Chapter Twelve
ISLANDS IN THE SUN
"We have no natural resources and we have to survive."
Aruba's prime minister, Nelson Oduber
The fact that there is no Meyer Lansky Street running through the middle of downtown Nassau, Grand Bahamas, or for that matter, through the heart of any capital on any other island in the Caribbean, has got to be one of the most arrogant oversights in history. Lansky not only built the financial skeleton for postwar organized crime, he opened Caribbean eyes, wallets, safe deposit boxes and secret bank accounts to the delights of tax havens. He helped show the island nations how to become the world's biggest collection of sinks. Whether or not they'd ever openly admit to it, a huge debt of gratitude is outstanding.
The Caribbean is home to 31 million people, nearly two-thirds of whom natively speak Spanish. Another 20 percent are French or Creole speaking. Separated by water, culture, history and politics, the region is anything but homogeneous. It is easier to reach Barbados from New York than it is from Curacao. The most convenient schedule from Kingston, Jamaica, to Santo Domingo in the Dominican Republic is through Miami. One of the few characteristics most of the islands share is that they are generally considered to be in America's backyard. At the end of World War II, sugar was the region's main crop and the United States was the region's primary market. Since then, sugar exports to the US have steadily declined and so have earnings for oil and bauxite. But the islands are still America's backyard. The US remains the primary market. Except now the main product is narcotics.
It's no coincidence that a powerful Sicilian family, the Caruana-Cuntrera clan, who control organized crime in Venezuela bought sizable tracts of real estate in the Caribbean. When Pasquale, Paolo and Gaspare Cuntrera were arrested at home in Caracas in September 1992 on heroin trafficking charges that dated back ten years, they were deported to Italy. Known to have commanded a major international money laundering ring and believed to have been behind the 1992 assassinations of a Sicilian judge and prosecutor, they left behind an organization that is said to own two-thirds of all the land and two-thirds of all the businesses on Aruba, a resort island 45 miles west of Curacao, just off the coast of Venezuela.
Aruba is also home to the La Costa cocaine cartel who came to prominence when 16 of their ilk were charged in Miami with racketeering, drug conspiracy and money laundering. They'd reputedly brought 80 tons of cocaine and 250,000 pounds of marijuana into the United States since 1980, generating an estimated $800 million in profits until 1993 and the indictment against their chieftain, Randolph Habibe. He was been charged with a failed attempt to free a fellow cartel member Jose Rafael "El Mono" Abello, currently serving a 30-year sentence for drug smuggling in Oklahoma. To emphasize the amount of money available to these groups, the escape plot as engineered by Habibe was budgeted at $20 million.
One reason places like Aruba are vulnerable to organized gangs like Caruana-Cuntreras and La Costa, is because small governments, local citizens going up against international crime syndicates, are ill equipped for the fight. Their tourist-based economies are largely cash intensive, almost as if they were consciously designed for people wanting to hide money. The Caruana-Cuntreras family had no trouble taking over a large chunk of the island through their control of casinos and hotels. And what the Caruana-Cuntreras and La Costa have done in Aruba, others have managed in Bonaire, Curacao and St. Maarten.
The larger, more important islands, which include Haiti, the Dominican Republic and Jamaica, have been turned into "aircraft carriers," staging points for US-bound cocaine.
Although coca doesn't grow in the Caribbean, the ships and planes that bring it from Central America pass through there. So does the money generated by those drugs. Haiti, in particular, has been singled out by a confidential 1993 US Senate report, which named Port-au-Prince Police Chief, Lt. Col. Michel Francois, the second most powerful military man in the country, as personally handling in excess of $100 million in annual drug trafficking bribes. The three-page document, which was compiled from CIA files and witness accounts, notes that more than 1000 Colombians are "stationed" in Haiti, many of them under the direct authority of Fernando Burgos Martinez, a Colombian trafficker who's lived there openly since 1984. He's described as the resident manager and bag man who oversees transshipment of a ton or more of Colombian cartel cocaine each month. One estimate puts his annual turnover at $200 million. Another has it as high as $500 million. His payments to government officials are to guarantee access to the Port-au-Prince airport. And the report quotes a man who once worked for Burgos Martinez as testifying, "Haiti was our parking lot."
In more touristed nations, like Jamaica, the authorities strongly object to being tarred by the same brush. Fearing the effect that could have on tourism, they insist that anyone saying the Caribbean is awash with drug money is wrong. Ironically, Jamaica is the only island with a substantial marijuana crop.
Until Castro came along, the Cubans were the entrepreneurs of the Caribbean. In many ways, they still are, although now they run business in the Dominican Republic, Puerto Rico and Miami, a city that is 40 percent Cuban. Having lost a huge chunk of his foreign income to ideology, Castro has tried to make up for it by operating a freeport for drug shipments coming through the Gulf of Mexico on the way to the United States. Reports of Cuban involvement in drug trafficking first came to American attention in 1960, but those reports were largely unsubstantiated. Ten years later, as tales of conspiracies grew, there was still no solid evidence to authenticate the claims. But in 1982, a US District Court indicted four Cuban officials on charges of conspiring to smuggle drugs into the US, firmly documenting the fact that Castro has sold safe haven to the Colombian cartels for hard currency. The Wall Street Journal reported in 1984 that the Colombians were paying Castro as much as half a million dollars per shipment for the privilege of using Cuban territorial waters to avoid interdiction by the US Coast Guard and US Customs.
To contend with Cuban trans-shipment, the United States put the burden on the shipping companies, which are often the innocent victims of the drug traffickers. When the Americans found marijuana on board an Evergreen Line freighter, they fined the German company $29 million. As a result, Evergreen stopped bringing goods from Jamaica to the States.
The possibility that Castro might be linked to trafficking hit the headlines again over the summer of 1989 when Cuban General Arnaldo Ochoa Sanchez, the third-ranking military man in the country, after Fidel and his brother Raoul, was convicted on drugs' charges. He was put into the dock in a televised show trial, together with 13 senior officers and civil servants, accused of drug dealing. They'd all made money in Angola dealing in gold, diamonds and ivory while serving with Cuba's African Expeditionary Force. The prosecution claimed this money had then been invested in narcotics. Never stated, was the fact that six of them, led by Sanchez, had also invested in a failed plot to overthrow the Castro brothers. Those six were sentenced to death and summarily executed by a firing squad at the end of the trial.
American agents renewed their undercover contacts in Cuba. And it took the better part of two years before they hit pay dirt.
The man they eventually coerced into providing them with proof positive was Cuban Army Major Luis Galeana. In October 1991, while his plane bound for Moscow was making a refueling stop in Madrid, Galeana defected into the arms of DEA agents who were waiting for him just outside the Barajas Airport transit lounge. Within two days he was being heavily guarded in a Washington DC area safe house.
Assigned to Cuba's Interior Ministry, Galeana brought with him information, supported by half a dozen reels of microfilm, that documented two years' worth of Castro-sponsored cocaine shipments from Cuba to Texas and Louisiana. Those were the same cargoes that Castro had tried to pin on Sanchez. With the ending of Russian subsidies, Castro needed foreign trade to keep the Cuban economy from disintegrating. But his options were severely limited. So he turned to drugs, an obvious choice for its high markup, his Central and South American contacts and Cuba's proximity to the United States. At the same time, he'd been bartering what few nuclear secrets his Russian allies allowed him to know. Castro not only backed Saddam Hussein in the Gulf War but offered to aid Iran in its development of nuclear technology. He's also approached the Chinese and the North Koreans, proposing to help them develop their nuclear capacity in exchange for oil.
Advising Castro was the fugitive, Robert Vesco. Indicted for fraud, the large-boned, mustached Vesco had absconded from the United States in 1972 with whatever remained of the $224 million he’d stolen from investors in Bernie Cornfeld’s International Overseas Services. He went first to Costa Rica, protected by Presidents Jose Figueres and Daniel Oduber, living the good life in San Jose while he invested $13 million in radio and television stations, a newspaper and a hotel. In 1976, a federal grand jury in New York indicted him for the theft of that $224 million. Two years later, when Rodrigo Carazo was elected President, the welcome mat was withdrawn. So Vesco moved to the Bahamas, where he followed Meyer Lansky’s lead and supported Lynden Pindling. His most noteworthy contribution to mankind while he was holed up there was to negotiate shipments of cocaine from Colombia to the United States. When that contact turned sour, he returned to Costa Rica. But his welcome there was short-lived. Next, he headed for Nicaragua. In 1983, he went to Cuba, taken in by Castro as a favor to Figueres.
Following a DEA investigation into Colombian drug trafficker Carlos Lehder, combined with allegations levied against him by US Customs, Vesco was charged in 1989 by a federal grand jury in Jacksonville, Florida with conspiring to smuggle cocaine into the United States.
Myth has it that Vesco paid Castro $1 billion to avoid extradition to the US. People who know say the figure is highly exaggerated as Vesco never had that kind of money. Still, he was given a villa in the most exclusive district of Havana, La Coronela, and permitted to stock it with champagne and lobster. This at a time when ordinary Cubans had little more than beans and rice. A detachment of security guards was assigned, as much to protect him as to keep him leashed in. He was allowed to mingle with the diplomatic set at the country’s most fashionable golf club, to send his children to the International School, to throw lavish parties, to invest in sugar and tobacco, to build a series of beach front homes, to deal in coffee futures, and to run up a huge money-laundering operation out of Cayo Largo in southern Cuba.
Much to the surprise of the US Justice Department, and probably equally shocking to Vesco himself, he was arrested on June 1, 1995 and charged by Castro with being an "agent provocateur" for unnamed foreign governments. American diplomats in Havana were put on notice that Cuba might be prepared to turn him over. Around Washington, where it was rumored that Vesco's fortune had finally evaporated, the hope was that Castro had come to understand that by giving sanctuary to criminals he was hindering any chance for reconciliation with the US.
Since 1993, Cuba has cooperated to some extent with the DEA, leading some people to think Castro was finally trying to shed Cuba’s image as a refuge for drug traffickers. Yet according to FBI records, Cuba continues to shelter at least 91 fugitives from justice.
Bernie Cornfeld once predicted that the day would come when Vesco would simply outlive his usefulness. The day that happened, he anticipated, Castro would quite unceremoniously turn his back on him. So it appeared as if Vesco had, indeed, become a liability, as if Cornfeld was having a posthumous last laugh. But then, all went quiet. Nothing happened. For 13 years, Castro allowed the man to sing for his supper. Having taught Castro how to get around the American embargo and how to run an international drug trafficking conglomerate, it was as if Fidel had a sudden attack of uncharacteristic loyalty. More likely, he saw how badly the Americans want Vesco and realized that Vesco was one of the few aces he actually held. It was a card he never got to play because Vesco died in 2007.
According to Galeana's debriefings in the United States, Castro was petrified by the indictment that the US authorities levied against General Noriega. Furthermore, he was furious that Carlos Lehder Rivas had been willing to testify against his former chums. Until Galeana's defection, Castro could fall back on General Sanchez's confession that he and the others masterminded drug runs into the US, "for our own personal gain and without the knowledge or approval of our superiors in the Cuban government." If anyone believed that confession, and there couldn't have been many who did, Galeana's evidence changed their minds. He detailed the extensive use of Cuban territorial limits, at sea and in the air, military refueling and repair facilities, military radar cover and a prevalent reliance on military communications networks. He also outlined how the Cuban navy and air force played substantial roles. Such a ploy would be categorically unthinkable in a dictatorship like Cuba without the express knowledge of either Fidel or brother Raoul or both.
Based on what Galeana revealed to his American handlers, a plan had been drawn up inside Cuba to hasten Fidel's overthrow. Several high-ranking officers in Castro's army, living in fear of their own lives since the Sanchez firing squad, concluded there was little to lose by trying to force Castro into exile. It was even suggested at high levels of the Bush administration that Washington might help by indicting Castro on drug trafficking and money laundering charges, exactly as they'd done against Noriega. The indictment would then be broadcast to Cuba to spark a coup. Furthermore, Spain had already secretly agreed to take Castro, and he’d been made aware of that. But for reasons never stated, the plan was rejected by the White House.
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It is the rule rather than the exception throughout the Caribbean, to hear politicians say that the drug problem is not one of supply, it is one of demand. And the biggest demand comes from the United States. Their concern is, therefore, that Caribbean economies are being destabilized by drug dependency in America, over which they have no control. In other words, their largest, most important neighbor, which has always been seen as the patron of Caribbean security, has now become the greatest threat to it. But their argument falls flat when those same politicians show that they are not willing to risk total isolation by dropping back to a safer position. They've replaced sugar with off-the-shelf bearer share companies. They even sweeten the pot by providing an abundant supply of nominee directors; banking and commercial secrecy; a free flow of currency; a modicum of political stability; and easy access to modern telephone systems, fax machines and airports with regular services to North America and Europe. From their point of view, survival is at stake.
Many years ago, the Bahamian Ministry of Finance set up the Financial Services Secretariat "to identify and to encourage all types of investment and financial service opportunities." Put another way, the Bahamians were willing, for a fee, to provide the kinds of financial services required by people who want to hide money. Supporting those objectives in 1990, the legislature passed the International Business Companies Act, which soon became known as "the instant registration package." In under 24 hours, and for only $100, you can own a Bahamian company --- including one with a legitimate-sounding European name, such as Chicago Mercantile Financial Asset Management Holdings --- whose assets might be nothing more than the bearer-shares of some other off-the-shelf company, which in turn can control bank accounts anywhere in the world, through which money can pass like water down a funnel.
To prove the point, a phone call to a company agent in the Bahamas went, word for word, like this:
"I need to buy a company and would be grateful if this could be arranged as quickly and as discreetly as possible."
"That is no problem, sir."
"I've seen your list of names, you know, of available companies, but none of them suit my purposes."
"These things are easily arranged. Once you buy a company, we can file to change the name of it to anything you want, as long as there is nothing currently registered with that name."
"I was thinking of something along the lines of a commercial banking corporation."
"That is not a problem."
"Perhaps something like Manhattan County First Fiduciary Trust?"
"We will be delighted to look into that name, or any other you choose, and secure one for you that will suit your purposes."
"Will you also be able to provide an introduction to a friendly banker who will accommodate whatever needs I have, including cash transactions?"
"Yes, of course."
The response is hardly surprising, considering how the Caribbean is famously overpopulated with bankers who do not ask questions when large sums of cash are deposited. Of course, they're supposed to. But what people are supposed to do and what some are willing to do in order to make a living are often two very different things.
That has never been more evident than a few years ago when a branch office of an international bank opened its doors at the end of a runway on the Island of Anguilla. It has since been closed, but only because it was a little too blatant, even for the Caribbean. However, the shack, with the bank's name painted boldly on the front, did unabated business for several years, servicing private pilots who arrived on the island to make cash deposits before flying off again. It was drive-in banking Caribbean style.
No one even had to shut down his engines.
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The bad guys no longer rob banks, they buy them.
St. Kitts and Nevis are a pair of tiny English-speaking islands in the Leewards, about 1200 miles southeast of Miami. A popular stop on the cruise line circuit, the local economy has always thrived on tourism, sugar cane, cotton and pineapple. But the 44,000 residents of the two islands have in recent years come to understand that there is big money to be made by selling banks.
One of these ready-made financial institutions, as advertised by a Canadian firm in British Columbia, is an entity called The Keystone Bank Ltd. According to the prospectus, it is chartered in the "Tax free ecclesiastical sovereignty of the Dominion of Melchizedek." Precisely where that is, the brochure doesn't say. Frankly, you'd think someone could have come up with a less suspect-sounding place. However, along with ownership of Keystone Bank Ltd. comes the Keystone Trust Company, which seems to be the main asset.
For just $15,000, paid to the Canadian company, you can become the proud owner of a stack of official documents, suitable for framing, plus one brass plaque on the wall of a company formation agent somewhere in St. Kitts. As the bank is chartered in Nevis, no annual financial returns are required of the trust company. Directors, shareholders and principals may be of any nationality and may live anywhere. The value of the stock may be quoted in any company and bearer shares are permitted. A corporation may serve as a director and no shareholder meetings are necessarily required. The trust company can be merged with other corporations and administer the Keystone Bank Ltd.
In short, for $15,000, plus annual fees of around $700 payable to the local government, you can run your own bank and put as much cash through the tills as you want.
This is not simply a laundryman's fantasy, it's a recurring vision.
There are loads of formation agents hawking banks throughout the Caribbean. One of them, Jerome Schneider of WFI Corporation in California, touted banks at seminars across the United States for years. His sales pitch hung on the undeniable fact that investors "wield power and influence" with their own private offshore bank. For under $10,000, he provided clients with, "a fully chartered private international bank in the Caribbean, plus a management subsidiary corporation in the Bahamas, plus connection with a professional Bahamas Management service."
Schneider roamed the Caribbean, looking for island authorities who would sell him banking charters in bulk. In 17 years, it's estimated that he bought and sold nearly 1000 of them. Once he sold a bank to a client, that was the end of his involvement. WFI did not manage assets or perform any administrative services for the companies it sold. So when it turned out that a woman in Houston, Texas, named Daisy Johnson Butler bought a company called European Overseas Bank Ltd. from Schneider, chartered in Grenada and used to defraud 60 investors of $1 million, Schneider could quite innocently raise his arms and say, this has nothing to do with me. In fact, he even claimed that when he heard about Butler's misuse of the bank he acted promptly to get the authorities on Grenada to revoke the bank's registration.
A short hop from St. Kitts is the tiny British dependency of Montserrat. When the locals heard about the booming market for banking licenses, they jumped on the bandwagon and were soon invaded by an army of laundrymen with money to wash. At one point, the island which has a population of 10,000, boasted 350 chartered banks. Some of the companies had slightly familiar names: Prudential Bank and Trust, Deutsche Bank (Suisse), Chase Overseas, Fidelity Development and Manufacturers Overseas. There was even one called World Bank Ltd. They were never anything more than a brass plaque in a registered office, although that was not necessarily the case with the Zurich Overseas Bank. According to an indictment by the Justice Department against several Detroit loan brokers who bought Zurich Overseas from WFI, this one actually had an office --- a table at the Chez Nous bar in Plymouth.
Montserrat banking was good enough for Panamanian laundrymen who bought banks there to wash funds for the drug cartels and their former President, Manuel Noriega. It was good enough for Israeli Mossad agents who used their bank there to launder money in a weapons deal with Colombian drug barons in the mid-1980s. It was also, presumably, good enough for Robert Graven, alias Brother Eduardo of the Circles of Light Church. Working out of Montserrat, with the stated mission of feeding starving children around the world, he convinced 30,000 Americans to send a total of $3 million to the island's First American Bank. The FBI, working alongside British police, eventually established that Brother Eduardo's mission on Montserrat was Graven's own bank and he has since been convicted of fraud in Philadelphia.
Such is the demand for these banks that it created a cottage industry of Montserrat bank wholesalers. Recently, the situation got so out of control, Britain was forced into the unprecedented step of amending Montserrat's constitution. Responsibility for the financial industry was taken away from local politicians and placed under the authority of Her Majesty's appointed governor. And the first thing he did was to revoke 311 banking licenses.
The laundrymen were forced to move on. But they never have to go very far. The Caribbean isn’t that big.
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The British Virgin Islands are 36 dots of land, with names like Tortola, Virgin Gorda, Anegada and Jost Van Dyke, poking out of blue waters northeast of Puerto Rico and west of the Leewards. The year-round population of just 12,000 is culturally linked to Great Britain but constitutionally independent. More importantly, it is very interdependent on its neighbor to the south, the US Virgin Islands. So much so, that US dollars are the official currency.
The weather is perfect and English is spoken. So when a young Irish accountant named Shaun Murphy heard about BVI, and realized that paradise offered untold possibilities for a struggling laundryman, he opened a small practice there.
A gentle man with a soft accent, he started by forming companies for his clients in the BVI, using that company to open an account at a UK bank on the Isle of Man and depositing cash there. He'd then form a second company, open an account for it at a Swiss bank in Panama and wire transfer the money out of Man. Next stop would be a third company, with an account at a UK bank back in BVI. From there, he could easily wire on to his client anywhere in the world.
It was as good a method as any. Except, after a while, Murphy started thinking it wasn't complicated enough. He reckoned he could provide his clients with a better service, with as many cut-off points as possible to make their money virtually untraceable. So he hung a huge map of the world on the wall behind his desk, and sat in his swivel chair for hours, staring at it, picking out all sorts of strange places to open accounts. For one client, he formed 40 different companies and opened 90 different bank accounts in 40 different places around the world. That was the same client who once dropped a Samsonite suitcase to him from a passing airplane, with $2.3 million stuffed inside. It took a local bank two days just to count it.
The more complicated Murphy could make these transactions, the better it suited him. Even his own company, Offshore Formation, wasn't too obviously his. It was owned by two other companies: Romulus, which he secretly owned, and Remus, which was secretly owned by his friend Cyril Romney, who happened to be the prime minister of the BVI.
Growing ever more sophisticated as a laundrymen and better connected in the underworld, it didn't take long before Murphy had clients like Ben Kramer, who, together with his father Jack, was a high-profile powerboat builder in North Miami. Ben Kramer was also a heavy-duty drug dealer.
An habitué of the Miami to Bimini powerboat race, Kramer had worked out a near-foolproof gimmick to bring drugs into the US. He'd enter three boats in the race, one of which would invariably break down. Kramer's boat would sit dead in the water while the rest of the race disappeared over the horizon. At which time a mother ship would come alongside and load the stricken boat with drugs. When that was done, Ben's rescue boat would show up and tow the racer back to Miami. Finely tuned powerboats were breaking down all the time, so no one thought twice when one of Kramer's was winched out of the water, loaded onto a trailer and driven away. Over a five-year period, Ben Kramer smuggled $200 million worth of cocaine into the US with his boats.
Murphy set up two shell companies for the Kramers, both of which had an air of legitimacy about them so that Kramer could use the companies as official sponsors for his powerboat racing team. One was supposed to be a clothing firm. It had a London address on Savile Row but otherwise didn't exist. The second, chartered in the Netherlands Antilles, was called Lamborghini. It was not a motor car company, although Murphy and Kramer never said that it wasn’t, especially if someone thought it was. Drug money went into the companies, which financed the boats, which financed the drug running, which financed the companies. Somewhere along the line, Murphy also bought Kramer a car hire franchise in Florida and some real estate in Los Angeles.
At the same time, Murphy established a company for Kramer in Liechtenstein called Cortrust. Kramer quickly filled Cortrust's accounts with drug money, which just as quickly came back to Kramer, filtered through several other shell companies, in the form of loans to build a brand-new marina and to finance bigger boats.
Quite apart from any dealings Murphy had with them, the Kramers got mixed up in the investigation of the murder of Don Aranow. He was the man who built the famous Cigarette and Blue Thunder power boats. And that was the beginning of the end of the story for the Kramers.
Murphy's walls came tumbling down in the totally unrelated money laundering end of the Brinks-Mat case. When the British police found him, he sang. They immediately realized he had serious clients in the United States and, after hearing what he had to say about Brinks-Mat, they passed him on to the Americans. Murphy not only told the DEA everything he knew about the Kramers, but helped them get 70 separate indictments against other drug dealers and money launderers. The DEA came to like him so much, they spent three years debriefing him. For his help, they paid him $200,000, gave him a brand-new identity and sent him off to live somewhere in the Mediterranean.
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The Caymans are a small string of islands northwest of Jamaica, a relaxed 90 minute luncheon flight from Miami. Once the hideout for Edward Teach, Blackbeard the Pirate, they have come to be known over the past 20 years as one of the world's preferred financial hideouts. Sometimes called "The Geneva of the Caribbean," the islands --- made up of Grand Cayman, Cayman Brac and Little Cayman --- are long on sand, sun and confidentiality while decidedly short on regulation and taxes.
Georgetown, the capital on Grand Cayman, boasts 550 banks, one for every 50 residents, with assets in excess of $400 billion. Most of the banks are brass plaques, simply booking centers where loans and deposits are recorded but where nothing more than paperwork changes hands. There are no tellers, no vaults, no free bathroom scales for opening a holiday saving's account. Fewer than 15 percent of the banks registered and operating in the Caymans ever see any cash.
Originally a dependency of Jamaica, the Caymans elected to take on British Crown Colony status in 1962 when Jamaica declared independence from Britain. Like Hong Kong, the Caymans run their own affairs. There is a British governor in residence but in reality he does little more than cut ribbons at supermarket openings. The Bank of England has no say, nor any control, over banks in the Caymans.
In 1976, the legislature passed the Confidential Relationships Preservation Law which, similar to Switzerland, made it a criminal act for anyone to reveal information about someone's banking or financial associations. Not surprisingly, most of the major American banks have offices there. It turns out that a large percentage of the 25,000 Cayman companies and trusts registered on the island are beneficially owned by Americans. Whether or not these companies and the accounts they control ever get reported to the IRS, as required by US law, is another matter. Almost certainly, most of them do not. After all, if a wealthy man wanted to pay taxes on his income, he wouldn't buy a shell company and hide his money in the Caymans. That's why Oliver North set up a dummy company there. That's also why Agha Hasan Abedi opened a BCCI office there, channeling money through the Caymans to buy his way illegally into First American.
Bilateral agreements exist between the United States and some island governments, the Caymans and the Bahamas included, which are supposed to allow American investigators a glimpse behind the curtains of financial stealth. The Mutual Legal Assistance Treaty, ratified in 1988, says that if the US authorities request information on specific drug cases and fraud, the Royal Cayman Islands Police will cooperate.
Two years later, under pressure from the Americans, bankers in the Caymans drafted a code of conduct, stipulating that they would refuse any suspicious cash deposits in excess of $10,000. The idea was to put an end to the stream of men in shiny suits with gold chains and attaché cases filled with cash. But "suspicious cash deposits in excess of $10,000" doesn't necessarily exclude suspicious cash deposits under $10,000, or non-suspicious cash deposits of any amount. So the men with the shiny suits and gold chains changed clothes.
On paper, all of this is fine. In practice, it falls pitifully short of the mark. One obvious reason is that it's left to the Cayman police to decide whether or not the Americans should be granted cooperation. And, in cases of tax fraud, the answer is always no because tax fraud is not a crime in the Caymans.
Equally obvious, the good guys are up against a simple, undeniable fact: Allowing the bad guys to hide their assets is big business. Any offshore haven which opted to put an end to it would be committing economic suicide. It wouldn’t solve the drug problem. It would simply drive the laundrymen to other offshore jurisdictions where the politicians are less holy.
Islands such as St. Maartens in the Netherlands Antilles. There, the importation of large amounts of cash is easy, customs controls are for all intents and purposes non-existent and bankers can't be bothered to ask questions. One estimate has it that shell companies in the Netherlands Antilles control nearly 40 percent of all foreign-owned farmland in the United States.
Because of the direct link to Holland, it's a smooth wire transfer from St. Maartens to the Rotterdam account of a Panamanian-registered shipping company in Malta. They send the funds to Singapore, for deposit into the account of a Liechtenstein-registered insurance company on the Isle of Man, which transfers the money on to a Hong Kong-registered real estate company, working out of Monaco, with an account in Los Angeles. Timed right, the whole thing can be managed in under an hour.
To get use of the money, the laundryman borrows it from himself. It's known in the trade as "the Dutch sandwich" or loan-back. He walks into a legitimately licensed financial institution and negotiates a mortgage, using the Hong Kong company as guarantor, which secures the transaction with the laundered funds in LA.
A practical variation on that theme involves a pair of property development companies operating with total impunity today in the United States. One is in the Washington DC area. The other is in south Florida. The offices are staffed by Americans who act as agents for a group of foreign companies in apparently legitimate business centers such as Liechtenstein or Luxembourg. They specialize in property loans to developers who might be having trouble getting large loans through more obvious sources. There is no reason to believe that the people working in DC or Florida have any idea that the source of the funds they're lending are drugs related.
Their clients come to them with a speculative idea, such as the development of a shopping mall. They're looking for, say, a seven-year, $7 million loan. These outfits then arrange a $10 million loan, to be repaid in seven years. With the extra $3 million, the developers are required to buy a zero-coupon US Treasury bond, which they immediately sign over to the property company. They are then directed to a bank where they secure a letter of credit for a sum equivalent to the total interest payment on the $7 million, using the shopping mall as collateral. That letter of credit is also signed over to the property company. The developers get the money they need to build their shopping center, while the property company gets a $3 million bond, guaranteed payments of interest and the deeds to the mall if the developers somehow default. At the end of seven years, the developers pay off the principle and own a mall, while the laundrymen have $10 million, plus interest, in sparkling clean money.
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