Money Laundering
November 17, 2008

RADIO 2CBA FOCAL POINT COMMENTARY BROADCAST ON FRIDAY JANUARY 21 2000 ON RADIO 2CBA FM.

The international banking system has stopped all US dollar payments to some countries in the South Pacific. It has been alleged that these countries have been involved in money laundering. This is the first time that the international banking system has acted in such a dramatic way.

Of the six largest forms of international trade, only three are legal: the speculation in foreign exchange, the sale of oil and coffee. A fourth has some many questionable participants: the sale of weapons. Two are illegal: drug-smuggling and money laundering.

Crime is global but law enforcement is not. Criminal law is still mainly a national or local matter. International criminals are often better organized than national governments and their police forces – and they are increasing.

Criminals can, for example, move across national borders more easily than can police officers, who are very restricted in their powers of detection, arrest and detention. There is no international police force to arrest criminals and no international prison.

International money-laundering has been highlighted in recent weeks by claims that Nauru in the South Pacific (the world’s smallest republic, with 10,605 people) has been accused of laundering up to US$70 billion. This is alleged to be Russian mafia money. Nauru may be the key player in the recent movement of Russian mafia money through the Bank of New York.

Nauru is a wealthy developing country because the island was rich in phosphates which were needed for Australian farms. But the island has been mined out.

In the late 1980s, Nauru moved into financial services. It has tried to become a Switzerland of the South Pacific. It licensed off-shore banks, businesses and insurance companies. Like all off-shore centres, the attraction was a strict code of secrecy.

Marketing is done via the Internet, where the Nauruan site advertises that its jurisdiction is the easiest in the world in which to obtain a banking license. Applicants pay US$10,000 for annual registration.

But Nauru has attracted some controversial clients. An US$70 billion rolled through the Nauruan bank accounts last year. This is a very large sum of money for a country with only 10,605 people and old computer systems.

Some of the money came from Russia. Nauru has attracted international banking attention because of the investigations in New York over Russian mafia money going through the US Banking system. The money trail has taken the investigators to Nauru.

A large proportion of money laundering activities involve innocent parties who are just doing their daily job unaware of their role in a crime. For example, many people on Nauru are horrified to hear that suddenly their country is now seen as a haven for international criminal activity.

It seemed, in the late 1980s, that going into international financial services would be an easy way to make money. Now Nauru knows that it is not.