Stiglitz recalls, "Everybody said you need more transparency. But it has to be comprehensive. People said if you're going to be comprehensive, you have to include offshore countries and hedge funds. At that point, the United States and Britain began talking about the advantages of nonfull disclosure--that if all the information were made public, you'd have incentives not to gather it. This argument was never used earlier, only when it came to US offshore banks and hedge funds." Stiglitz says that then-Deputy Treasury Secretary Lawrence Summers was the one who voiced the concerns but that "behind it were the hedge funds and offshore centers whose advantages lie in secrecy.... He was reflecting those interests." He added, "If you said the United States, Britain and the major G-7 banks will not deal with offshore bank centers that don't comply with G-7 bank regulations, these banks could not exist. They exist because they can engage in transactions with standard banks."

By the time the G-7 met in Washington in April 1999, the Europeans were also raising concerns that the offshore system threatened their own countries' welfare because it facilitated tax evasion. French Finance Minister Dominique Strauss-Kahn offered a proposal that offshore centers that failed to properly regulate accounts and cooperate with law enforcement be cut off by the world's financial powers. He proposed that the G-7 require financial institutions to identify their customers; report suspicious transactions of high amounts involving individuals or legal entities with accounts at financial institutions in poorly regulated jurisdictions; and, as a last resort, ban financial transactions with countries or territories whose procedures were unacceptable.

It was not an issue at the top of the agenda for Treasury Secretary Robert Rubin (now co-chairman of Citigroup). When I saw Strauss-Kahn after the April 1999 meeting, he told me that Rubin and other G-7 leaders had turned down his proposals. He also got a negative response from banking leaders in Washington. He said, "They didn't want to hear about it. They all use the offshore centers." Rubin denied this account when I questioned him later at a speech he gave in New York, but he declined repeated requests to clarify what he did say.

After Rubin's departure from the Treasury, the United States began to show more interest in the subject. Summers had a deputy analyze the connection between offshore and the financial crisis, and the Administration worked with Republican Jim Leach, chairman of the House Banking Committee, to write legislation banning anonymous bank transfers into US banks from abroad. (That bill, and companion ones in the Senate, were blocked by majority leader Dick Armey and Senate Banking Committee chairman Phil Gramm, both of Texas, after the Texas Bankers Association said it would hurt the banks' business with Mexico. A Clinton official commented, "If Texas bankers know their customers, they know whom they're dealing with, and if they're dealing with Mexican banks, they know there's dirty money.") The shift to a Democratic Senate means Carl Levin, now leading the movement to reform offshore, will likely get a hearing for his bank-transfers bill.

In June 2000, after a decade of toothless pronouncements, the Financial Action Task Force, set up by the G-7 in 1989 to fight drug-money laundering, issued a "blacklist" of fifteen countries that maintained bank secrecy even in the face of criminal investigations: the Bahamas, the Cayman Islands, the Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, the Marshall Islands, Nauru, Niue, Panama, the Philippines, Russia, St. Kitts and Nevis, and St. Vincent and the Grenadines. Banks were asked to exercise "reinforced vigilance" in dealings in those countries. The list, while a move forward, was highly political. Britain refused to allow its notorious offshore dependencies--Guernsey, Jersey, the Isle of Man, the British Virgin Islands and Gibraltar--to be included. France's protectorate Monaco also evaded the list.

Jean-François Thony, until last year program manager of the UN Global Program Against Money Laundering and now a French judge, said, "Britain said to France, 'If you want to include the Channel Islands, we will ask Monaco to be put there as well.' Now the French government is very tough on Monaco, but France has something to do with the fact that the situation has lasted for so long." French banking authorities oversee Monaco. Antigua was excluded at the insistence of Canada, which represents it on the board of directors of the IMF. Thony added, "There's a lot of hypocrisy, pointing the finger at those countries which are supposed not to comply with international rules when the banks really operating them are the major banks of our countries. That is the heart of the problem."

Following publication of the task force list, a host of countries announced they would adopt laws or regulations to combat money laundering. Winer, the Clinton Administration official, said it would take several years to judge how genuine the reforms were.

In the wake of O'Neill's recent comments, some tax havens pulled back from negotiating with the OECD, confident that the Americans will keep offshore safe for tax evaders and other crooks. Meanwhile, even among groups concerned about drug crime, the ills of globalization and wealth disparities, there is little pressure for reform. While the Europeans can be expected to continue their modest efforts, not much will change unless the United States decides to participate. Until then, international banks will continue to make it easy for dictators to loot their countries and the rich to evade taxes, while ordinary citizens underwrite ever more of the cost of government.

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