January 27, 2012 / 1:30 PM / 7 years ago

Pariah regimes play cat and mouse with financial watchdogs

LONDON/ZURICH, Jan 27 (Reuters) - Banks and regulators are powerless to find more than a fraction of the assets belonging to sanctioned regimes like Syria — even though they are right under their noses, say top finance officials and campaigners.

Experts charged with spotting undesirable assets and clients have to pit their wits against lawyers adept at exploiting the culture of client privacy in western financial centres, who have set up complicated networks of organisations, offshore trusts and legal loopholes.

This means that while European and U.S. governments have named dozens of individuals and entities with links to sanctioned regimes whose assets should be frozen, they can only ever get at a small amount of the money.

“Our current arrangements for the creation of trusts and the setting up of companies anonymously have created an environment which is permitting kleptocrats to move their loot around (and commit) tax evasion on a monstrous scale,” said Anthea Lawson, head of the Banks and Corruption Campaign at Global Witness, a non-government organisation which campaigns against money laundering and corruption.

Those determined to hide money have numerous devices at their disposal: for example it is possible to establish an offshore company which belongs to an offshore trust behind which may be another trust, all spread across multiple jurisdictions and set up by an associate of a person on a sanctions list.

“It is so easy for extended families or powerful people with tame lawyers to set up fronts which make it immensely difficult to find (them) out,” said John Christensen, former economic adviser to the government of Jersey, a British offshore financial centre, who now runs pressure group Tax Justice Network.

An added complication, bankers say, is the shifting status of individuals and regimes which in many cases established banking relationships before subsequently finding themselves on official blacklists after the onset of the “Arab Spring” revolts around the Middle East.

One London-based wealth manager running money for super rich international clients said he had sought unsuccessfully to pitch for business to the former Libyan ruler Muammar Gaddafi when doing so was still legal.


British Treasury officials have circulated a list of 86 members belonging to the regime of Syria’s Bashar Al Assad whose assets should be frozen if found.

It includes members of the Al Assad family, government officials, military figures and businessmen, as well as 30 entities including state bodies it says are “directly involved in repression” such as the Political Security and Military Intelligence Directorates.

Commercial ventures like phone operator Syriatel, controlled by Assad cousin Rami Makhlouf, are also named. Syriatel supports the regime by paying 50 percent of profits to the Syrian government, the UK government document states.

Most of the their assets have yet to be found.

“Swiss banks have only frozen 50 million Swiss francs, which we believe is a ridiculous amount compared to what people, entities close to the regime hold in Swiss accounts,” said a source close to the Syrian opposition who asked not to be named because they are not authorised to speak publically.

Moreover, many regime figures were already holding large sums of money outside the country and had little difficulty in shifting it away from prying eyes before sanctions kicked in.

“It is hard to enforce sanctions because there are a lot of people acting as frontmen for the top ranks of the Syrian regime,” said Nadim Houry, Beirut-based deputy director of the Middle East and North Africa division at Human Rights Watch.

Wealthy Syrians had already settled much of their money outside of the country, he added, given the limitations of the Syrian banking system which is still under-developed.


Britain’s financial watchdog, the Financial Services Authority, last year found in a study that “three quarters of the banks in its sample failed to take adequate measures to establish the legitimacy of the source of wealth and source of funds to be used in the business relationship.”

And the Swiss financial regulator FINMA identified control problems at four banks following an audit of accounts held by politicians from unstable countries, triggered by the freezing of assets of ousted North African leaders.

Nonetheless, bankers insist it has become harder to hide money behind complexity as regulators and compliance departments up their game.

This view is shared by the Financial Action Task Force,(FATF), a Paris-based inter-governmental body set up to combat money laundering and terrorist financing.

“It is fair to say we are not fighting a losing battle ... It has become harder and harder for criminals and corrupt dictators to hide their money,” said a source at the FATF who spoke to Reuters on condition of anonymity.

But a senior compliance executive based in London at a global banking group said that while banks are challenging more clients or assets that decision was still a judgment call rather than “an exact science”.

It was unlikely, the person said, that anything close to a majority of the illegitimate money coming through the western banking system was spotted by due diligence staff.

“When you look at the billions spent by the industry on due diligence ... (and) when you look at how little money is recovered and repatriated, how many convictions there are, it is a very poor rate,” the person said.


Meanwhile the picture is further muddied by challenges to the sanctions lists.

Several of the people and organisations named on the Syria list claim they have no links to the regime.

For example: one entity listed is conglomerate Cham Holding, largely controlled by Assad cousin Rami Makhlouf, who appears alongside various family members on EU, U.S. and Arab League sanctions lists.

Cham Holding, the list says, benefits “from supporting the regime” while one of its subsidiaries, Cham Investment Group, is an “economic entity financing the regime”.

However Vienna-based businessman Nabil Kuzbari, who is of Syrian descent, rejects this accusation and insisted to Reuters it has no political affiliations.

A former non-executive chairman of Cham Holding, Kuzbari told Reuters: “It is a purely 100 percent private company without any political activities.”

Campaigners and investigators believe the sanctions lists do not take into the account the sophistication of regimes’ financial networks — which carefully obscure links to their beneficiaries.

“The people we are talking about are very well resourced whether they be heads of state of regimes that are corrupt or whether they are major drug traffickers or other types of criminal,” the FATF source said.

“They have got the money, they have got access to professional advice. They have the capacity to go and try and hide their wealth.”

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