BUSINESS WATCH

Dirty money and the debt crisis

Peter C. Newman March 9 1987
BUSINESS WATCH

Dirty money and the debt crisis

Peter C. Newman March 9 1987

Dirty money and the debt crisis

Peter C. Newman

BUSINESS WATCH

Hot and homeless money—the mysterious flight capital that flits invisibly between tax havens—is so volatile that no one can trace its origins or destinations. But in a book being published this month, McGill University economist and business historian Tom Naylor makes a compelling case that, instead of being a neutral and silent force, flight capital has been a powerful influence in detonating many of the most explosive international fiscal and political crises on our planet.

He carefully differentiates between hot money and cool, between the widow’s mite and the heroin trafficker’s hoard, between a temporary corporate working balance and a tax evader’s secret offshore bank account. But he finds an intimate relationship between illegal flight capital and the Third World debt load currently threatening to paralyse the big Western banks. “These two phenomena, world debt and the global pool of hot money,” he writes, “are more intimately related than most citizens of the Northern creditor and Southern debtor countries are aware.” He goes on to say that the chronic disputes between debtors and creditors over rescheduling payments “have been, on one level, a smokescreen for a massive money-laundering operation.”

Naylor outlines in convincing if complicated detail the convoluted mechanisms by which international financial relations are conducted, keeping his jaundiced eye on what he calls “peekaboo finance—the arts and sciences of playing seek-and-I’llhide with the fiscal and monetary authorities.”

He is careful to point out that although dirty money is hot money, the reverse is not always true, there being a distinction between how money is earned and how it is subsequently soiled by evading taxes and exchange controls. But Naylor will never be accused of being too respectful of any of our institutions. His chapter on the Vatican’s financial dealings— “Putting the Money Changers Back in the Temple”—describes in frightening detail “the world’s most sanctimonious offshore banking centre and tax haven ... in the heart of Rome . . . through which Italian state finances could be subverted, capital flight encouraged, and Mafia money washed.”

After that, he really becomes sacrilegious, documenting how the Central Intelligence Agency uses Swiss bank accounts to finance covert operations and how South Africa’s secret service launders money through the Union de Banques Suisses. The book is peopled by an unsavory collection of hard numbers like Meyer Lansky (who pioneered the use of offshore banks for laundering underworld funds), Bernie Cornfeld (who built the first truly scien-

tifie machine for flight capital ever known), and Klaus Barbie, the socalled “Butcher of Lyons,” who Naylor says worked for U.S. army intelligence after leaving the Gestapo.

Naylor’s style is a little too cute, as in the chapter titles “Buddy, Can You Spare a Billion?” and “What’s Better in the Bahamas?” But his documentation is awesome. The most impressive chapters deal with the cocaine connections of South and Central America, fully justifying Johnny Carson’s quip:

“The biggest money-maker in Hollywood last year was Colombia—not the studio, the country.” He terms the $100-billion drug complex as “probably the largest single component of a global black economy that makes nonsense of conventional financial statistics. It feeds the growth of ‘narcocracies’ whose financial power overwhelms the economy of small countries, undermines the fiscal integrity of large countries, and subverts the political and judicial process everywhere it reaches.”

It is a strength rather than a weakness of this book that Naylor has done little more than synthesize other people’s research, leaving little doubt about the authenticity of his claims. One only hopes that the profiles that emerge of multibillionaire Pablo Escobar Garvira, the alleged Colombian cocaine king now on trial in Miami, and former Bolivian dictator Luis Garcia Meza, are exaggerated.

But Naylor is dead right when he accuses the big banks of having been more concerned with their Fortune 500 rating than their credit ratings, and of becoming unwieldy bureaucracies in which the principal management concern has been with position in the hierarchy of power.

Naylor’s own status within his own hierarchy—the economics department at McGill—will not be enhanced by this book. They gave him enough trouble after another radical book of his, The History of Canadian Business, published in 1975. He did not enhance his reputation with the university’s administration or his colleagues by proclaiming that the mainstream in Canadian economic thought has long resembled New Brunswick’s “St. John River, carrying its overload of industrial and human effluent one way for several hours; then, once the Fundy tides reverse, carrying it back again, the net result being a continuous eddy of detergent suds and old rubber boots.”

When I asked Naylor how his fellow economists reacted, he shrugged, explaining that “they lacked either the geographic knowledge or poetic sensitivity to have appreciated the analogy.”

Tom Naylor hopes that his about-tobe-published Hot Money and the Politics of Debt (McClelland & Stewart) will produce “jealous hysteria” among his colleagues. He needn’t worry; it will.