How American Bank Loans Line the Pockets of the Third World's Elite
Gwynne, S.C.
American Bank Loans Line the Pockets of the Third World's Elite by S.C. Gwynne Blip, blip, and the Mexico City police chief owns a mansion in Connecticut The most perplexing—and...
...Naylor...
...but the dollars are now invisible, safe from regulatory authorities in Switzerland, in private hands, owed to no one, locked up in a house in the American suburbs...
...Haile Selassie's legendary $6 billion hoard may be grossly exaggerated, but he was still able to withdraw $600 million from his own accounts to help finance Ethiopia's war with Somalia...
...And, though the book was evidently painstakingly researched, it is seldom thoughtful...
...Mexico City's $65-a-week police chief—to take just one celebrated example—was found to have funneled enough money out of the country to buy a $2.5 million mansion in the United States...
...Nor is it even the bizarre geopolitics of the Western governments that allowed them to do it...
...That is substantially the way all electronic flight capital works, whether the "offshore" bank is Swiss, Panamanian, or Singaporean, whether the money is legitimately earned or stolen...
...Nazi Germany's looting of Europe is insignificant by comparison...
...Blip, blip, and the money's in that Swiss account, under the name of the chief...
...In one form or another, that's how $45 billion got blipped out of Mexico, never to be seen again...
...For Naylor, however, "hot money" entails more than just redirecting debt flows to Third World countries...
...Although the dollars stay right there, the Swiss bank simply "books" them to its Zurich branch, which means that the Mexican police chief's name is no longer visible to the New York authorities (all they can see is the account of a Swiss bank...
...There's a lot of shadowy movement, but he rarely penetrates below the depth of the daily newspaper story, which is the source of much of his research, and even more rarely traces the money trail...
...Any Mexican who wants to trade pesos for dollars has to have a good reason...
...The net effect: the government of Mexico still owes Citibank the dollars, for which it must sweat blood and export enough oil to pay it off...
...To understand, you must first know how foreign loans move to a country from a multinational bank, and how they then sneak out the back door...
...That's the theory, anyway...
...Once approved, it is a simple transaction...
...Juan Peron stuffed at least $140 million into Swiss accounts...
...Although he is clearly attempting to link all of it together under the rubric of hot money and flight capital, what we end up with is a wild, unfocused tale of shady doings at the Vatican, how the Moonies moved into Nicaragua, how a secret Italian organization called P-2 seems to be trying to take over the world, how the Argentines used secret accounts in Uruguay to spirit dollars out of their own country, how Turkey figures in the world drug trade, the history of Hong Kong as an offshore center, the influence of the Triad gangs, why the Cayman islands are the destination of drug money in suitcases, how secretive the Swiss are and how criminals take advantage of them to disguise money, how Liechtenstein offers specialized, secretive, shell companies, how Meyer Lansky started the whole thing back in the 1930s, and how Bernie Cornfeld was the first modern practitioner of "peekaboo" finance...
...He also writes as though the money is actually in those places, which, as described above, it almost never is...
...The government instructs Citibank to debit its $100 million account for, say, $2.5 million, and transfer the money to another account at Citibank, this time in the name of a Swiss bank...
...The problem with Naylor's book is that he has buried his big idea—what really happened to all that Third World debt—in a lengthy, wellresearched catalog of the big-time international financial hijinks of the past decade...
...It will take years, perhaps decades to sort out Marcos's stash, and he's just the latest member of an expanding club of corrupt dictators who have stolen money from their countries...
...President Lopez Portillo's advisers estimated that during the three years prior to August 1982, a minimum of $45 billion was S.C...
...The more we learn about flight capital, the more it is apparent that what bankrupted most of these countries was their own citizenry absconding with foreign exchange reserves, often abetted by the same creditor banks that later screamed when forced to reschedule debt...
...Now the sovereign government of Mexico has full use of those dollars...
...onshore "offshore branches") have become little more than receptacles for cash proceeds from drug deals that seek an old-fashioned laundering before entering the banking system in New York...
...When the police chief is ready to buy his house in Connecticut, he instructs the Swiss bank to pay the $2.5 million into the seller's account, probably with another big New York bank (or, again, at Citibank...
...Naylor tells us what hot money does, not what it means to the world economy nor, as promised on the book jacket, what it does to me...
...Union bosses are alleged to have stolen some $1.5 billion, apparently following the example of government industries, which drained an estimated $15 billion from the national treasury during Lopez Portillo years—roughly equal to what the Shah's entourage pulled out of the Iranian National Oil Company in the 1970s...
...Where did all the money go...
...Flight capital" means nothing more than electronic flight from one account to another at one of New York's big banks...
...the Shah of Iran and Mobuto Sese Seko of Zaire managed to expatriate huge amounts of cash to numbered accounts in Europe...
...real estate and $14 billion in U.S...
...he should never have strayed from the Mexican police chief, from the idea that loans made by American banks now line the pockets of the Third World's upper classes...
...To his credit, he does give some good, hard details on the offshore branches in the Bahamas, which since the advent of International Banking Facilities in the U.S...
...It can, in effect, write checks against the Citibank account to pay for tractors from Peoria or electronic equipment from Japan...
...Blip, blip, that's all...
...Naylor does not seem to appreciate what an excellent idea he had...
...Most of these subjects are intriguing by themselves...
...together it's difficult to tell what to make of them...
...bank accounts...
...Much of it was covered by Penny Lernoux a few years ago in a similarly peripatetic book on the Mafia-Vatican-big-banks-Third-Worldgovernmentsdrug-traffickers connection called In Banks We Trust...
...By 1984 Venezuela alone had external assets of $35 billion—more than its total foreign debt...
...It gets worse...
...How did it get there...
...Now, enter the Mexican police chief...
...He strays so far, in fact, that one simply loses track of what he's trying to say, other than that there are a lot of financial shenanigans going on and that the criminals are smart enough to use modern bank technology to hide their assets...
...drained from the country's dollar reserve— showing up in the form of $31 billion in U.S...
...His purpose is to show how the ease of capital movement through offshore accounts has become the chief supply line and hoarding mechanism of international criminals from Hong Kong to Uruguay and even the Vatican...
...I do not find the latter either compelling or new...
...In Latin America, for example, some $100 billion fled to offshore havens between 1979 and 1983...
...Electronic offshore banking is what allows the modern corrupt dictator to steal and then hide his country's dollar reserves...
...Simon & Schuster, $18.95...
...Let's say that Mexico, which needs dollars to pay for its imports—no one in his right mind would take a peso in exchange for anything outside of Mexico—borrows $100 million from Citibank...
...The entire transaction takes place in New York City, since virtually no dollars ever leave this country, and all dollar accounts are held ultimately in New York...
...In Mexico, the scale of corruption and capital exodus is stupefying...
...Neither does Naylor really explain how flight capital works...
...It is rather the littleunderstood— and, until recently, poorly documented— phenomenon of "flight capital," the idiom for the electronic sleight-of-hand by which some $200 billion of the $450 billion borrowed from 1975 to 1985 by the 18 largest debtor countries landed in foreign accounts of Third World nationals, unchecked, unregulated, and irretrievable...
...When Citibank makes the loan, it "disburses" funds by taking $100 million out of its own account and crediting Mexico's account with Citibank for that amount...
...Gwynne Blip, blip, and the Mexico City police chief owns a mansion in Connecticut The most perplexing—and frightening—aspect of the foreign debt crisis is neither the size of the Third World's IOUs nor the banks' mystifying rationale for having shipped all that money out in the first place...
...Because he knows somebody at the finance ministry, or because he has paid a bribe, he can take his illgotten pesos to the central bank and exchange them for dollars...
...Because dollars are so precious to Mexico, and because the government has to pay them back, it must carefully husband its accounts at Citibank so that the checks written pay only for useful products or raw materials...
...For all these reasons, R.T...
...Gwynne is the editor of California Business and the author of Selling Money: A Young Banker's Firsthand Account of the Rise and Extraordinary Fall of the Great International Lending Boom...
...Rafael Trujillo, for example, made off with an estimated $140 million from the Dominican Republic...
...Hot Money and the Politics of Debt...
...Naylor could not have chosen a more apt subject for his new book!' What Naylor's numbers reveal is theft on a scale unprecedented in history...
Vol. 19 • October 1987 • No. 9
