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Throughout the world, financial sleuths are combing through money transfers, checking for suspicious activity. It took an income tax claim to finish off the career of mafia leader Al Capone. It is the lack of cash that can hobble al-Qaida's operations.
Over the past five years, U.S.-instituted checks on financial transactions have had the collateral effect of identifying narcotics gangs and other mafias in the search for terrorists. Unsurprising, for drug traders and terrorists often partner in interlocking networks designed to create both mayhem and money. The program to identify and eliminate terrorist funding can be faulted, however, in that it ignores the link between corruption and terror. It is the cheats, the crooks, who help terrorists through cupidity or blackmail -- hence the need to zero in on slush funds with the same attention as is now being paid to moneys directly linked to terrorist operations.
Organizations such as Transparency International perform a service by computing estimates of the degree of graft prevalent in countries across the world. They need to trace the money trail and examine the countries where the proceeds of graft are parked. It may come as a surprise to know that a large percentage of slush funds land 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 few questions about the origin of deposits.
Thanks to the network of financial institutions that accept money without any assurance that it was acquired legally, scams such as the current smuggling of oil out of Iraq multiply. Instead of going to the Iraqi people, the proceeds from this substantial trade go to a few shadowy entities, and in the process, damage the security environment and the future of that conflict-wracked country. Only a small portion of this wealth may fund terrorist activities, yet the maladministration and graft at its source are themselves contributing factors toward the prevalence of terrorism in Iraq.
The distinction between funds related to acts of terror and those related to graft needs to be broken down, and a worldwide system created that would identify to governments their nationals who park funds abroad. Whether from Switzerland or Lichtenstein, Guernsey or the Virgin Islands, all should hold to high standards of ethics. Perhaps they have thus far believed that those who deposit funds into their banking networks have the same moral standards as they themselves have. Switzerland and other banking havens need to be told that they have become repositories of funds acquired through graft, and need to agree to an international system designed to prevent such inflows.
The effect of graft can be seen in stark detail in India, where public projects take much longer to be completed than almost anywhere else on the globe. Roads are surfaced with amalgams designed to wash off during monsoon rains, thus ensuring another lucrative tender. Defense equipment for the Indian military usually costs much more than for other countries, although inconsequential "design improvements" are added on to justify the markup. Airplanes and other equipment that are out of date are purchased in bulk.
Along with India, the countries of the Middle East have a high "graft premium" on equipment imported from abroad, and any supplier who refuses to hand out commissions would lose the contract. Most of the funds thus made by corrupt local officials find their way to European financial centers, an aspect that thus far Transparency International has ignored. Crooked officials in the People's Republic of China invest their illegal pickings in real estate and other investments in locations such as the United States, Canada, Singapore and Hong Kong, while those in India or the Middle East usually keep them as cash in banks.
Were each bank to ask for a declaration of the nationality of each person making a deposit, and share this information with the concerned government upon presentation of proof of fraud, 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 their funds.
The European Union has always pointed, correctly, to the need for clean government. This should include ensuring that no location in Europe remains a haven for money acquired through graft or worse. Money that comes from or goes directly to terror networks is only a small proportion of the total funds potentially at the service of al-Qaida and other such entities. If the menace is to be choked off at the root, corruption must be identified as a crime and penalized.
High standards must be set in Europe and enforced elsewhere as well. Dubai is making a credible start in this direction by offering to bring its banking industry in line with U.S. standards. India, China and other emerging economic powerhouses need to follow, but first, the initiative for a war on graft needs to come from Europe, which today has become a haven for slush funds from continents much poorer than itself.
The recent radioactive poisoning of a Russian dissident in London indicates the extent to which mafias in that country have infiltrated into Britain. 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 United Kingdom. Several Islamist organizations have operated freely in the U.K., many -- such as the Kashmir groups -- receiving support from Members of Parliament and others. Some prominent Labor politicians have gone to the extent of lending their presence to jihadist groups active in Kashmir and elsewhere in India, without once being rebuked for such patronage of terror groups.
Both London and Frankfurt 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.
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(Professor M.D. Nalapat is vice-chair of the Manipal Advanced Research Group, UNESCO Peace Chair, and professor of geopolitics at Manipal University)
