COLUMN

Battling crime through the banks

The U.S. government, including the CIA, is pressuring world financial houses to clamp down on illegal deposits

DIANE FRANCIS May 29 1989
COLUMN

Battling crime through the banks

The U.S. government, including the CIA, is pressuring world financial houses to clamp down on illegal deposits

DIANE FRANCIS May 29 1989

Battling crime through the banks

COLUMN

DIANE FRANCIS

Switzerland’s biggest scandal in years occurred in January when Elisabeth Kopp, the country’s minister of justice and the police, resigned in disgrace. She left after admitting that last fall she gave her husband advance warning to resign as vicepresident of Shakarchi Trading, a Zurich-based gold and foreign currency trading company that was about to be mentioned as part of a sensational drug trafficking case. The case in itself is fascinating because scandals rarely dog the Swiss. But more importantly to Canadians, and other U.S. allies, it also shows how serious the United States is about fighting the illicit drug trade—no matter where the battle is fought.

The Kopp affair began in March, 1987, when a Swiss informer working for the U.S. Drug Enforcement Agency tipped off officials that a huge shipment of 220 lb. of heroin from Milan was about to be transported to Switzerland. Similar shipments had been made in the past, but this time authorities were ready to move in. They waited until the truck was inside the Swiss border and then arrested five men. On one man, they found a little black book containing the names and phone numbers of two Armenian brothers who operated a Zurich trading company. Elisabeth Kopp’s husband, Hans, was vice-president of the company.

Prosecutors never charged the trading company or its officers, but a major controversy arose over the fact that the then-minister realized that the link between her husband and Shakarchi Trading would become public because the company handled funds for the traffickers. She promptly phoned her husband, who resigned immediately. She later described it as her wifely duty, but the damage was done. The Kopps had not broken any laws, but she was at least guilty of a major indiscretion. In the ensuing controversy, she quit.

Later, in mid-April, a Swiss court convicted the five drug traffickers involved in the heroin shipment and sentenced them to at least 13 and as many as 18 years each. The case stirred

The U.S. government, including the CIA, is pressuring world financial houses to clamp down on illegal deposits

Swiss public opinion, and that was just the effect that the zealous drug-trade fighters wanted. The previously stubborn Swiss parliament, fiercely protective of its secretive banking industry, convened after Kopp’s resignation, and then emerged later announcing that it would strike a blue-ribbon commission to come up with ways to curb moneylaundering.

While in Switzerland, I met Paolo Bemasconi, money-laundering expert and former attorney general of the Italian-Swiss region of Lugano. Bernasconi said that, following Kopp’s resignation, the Swiss parliament asked him to study the issue of money-laundering because he had completed a similar study in 1986. His new committee of 10 bankers, businessmen, politicians and police finished their report in March. And two weeks ago, Swiss Justice Minister Arnold Koller announced that his government plans to outlaw money-laundering and prevent drug traffickers and other criminals from using Swiss bank secrecy laws to conceal their profits.

While attorney general, Bernasconi handled the Swiss portion of the international heroin smuggling case that became known as the “Pizza Connection.” The Pizza case surfaced in

the United States, Italy and Canada and got its name because traffickers collected cash in pizzerias from drug sales. Then the money was deposited in North American banks and brokerage houses and flown to secrecy havens.

Just as the Pizza Connection case raised U.S. public awareness, the Kopp affair stunned the Swiss. Bernasconi commented wryly, “The seizure of the shipment inside the Swiss border is quite interesting.” To others, it is more than just interesting. In April, one Swiss parliamentarian suggested that the CIA organized the arrest to occur inside the Swiss border, rather than Italy’s, to get the Swiss to clamp down on their traditional banking secrecy. A similar case stirring public opinion in Luxembourg and London involves charges of laundering, which Miami police laid in 1988 against Luxembourg’s Bank of Credit and Commerce. That case also implicates a major British brokerage firm. “For the Americans, it has been a very good, a very lucky, period in terms of raising consciousness,” says Bernasconi.

Similarly, Canada has not been let off the hook as far as pressure goes. Estimates are that 90 per cent of heroin moves into the United States across the border from Toronto, Montreal and Vancouver. Worse yet, until Ottawa’s Bill C-61 amended the Criminal Code last January, Canada had almost no effective laws against money-laundering. The jury’s still out on the amendments, but it is supposed to allow courts to freeze and seize any criminal proceeds.

Bernasconi says that he will study our Bill C61 as part of his continuing interest in the issue, and said: “There was a Canadian connection in the Pizza Connection case. Deposits were made to Montreal banks, cashier’s cheques were drawn from those banks, flown to Hong Kong to be cashed, and the money transported to Zurich.”

That situation, as well as legal battles between the U.S. and Canadian banks in the past, probably made it more than just coincidence that Washington chose to push for an agreement to crack down on money-laundering at a Canadian location—Toronto—during the 1988 economic summit. And in Basel, Switzerland, last December, the so-called Group of 10 met, which included the seven summit nations, Belgium, Luxembourg and Switzerland. They signed a more detailed accord of principles, which, if implemented, will go a long way toward forcing banks to turn over information to drug investigators, says Bernasconi.

But the biggest weapon of all is contained in the omnibus drug bill that Congress passed last fall, which will force foreign banks with U.S. operations to keep track of cash transactions anywhere in the world—and to surrender that information upon request. Canada and others have officially protested the amendment on the grounds that the Americans have no right to force their laws onto other sovereign states. But the Kopp scandal and other events clearly indicate that the Americans have declared war on the drug trade. And allies, like foes, must realize that they are caught in the crossfire.