The Economist USA - 19.10.2019

(Axel Boer) #1

14 Leaders The EconomistOctober 19th 2019


2 In August Tito Mboweni, his rumbustious finance minister, pub-
lished a paper proposing sweeping yet doable reforms. The doc-
ument suggests easing visa rules for skilled migrants, lowering
barriers to entry for small businesses, breaking up and privatis-
ing parts of Eskom, enhancing education standards, improving
property rights for the poor and much more. Independent an-
alysts broadly agree with the Treasury’s estimate that if the plan
were adopted, the economy could grow by 4-5% a year (more
than double current forecasts). That is roughly the rate which
economists think is required to put a dent in the hideous unem-
ployment figures. It would surely be enough to avoid a down-
grade from Moody’s, too.
Will Mr Ramaphosa heed such good advice? The answer
seems to be: somewhat. He says he endorses all Mr Mboweni’s

ideas, but slips in a crucial qualification—that “of course” these
mooted changes cannot all be implemented at once. That sounds
suspiciously like timidity.
Mr Ramaphosa cannot boost growth without upsetting peo-
ple. Public servants who do not serve the public need to be fired;
pampered industries, unpampered; crooked bigwigs, locked up.
All this will be hard. The pro-corruption lobby within the ruling
African National Congress (anc) is exceptionally powerful. Mr
Ramaphosa is right to pay heed to intra-party politics and the
anc’s union allies—to do otherwise would be naive. But he is
wrong if he believes that fixing South Africa is like negotiating a
strike, clinching a business deal or even ending apartheid. It re-
quires more than finding common ground among vested inter-
ests. It requires leadership. 7

I


f a bank is accused of money-laundering or sanctions-bust-
ing by Uncle Sam, the fallout is often devastating. Consider the
case of Halkbank, a big Turkish lender, which was indicted this
week by prosecutors in New York for evading sanctions on Iran.
When the news broke, its share price sank and yields on its
bonds soared as investors worried that it might face crippling
punishment. Yet the surprising thing is that, notwithstanding
America’s tough approach, dodgy business by international
banks remains common, even in jurisdictions that you might
think were squeaky clean. In particular, Europe seems to have a
serious money-laundering problem that it needs to get a grip on
(see Finance section).
The most egregious recent case involved Danske Bank, Den-
mark’s largest lender. For a while a single office with a dozen staff
in Tallinn, that Mecca of global capital markets, was generating
fully a tenth of its profits. Too good to be true?
You bet. It turned out that in 2007-15 some
€200bn ($220bn) of iffy money, much of it from
Russia, sloshed through this one tiny Estonian
branch. Other Nordic lenders have had pro-
blems, too. Some €135bn of potentially dubious
funds may have flowed through the Estonian
branch of Swedbank, which has its headquar-
ters in Sweden. Nordea, based in Helsinki, is
also under scrutiny, as are banks in Austria and Germany. Deut-
sche Bank, which helped process Danske’s cross-border transac-
tions as a correspondent bank, has been raided by the police.
Europe is quick to preach to the rest of the world on matters of
financial rectitude—through its leadership of the imf, for exam-
ple, and its key role in the Financial Action Task Force, a body
that fights financial crime. The scandals show that it needs to get
its own house in order. Fighting money-laundering is not easy,
however. Europe consists of a patchwork of legal and regulatory
jurisdictions. And its neighbours are often unco-operative—Es-
tonian police had a tip-off about Danske back in 2007, for in-
stance, but Russia declined to provide information that could
have helped connect money passing through the bank to specific
crimes. It would help if there were a global standard for cross-
border co-operation in such cases, but that seems some way off.

One option would be for Europe to rely on America to act as
the global policeman. Its financial enforcers are happy to use
their extra-territorial legal powers to punish banks outside their
own borders, and they find it easier to get hold of information
because they can threaten to cut off lenders and their counter-
parties from access to the global dollar-payments system. When
hsbc was caught helping drug cartels move money around,
America fined it $1.9bn and the bank promptly cleaned up its act.
The trouble is that American enforcement abroad is erratic.
In the Nordic scandals, American officials were no quicker to
pick up on funny business than European regulators were. On
other occasions the punishments meted out by American courts
and regulators to European banks are so extreme that they
threaten financial stability. In 2014, for example, they fined bnp
Paribas $8.9bn for sanctions violations, leaving one of the euro
zone’s most important banks reeling.
To fight the scourge, Europe can do some
things on its own. It can strengthen detection by
boosting intelligence-sharing between banks,
regulators and the police. To do this, the eudoes
not need the central anti-money-laundering
agency that some have called for. This would
risk turning into yet another bureaucracy. In-
stead it would make more sense to pool data on
suspicious clients across the continent, so that national authori-
ties, who are closer to the action but struggle to join the dots,
could gain a more complete view. Remarkably, hundreds of du-
bious clients jettisoned by Danske when regulators closed in
were scooped up by rivals apparently unaware of their toxicity.
Insiders also have to be encouraged to spill the beans.
Whistleblower protections are patchy in Europe; Denmark’s are
among its weakest. A new eudirective will strengthen them by
2021, but it is limited in several areas to breaches of eulaw.
And last, fines should be higher. Under eulaw they can be up
to 10% of annual turnover. But some countries set the limit far
lower—just €400,000 in Estonia, for instance—and actual pen-
alties lower still. Europe may never wield as big a stick as Ameri-
ca does, but it could do with more than twigs in the fight against
dirty money passing through its financial system. 7

Nordic noir


When it comes to dirty money flowing through the financial system, Europe needs more of a killer instinct

Banks and money-laundering
Free download pdf