How dictators stash their cash 101: Egypt, Libya not alone in losing assets

Switzerland says it has returned more than $1.5 billion over the past 20 years, but money laundering continues on a grand scale. 'It's like untying the Gordian knot,' says a former Department of Justice official.

While progress is being made in the fight against money laundering – Switzerland says it has returned more than $1.5 billion over the past 20 years – the problem continues on a grand scale.

"There is no perfect country," says Theodore Greenberg, former chief of the money laundering section of the US Department of Justice. "Why did the Swiss wait until Feb. 1 to freeze Mubarak family and close associate's assets? Why not the day before, the week before, or the year before?"

The World Bank estimates $20-40 billion is stolen from developing countries each year, while a January report (pdf) from Global Financial Integrity put that figure over $1 trillion annually.

From 2000 to 2008, according to the report, China lost $2.18 trillion, Russia lost $427 billion, and Mexico lost $416 billion in illicit outflows. China lost most of that money from trade mispricing, which is when companies exaggerate the price of imports, understate exports, and pocket and launder the remainder to offshore accounts.

“We regard our figures as conservative,” said the Washington-based group’s director, Raymond Baker, a former senior economist at the International Monetary Fund.

But world bodies are stepping up efforts to address the issue, says Mark Vlasic, a Georgetown University law professor who served as head of operations of the World Bank's Stolen Asset Recovery Initiative (StAR), which helps nations develop anti-money-laundering capacities. Since StAR's 2008 launch, corruption and kleptocracy have been the topics of discussion in the inter-national community, he says, highlighting their mention in recent G20 statements.

“Political leaders have aligned themselves with the importance of this cause, and that empowers the technical aspects,” adds Mr. Vlasic.

In June, the US Justice Department launched a new Kleptocracy Asset Recovery Initiative. In another positive step, all 15 nations (including Lichtenstein and the Cayman Islands) originally blacklisted in 2000 as uncooperative with the intergovernmental Financial Action Task Force have since become compliant.

Today, says Mr. Greenberg, who was also a senior specialist for the World Bank and co-wrote the book "Stolen Asset Recovery: A Good Practices Guide for Non-Conviction Based Asset Forfeiture," "banks must take reasonable measures to establish the source of wealth and source of funds related to their customers and the beneficial owners of the funds."

Yet that money is often laundered through a web of legal entities and structures. "It's like untying the Gordian knot," he says.

And the more you attempt to untangle one end, the more someone else is knotting up the other.

"When was the last time that you saw a banker or lawyer thrown in jail?" says Jeffrey Robinson, author of the 1995 crime exposé "The Laun­drymen." "If you start throwing bankers, lawyers, accountants in jail, you'll put a real dent in the problem."