WASHINGTON-There's a lot of green in the Black Money Market, judging by the "conservative" estimate of near $600 billion Treasury Deputy Secretary Stuart Eizenstat put on the magnitude of money laundering in testimony before the House Banking Committee on March 9th. Calling it a serious threat to our country because it "facilitates drug trafficking, organized crime and international terrorism and because it encourages corruption in foreign governments, undermining U.S. efforts to promote democratic institutions and healthy economic development internationally," Eizenstat saved its most essential threat to American (and presumably world order) for last, when he summed up: "Money laundering also poses a threat in and of itself, because it risks undermining the integrity of our financial system." Because credit unions are part of that financial system, and seek to become even greater players by gaining a bigger market share of the asset pie and more expansive business lending powers, they may have to pay closer attention to areas that didn't seem to involve them before. And when a Website that specializes in offshore asset protection advertises that an individual can "buy" a credit union in an Eastern European country, "without having to provide detailed documentation of professional experience, assets, etc.," and announces that it is "Almost like printing your own money!" then both the American and International credit union movement may have to take notice. Because the financial system is based on the perception that the huge economic web is well-woven through honest, voluntary participation both by individuals and institutions and diligence on the part of supervising agencies and other government entities, a massive strategy of how to fight money laundering unveiled recently by the Treasury and Justice Departments dovetails with an effort to close corporate tax shelters (see related stories). Meanwhile, anti-money laundering bills await congressional action, and banking, insurance, securities and credit union lobbyists are monitoring and evaluating the impact of any proposed rules and regulations such legislation may impose. Because of its hard-won congressional battle with bankers over CU fields-of-membership and its higher profile on Capital Hill and in media circles that cover the financial industry, CUs would unwisely dismiss the notion that they can't be hoodwinked by crafty money launderers, tax evaders and Internet scammers, warn fraud experts. That White Hat the movement wears could be quickly tarnished by only one such scandal like the Bank of New York affair. Credit unions aren't typically mentioned in the conversation when the topic turns to laundering money, especially when the technique involves making large cash deposits (or other cash-equivalents) to accounts in "offshore" financials so they can be redeposited (via a correspondent relationship) in an American financial institution. In fact, all of the really bad publicity surrounding money laundering specifically relates to large banks. Just because their prime field-of-membership is natural persons rather than business accounts doesn't make CUs immune, say experts, and those CUs with considerable business lending portfolios may need to be more aware of the problem. As worldwide money transfers are made easier, the international credit union movement may need to be more vigilant, and with good reason. Money laundering has been chiefly associated with drug profits, but the desire of the wealthy to avoid taxes and/or shield a source of income from scrutiny is also a reason for the burgeoning "offshore" asset protection market. Combined with the lightening speed of the Internet, and some countries' lax regulatory oversight of banking regulations, the profile of credit unions could change. An Internet site (www: offshoreprofit.com) has been offering the sale of a credit union located in a European Union country, for the bargain basement price of only $19,800. The FAQ (frequently asked questions) sheet on the CU sale offer promises that the CU can take deposits, make loans and issue guarantees; issue bonds, letters of credit; offer leasing and payment services; issue payment tools like checks and cards; market insurance; trade in foreign currencies; offer credit reports; issue bank references and certificates of deposit, credit cards; advertise worldwide and solicit funds from the general public. The offer "comes complete with two correspondent bank accounts. One in the same country the CU (bank) is registered in and one in either another European country, or in the Caribbean, or in the U.S., depending on your requirements." Because European CUs are not tax-exempted, the FAQ notes that "if you use it together with a offshore company there does not have to be any taxable profit in the bank. This bank is actually a superior tax-planning tool. Because the country isn't a "famous tax haven," it is a "perfect first stop when funds are to be transferred offshore. If you need to transfer funds back `onshore...' you simply grant yourself or your offshore corporation a loan, and of course you are not paying taxes on a loan." They offer directors for a mere $2,000, who will "front on all documents and the client gets a power of attorney." If that isn't acceptable, they will provide an EU street address the owner can use. Calling a CU the "most powerful business tool money can buy," didn't sit well with Dave Grace, Financial Information Services Officer with the World Council of Credit Unions in Madison, Wisconsin. "Just like in the United States, European credit unions are cooperative institutions that cannot be bought by individuals. That alone troubles us," said Grace of the CU for sale offer. "I guess I'd have to spend the money to find out what country they're talking about, but that would mean spending near $20,000 plus the cost of directors in order to find out," he added. Grace noted that some of the powers promised are unlikely, such as being able to deal directly in securities, but expressed a real concern over the possible harm that could be done to credit unions' reputation if this sort of offer was indeed taken at face value and resulted in some scandal. "I'm not overly concerned, because the whole Website is just so rife with potential fraud that it's evident what it's all about. But we are concerned over possible damage to the credit union name, and we will make inquiries with our European counterparts," he said. (The site offers alternate sources of passports and other identification material, untraceable credit cards and myriad offshore banking information. At press time, the site was offline, but some fraud experts CU Times consulted logged on before it went down, and most agreed with Grace's take on it.) "This stuff just amazes me," said Barbara Loescher, a former CU fraud investigator with CUNA Mutual and a CPA, who now conducts CU fraud conferences. "I can see drug dealers taking big advantage of this; but what would they call it, "Drug Dealers FCU?" she laughed. "But this isn't funny, even though it seems preposterous. "The FAQ notes that you can't call it an FCU, but you can call it a `Sparkassa' which may be a Scandinavian reference, say, Sweden or Denmark, or you can call it a `bank.'" Whatever its called, it's sure not what the CU movement intended, said Loescher, after looking at the Website and reading the FAQ. "This is clearly for someone who has lots of money and wants to hide it, or for those seeking to launder money. The `Freedom package' they offer includes a new identity, a passport and all this other stuff that law-abiding folks wouldn't be interested in. It's about tax avoidance and money laundering, period." But the website's author claims that privacy issues, government malfeasance and irresponsible spending of taxpayer monies justifies an individual's every effort to keep as much of their hard-earned cash as possible; and it's all within the law. Yet Loescher was amazed at the boldness of the offer. "Create banking references? What, to sell to all your crooked friends? Now I've seen everything." About the potential for damage to the CU reputation, she rued, "It's too bad, because credit unions in these developing countries are in the early stages and could do a lot of good for citizens. It could be bad if legitimate credit unions are associated with this kind of thing." Rosemary Brady-Hardiman, a Springfield, Va., attorney who does legal work for CUs observed that it was clearly a money-making venture. "They earn money by selling information and providing directors, relicensing agreements, etc., but it looks be a money laundering or tax avoidance effort or a combination of the two." The FAQ boldly promises that the CU is a "nice way of legally funneling profits offshore and minimizing taxes! Once you sign up, we will show you a unique insider strategy of how to reduce your taxload and even say goodbye to taxes forever." A CU owner might "buy out your own debt for a song, stage your own `friendly self-takeover' and make exorbitant profits, absolutely legally, too, provided you know the proper way to do it." All of this comes after years of research done by an international team of financial privacy experts, they advise. Michael Zeldin, former chief of the United States Department of Justice Money Laundering and Asset Forfeiture Offices, now a partner with Pricewaterhouse-Coopers in Washington, called the site a "fraud vehicle" and said there were several others sprouting on the Web. He indicated that the typical smaller credit union, (and CUs in general) with their emphasis on personal service and friendliness might indeed prove an easy target for money launderers. "They have smaller staffs who must multi-task. They don't have a dedicated compliance officer that learns the tricks played by launderers. Not meaning any insult, but they aren't as `sophisticated' as the larger banks, they can't be. In fact, that is the charm of credit unions. Once you join, say, through some associational group, they tend to accept you." Zeldin warned that the greatest vulnerability to laundering lies in the ethnic-based CUs, whose members typically send cash to their home country. "Especially where cultural beliefs consider it impolite to ask about the source of money," he noted. Accounts are not state guaranteed or insured, they say, because that would mean "state control would be more or less totalist." And this isn't a bogus deal because a CU is fully entitled to all these monetary operations as long as they pertain to members only. Liquidity is not a concern either, because there is a "lack of laws in this specific area." Yet as in all EU countries, all "criminal" activity must be reported, and large cash transactions must be reported. But it's all legal, they say, for an "entrepreneur with foresight (and the right advisors) to set up his financial operation, including loans and mortgages in such a way that the credit union he does not `formally' own (but controls) becomes his major creditor..." But Robert Smith, principal of offshoreprofits.com, in an e-mail exchange with Credit Union Times responded to concerns about the laundering issue. "I'm concerned that the words "launder money" and "avoid taxes" are mentioned in the same breath.What's so bad about avoiding taxes? Many people have been brainwashed into believing that tax avoidance is illegal... but it isn't.''. As for dealing with `real' criminals, we're probably more picky as to who we do business with than most other offshore service providers. We do require professional references, bank references and notarized identification from all our clients to ensure that this opportunity does not get into the wrong hands. Every now and then we do receive `questionable' applications but trash them immediately," said Smith. -
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