Global Policy Forum

Genoa - Unlawful Debt or Financial Crime


By Arnaud Zacharie

July 11, 2001
The politico-financial history of the last thirty years reveals a worrying correlation between financial crime, indebtedness and poverty. In the four corners of the world, various agents have put in place a smoothly running system of decapitalisation resulting in State bankruptcies and as a consequence the failure of all public policy guaranteeing the wellbeing of their peoples. Faced with this scarcely encouraging situation, the question remains to be answered. Will the twenty-first century eventually see justice prevail over the institutionalised accumulating of fraudulent profits ?

A text-book case: the Argentine

Argentina is known for being one of the IMF 's (International Monetary Fund) favourite pupils. Since the '80s the country has rigorously applied the Washington experts' letters of intention. The the programmes' objective is now well known; freeing the country from debt and structurally adjusting it to the global market, in order to break decisively with the "reactionary" policies of the past, responsible for the debt crisis at the beginning of the '80s

Following neoliberal theory, state power has accordingly been diluted, undertakings have been sold to foreign capital, economic frontiers opened up to international capital and the multinationals. Today while 90% of the banks and 40% of industry are in the hands of international capital, the country has been in serious recession since July 1988, its external debt has increased from 43 to 133 billion dollars between 1983 and 2000, health and education are in tatters, the average salary is worth half its 1974 value . The collapse is dramatic, both economically and socially. The reason is clear, though seldom mentioned; the IMF and successive Argentine governments have not answered the real problems but, have , on the contrary , applied measures exacerbating them.

Evidence now exists , resulting from a judicial enquiry over 18 years, following a legal process initiated back in 1982 by a journalist, Alejandro Olmos.; the Argentine debt crisis has its origin in wastage and fraudulent misuse of funds featuring the Argentine government, the IMF, private banks in the North and the American Federal Reserve. That is why the Argentine Federal Court has declared the debt contracted by the Videla regime"unlawful", as being contrary to the legislation and Constitution of the country. The court recommends Congress to employ this judgment to negotiate the cancellation of this execrable debt.

A smoothly running decapitalisation mechanism

In 1976 Videla's military junta took power and set up a dictatorship which lasted until 1983.During this period Argentine external debt was multiplied by five (increasing from 8 to 43 billion dollars) while the share of the GNP (gross national product) attributable to wages sank from 43% to 22%. The dictatorship was to lead to the debt crisis and the official entry of the IMF to take financial command of the country, with the results that are well known.

The verdict of the Argentine Tribunal ,195 pages long, traces the history of this condition of indebtedness from its origins. Agents of various types are featured; on the Argentine side, the principal roles are occupied by President Videla, Martinez de la Hoz ,the Minister of the Economy sponsored by the Council of Business Heads, and Domingo Cavallo, Director of the Central Bank.

Next comes the IMF which since 1976 has been granting extensive credit to the Argentine providing Western banks with a guarantee that the country is in a favoured position for the recycling of their surplus petrodollars. But the IMF's role does not stop there, because all through the dictatorship, Dante Simone ,an IMF staff member, is to be found in the regime's service. The IMF excuse is that it had granted leave to M. Simone and that it was he who put himself at the disposal of the country's Central Bank (p.27 of the judgment).The Bank was therefore paying the expert's board and lodging expenses. It remains to be discovered who paid his salary and if his leave was paid by the IMF.

However that may be, Dante Simone produced a written report addressed to Domingo Cavallo of the Argentine Central Bank (a copy to the IMF has been found) a report stating that as regards contracting further debts there were wide margins before any major economic danger would arise (p.31 of the judgment). M. Simone's role was clearly to seek extensive but discrete external financing.

Such external funds were in any case hardly difficult to find, so avid were the Western banks to tap into new markets, gorged as they were with petrodollars impossible to invest following the crisis in the rich countries of the North. The enquiry thus shows that the Argentine Central Bank was able to make discretionary investments with American banks, this without securing the agreement of the Minister of the Economy, but relying on the generous help of the American Federal Reserve!

The arrangement between these different lead players was such that the bank loans granted to Argentina were never to come under that country's control, but were to be directly diverted by the banks to tax havens in the name of front- companies. So the debt did not benefit the local people but rather the dictatorial regime and the banks of the North which provided important technical financial support for the passage..

The rest of the funds were squandered in lavish subsidies to large groups of Minister Martinez de la Hoz's personal friends.

In spite of this court judgment, the legislative power is making no move. It is continuing the country's liberalisation , pushed to extremes, as this was, during the '90s ,by the successive governments of Carlos Menem,who, along with four of his former ministers, is now being held in custody, for international arms trafficking during the first part of his mandate (between 1991 and 1995)!

Rather than employing the judgment to repudiate the unlawful debt which is keeping his people and his economy in an unsustainable position, President De la Rua has urgently recalled Domingo Cavallo to the head of the Ministry of the Economy, the very man who was governor of the Central Bank in the time of Videla and subsequently Carlos Menem's "Super-Minister" of the Economy during the nineties before getting himself swept away in the clean-up after the 1998 presidential elections faced with De la Rua!

A well established culture

While a judgment like this has the capacity to show up the unlawful character of the Argentinian debt, the fact that the enquiry lasted 18 years means that those responsible will remain immume, protected by prescription covering the facts. The removal of prescription from economic crimes is a major juridical objective of the new century But it is not the only one..

The mechanism brought to light in Argentina is unfortunately not an exception. Mobutu in Zaire, Suharto in Indonesia, Houphouet-Boigny in Ivory Coast, Moussa Traore in Mali, Marcos in the Philippines , Pinochet in Chile and others are well known examples of Chiefs of State at the head of a financial empire constructed with the aid of the banks by the twisted course of tax havens. All these countries are burdened today by unsustainable debt and have been in the neoliberal hands of the IMF for almost two decades. As for their peoples, most of them have lost even the will to go on hoping, to such an extent has an already well established culture been reinforced by the total opening up of economic frontiers and the abolition of controls.

One of the most striking examples of this is Russia which inside a decade has passed from the hope of democratic emancipation to institutionalised plundering.

The facts underlying neoliberal Russia

When the Soviet Union finally collapsed, the local peoples entertained an amazing hope of liberation and democratic freedom. Ten years later they have passed cruelly from bureaucratic rationing to a dramatic drop in their living standards. Once again a band of influential agents have united to ceaselessly pillage a state in course of disintegration.

The former Vice President of the World Bank, Joseph Stiglitz, , summarises this transition, as follows: concerning the reforms applied in Russia;

"Following the fall of the Berlin Wall, two schools of thought emerged concerning Russia's transition to a market economy. One of them stressed the importance of institutional infrastructures in a market economy and recommended a more gradual transition towards market economy. The second school of thought was composed of macro-economists whose faith in the market was absolute. These economists had no knowledge of history or of the details of the Russian economy nor did they believe that they needed any.The great strength, and the ultimate weakness of the economic doctrines relied on, lies in the fact that that they were - or were supposed to be - universal. This universal truth is that shock therapy works for all countries on their way to the market economy; the stronger the dose (and the more painful the reaction), the more quickly the change is effected. Such is their argument. Those who opposed this course were not consulted for long. By December 1993 Russia had experienced ' too many shocks and too little therapy'.And all these shocks had completely failed to bring Russia to a genuine market economy. The rapid privatisation imposed on Moscow by the IMF and the US Treasury had allowed a small group of oligarchs to take control of the country's assets. when the government began to run short of money for paying pensions, the oligarchs diverted important national resources to Swiss or Cypriot bank accounts. The United states were implicated in these obnoxious transactions. In mid-1998 Larry Summers replaced Robert Rubin in the post of US Finance Secretary, He appeared by the side of Anatoly Chubais, the chief architect of the Russian privatisations. In acting thus the United States appeared to be allying themselves with the forces responsible for the impoverishment of Russia. The US Treasury and the IMF continued to insist that the problem did not result from too much therapy but from too few shocks. But during the course of the '90s, the Russian economy continued to collapse. Whereas only 2% of the population were living in poverty at the end of the Soviet period, the 'reforms' saw the rate of poverty climb as far as 50%, with more than half of Russian children living beneath the poverty threshold. Today Russia is eaten away by enormous inequalities and the majority of Russians have lost faith in the market economy."

The fraudulent diversion of funds operated by the Russian oligarchs since 1993 are estimated at some 130 billion dollars! Meanwhile the country's external debt has risen from 60 to 155 billion dollars between 1990 and 1999, whereas the country's GNP in 1999 is only 59% of what it was in 1989. While the people have been plunged into dire poverty, a handful of oligarchs have accumulated a fortune ,entirely tax free, with the complicity of the Yeltsin government, Russian and Western banks and tax havens.

One of the most striking examples is that of Menatep, during the Kremlin-gate scandal which erupted in August 1999. This Russian bank , now in liquidation, was, with the collaboration of the Bank of New York, to have diverted to tax havens, some 10 billion dollars, partly derived from IMF loans.

Late in 1997, Menatep opened an account with Cedel (now renamed Clearstream), the international clearance room offering the facility of opening unpublished accounts (read "Revelation", Denis Robert and Ernest Black,2000, Les Arenes). Alongside the Bank of New York are the Vice President,in charge of relations with Russia, and her husband, the former president of Menatep and representative of Russia on the IMF between 1992 and 1995. The agents are in play, with the complicity of the Yeltsin administration as back-up, so decapitalisation can be put into operation.

On December 31, Boris Yeltsin resigned in favour of Vladimir Putin. elected President three months later, after instigating an investigation for abuse of power against Procurator Skuratov who was holding an inquiry into the diversion of funds connected with the Yeltsin clan.

Convergent diagnoses

The globalisation of liberalised financial markets and the proliferation of tax havens have facilitated the means for decapitalising States worldwide.. Thousands of billions of dollars are thus diverted and laundered with total impunity, all at the expense of the men and women citizens of the world who have to suffer the onslaughts of budgetary austerity.To counter such a state of affairs is no easy matter and this for various reasons;

The complicity of the banks; - the diversion operations call for complicated technical financial resources which only the banks possess; front- companies; off-shore companies, changes of fiscal and legal identity, diversification of investments in complex financial products etc. Thus while corrupt elites build a fraudulent financial empire , they can only do it thanks to the logistic support of banks well remunerated for their services.

The speed of carrying out enquiries: - the period of sequestration being public and limited to a few months, justice is constrained to act with urgency which allows white collar criminals to respond when they are sufficiently organised. This was especially so in the case of Moussa Traore in Mali ,who at the beginning of the nineties was able to alert an ambassador accomplice in Geneva who armed with a power of attorney contacted the cantonal bank in Vaud.The latter was quick to transfer the funds to other safe places (read "Africa;Cancel the Debt to Liberate Development" edited by Arnaud Zacharie and Eric Toussaint, 2001,p.235)

The powerlessness of justice; - whereas only a few days are needed to divert funds along the crooked route to the tax havens, it takes an average of two and a half years for a judge to track down an operation. In view of this disparity it seems difficult for justice to respond effectively to this globalised mechanism for decapitalisation.

The virtual secrecy surrounding the information; - while it is easy for a banker to discover who is the titular owner of an account and with what front company or financial set-up etc., he is usually silent when an enquiry is under way. The reason for this is simple. Diverting funds is an extremely well remunerated operation for banks and very real competition has developed. Moreover, a bank cooperating with justice will see its fraudulent clients turning their backs on it to the benefit of more "understanding" banks.

The complexity of the procedures; - the fact that a procedure is traditionally long and complex (1st instance, 2nd instance, etc.) often enables financial criminals to be protected by prescription covering the facts

Roads to international financial justice ;

The establishment of international financial justice has become essential for States to exist.This involves juridico-economic changes at national and international levels. Some roads should be tried even though, given the current political situation , they may seem problematic.

The execrable and unlawful debt; it has been seen in the case of the Argentine that national enquiries can be made to determine the unlawfulness of a country's external debt. Under international law, a debt is unlawful when it has been contracted by a non-democratic regime, without benefit to the local population and with the collaboration of the creditors. Although the impact of such enquiries remains limited for the reasons explained above, they may well increase citizen awareness thus motivating the legislative powers to respond eventually..

The Convention of Rome (1998); when the Rome Convention has been ratified by enough States the international penal court will have a panel of judges (parquet) at its disposal and one State will be able to bring a case against another. Since March 1991, ECOSOC (Economic and Social Council) has considered the diversion of public assets to be a violation of the Rights of Man. Also, it will be possible to prosecute decapitalisation as an international crime, even if such prosecutions can be brought only by States and give no right to civil law damages ( simply the criminal penalty)

Making clearance companies subject to international supervision; it was seen in the Menatep case that the use of unpublished accounts offered by an international clearance room such as Clearstream makes any diversionary operations even more opaque As was emphasised in' The Appeal for International Financial Justice' launched on 30 May 2001 by ATTAC in Belgium :

"While the eruption of financial exchanges might lead one to believe there was chaos among the financial floods, in reality no trace of the circulation of capital sums, whether legal or not, has been allowed to go astray. All the operations are registered on micro-fiches or optic disks and kept in the heart of the clearance rooms and in the archives of Swift. Thus the movements of funds from banking and tax havens can easily be reconstituted a fact which offers the necessary instruments for the struggle against financial crime and the proliferation of tax havens. On the other hand, left without any real control, or controlled by the banks alone, these supranational bodies can become purveyers of corruption, financial frauds and laundering.. This is why we are asking the national political institutions to put Swift, Euroclear and Clearstream under the democratic control of a supervisory organisation".

The taxation of international financial transactions; - the imposition of a Tobin type tax, a recommendation common to numerous organisations, has advantages seldom mentioned . Such a tax would in fact entail the transparency and "traceability" of transactions thus faciltating their control by public authorities and by justice.

Finally, taking a more global view, economic rights must be defended in the same way as civil and political rights, especially through the (1966) Pact relating to economic, social and cultural rights. This requires firstly the adoption of a Protocol as requested in 1993 by the Vienna Conference and then the ability to try economic crimes as crimes against Humanity - by their nature not subject to prescription.

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.