Financial Transparency Coalition

When a street vendor in Tunisia set himself on fire in a demonstration against his government last month, he ignited a cascade of protests in his own country and abroad.  Many of the Tunisian protesters were unemployed college graduates, doctors, and lawyers, who rose up against the rampant poverty and persistent unemployment, which have formed a backdrop against the lavish lifestyles of President Zine el-Abdine Ben Ali and his family.  Over the last two decades of their reign, it appears that the Ben Ali family treated the country’s wealth like their own personal treasure chest, buying stakes in wide swaths of the economy including hotels, banks, tuna exports, construction, newspapers and pharmaceuticals.  Last week an interim government issued an international arrest warrant for Ben Ali and his family. Fearing for their security and freedom, they fled to Saudi Arabia shortly after the protests began.

In the Ivory Coast, a standoff between President Laurent Gbagbo, whose term ended in 2005 but is still supported by the army, and opposition leader Alassane Ouattara, who the UN declared the winner of the presidential election in November, is threatening to rip the country to civil war.  The Ivory Coast was once a magnet for immigrants as people spoke of an Ivorian “miracle,” but has now disintegrated as investors have pulled out and unemployment has soured. As the Ivory Coast’s corrupt former President, Gbagbo maintains control of the world’s largest production of cocoa and has used the proceeds to line his own pockets and buy a number of extravagant properties overseas.  He has also used the Ivorian branches of the Central Bank of West African States (BCEAO) to retain control of state finances and maintain his control of power.

In response, European and American authorities took decisive action.  On Monday the European Union agreed to freeze Ben Ali’s European assets.  Switzerland, who is hoping to rebrand its tarnished image, launched a money laundering investigation into accounts belonging to Ben Ali, blocked several accounts containing tens of millions of Swiss francs, and announced that it intends to freeze any money deposited there.  Swiss authorities have also frozen the assets of former Ivory Coast President Gbagbo. Foreign minister Calmy-Rey noted “Switzerland wants to avoid our financial center being used to hide funds illegally taken from the populations concerned.”

Touching.

But before we get too carried away with self-congratulatory pats on the back for a job well done, let’s reflect for a moment on what these revelations really mean.  What these rapid response actions make obvious is that these banks knew they had money from these politically exposed persons (PEPs), and they knew that the money may not have been legally obtained.  The accounts would not have been frozen absent that suspicion.  What we need to remember and factor into this equation is that these banks were required by law to vet their PEP client when they applied for an account and verify that the initial funds coming into the account were legally obtained.  If they could not do so, they were obliged to refuse to open an account for the PEP.  From that point on, they were required to monitor the funds flowing into and out of the PEP’s accounts, and if activity became suspicious to file a suspicious activity report and, in some cases, freeze the account.  They were required to do this not when the dictators made international headlines, but rather years ago, when the accounts were opened and throughout the time that they were being used.  The fact that governments and banks were so quick to act to freeze these accounts after the coup strongly suggests that they knew full well that the assets they were holding probably weren’t of legal origin.

Even FinCEN, the U.S. Department of the Treasury’s anti-money laundering agency, was off the mark.  FinCEN issued an advisory to U.S. financial institutions urging them to “guard against the potential flow of illicit assets that may be related to the current political and social unrest in Tunisia and abrupt changes in the government.”  FinCEN then launched into a reminder of banks’ obligations under existing anti-money laundering law.  While it is useful to remind institutions of this guidance, particularly during such a politically volatile moment, FinCEN also seems to fall into the rather narrow mentality that countries only lose money to illicit flows during time of unrest.  In fact, Tunisia has lost an average of US$1.6 billion in annual illicit financial flows between 2000 and 2008, which includes money lost due to corruption, bribery, kickbacks, trade mispricing, and criminal activity.  This is clearly not a revolution-driven phenomenon, but rather a persistent and staggering problem for Tunisia and, indeed, most of the developing world.

By accepting these funds, the Swiss banks and all other banks that may be holding such funds have indirectly supported and maintained the abhorrent actions of these two men.  But this is not the first time Switzerland has been called out for knowingly handling the funds of a headlining PEP and these two men are not the world’s only corrupt dictators who have stored their cash in Switzerland.  It should not require a revolution, a civil war, or a man setting himself on fire in protest for the Swiss to investigate the bank accounts of corrupt dictators who have plundered their nations’ coffers.  Injustice needs to be stopped as it happens, not as it makes headlines.  The citizens of these countries and so many others like them deserve nothing less.