News

USIS Washington File

03 February 2000

Text: Summers on Corruption, Money Laundering


(Tax evasion, corruption, money laundering distort economies) (1780)

U.S. Treasury Secretary Lawrence Summers says that as global economic
interdependence increases every country becomes increasingly
vulnerable to financial crime and corruption, which ultimately
distorts economic growth and public trust.

"Integration and technology can bring new life to old vices: be it a
company's desire to evade the taxes it owes; a criminal's desire to
launder the proceeds of his crime; or the corrupt official's
willingness to bend or break the rules," Summers said February 3 at
the annual meeting of the Committee of Hemispheric Financial Issues
(CHFI) in Cancun, Mexico. A copy of his remarks was made available in
Washington.

Tax evasion and tax havens distort the economy and financial system of
the host country, "encouraging non-transparency and a culture of
deception," he said. This, in turn, "threatens to undermine the public
trust upon which compliance, in all of our economies, depends."

Corruption, Summers said, impedes development and "it distorts
macroeconomic, monetary and financial policy decisions, adversely
affecting public revenues."

While these crimes often transcend national boundaries, Summers said
it is equally important that the solutions not be constrained by
national borders.

Summers said that money laundering matters for two reasons:

-- It is the lifeblood of criminals and provides the means by which
they may be caught.

-- And, it taints financial institutions, which can lead to
destruction of public trust in their integrity.

Following are terms and acronyms used in the text:

-- OECD: Organization for Economic Cooperation and Development.

-- CHFI: Committee of Hemispheric Financial Issues.

-- OAS: Organization of American States.

-- IFI: international financial institutions.

-- IDB: International Development Bank.

Following is the text of Summers' remarks as prepared for delivery:

(begin text)

[U.S. Department of the Treasury
Washington, D.C.
February 3, 2000]

"THE REGIONAL AND GLOBAL CHALLENGE OF TAX EVASION, CORRUPTION AND
MONEY LAUNDERING"

TREASURY SECRETARY LAWRENCE H. SUMMERS
REMARKS AT THE ANNUAL MEETING OF THE
COMMITTEE OF HEMISPHERIC FINANCIAL ISSUES
CANCUN, MEXICO

We live in new global economy -- a new economy fueled by innovation
and technology, the spread of markets, and the advent of emerging
market economies. These changes hold out incalculable potential and
opportunity for all of our economies. But we know that they also bring
important challenges in their wake. In the financial sector
especially, integration and technology can bring new life to old
vices: be it a company's desire to evade the taxes it owes; a
criminal's desire to launder the proceeds of his crime; or the corrupt
official's willingness to bend or break the rules.

In a more integrated world, all of these pose a serious threat to our
economies and our people -- because they undermine the good governance
and transparency in institutions on which economic development and
growth will increasingly depend. And that threat does not stem solely
from the activities that take place within our borders. As
interdependence increases -- each country is as vulnerable to
financial crime as the weakest link in the chain. In that sense they
are global public "bads" in the same way that environmental
degradation and terrorism are. They are not constrained by national
boundaries -- and neither must be our solutions.

For all of these reasons, it is right and important that the Finance
Ministers of this region should take this opportunity to commit our
countries to enhanced national and regional efforts to combat these
problems. Just as war is too important to be left to the generals --
in a new global economy, the challenge of overcoming corruption and
financial crime is too important to be a challenge for law enforcement
agencies alone.

Let me very briefly discuss each of these threats to good governance
and transparency in our region and our efforts to combat them,
including the very important step forward the countries of this region
are taking today in the war against international money laundering.

I. Tax Evasion and Tax Havens

In a more integrated global financial system, offshore jurisdictions
have become that much more accessible -- and the scope for tax abuse
and avoidance has expanded. This puts pressure on national tax
systems, particularly in the larger economies. It distorts the economy
and the financial system in the jurisdictions that benefit,
encouraging non-transparency and a culture of deception. And it
threatens to undermine the public trust upon which compliance, in all
of our economies, depends.

For all of these reasons, we have devoted priority attention in the
United States to combating international tax evasion and avoidance:

-- Through greater exchange of information between national tax
authorities, including in this region.

-- By promoting, in various international organizations, including the
OECD, measures to address the concerns raised by non-transparent
practices, such as strict bank secrecy, and to address harmful tax
competition.

-- By examining our own laws to determine what changes are required to
prevent the exploitation of tax havens by United States taxpayers. A
number of other countries are working along similar lines.

With these meetings, we are delighted that CHFI will provide another
force for international action with regard to this issue. I
particularly welcome our proposed call for enhanced efforts by the IDB
(International Development Bank), the World Bank, and member countries
to provide support for jurisdictions that are seeking to lessen the
regional and global externalities that their financial regimes may
create. The United States and the international community have and
must continue to recognize and respond to the fact that smaller
countries may be directly affected by such efforts, particularly when
they have previously earned considerable economic benefit from
offshore finance.

II. Corruption

Corruption impedes development by eroding trust in public
institutions. It distorts macro-economic, monetary and financial
policy decisions, adversely affecting public revenues, discouraging
private investment, misdirecting public sector spending, and damaging
the credibility of governments by undermining the confidence of both
taxpayers and private investors. In all of these ways -- the core
missions of finance and economic ministries are directly and adversely
affected by corruption. But they have not traditionally considered
themselves to be in the frontline of combating it.

Increasingly and rightly, that perception is changing. For, if we have
learned anything from developments in different emerging market and
transition economies in the past decade, it is that there is no better
antidote to corruption than the market, and the steps that governments
take to enable the market to function. For example:

-- Non-transparent financial procedures, excessive regulations, and
under-trained and under-paid civil servants all create incentives for
bribery and fraud. By the same token, addressing these problems
greatly constrains their scope.

-- Lack of competition in the financial sector and bribery of
financial regulators and supervisors adversely affects the allocation
of private capital, permits money laundering to flourish, as well as
increasing the vulnerability of financial systems to crises. Properly
handled, financial liberalization can therefore combat corruption and
money laundering as well as promote growth and financial resilience.

I welcome CHFI's proposed new push in this area, including our call
for strengthened IFI efforts, particularly with respect to helping
national financial officials find the right ways to promote integrity
and tackle corruption in fiscal, budgetary, customs, procurement and
financial regulatory administration.

Going forward, we must work to support the same objectives in our own
countries -- notably through more effective implementation of the
objectives of the Inter-American Convention Against Corruption, to
bring this Hemisphere into line with the OECD and Council of Europe.
In this context I believe a follow-up OAS mechanism for multilateral
and mutual review and evaluation of implementation progress can and
should play a useful role and bring this Hemisphere into line with
anti-corruption efforts in the OECD and the Council of Europe.

III. Money Laundering: A Comprehensive Approach

Money laundering matters for two reasons. First, because it is both
the lifeblood for criminals and a means by which they may be caught.
And second, because it taints our financial institutions and if left
unchecked, eats away at public trust in their integrity.

Addressing this many-layered threat is a challenge of national policy.
Last year, President Clinton published the United States' first
National Money Laundering Strategy, a comprehensive set of concrete
actions we are taking to address the problem, some of which were
included in the Money Laundering Act of 1999 that was submitted to
Congress in the Fall. If passed, that legislation would for the first
time make it a crime to launder money derived from foreign official
corruption. It would also make bulk cash smuggling of more than
$10,000 a crime -- and give our law enforcement officials new tools to
go after the largest known money laundering system in this hemisphere,
the Black Market Colombian Peso Exchange.

As the latter example highlights, this is equally a challenge of
regional and international cooperation. That is why developing and
expanding the work of the Financial Action Task Force (FATF) -- and
its Caribbean regional equivalent, the Caribbean Financial Action Task
Force (CFATF) -- is so important. And it is why the creation of a
regional counterpart to FATF and CFATF in South America is so welcome.

International fora such as the FATF and the CFATF provide
recommendations for specific actions that governments can take to help
shield their financial systems from dirty money, and prevent its
movement across international borders for criminal purposes. Equally
important, these bodies provide mechanisms, such as the Self
Evaluation and Mutual Evaluation programs, to ensure that member
governments effectively implement these recommendations.

As I said at the beginning of my remarks, those who engage in
financial crime derive maximum advantage out of international
integration, and so must the governments who want to stop them. We
need to expand the community of nations that subscribes to these kinds
of protective measures if they are to be truly effective. In that
sense the new South American FATF is an idea whose time has come. I
thank and salute here the governments of Argentina and Brazil, for
their leadership role in working to establish such a forum.

Countries cannot win the war against international financial crime on
their own. With the creation of a Caribbean and, now, a South American
FATF, they will not have to. What matters is that every country move
quickly to make good on the commitment they will make here today, to
subscribe to these bodies and work to implement effective and truly
collaborative solutions.

In that same spirit of collaboration, let me now hand the floor to my
friend and colleague from Argentina, Daniel Marx.

(end text)

(Distributed by the Office of International Information Programs, U.S.
Department of State.)