Caught In The Wrong Net

Other havens seem to agree. Their attitude is that if a country sets taxes too high, evasion becomes inevitable. There will always be certain states, as well as lawyers, straw men, bogus foundations, banks and other institutions willing, for a fee, to help people hide their money. Indeed, despite recent moves to restrict such havens, many countries and banks still compete fiercely for clients by offering confidentiality guarantees and advisory services on how to set up fronts, philanthropies or family trusts—all means of hiding assets.

In the late '90s, even the U.S. Department of the Treasury resisted attempts by the CIA and the FBI to impose stronger controls. "We're only going to scare off foreign investors who will take their money to other countries," one senior Treasury official, who requested anonymity, told me at the time.

Then came September 11. Suddenly power shifted from economists and financial specialists to intelligence agents and counterterrorism experts. Safeguarding the homeland became the priority. "Follow the money" is the mantra. Where do the terrorists get their funds? How do they move them? Where do they keep them? What accounts and corporations are linked to other suspicious accounts, and where? Answering such questions, it was hoped, would not only help identify the 9/11 attackers and their allies, but would also allow authorities to identify other networks and pre-empt future attacks.

The United States and many other countries quickly set about approving strict new laws, creating the most ambitious anti-money-laundering system the world has ever seen. Yet some states rejected the pressure. In other ways, like many post-9/11 measures, the new regime overreached. As well as ensnaring terrorists, it led to the downfall of Spitzer and Zumwinkel—and more big names are likely to follow.

That may sound like a good thing. The problem is that the random capture of a few governors and corporate CEOs is not the main aim of the new system, which should be geared instead at identifying individuals and networks that threaten world security. Even under the current system, research shows that the chances of a money launderer being caught are still slim. By making it easier to snag lesser criminals, the new structure raises the risk that the most dangerous threats will slip through. No system will ever be perfect. But one that was designed in haste, in fear and with the ambition to monitor everything is guaranteed not to do the job.

Naím is editor of Foreign Policy magazine and the author of “Illicit: How Smugglers, Traffickers, and Copycats Are Hijacking the Global Economy.”

© 2008