Money Laundering Cartel Moves Against Small Operators

Tony Abdo aabdo at
Sun Mar 25 17:57:49 MST 2001

Tax havens under attack
Offshore accounts in banks targeted
Each day, waves of money from the secretive offshore banking havens of
the Caribbean flow invisibly around the globe.

Increasingly, however, the world's offshore financial centers are
attracting the scrutiny -- and the ire -- of U.S. law enforcement
authorities and the United States' biggest economic partners. They say
the $5 trillion registered offshore serves as camouflage for tax
evasion, fraud and massive money laundering.

But the new financial criminals using Caribbean havens aren't just drug
dealers and international mobsters anymore. Quite possibly, they are
your neighbors. Divorces, inheritances and bankruptcies often prompt
people to look offshore for shelter, experts say. Doctors, fearful of
malpractice suits, sometimes park their assets offshore.

The Internal Revenue Service estimates that it loses $70 billion in
taxes each year because Americans have hidden income offshore. That's
nearly $250 for every man, woman and child in the United States.

Thanks to the miracles of electronic banking -- the Internet, debit
cards and wire transfers that allow the money to circle the globe --
it's relatively easy.
Take the case of Dorothy and George Henderson, a Roseville, Calif.,
couple, who ran a tidy little cottage industry from their home, setting
up bogus trusts for wealthy clients, funneling the money through
offshore accounts, and in the process cheating the IRS out of as much as
$20 million.

They collected $1 million in fees from 1994 to 1998, but paid no tax on
that either. At the couple's sentencing last month, the judge meted out
maximum terms. After Dorothy Henderson defiantly told him she was under
no obligation to pay U.S. taxes, the judge tacked on an extra five
months, bringing her sentence to more than 11 years. Her husband got 6
1/2 years.

Despite the efforts of offshore financial institutions to keep a low
profile, it seems that everyone is watching them now.
``With globalization, we just can´t afford to have pools of
illegality. It´s a threat to the entire system,´´ said Jack Blum,
a Washington lawyer and expert on offshore banking abuse.

The Organization for Economic Cooperation and Development, whose members
are the world's richest democracies, has taken aim at 35 jurisdictions
-- including 17 in the Caribbean Basin -- for being unfair tax havens
and has given them until July 31 to clean up their act or face possible

The OECD's Financial Action Task Force also has blacklisted 15 offshore
havens -- six in the Caribbean Basin -- for being uncooperative in the
fight against money laundering.

The Senate is investigating money laundering. The Treasury Department is
issuing warnings on suspect countries. And the IRS, in a Miami case, is
looking into American Express and MasterCard accounts registered in the
Caribbean, which allow debit cardholders to easily access their bank
accounts while possibly dodging taxes.

The offshore banks themselves are often little more than brass
nameplates on a law office wall -- although the Cayman Islands, the
Caribbean's largest offshore financial center, recently said its
offshore banks will be required to have an office and at least one
employee in the future.

Money is quickly moved from offshore accounts through wire transfers
back to the United States or other money centers. From the offshore
centers, ``it basically goes back into the world financial system,´´
said Nicholas Bray, a spokesman for the OECD. ``But while it´s there,
it´s there. It´s tax evasion.´´

Another popular offshore vehicle is the international business
corporation, or IBC, which can be a mere shell company designed to keep
the owner's identity secret.

``The motive behind opening an offshore account almost always involves
tax evasion,´´ John Mathewson, a former Caribbean banker now
cooperating with U.S. authorities, testified to the Senate earlier this

He should know. His Cayman Islands institution, Guardian Bank & Trust,
was closed by local authorities in 1995. When he returned to the United
States, he was arrested and charged with money laundering, tax evasion
and fraud. Mathewson pleaded guilty and provided U.S. authorities with
records that led them to tax evaders who eventually coughed up $50

``Why would any U.S. citizen wish to go through the time and expense
required to establish an offshore account unless it was for the evasion
of taxes or the hiding of funds?´´ he said.

But a backlash against the OECD is brewing in the Caribbean, and it's
finding some support in Washington among conservative Republicans,
particularly on the tax evasion issue. The thinking is that tiny tax
havens are simply trying to compete in a global marketplace. Secrecy is
one of the few assets they can sell to foreigners.

``By every possible criterion, the OECD´s effort is misguided,´´
Rep. Dick Armey, the House majority leader, wrote in a recent letter to
Treasury Secretary Paul O´Neill. ``It is designed, in effect, to
create a tax cartel for the benefit of a small handful of high-tax

One U.S. organization, the Center for Freedom and Prosperity, which is
funded by private donors around the world, has been heavily lobbying
Congress to oppose the OECD blacklisting and any crackdown on tax

Meanwhile, the contentious debate is threatening to reopen some
long-festering resentments against the United States and former
Caribbean colonial powers.
Some Caribbean leaders are hoping that the Bush White House -- which has
skirted comment so far -- will break OECD ranks on the issue.
``Republican positions seem to be the opposite of the Clinton
administration,´´ Keith Mitchell, the prime minister of Grenada,
said in a recent interview. ``We hope we´ll see a change in

U.S. tax codes clearly require all income earned here or abroad to be
reported on tax returns. But the account holders are not breaking local
laws in the havens themselves by hiding money there.
Going after offshore tax evaders could become a priority, however, if a
weakening economy threatened the Bush administration's plans for a major
tax cut.
Beyond the lost income, the IRS says tax evasion threatens the integrity
of the system. ``If people begin to feel they´re paying taxes for
someone else, you´ve got the seeds of a problem,´´ said Mark
Matthews, chief of IRS criminal investigation.

So the IRS has set up a website -- -- that
documents its cases. ``One accountant told me he just hands our
conviction page to people who are proposing shady schemes,´´
Matthews said.

But if the OECD countries have a problem, some critics say, perhaps they
should seek domestic solutions rather than forcing their will on others.

``They´re of the view that by compelling us to change our tax rates,
they´ll be favored, which we don´t feel is true at all,´´ said
Lionel Hurst, Antigua and Barbuda´s ambassador to the United States.
His country has resisted pressure to levy an income tax. Account holders
there pay a small annual fee.

Although Hurst has little interest in fighting the OECD's tax evasion
war, he contends that his country is a soldier in the fight against
money laundering. It even passed a set of stringent laws, which were
essentially written by U.S. regulators, he said.

But when Antigua enacted the demanded reforms, the OECD refused to
remove the country from the blacklists. ``The U.S. is seemingly bent on
punishing us,´´ Hurst said. ``It hurts a lot.´´

Many Caribbean leaders contend that their islands are being singled out
on what is actually a global issue. While money laundering by criminals
undoubtedly goes on in the Caribbean, they say, it also occurs on Wall
Street, Brickell Avenue and Main Streets across small-town America.

``The OECD´s initiatives have carefully avoided mention of any
organizations in their own countries,´´ said Michael Alberga, an
attorney in the Cayman Islands.

With a population of 38,000, the Caymans now have more international
business corporations and offshore banks than people. To expect
countries with tiny populations and scant resources to fight a problem
that the world's richest countries can't solve seems unfair, some
experts say.

``The U.S. talks a big game but doesn´t take its own medicine,´´
said Charles Intriago, publisher of Money Laundering Alert, a Miami

He points out that the Russian mafia has been implicated in various
money-laundering schemes in the United States, and that even foreign
dignitaries have been implicated. Former Ukraine Minister Pavlo
Lazarenko, suspected of laundering millions through an Antigua bank, is
in jail in the United States.

``We know that in New York or London in one day, there is more money
laundered than in an entire year in the Bahamas,´´ Peter Maynard, a
Nassau attorney, said recently. Twenty percent of the Bahamas´ gross
domestic product now comes from the financial services industry.

Grumbling aside, the OECD's threats have prompted a few Caribbean
countries to enact reforms.

The Bahamas, which the U.S. Treasury cited for having inadequate
money-laundering controls, has already worked its way off that list. At
the end of last year, it enacted nine new or amended pieces of
legislation that it hopes will favorably impress the OECD and its
Financial Action Task Force.
But analysts say that corruption and small budgets make it tough to
enforce rigid guidelines.

Even as Washington pressures offshore banks to lift their veils of
secrecy, the reality is that U.S. banks are seldom asked to open books
to regulators and reveal details of their clients' finances --
particularly at the behest of foreign governments.

Furthermore, the OECD has been quick to threaten punishment but slow to
offer assistance for the targeted countries, which will desperately need
economic alternatives if they give up one of their few income-producing

The United States ``is taking us for granted, and I do not understand
that,´´ said Grenada´s Prime Minister Mitchell.
``We say, `Help us,´ and we get a lot of lip service.´´

© 2001 The Miami Herald and wire service sources.

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