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The War against Terrorism: Implications for the International Financial System

Brief Questions and Proposals regarding U.S. Measures
to improve National and International Economy


3. The White House is interested in preventing anyone from using the world's financial system to fund terrorist acts. To help accomplish this, the President could consider using some type of exchange controls as a way of monitoring movements of money. Can the U.S. do this effectively if it operates unilaterally? If not, what bilateral or multilateral institutions could be used to assist in this effort? Do the IMF´s Articles of Agreement offer any impediment to the U.S. plan? Some recommendations that the United States should adopt regarding exchange controls.

As mentioned before, Article VI, Section 3, allows nations to unilaterally restrict capital movements, monitor movements of money and enforce exchange controls as they fit, that is, as they considered it necessary and complies with their political and economical policy. Of course, the IMF imposes a requirement of approval of any control or restriction on the making of payments and transfers for current international transactions.

Article VIII, Section 2 (a) also indicates that any exchange contract done, involving the currency of any IMF member and which is contrary to the exchange control regulations of that member maintained or imposed consistently with the agreement, shall be unenforceable in the territories of any member. This provision was clearly adopted for the enforcement of exchange control regulations that are established by IMF member countries consistently with the IMF Agreement.

Some multilateral institutions could be used to assist in this great effort against funds for terrorist acts. The Bank for International Settlements (BIS), which was established in 1930, is an actively functioning bank, which serves as a forum for international monetary co-operation. Thus, it can be a very helpful institution to monitor movements of illegal money. The BIS hosts the permanent secretariat of the Basel Committee on Banking Supervision (BCBS), which can play a determining role in movements of funds.

Other official group that could help achieve this objective is the Financial Action Task Force or FATF. This important institution was established by the G-7 Summit in Paris in 1989 to analyze possible measures to fight money laundering, which could surely support terrorist activities. The FATF issued a report containing a programme of 40 recommendations that are designed to provide guidelines for actions against money laundering covering the criminal justice system and law enforcement, the financial system and its regulations, and international co-operation. Despite these recommendations are not a binding international convention, each FATF member countries, which include the major financial centers of North America, Asia and Europe, has made a decisive and firm political commitment to combat money laundering. The main tasks of the FATF include reviewing money laundering trends, techniques and counter-measures and their implications, monitoring member's progress in implementing measures to counter money laundering, and promoting the adoption and implementation of the FATF recommendations by non-member countries.

In this particular case, I would recommend the U.S. to adopt exchange controls over capital transfers, always following the IMF guidelines over this actions, and take whatever steps are necessary to enforce international money laundering provisions, of course, with the help of the international community, using the institutions described above.


4. The United States could pressure the International Monetary Fund to include, as a performance requirement in IMF standby arrangements and extended arrangements, a requirement that the government entering the standby arrangement would not harbor terrorists or terrorist organizations. The requirement, which would become a permanent fixture of IMF conditionality, would ask the government to take specific measures to bring about this result. Such a measure could also be inserted in World Bank loan agreements, as standard conditions. Some commentaries on the wisdom of such a policy, and on impediments to it, including legal impediments.

Indeed the United States is a nation with a great weight within the IMF. It pays the biggest quota in this multinational institution, and is part of the G-7 and the G-10, which include the most industrialized countries with the highest individual country quotas in the Fund. Certainly, this specific characteristic grants it a strong voting power in IMF decisions. Despite all this influence, we consider that this policy could be introduced as a recommendation and not as an imposition, and in specific cases. We express this because of the fact that conditionality within the IMF is not a rigid set of operational rules; its very flexible and their performance requirements are periodically reviewed. Thus, this conditionality and performance criteria changes from case to case.

Nations seeking for financial assistance, through standby arrangements and extended arrangements, could be require to take specific measures to avoid terrorism and its sponsorship, which is a world problem. They could express through their Letter of Intention (which is at the end not obligatory to comply with) that they would take the necessary measures to prevent terrorism, for example, contributing or permitting adequate banking supervision and other related financial measures.

The World Bank's Articles of Agreement are very specific regarding this issue, and they expressly prohibit basing decisions on political or non-economic factors.

In the case of the World Bank loan agreements, we consider that this measure could possibly clash with Article IV, Section 10 of its Articles of Agreement, by imposing such a requirement in order to have access to international financial assistance. This article states that the bank should not be influenced in their decisions by the political character of members concerned. It also states that only economic considerations shall be relevant to their decisions, in this case, the conferring of loan agreements.

Article III, Section 5 (b) also states that the World Bank should make arrangements to ensure that all the proceeds of any loan are used only for the purposes for which the loan was granted, paying special attention to considerations of economy and efficiency and without regard to political or other non-economic influences or considerations.

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