The unfolding story of Sani Abacha’s dirty billions is causing hearts to flutter in both Switzerland—reckoned to be an "offshore" country be...

The unfolding story of Sani Abacha’s dirty billions is causing hearts to flutter in both Switzerland—reckoned to be an "offshore" country because of its banking secrecy laws—and the UK—reckoned to be an "onshore" one because of the absence of such laws—and is calling the division between offshore and onshore into question.

Since March this year, when Geneva authorities froze $645m of the late but unlamented Nigerian dictator’s sequestered money, the Swiss have redoubled their efforts to make their country respectable in the eyes of the world financial community. Those efforts began in earnest when it became clear that Swiss banks had spent years shielding the proceeds of Nazi thefts from Jewish victims in the Second World War. The US government made it clear that Swiss businesses in the US would be made to suffer if the banks failed to drop their shroud of secrecy.

New laws for old

Money laundering is becoming increasingly linked with the ‘C’ word - corruption. Tax evasion is still not a crime under Swiss law, but in May the Swiss introduced criminal anti-corruption laws, which stopped bribes to foreign officials being tax-deductible. Banks must now refuse to accept money that they think stems from overseas corruption. More legislation is on the stocks, which will render firms criminally liable if offences cannot be connected to individuals. Moreover, the Swiss are eager to avoid any clashes with the European Union by accepting the proceeds of the evasion of taxation on savings; negotiations have not yet begun on this front but such a step is unprecedented.

"Name and shame"

Swiss regulators are going further into virgin territory. The Swiss Federal Banking Commission recently decided to "name and shame" Credit Suisse and the other banks which failed to exercise due diligence when they received £452m from Abacha’s family. At the same time, the SFBC admitted that this was a bitter blow to Switzerland’s reputation for financial probity. The banks in question were Bank Hoffman, Bank Leu, Credit Suisse Private Banking, MM Warburg and UBP Union Bancaire Privée. Swiss authorities, for the first time ever, are coming to realise that the most effective way to keep recalcitrant banks in line is to hit them where it hurts - their public image.

Of course, critics of the Swiss are claiming that the "shake-up" of the past few weeks is not far reaching enough, and that the recent resignations of people at the top of Switzerland’s money laundering reporting centre are evidence that the new laws might not be enforced properly. But the adverse publicity that the country has endured as a hospitable location for money launderers has forced it to change its ways at a breathtaking pace.

The country’s justice minister is planning to add nearly 500 new staff to the Federal Prosecutor’s Office, the police and the Federal Supreme Court by 2004. These institutions will be beefed up even more in the following years. If there is one country that has been touted as an irresponsible offshore state and which wants to be accepted as a serious onshore centre, it is Switzerland.

When worlds collide

Despite the fact that Swiss banks played a crucial part in washing Abacha’s money (estimated by the Nigerians at $3bn), hardly any of the dictator’s ill-gotten gains were transported straight from Nigeria to Switzerland. Instead, Abacha’s family wisely chose to use the onshore world, notably the UK (through which more than half the money seems to have come) and the US (one-third). Indeed, most of the money that came to Switzerland through the process of inter-bank lending flowed in from the UK and back again.

The original source of most of the money was Nigeria’s nationalised oil monopoly. Abacha found it easiest to drain funds off from here and the democratic Nigerian government, which replaced him, understandably wants it back. FinCEN, the Financial Action Task Force and other anti-laundering authorities have been targeting the private banking sector for some time, but they have concentrated on private banking in the so-called offshore centres. The chief culprit in this saga was Citibank of New York.

Its American private banking arm first accepted money from Abacha’s sons in 1992. From there the money was moved by other Citibank operations in other countries to new accounts. Not a breath of suspicion rested on the shoulders of these two rogues, Citibank’s London operation was totally taken in by their charm. It even took Citibank’s New York and London offices until 1996 to realise the identity of their father.

Starting in 1994, the New York operation accepted monies, which it was told came from the brothers’ airline; in fact, the airline business no longer existed by then. In 1998 the London branch transported monies out of the country even though by then a full investigation was going on. These events did not happen in the Cayman Islands or even in Liechtenstein. They happened at the most prestigious banks in the two most important financial centres in the world.

How can this happen? Ben Blackett-Ord of the compliance consultancy Bovill Gunn told Complinet:

"Many people who look at this case are commentating that British banks aren’t fulfilling their anti-laundering obligations. I think they are in many areas. They are making reports and sending them off to the authorities, which in the UK’s case are represented by the National Criminal Intelligence Service. They send NCIS a suspicious activity report, containing an outline of the transaction and their suspicions about it, asking whether the transaction is viable. NCIS normally sends a one-line note back saying ‘this is OK - go ahead with the transaction’.

“By this time, of course, the transaction has usually gone through. The problem with NCIS is that they just don’t care, particularly as far as overseas jurisdictions are concerned. This might be because of lack of resources or it could be for some other reason; I’m not sure."

The great and the good keep mum

Needless to say, this story is an embarrassment to the world’s two great onshore countries. A US senate committee (from which most of this information comes) has been looking into the private banking operations of Citibank and the authorities believe it to be as important as the recent Bank of New York scandal. Here in the UK, the revelations of the last week have been greeted with silence from the British Bankers’ Association and the Financial Services Authority, both of which have declined to comment on the grounds that they have not read the report.

It is, however, interesting that a pall of silence on the subject of Abacha has descended over the G7’s Financial Action Task Force. After years of targeting offshore centres as havens of money laundering and decrying the fact that it lacks the bureaucratic machinery to detect the flow of dirty money, the FATF has witnessed the unfolding of another case, which proves that truly huge amounts can be, and are being, washed "onshore".