Looking for a cache for your unlaundered cash?
Think Bitcoin, not Swiss banks.
In movies and the popular imagination, Switzerland has always been the ultimate super-secret sanctuary to stash your stolen millions. Even while other offshore financial centers – Grand Cayman, Isle of Man, Liechtenstein – have emerged as hotspots for shady deals, Swiss banks remained the old-guard standard-bearers for financial secrecy. Law enforcement agents and private investigators attempting to trace the flow of funds from criminal enterprises have traditionally found it extremely difficult to crack these accounts.
So what should we make of the news this week that the Swiss government is considering a deal with the United States that would force Swiss banks to open up their private ledgers on U.S. accountholders who are suspected of tax evasion?
“Bank secrecy is a relic of the past,” Algirdas Semeta, the European Union’s senior tax official, recently told The New York Times. “Soon we will see the death of bank secrecy around the world.”
Not so fast. The pressure on Swiss banks notwithstanding, there is still a long list of foreign countries with weak oversight of their financial sectors, either because they lack adequate resources for good governance, or because it is simply more profitable for their leaders, in the long run, to play dumb. There’s an even longer list of corrupt financiers who are adept at moving funds between the black markets of international banking. Not surprisingly, private institutions with Swiss pedigrees – including UBS and Julius Baer – have seen their clients flock to subsidiaries and affiliates in Asian countries that still protect the anonymity of accountholders, such as Singapore and Hong Kong.
The change in attitude at European banks follows a number of damaging probes by U.S. prosecutors. Last year, for example, British bank HSBC agreed to pay $1.92 billion to settle charges that it had laundered at least $881 million in illegal proceeds for drug cartels, including Mexico’s Sinaloa Cartel and Colombia’s Norte del Valle Cartel, while separately facilitating the illegal flow of funds to Iran. In March, Swiss bank Wegelin & Co. was sentenced for its role in criminally conspiring with U.S. taxpayers and others to conceal $1.5 billion in secret accounts. Ironically, many of the Wegelin accountholders had reportedly fled from Swiss banking giant UBS, which agreed in 2009 to divulge names of U.S. accountholders and pay $780 million to settle charges that it aided tax evasion.
"If Al Capone were alive today, this is how he would be hiding his money." -Richard Weber, IRS head of investigations
Yet brick-and-mortar banks, by themselves, are not the future of financial secrecy. Today, true anonymity is increasingly found online. Cyberfinance and virtual currency exchanges have emerged as the channels of choice for many innovative criminals seeking to conceal and launder their dirty money.
Federal prosecutors in New York recently accused the global online currency exchange Liberty Reserve of being a $6 billion money-laundering operation – basically, the PayPal for organized crime. Liberty Reserve allows its customers to create accounts and make transactions online – with no identification needed, and no questions asked. The web-based transactions are backed by a network of unlicensed and unregulated payment “exchangers” who provide cash and bank wires from countries like Malaysia, Russia, Nigeria and Vietnam.
“If Al Capone were alive today, this is how he would be hiding his money,” said Richard Weber, head of investigations for the Internal Revenue Service, at the press conference announcing the criminal charges against Liberty Reserve. He was joined by representatives from the Department of Justice, Secret Service, Homeland Security and the Treasury Department – which suggests the level of interagency cooperation needed to conduct the investigation. That crowded room of law enforcement officials also signals the kind of complex challenges that lie ahead for investigators intent on tracing the flow of ill-gotten funds around the globe.
For private investigators, due diligence specialists, and compliance professionals who still think that a Swiss account is the toughest nut to crack, it’s time to acknowledge that comprehensive asset searches and financial investigations just got a whole lot harder.
About the Author:
John Powers is director of Beacon Investigative Solutions, a national private investigation agency that conducts asset discovery and financial investigations for corporations, law firms, private clients and government agencies. His articles have been featured in AOL Money & Finance, Huffington Post, Competitive Intelligence, and The Legal Investigator. Contact him at firstname.lastname@example.org or follow him on Google+ and @JohnPowersPI.