no more financial shenanigans

[from Associated Press, 3 February 2011]

Argentine money cop means business

BUENOS AIRES, Argentina (AP) — In this society where tax evasion is the rule, corruption is common and white-collar crimes suck as much as $20 billion out of the country each year, a supercop of sorts has just been given new power to examine the books of the rich and powerful — from politicians and judges to union and business leaders, even foreign diplomats.

Under increasing international pressure to crack down on money laundering, President Cristina Fernandez has empowered a financial watchdog to follow the money, issue fines and confiscate ill-gotten cash.

The challenge is nothing short of changing the culture of people who feel they're above the law, said Jose Sbatella, president of the Financial Information Unit (UIF), in an interview with The Associated Press.

"We know we're going to have some problems with certain sectors that have been operating in the shadows," said Sbatella. "What we're asking for is a great leap forward in following the rules. If this doesn't happen before October, frankly we will have failed."

October is when the international Financial Action Task Force, which sets global regulatory standards, will consider whether Argentina belongs on its high-risk list. Putting it there could increase the costs of doing business and slow the economy. The task force has suggested nearly a thousand changes to better control flows of illegal money, and is watching closely for results.

Much of the pressure comes from the United States. A 2009 U.S. Embassy report released by WikiLeaks said "the near complete absence of enforcement coupled with a culture of impunity and corruption make Argentina ripe for exploitation by narcotraffickers and terrorist cells."

But Sbatella said laundering of Colombian and Mexican drug profits isn't Argentina's main problem; it's tax evasion, which he said robs the government of revenues it needs to establish a more equal society.

"Our main problem is the outflow of money to fiscal paradises. The most absurd is that the (U.S.) state of Delaware is the first destination for Argentine money, most of it from tax evasion." The state's regulations mask corporate ownership, he complained. "We don't know who they are. And then the money shows up elsewhere as clean."

Sbatella has issued 22 new rules in recent days, and would get even more power if a proposed money laundering law gets through the opposition-controlled congress this year.

Come April, much of Argentine society will be responsible for reporting suspicious transactions by people they do business with, with fines of up to 10 times the money involved if they don't comply.

Employees of financial institutions and government agencies, casinos, currency exchange houses, and issuers of travelers checks and credit and debit cards must make systematic reports to the UIF.

Political donations of more than 50,000 pesos ($12,500) must be reported this presidential election year, along with any suspicious transactions involving "publicly exposed people" such as lawmakers, government ministers and judges, leaders of unions and political parties, executives of businesses, cooperatives and charities, functionaries of foreign governments and their direct relatives and housemates.

"All these rules close holes, spaces where sources of money are being hidden. Prevention — the factor that the task force says we haven't had — is already being put to work in the streets," Sbatella said.

Sbatella says his unit is already empowered to follow laundered money and confiscate it — powers his predecessors never asserted.

The proposed law would tighten Argentina's definition of money laundering, making it a crime even if a person is not involved in the underlying illegal activity, and punishing "self-laundering" by the original criminals.

It also would give the UIF direct access to confidential tax information without needing a judge's permission. Individuals and businesses could no longer invoke bank secrecy or contractual confidentiality agreements to block Sbatella's investigators.

This deeply concerns the president's political opponents, who want the agency to be independent. But Sbatella, an economist from the president's leftist branch of the Peronist party, insists he won't use his powers for political advantage.

"We're collaborating in prominent court cases wherever money laundering has been detected," he said, citing investigations that strike close to the presidency: the illegal enrichment probe of a former Cabinet minister, the unclaimed $800,000 from a suitcase carried by Venezuelan power brokers, and donations to the governing party from the so-called "medicine mafia."

Real estate investments — a key method of laundering money — would come under scrutiny; notaries, brokers and others would have to identify their clients and the amounts involved. This threatens Argentines who have long used real estate as a means to protect wealth both from inflation and tax collectors. Nearly 90 percent of houses and apartments are bought and sold with cash, and the amounts involved are often falsely reported.

While Sbatella deserves credit for taking bold new steps, Argentine money laundering expert Ricardo Tondo said, the system depends too much on self-reporting by people who will fear for their careers or even lives if they tattle on their associates and clients.

People need to fear jail for failing to report even attempts at laundering so that investigators can unravel powerful criminal networks, Tondo said.

"I think he believes what he says, and he's taking steps that seem good to those who don't know anything," Tondo said. "But for those who know how money laundering works, they're dying of laughter. They're laughing in their faces, these criminals. Because all of this doesn't close the loopholes."