IMF Accused Of Hampering FATF Money-Laundering Work

by Jeremy Hetherington-Gore, Tax-News.com, London

03 September 2002

The Financial Action Task Force (FATF), a spin-off of the Paris-based OECD, is fighting to preserve its blacklist and associated sanctions, which have proven effective in the past two years in forcing through major improvements in the regulatory structure of a number of prominent offshore financial centres, including the Bahamas, Panama and Liechtenstein.

In the offshore world, it is normal to see the jurisdictions as Davids to the FATF's Goliath, although some of the countries still on its blacklist, like Russia and Egypt, are not exactly Davidian; but now the FATF is quailing under a fierce attack from, guess who, the mighty IMF, the richest and biggest of all the 'multilaterals'.

According to BBC OnLine, the IMF and the FATF have been trying to form a joint approach to controlling the flow of terrorist financing, but the IMF, due to its scruples over getting involved in domestic matters like the criminal law and police system, and an insistence on voluntary compliance by its 'clients', is accused of watering down the FATF's heavy-handed but remarkably effective campaign.

Now, says BBC OnLine, some developing country directors on the IMF's Board (it would be interesting to know which ones) are insisting on a year's moratorium on the FATF's next blacklist as the price of the IMF's co-operation (a co-operation that the FATF perhaps doesn't want, but no doubt has to accept).

Before taking sides in this dispute (and there are lots of sides to choose from) it's worth standing back for a moment to remember that, before 9/11 blurred the distinctions between money-laundering and terrorist financing, the FATF's work was largely directed towards cleaning up opaque financing systems that encouraged the laundering of the proceeds of drug-dealing and other criminal activity, and if one thing has become clear in the last two years it is that there is far more money-laundering in the big countries like the UK and the USA than there ever was or could be in the mostly tiny offshore jurisdictions which took the full force of the FATF's attack. If you were a drug-runner, where would you launder money? And would you put your freshly-cleaned $100 bills into a terrorist's pockets, or into a hotel development in Hawaii?

Although many people, especially in the offshore jurisdictions, saw the FATF's work as a thinly-veiled part of the OECD's high-tax v low-tax pogrom, that is beginning to look a tad unfair, and those jurisdictions which the FATF has 'cleaned up' now flaunt their new respectability as a badge of honour.

Terrorist financing is of course a deeply serious subject, but there is little or no evidence that efforts to stem money-laundering or clean up offshore have had any effect on the flow of funds to terrorist organisations. So, what is motivating the IMF? 'Money laundering and terrorist finance' seem to be the key words, without much distinction being made between them, perhaps, and the FATF's successful campaign seems to have been a inviting bandwaggon for the IMF staffers to climb aboard, given that their previous work in legitimising financial flows seems to have had more to do with economic orthodoxy than with criminal activity.

The developing-country IMF directors may be right in saying that the FATF has concentrated unfairly on small countries (should it have attacked the US or the UK?) but to turn its efforts into another piece of IMF blancmange hardly seems a good way forward.

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