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The tiny European principality of Liechtenstein has never had an ambassador to the United States, nor has it ever needed to — until now. Last June, Liechtenstein was one of 15 countries blacklisted by an international task force for not doing enough to combat money laundering. Claudia Fritsche, who was sworn in as Liechtenstein’s first diplomatic emissary to the United States last week at the White House, has a clear mission — to persuade officials at the U.S. Treasury Department, who have enormous influence over the 29-member Financial Action Task Force on Money Laundering (FATF), to take her country off the so-called name and shame list. “There is a distinct lack of knowledge people have, first, about Liechtenstein as such, and second, about what we are doing” about problems related to money laundering, says Fritsche, sitting in a dimly lit reception room in the lobby of the Jefferson Hotel, which sometimes serves as Liechtenstein’s makeshift embassy in Washington. “We want to place Liechtenstein on the map and in the right light.” In addition to Liechtenstein, the FATF has also singled out such political heavyweights as Russia and Israel as problem countries when dealing with money laundering. The Cayman Islands, home to the fifth-largest banking community in the world, also earned the dubious distinction of being placed on the list. Some of the blacklisted countries argue that they are being ostracized by larger industrialized countries that are threatened by their ability to attract foreign money because of lower tax rates and less strict banking environments. “The intention is to prevent taxable capital from flowing out of Europe,” says Anthony Travers, of Cayman Islands-based law firm Maples and Calder, which represents several financial institutions in the Cayman Islands. Almost all the 15 countries implicated have sent high-level officials to the United States to talk to policy-makers in Congress, the Justice Department, and, in particular, the Treasury Department. Treasury Secretary Lawrence Summers, with help from Deputy Secretary Stuart Eizenstat, has made the fight against global money laundering a top priority. “The difference of the world today versus 10 years ago,” says William Wechsler, Treasury’s point man on money laundering, “is that small, physically remote countries who used not to be players in the world financial markets are now just a mouse click away.” For its part, Liechtenstein has turned to a team of Washington players to mastermind its U.S. game plan: law firms Shaw Pittman and Oppenheimer Wolff & Donnelly and the public relations firm APCO Associates Inc. A HILL VISIT A Capitol Hill staffer who declined to be identified says government officials from Liechtenstein met this summer with House Banking Committee Chairman James Leach, R-Iowa, shortly before the June announcement of the FATF blacklist. At the time, Liechtenstein “had an indication that they would be on it and wanted to know if there was something Chairman Leach could do,” says the staffer. Leach said he could not and would not get involved, the staffer added. Other Washington representatives working for foreign clients on the money laundering front include the public relations firm Hill & Knowlton, hired by the Cayman Islands a year and a half ago; Washington, D.C. law firm Arnold & Porter, engaged by longtime client, Israel; and the Washington, D.C. office of Miami’s Greenberg Traurig, retained by the Republic of Panama. According to Foreign Agents Registration Act filings at the Justice Department, Panama has agreed to pay Greenberg Traurig $100,000 up front plus $50,000 a month beginning Aug. 15, 2000, for petitioning Treasury. Shaw Pittman received $34,922 from Liechtenstein during the six-month period ending last July. Arnold & Porter reported payments of $183,466 from Israel for the six months ending in June for a range of services on a variety of matters. There was no breakdown of how much money the firm received for its work on getting the country off the money-laundering blacklist. (There are no FARA records yet of payments to the other firms.) The hefty chunk of change that countries are likely paying to gain influence and access to U.S. officials corresponds to the heavy — and potentially crippling –damage that a country’s presence on the money-laundering blacklist could have on its economy. “Being on the FATF list is by definition harmful,” says Travers of Maples and Calder. “Any financial institution may conclude not to transact business as a result [of being on the list],” he adds. NO EXIT But getting taken off the blacklist may turn out to be trickier than it seems — even with powerhouse law firm and public relations operations at the ready. One of the main complaints being voiced by the seven countries that have, according to the FATF, taken concrete steps toward enacting necessary legislation to combat money laundering, is that there is no clear process for being taken off the blacklist. “It’s a shortcoming,” Fritsche says. “There’s a lack of … an exit strategy, and with that respect, [the process] is not very transparent.” But Wechsler, who was brought in by Treasury Secretary Summers from the National Security Council to help coordinate the agency’s money-laundering initiative, says that the FATF has issued private reports to each of the countries, detailing what laws need to be enacted for the countries to be removed from the list. “As far as a timetable is concerned,” says Wechsler, “that’s entirely dependent upon [how long it takes to implement] the law.” This week, Liechtenstein will try again: The principality’s minister of justice is scheduled to meet with officials in the Federal Bureau of Investigation and the Treasury Department. Beyond public-image concerns, being on the blacklist may soon carry even more serious consequences. The FATF could make good on threats to impose sanctions on the 15 countries as early as next year. In a move that many of the implicated countries view as being directly linked to the FATF initiative, the U.S. Internal Revenue Service is preparing to implement new regulations. The IRS will begin levying a 30 percent withholding tax on the interest and dividends on securities transactions carried out by banks not certified as a “Qualified Intermediary,” barring certain circumstances. To avoid the tax, nonqualified intermediaries must identify all of their clients — not just their American ones — so that the IRS can verify that no U.S. citizen is illegally evading taxes. Although the issues of tax evasion and money laundering are different, they aren’t entirely separate. Many of the countries on the FATF blacklist also have been singled out by the Organization for Economic Cooperation and Development as uncooperative tax havens. Both the OECD and the FATF, which are housed in the same building in Paris, want the offending countries to enact legislation to make customer identification rules mandatory for financial institutions. The FATF also requires that the countries on its list toughen criminal penalties for money laundering and implement reforms in the areas of financial supervision, suspicious activity reporting, and international cooperation. Israel has gone so far as to seek the Treasury Department’s approval of new legislation governing customer identification and suspicious activity reporting — even before it is introduced for passage on the floor of the Israeli Knesset. Last week, Israeli Minister of Justice Yossi Beilin met with Treasury’s Eizenstat to report on Israel’s progress in enacting laws against money laundering. “This is not a custom that Israel does normally,” says Stel Pinhasov, assistant economic minister at the Israeli Embassy. But the Israeli government was sufficiently concerned about the possibility of its private banks being penalized for Israel’s failure to have laws on the books that adhered to the task force’s strict customer identification requirements. In other words, even if Israeli banks followed current Israeli law, they could still be vulnerable to penalties from the IRS if they didn’t abide by the tougher international standards set by the FATF. Pinhasov says she is expecting to hear this week from officials in the Treasury Department on whether Israeli banks will also be extended the qualified intermediary exception. The Cayman Islands’ aggressive pursuit of qualified intermediary status on behalf of its banks has paid off. It is so far the only country on the FATF list to have won the approval of the Treasury Department for its customer identification laws.

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