In a recent article about the negative effect Swiss banking secrecy and hypocrisy have on the rest of the world, we suggested the creation of a revamped banking community, in which member nations would share information about bank accounts held by foreign nationals with their respective governments and member banks would require that identifiable individuals be behind every account (even corporate accounts). These rules – defiance of which would result in economic ostracism – would help prevent tax evasion, money laundering, drug trafficking, and other criminal activities. In formulating this idea, we did not specifically consider the effect such a system could have in curbing terrorism, but recent sanctions levied by United States against Iran as well as banking institutions doing business with the country have indeed made this utility clear.
The U.S., together with Britain and Canada, announced on Monday Nov. 22, 2011, new sanctions against Iran – targeted to the country’s petrochemical sector and organizations with terrorist ties – that are designed to put increased pressure on the Iranian economy and thereby limit nuclear development as well as funding and training for terrorist groups around the world. The Obama administration hopes that by designating Iran as a “primary money-laundering concern,” companies will break off ties with Iran in order to remain in good standing with countries like the U.S. that are opposed to its practices.
This move comes on the heels of fines imposed over the course of the last three years by the U.S. on international banking powerhouses Barclays ($298 million), Lloyd’s Banking Group ($350 million), Credit Suisse ($536 million), and JPMorgan Chase ($88.3 million) for facilitating payments by nations like Iran, Cuba, Libya, Sudan, and Burma while they were under economic and trade sanctions from the U.S.
These measures speak to the role economic pressure can play in curbing illegal activities and making the world a safer place. Just think: If simply applying a certain label to a country is enough to force companies to sever ties with it, what could the threat of complete economic isolation accomplish? If faced with a choice between lifting the veil of secrecy when it comes to banking practices and receiving what would amount to the economic death penalty, what do you think most countries would do?
At this point, you may note that some members of Congress did recently push for stiffer penalties against Iran, but they were rejected for fear of the effect that more drastic measures would have on the world oil supply and economy. While this is indeed a concern, and the implementation of my proposed economic changes would be difficult, especially for EU nations that depend on Iranian oil, the vicious cycle of giving nations a pass simply because they have something we want must be broken at some point. In other words, it might be better to bite the bullet now instead of waiting for the Irans and North Koreas of the world to multiply, at which point the aforementioned bullet could very well be a few nuclear bombs.
Increased unity from the world’s economic superpowers is therefore needed. If the G8 nations band together in pledging their support for new banking rules and make it clear that there is no bluff to be called, then the subjects of scrutiny, such as Iran, will have no choice but to relent.
So, to reiterate, the system we propose is based on two simple underlying principles: 1) There must be an identifiable individual behind every bank account, no matter where in the world it is held; 2) countries must apprise one another of all bank accounts held by each other’s citizens. No bank would be permitted to transact with banks operating outside this framework, and violators would face stiff monetary repercussions, ultimately progressing to bans and even expulsion from the new, more transparent banking community.
Comments made by President Obama in a statement following the announcement of the most recent sanctions prove quite apt in describing such an international economic environment, even though he was only specifically addressing Iran. “It can fulfill its international obligations and reap the benefits of greater economic and political integration with countries around the world,” Obama said, “or it can continue to defy its responsibilities and face even more pressure and isolation.”