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Banks, Dictators, and Their Dirty Money

This week’s big financial news story was that HSBC agreed to pay a $1.92 billion fine for allowing drug dealers and others, including Libyan banks, to use the bank to launder money. On Monday, another UK bank, Standard Chartered, agreed to pay $327 million to settle sanctions-violations charges—after paying $340 million for similar crimes in August.

Another story this week—a version of which has been in the papers every few days since September 11, 2012—noted that Libya’s fragile new government isn’t moving against the powerful Islamic extremist militia implicated in the murder of Ambassador Christopher Stephens and three other Americans on September 11th of this year.

Unconnected stories, right? No.

Libya’s government wouldn’t be fragile if the country had not been looted by Muammar Qaddafi and his henchmen, many of whom are alive, at liberty, and retain their enormous gains—amounts running into the billions. They are in Cairo, in Tunisia, in Europe, and even in pockets of Libya itself, where they are protected by private armies.

HSBC has not been implicated in helping Qaddafi directly, from what has been reported. But if banks like HSBC, and crooked lawyers and accountants, hadn’t enabled these criminals, they wouldn’t have been able to hold on to power for 40 years. Nor would they today be able to use their resources to destabilize the Libyan government.

Americans are not likely to be aware of it, but huge chunks of filthy cash stolen by dictators in the Middle East and Africa, and by Russian oligarchs, are routinely laundered in the UK. Not much of a cover-up is required. No, a dictator or his chief officials probably can’t open bank accounts or buy companies so easily. But the brother or son of one of these characters can. I’ve talked with UK law enforcement authorities about this and they say, “If it wasn’t a crime in the country of origin, we won’t investigate it.” In other words, if you live in a dictatorship where there is no rule of law and no one can challenge the head of state, his family or his minions, you’re welcome to steal as much as you can and invest it in the UK. When the regime changes, of course the new government can ask the UK to seize the assets in question—but by then the damage has been done. The country has been looted and very bad people have been given enormous financial power.

Meanwhile, Britons wonder why places like Libya and Egypt are unstable, and why their people don’t seem “ready for democracy.” As I’ve discussed in this blog before, there are plenty of cultural challenges in the way of the Arab Spring countries’ path to stable democracy. But when advanced democracies thrive and fatten from financial practices that prop up truly evil dictatorships, it’s hard not to cry, “hypocrites!”

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