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Corruption Watch: April 9, 2004

9 April 2004, Volume 4, Number 10
By Roman Kupchinsky
European law enforcement agencies are rapidly preparing for a worst-case scenario terrorist attack. Europol, which has an intelligence unit knowledegable in counterterrorism operations (and having thwarted an attack on the European Parliament), has thus far managed to meet its mandate, but is faced with a growing threat and less-than willing cooperation by national police and intelligence services.

According to, up to 2002 France, Germany, Greece, Italy, Portugal, Spain, and the United Kingdom were the only ones of the 15 European Union countries that had specific laws to fight terrorism (see In the other eight countries, where no such legislation existed, terrorist acts were judged as common criminal acts. In the absence of a common European arrest warrant, law-enforcement officials are unsure of their legal rights in arresting suspects.

The website also states that: "On 10 October 2003, 45 European Justice Ministers agreed to examine the possibility and added value of a comprehensive convention against terrorism, to be negotiated in the Council of Europe. The Ministers supported the strengthening of existing treaties on the awarding of compensation to the victims of terror and their families, as well as action against the financing of terrorism." But these measures, coming two years after the attacks on the United States, seem futile and half-hearted.

Following the Madrid bombings, Austria proposed the creation of a European-like version of the CIA and Belgium called for a coordination center for intelligence sharing. However, most member states are rather reserved about this, especially France and Great Britain. Diplomats think that the sharing of sensitive information between 15 countries, soon to be 25, is very delicate as it could increase the possibility of leaks. Furthermore, there is a clear lack of cooperation between the intelligence and police services, which needs to be addressed as a first priority.

However, German observers believe that broad agreement exists for improved mechanisms for cooperation between police and security services and that they must promote the effective, systematic collaboration of members' intelligence services. Spelling out the basic dilemma, a diplomat said that everybody wants coordination but nobody wants to be coordinated. The German website ( writes that "the Commission stresses that Member States should enable the Europol Terrorism Task Force to work effectively by providing it all operational information, not just limited and filtered strategic and technical intelligence." It suggests putting in place a new coordination mechanism for the exchange of information between Europol and intelligence services.

The BBC reported on 25 March that the EU agreed to "The adoption of a 'solidarity clause' from the draft EU constitution which provides for mutual assistance in the event of a terrorist attack. The creation of a counter-terrorism coordinator to oversee the EU's anti-terrorist activity and the integration of an intelligence structure on terrorism within the Council Secretariat." EU foreign- and security-police chief Javier Solana is to give a report at a June meeting of the European Council on how best to do this. As admirable as these measures sound, there remains a lingering suspicion that they are not sufficient to overcome the broader threat.

EU member states are also faced with the delicate task of monitoring large communities of North African immigrants who, while largely rejecting terrorism, are often dissatisfied with their situations and constitute a fertile recruiting ground for fundamentalist groups bent on jihad. Some 15 million Muslims live in Europe, many of them in substandard conditions. Handling this task without violating the human rights of members of these communities will be difficult.

The Madrid train bombings of 11 March have not gone unnoticed by security officials in Central Europe the new entrants into the EU. In Poland, the Czech Republic, Slovakia, and Hungary police have stepped up security checks at border entry points. The recent discovery of a shipment of 400,000 kilos of plastic explosives being imported into the Czech Republic without proper documentation has raised red flags throughout the continent. And while this shipment has not been linked to any terrorist related group, it nonetheless is a remarkable quantity which, in the wrong hands, can create havoc.

Europe, including Central and Eastern Europe, is a highly susceptible target for terrorist attacks. With underground metro systems operating in most major cities and police forces in the East underpaid and poorly equipped, the likelihood of another attack on a mass transit system is possible. The Moscow metro bombing was proof that such systems are vulnerable. When the Madrid trains were bombed, it was clear that transportation systems had in fact become worldwide targets. The use in Madrid of a cell phone as a detonating device -- allowing the person setting off the device to flee the country prior to the explosion -- is particularly troubling.

Interrogations of the suspects arrested by the Spanish police for the Madrid bombings might produce some useful operational intelligence for European counterterrorism services, but one should not underestimate the ingenuity of terrorist planners. Many other terrorists have previously been arrested and interrogated, yet this did not prevent further attacks using different methods and devices.

Hindering efforts to interdict terrorist movement throughout Europe is the Schengen agreement, which eliminated border controls in the signatory countries. These agreements will perhaps now have to be reexamined and, if necessary, suspended in order to establish rigorous border controls such as those which have been implemented in the United States. The BBC on 25 March noted that the EU agreed to: "Strengthen border controls and [make] greater progress on establishing a European Borders Agency." These border controls, to be effective, should include electronic fingerprint scanning devices. Such devices, instituted in the U.S. in 2004, became the object of much ridicule and anger in Europe prior to the 11 March bombings in Madrid. But now this criticism has dissipated. Europol does maintain an extensive watch list which is available at border crossings, but there seems to be reluctance on the part of border police to use it and, given the threat, there clearly need to be changes in its use.

The additional dimension of illegal immigrants entering Spain from Morocco and refugees flowing into Turkey will have to be resolved rapidly and fairly.

The greatest problem facing European law enforcement agencies is communications and coordination. Without timely sharing of operational information between the services of multiple countries with multiple intelligence-gathering organizations, all other technical collection data will become irrelevant. The experience of the U.S. prior to 9/11 is invaluable in this respect and Europeans will need to tailor their intelligence sharing to meet with current U.S. standards or face the risk of more attacks like the one in Madrid.

The problem of counterterrorism was well summed up by CIA Director George Tenet during the 11 September hearings in Washington as reported by "The New York Times" on 24 March: "What is one of the most important systemic lessons for all of us?...For a period of how many years, go back to the mid-90s, all the way through 2001, what did we do relentlessly? We raced from threat to threat to threat. We resolved the threat; it either happened or it didn't happen.... The country was not systemically protected because even in racing through all these threats, sometimes exhaustively -- we exhausted ourselves."

The Caribbean Financial Action Task Force (CFATF), which came into existence in 1990 with the Kingston Declaration, has an impressive record in the fight against money laundering. Helping some 30 countries in the region which have subscribed to a Memorandum of Understanding, the CFATF provided the needed guidance to prevent money laundering. The CFATF has helped prepare laws and regulations which were enacted in the different member states and banks in the region which, by all accounts, have made an impact on laundering operations. But is the impact great enough?

Despite the publicized success of CFATF, Kenneth Rijock, an American specialist on money-laundering, remains skeptical of these efforts. Writing in "Money Laundering Alert" (January 2004), Rijock says: "Rarely are bank compliance officers qualified to detect this laundering. With vetting companies located in one tax haven, operations in another, directors in a third, and accounts in a fourth, investigations can be logistical nightmares. Russian funds swim through, and hide in a sea of transnational commerce in Bermuda, the Netherlands Antilles and Uruguay."

Rijock points out that when the investigation into Russia's Yukos began, capital flight from Russia dramatically increased. He quotes the deputy chairman of the Russian Central Bank, Oleg Vyugin, who says he expects that by the end of 2003 the net flight of private capital from Russia will exceed $13 billion. And while not all of this is dirty money earned from illegal enterprises, some of it definitely is and experts believe that the Caribbean remains the laundry region of choice for Russian mobsters.

How much of the capital flight is "dirty money" is difficult to judge. According to the Congressional Research Service report "Russian Capital Flight, Economic Reforms, and U.S. Interests: An Analysis," published on 10 March 2000, experts estimate that approximately one-third of capital flight involves illegal activity.

The Caribbean region has a long history of money laundering not only for Russian gangsters but for much of the drug money earned by South American drug organizations as well as various financial schemes, such as the Bank of Credit and Commerce International (BCCI) scheme in the late 1970s. The BCCI's 18-year money laundering and shell game took place in 73 countries and resulted in a loss of over $20 billion for millions of people. By 1977 the BCCI had 140 branches in 30 countries and assets of over $ 2 billion. The Bank of England oversaw its operations for 15 years and gave it a clean bill of health every year.

One of the BCCI's main places of business was in the Cayman Islands where its "bank-within-a-bank" was located. Known as the International Credit and Investment Company Ltd. (ICIC), it was, in fact, a number of legal entities whose decisions were made by top BCCI officials. The ICIC itself was merely a post office box.

Among the activities the BCCI is alleged to have been involved in was Pakistan's nuclear-bomb program, ties to former Panamanian dictator Manuel Noriega (who carried a BCCI Visa credit card) Iraqi arms dealers, terrorists, and drug dealers.

Russian mob ties to the Caribbean date back to the mid-1990s when Russian groups were discovered to be opening banks and front companies in the Caribbean used mainly to launder hundreds of millions of dollars from the sale of drugs.

One line of reasoning for the rise of the Caribbean as a center for laundered money from Russia has been suggested by Bruce Michael Bagley of the University of Miami in his October 2001 paper "Globalization and Transnational Organized Crime: The Russian Mafia in Latin America and the Caribbean." Bagley believes that by the mid-1990s Russian organized crime groups were frustrated by the results of their earlier incursions into Asia. The Asian gangs with whom they tried to establish a working relationship with were wary of the Russians and skeptical of the potential benefits of cooperating with them.

This prompted a move to South America and the Caribbean where law enforcement was relatively weak and "provided an environment reminiscent of the one in post-Soviet Russia."

In an article in "The Washington Post" on 29 September 1997 about Russian crime in the U.S., the author, Douglas Farah, writes that Russians suspected of ties to organized crime opened more than a dozen offshore banks around the Caribbean and that many of these banks were linked to banks in Russia which the mob also controlled.

Russians mobs were still laundering their money in such places as Antigua and Aruba, seven years after the formation of the CFATF.

But it was not only Russian organized crime that was using the Caribbean for such activities. In the case of Pavlo Lazarenko, the former Ukrainian prime minister whose trial on money laundering charges is underway in San Francisco, his indictment allegedly describes how he, along with his partner, Petro Kirichenko, used the European Federal Credit Bank in Antigua to launder $70 million between May and September 1997.

Europol's analysis unit prepared an overview of Russian organized crime (OC) in September 2001 in which it states: "The Dutch territories of St. Maarten and Aruba are used by Russian OC to launder illegal monies. Law enforcement sources have estimated that between 1997 and 2000, as high a proportion as 70 percent of all monies illegally exiting Russia transited via a Caribbean offshore location en route to other financial destinations."

The efforts by the United States to clamp down on Caribbean money laundering have made serious inroads into known money-laundering schemes used by Russian and other criminals, but, according to both Bagely and Rijock, have not been able to completely eliminate the "blanqueadores" (launderers).

New schemes are constantly being devised and the concentration of law-enforcement agencies since 9/11 on terrorist financing seems to have weakened efforts at conventional money laundering by nonterrorist groups. "Money Laundering Alert" writes that according to the House Subcommittee on Homeland Security, members of Congress are worried that the recent Memorandum of Agreement between the Department of Homeland Security and the Justice Department regarding investigations of terrorist financing will adversely affect the ability of the United States Secret Service and the Bureau of Immigration and Customs Enforcement "to effectively carry out traditional financial crimes investigations."

In his article, Rijock quotes Robert Levinson, a retired FBI agent with extensive experience in combating Russian OC: "As of late 2003, Western law enforcement and security/intelligence agencies have been directed by their governments to afford the highest priority to counter-terrorism matters...This has left a large gap in the detection of traditional money laundering organizations which service organized crime groups, drug trafficking networks, arms dealers and other international criminals, particularly from the former Soviet Union." RK