clear at the winter meeting in 1995 of the International Bank Security Association. The world's 12 major financial centers except Japan have one or more banks or financial institutions among IBSA's 52 voting members and six associate members, and these banks include many of the world's largest international banks.

An IBSA survey showed that 27 of these 58 banks have headquarters offices and or branches in 146 countries. A separate survey showed that 19 of the 58 members own percentages (and sometimes controlling interest) in 144 other banking institutions. The actual "reach" of these big banks, both in terms of branches and holdings, is far greater as only 27 of the 58 responded to the surveys on branches.

While FATF has conducted an extensive external relations program, which has engaged an estimated 65 governments outside its own 26-member roster, no single agency, not even the UNDCP, has accepted the responsibility for ensuring uniform standards of anti-money laundering enforcement, or bank regulation, among all nations and territories.

Offshore Banking. Concerns about the regulation of offshore banking did not lessen over the past year. The assurance of absolute secrecy by many jurisdictions which license such facilities makes it possible for such facilities to be manipulated to move and conceal or generate illicit proceeds. While the Offshore Group of Banking Supervisors continues to promote adherence to FATF countermeasures among its members, most offshore facilities have not been evaluated by FATF, OGBS or other organizations and far too many questions remain about the regulation of such facilities. FATF has completed evaluations by outside experts of its own members which have offshore facilities, such as Switzerland and Singapore.

The concern about regulating offshore facilities remains high with respect to most governments which issue such charters, but nowhere more so than the Caribbean. The Bank of International Settlements has estimated that $5 billion of the $12 billion which is transacted annually through offshore facilities involves Caribbean offshore banks.

Other Compliance Factors. Other priority concerns which carried over through 1995 included the counterfeiting of currencies and other monetary instruments, especially bonds; the boom in contraband smuggling; the buying of banks and other financial institutions by suspected criminal groups; the resort by criminals to the use of smaller, less-monitored banks; and the sophisticated use of such new phenomena as direct access and pass-through banking, and electronic cash systems. There is continuing concern, given that financial crimes and money laundering are occurring with varying degrees of regularity in more than 125 jurisdictions, that some governments still have not criminalized all forms of money laundering. Some have not given sufficient regulatory authority to central banks and other institutions; many do not have adequate data systems to monitor trends and methods used in their territories; and many have not made adequate provision for mutual legal assistance.

CYBERCURRENCY

Currency--paper notes and metal coins--has always been of particular importance in payments involving illicit activities. Currency attributes include ease of use, wide acceptability, and, most importantly from the standpoint of law enforcement, anonymity. The demand for the paper dollar is enormous. US currency in circulation, at the end of 1994, totaled approximately $405 billion. Of this amount, foreign holdings were approximately $270 billion. A significant feature of the new cyberpayments is that they include a new form of currency--a cybercurrency that is engineered to be an electronic emulation of paper currency. Cybercurrency includes the attributes of conventional currency: a store of value, a medium of exchange, a numeraire, anonymity and ease of use.

But there are added features: transfer velocity (almost instant electronic transfers from point to point) and substitution of electrons for paper currency and other physical means of payment. Obviously this is an innovative addition to the payments mechanism, but it requires close attention since the use of microchip and telecommunications technologies adds some significant new dimensions for law enforcement.

Yet currency is not the only monetary instrument innovation. Cyberpayments also comprise other payment components. Already in use or design are cyberchecks, an emulation of paper checks, cybercredit, cyberdebit and so on. Furthermore, cyberpayments can replace or substitute for conventional wire transfer and financial message systems. Within the next few years, cyberpayments will to some degree substitute and supplement all current means of payment and a variety of monetary instruments.

Many issues are raised by this new technology, including the issue of whether such payments constitute legal tender and are susceptible to monetary reporting and supervision measures. Must reporting regulations be completely redesigned to include the reporting of currency in electronic form moving to other countries via the Internet or across the border in a smart card or electronic purse? Law enforcement issues likely to arise in this area include fraud, counterfeiting and computer hacking. Moreover, high speed, worldwide transfers that are a facet of the cyberpayment technology add complexity to law enforcement's ability to trace criminal activity and recover narco proceeds.

CONCERNS

Eight governments ranked as High, Medium-High or Medium Priority money laundering concerns by the US Government have signed but not ratified the 1988 UN Convention, and three other governments ranked among the higher priorities have not yet signed. Thus, almost one-fifth of the 67 governments in the three highest priority categories have not ratified this universal accord six years after its declaration.

Too many affected or vulnerable governments have not criminalized all forms of money laundering and financial crime, nor given sufficient regulatory authority to central banks. There is need for an intensified education and persuasion effort by the world's major financial institutions and organizations, to ensure a higher level of compliance on a global basis.

Too many governments continue to place limitations on money laundering countermeasures, particularly the requirement that the offense of money laundering must be predicated upon conviction for a drug trafficking offense.

Too many governments still refuse to share information about financial transactions with other governments to facilitate multinational money laundering investigations.

There is need for enhanced bilateral and multilateral international communications to inform governments and financial systems in some systematic and ongoing way about the methods and typologies of drug and non-drug related money laundering and financial crime.

The layering and integration stages of money laundering are using more sophisticated money laundering techniques. Cash is now being held in bulk or placed into the financial system through exchange houses and other non-bank financial institutions. Not only is it moved through wire transfers but innumerable varieties of licit and illicit financial instruments, including letters of credit, bonds and other securities, prime bank notes and guarantees, without a parallel increase in the capability of the far-flung elements of the world's financial system to verify the beneficiaries or authenticity of instruments.

The electronic highway now links banks and non-bank financial institutions (NBFIs) worldwide to facilitate expanding world trade and financial services, placing ever-greater priority on banks of origin to establish the identity of beneficial owners and their sources of funds. There are few controls on electronic transfers, and, compounding the problem, the bank or non-bank of origin is increasingly based outside major financial centers in jurisdictions which do not adequately control money laundering and other financial crimes.

Narcotics money launderers have adapted the invoicing schemes used by contraband smugglers and are similarly manipulating commercial trade practices to move and convert illegal proceeds. The vast proceeds generated by both types of crime magnify the need for control mechanisms to address non-drug-related financial crimes.

There is emerging concern about new banking practices, such as direct access banking which permits customers to process transactions directly through their accounts by computer operating off software provided by the bank. This system limits the bank's ability to monitor account activity, such as of joint accounts and pass-through banking schemes which have been a traditional method of layering. Beneficial owners of funds can now manipulate the identity of the ultimate recipient of the funds without the review by bank officers. Pass-through banking by itself poses myriad problems for regulators, by creating the ability of depositors unilaterally to create accounts within accounts, or even to provide quasi-banking services to off-line customers in a kind of bank within a bank. These new bank services can limit the utility of systems in place to have both originator and recipient information travel with the electronic funds transfer.

There is continuing concern that the need for capital of many financial systems overwhelms prudent banking practices and safeguards, with respect to deposits, loans and underwriting practices, and contributes to the increasing problem of takeovers of banks and non-bank financial institutions by criminal groups.

The concern about the concentration of economic power in drug cartels and other criminal organizations, and its potential translation into political power now embraces the Caribbean, Europe, the Middle East and Asia as well as the Americas.

Professional money laundering specialists sell high quality services, contacts, experience and knowledge of money movements, supported by the latest electronic technology, to any trafficker or other criminal willing to pay their lucrative fees. This practice continues to make enforcement more difficult, especially through the commingling of licit and illicit funds from many sources, and the worldwide dispersion of funds, far from the predicate crime scene.

Non-bank financial systems are still unevenly regulated in most parts of the world, especially at the placement stage for cash. The US, which is taking a leadership role in regulatory non-bank financial institutions, is still drafting the regulations that would subject them to federal regulation. Non-bank financial institutions include a wide variety of exchange houses, check cashing services, insurers, mortgagors, brokers, importers, exporters and other trading companies, gold and precious metal dealers, casinos, express delivery services and other money movers of varying degrees of sophistication and capability. Even less regulated are the underground banking systems, like the "chop" houses of the Orient, and the "hundi" and "hawala" systems of Europe, South Asia and the Middle East.

Asset forfeiture laws have not kept pace with anti-money laundering investigative authority, much less with traffickers' wide-ranging schemes. There is a conspicuous gap between the number of institutions and accounts identified by government investigations with money laundering and the authority of many governments to seize and forfeit drug and money laundering proceeds.

Many banking systems remain obliged to inform account holders the government is investigating them and may seize their accounts, providing criminals the opportunity to move assets and leave town.

There is an urgent need to prescribe corporate as well as individual sanctions, including actions against financial institutions that repeatedly fail to take prudent measures to prevent their institutions from being used to launder money.

There is need for continuous fine-tuning of bilateral and multilateral strategies, which define responsibilities and objectives on a country- by-country basis, and set specific goals for cooperating with the varying money laundering and money transit countries.

Many governments and financial systems continue to rely on voluntary reporting mechanisms, despite the inadequacy of voluntary control systems. Reports from government after government demonstrate that the adoption of mandatory controls has not caused declines in legitimate deposits or resulted in threats from traffickers.

Prudential supervision of many domestic banking systems has improved with respect to money laundering, but foreign branch offices, subsidiaries and other foreign operations continue to figure prominently in drug and other money laundering and financial crime. There is a particular need for major international banks to ensure that governments and regulatory agencies in all jurisdictions they serve are enforcing the same high standards as charter governments.

Many governments seek to superimpose money laundering controls on systems which still employ loose incorporation standards and permit bearer share ownership, which vitiate the impact of these controls.

The implementation of free trade agreements and regional compacts, creating trading and economic zones which transcend national borders could increase the use of international trade as a mechanism for laundering proceeds of criminal enterprises. The impact of the liberalization of border and other customs controls, liberalized banking procedures within these zones, and freedom of access within the zones creates additional potential risks for the future.

There is a need for countries which cooperate on money laundering investigations and prosecutions to share forfeited proceeds so as to reflect equitably their respective contributions. A "finder's keepers" approach is unfair and fails to provide an incentive for multinational efforts.

WHAT WE NEED TO DO

Considerable attention must be focused on establishing international standards, on obtaining agreements to exchange information, establishing linkages for cooperative investigations, and on overcoming political resistance in various key countries to ensure such cooperation.

Governments need laws which: establish corporate criminal liability for bank and non-bank financial institutions; apply to all manner of financial transactions not limited to cash at the teller's window; apply reporting and anti-money laundering laws to a long list of predicate offenses not limited to drug trafficking; criminalize investments in legitimate industry if the proceeds were derived from illegal acts; and enable the sharing of financial and corporate ownership information with law enforcement agencies and judicial authorities.

But governments also need strategies, end-games which project change and progress along the same continuum as the changes in both financial system procedures and the methods criminals develop to exploit them-- strategies which focus on specific governments and specific financial systems.

Over time, a number of actions can be seen as needed on a continuing basis to keep pace with the dynamics of money laundering in a high-tech world. Continuous action is needed on each category in 1996, and for the foreseeable future.

1. Constant Monitoring of Money Laundering Patterns, Trends, Typologies. More sophisticated techniques, involving both bank and non- bank financial institutions, in a wider array of traditional and non- traditional financial center countries, have complicated identification, tracing and investigation. Information exchanges have been improving, but critical gaps in know-how must be closed in tandem with improved cooperation.

2. Analysis of Money Management Practices. We need improved information from more countries on what factors influence traffickers and their money managers to use particular systems in specific countries, to keep reserves in cash vs other monetary instruments, to invest rather than park funds. Interviews of arrested drug money managers are producing detailed profiles of money management schemes. The best data so far applies to the cocaine trade, but we need to develop the same level of knowledge about heroin and marijuana syndicates.

3. Analysis of Non-Drug Related Money Laundering and Other Financial Crimes. Traffickers seldom invent new methods or practices of handling and investing money. In general, they rely on techniques perfected by corporations and individuals to shelter proceeds from taxation or to avoid strict currency controls. Terrorists, arms dealers, and other criminals, similarly rely on standard measures used to shelter funds from taxation by legitimate enterprises. We need to identify the parallels between drug money laundering and financial crimes of every description and achieve an equal capability to investigate and prosecute such crimes. A number of governments are willing to impose new restrictions on drug-related financial crimes, but hesitate to apply such strictures to other forms of financial crime.

4. Equating Economic Power with Political Clout. The increasing concentrations of wealth among criminal groups in a number of jurisdictions is a concern, not only because of possible impacts on investments, real estate values, legitimate commerce and government integrity, but also because these organizations have the wealth to make large campaign contributions to candidates who in turn agree to assist the criminals. We need to assess the national security and political implications of these shifts and accumulations of wealth for all financial centers where such wealth is being concentrated. Illicit funds and corrupt officials represent a continuing threat to democracy in literally every region of the world.

5. Eliminating Systemic Weaknesses. We need banks to maintain the same kinds of records on clients which are also financial institutions, as they do for other customers, and to report suspicious transactions by such clients when the same financial institutions are named repeatedly in investigation after investigation. Some currently available but underutilized mechanisms include revocation of licenses, changes in ownership and management, levying of fines, and prosecution.

6. Assessing The Trafficker as Entrepreneur. We need to explore the extent to which criminal organizations are penetrating legitimate financial and other businesses, using their vast resources to gain control and to influence economic, financial and business decisions. More data, and systematic analysis are needed on the role played by the trafficker and money launderer in foreign exchange markets, including their use of and creation of gray markets.

7. Analyzing the Impact of Money Laundering on National Governments and Economies. The interplay between political and structural factors in a country upon its receptivity to money laundering, and that of money laundering on the political life and economic life of the jurisdiction, need to be better understood. Among the questions that need to be analyzed are the extent to which structural macro-economic factors such as commodity deflation, sustained high levels of unemployment, and recession have in making a country susceptible to becoming a money laundering haven. At the sectoral level, we need to determine the influence of black markets on legitimate enterprises. At the institutional level, we need to identify the major factors that may influence bankers and other financial managers in some jurisdictions to be more likely to accept money they have reason to believe is tainted. As we better identify where money laundering is most likely to have a macro-economic or political impact, we need to evaluate the potential effectiveness of economic countermeasures. These could include limiting or excluding access to the global financial system of entities or states identified as major problems.

8. Regulating Exchange Houses and Remittance Systems. There is ample evidence that the various "hundi, hawalla, and chop" remittance systems, so essential to economic life in the Middle East, South and East Asia, are being used by drug traffickers, just like the "cambios" of Latin America, and non-bank institutions of all kinds in the Western financial community. They serve vital functions for key sectors of many economies; Systems for regulating them to discourage their use to launder the proceeds of crime are essential, but will fail unless they take into account the very informality that makes them effective and desirable.

9. Concentrating Efforts for Maximum Effectiveness. Enforcement operations have proven we can disrupt cartel operations. But these organizations are resilient and recover quickly. We need to develop more effective strategies for disruption in order to achieve the destabilization of criminal organizations.

10. Pursuing A Continuously Evolving Strategy. For much of the 1980s, concerned governments operated under a strategy which involved a handful of key countries whose cooperation was essential and/or which were drug money laundering centers. But the traffickers have changed tactics and moved to new locales. Banks are but one portal. They also use securities brokers, insurance companies, import and export companies. Every means the worlds of business and finance have to offer, linked by wireless and facsimile transmissions, are today used by traffickers and the managers of their illicit proceeds. Financial regulation, supervision and enforcement needs to expand both to cover transactions that transcend national boundaries and to cover the widening array of types of financial service businesses.

11. The United Nations Drug Control Program (UNDCP) should intensify its efforts to ensure that all significant financial center countries are implementing fully the anti-money laundering and asset forfeiture provisions of the 1988 UN Convention. As an immediate priority, UNDCP should focus on securing ratification by the 12 significant financial center governments which have not yet ratified the Convention.

12. The Financial Action Task Force, working with the Offshore Group of Banking Supervisors and other relevant organizations, should focus increased attention on offshore banking. FATF has been quite effective in reaching out to this group; a majority of offshore banking centers are either members of FATF or the Caribbean FATF, or, have participated in FATF/CFATF seminars which provided guidance on adopting/implementing FATF and UN guidance. More analysis is needed of the methods used to move money through offshore banks, and OGBS should be supported in efforts to include as many offshore banking centers as possible within its membership, and, a parallel effort to evaluate progress by its members.

13. The adoption by governments of information standards recommended by FATF and the SWIFT banking information network is a welcome if not yet universal step. Many more governments need to cooperate in adopting regulations to help curb the misuse of electronic transfer and payment mechanisms to launder illicit funds.

14. Governments and banking systems alike must be more vigilant in efforts to detect counterfeit currency and other monetary instruments. The schemes involving counterfeit bonds and other securities, usually as collateral, suggest there is the need for an international clearinghouse to assist banking and financial systems outside the major centers in determining the authenticity of offered documents.

15. Governments and banking systems must exert greater efforts to identify and prevent a wide range of financial crimes, not just drug and non-drug money laundering, but also financial frauds, such as prime bank guarantees. Again, the history of such frauds suggests a need for a clearinghouse which can assist financial houses in identifying customers and authenticating documents.