The Globo Cop At Treasury

Secretary Summers wants to make the world his beat. Tax evaders and money launderers, beware

When Lawrence H. Summers stepped up from his No. 2 post at the Treasury Dept. to replace Secretary Robert E. Rubin last July, market mavens, finance ministers, and even normally skeptical Hill Republicans reacted with contented sighs. It wasn't hard to figure out why. The Rubin-era economy was purring. Treasury's coffers were overflowing. And Summers' reputation as a pro-market economist soothed the soul of even fervent GOP Rubin-bashers.

Given his eerily smooth ascension and the lack of economic fires to fight, the brainy Summers mainly faced the problem of boredom. With the lame-duck Administration slowly sinking into a sea of domestic tranquility, what would the new Treasury chief do to occupy his time, aside from putting his signature on newly minted bills?

The answer: go global. In nine months on the job, Summers--who always had the international portfolio under Rubin--has assumed a new persona as Treasury's top globo-cop. He has launched a crackdown on corporate tax cheats, is trying to shut down international tax havens, and pledges hot pursuit of drug kingpins who launder dirty dollars. "He has moved into territory no other Treasury Secretary has," says Jonathan M. Winer, a former State Dept. official who handled international law enforcement.

In June, Summers hopes his work will pay off when a task force of industrial nations from the Organization for Economic Cooperation & Development publishes a hit list of offshore banking centers that dry-clean dirty money. The U.S. and its allies intend to use the findings to press for a cleanup. And the Treasury's enforcer-in-chief is asking Congress for broad new powers, including the authority to prohibit U.S. banks and securities firms from dealing with offshore financial centers that are cozy with drug lords. "In a global economy, the challenge of overcoming financial crime is too important for law enforcement agencies alone," he says.

But Summers isn't just going after bad actors. He's active on a broad array of international issues, including advocacy of tax credits to promote global health. And his plan to streamline the International Monetary Fund (IMF) and World Bank will be high on the agenda when the two agencies meet in Washington on Apr. 16-17. Summers wants the IMF to focus on financial rescues rather than long-term financing, and he thinks the World Bank can do more to attack Third World poverty.

Still, Summers is walking a tough beat. Just as globalization has made it easier to move capital around the world, it has also made it much simpler to hide money. The IMF reckons that at least $600 billion in profits from illegal drugs and other crimes is laundered each year. Much of that flows through U.S. banks.

Treasury is pressing bankers for new guidelines for tracking "high-risk" accounts most likely to be involved in shady business. The guidelines, which should be in place later this year, supplant more stringent proposals that U.S. regulators had to abandon last year after protests from privacy groups.

SQUEEZE PLAY. Summers is also asking Congress for new authority to penalize foreign banking centers that are havens for illicit money. The goal: to give Treasury the power to squeeze dirty-money traffickers without hurting legitimate businesses. The proposal has considerable backing in the House. But it faces an uncertain future in the Senate, where the powerful head of the Banking Committee, Texas Republican Phil Gramm, thinks it may be overreaching.

Other conservatives wonder if Summers' preoccupation with narco-bucks isn't partially meant to provide a shield for the campaign of Al Gore, whom Summers is informally advising. By pressing the fight against money laundering so publicly, the Treasury chief is attempting to inoculate Gore against charges that he was asleep at the samovar while Kremlin kleptocrats looted the Russian economy, skeptics allege. "It's an embarrassment to the Administration and Gore," says David F. DeRosa, a Yale finance professor. "It's much more politically expedient to stick it to the banking sector than to address the fundamental question [of Russia policy]." A Summers aide denies the accusation.

Critics on the left, meantime, contend that Summers' drive against money laundering doesn't go far enough. "I was disappointed" by the lack of teeth in Treasury's legislation, says Senator Charles E. Schumer (D-N.Y.). "It's my guess that not much will be done [under it]." Schumer opposes Summers' plan because it gives Treasury too much discretion to go lightly on a money-laundering nation for fear of harming relations.

Treasury's crackdown on tax shelters and havens could prove to be just as controversial. Under Summers' plan, both buyers and promoters of shelters would be required to disclose deals aimed at significantly reducing tax liabilities. He also wants Congress to bar transactions done solely to avoid taxes. Treasury reckons it loses at least $10 billion a year from corporate shelters.

But House Ways & Means Committee Chairman Bill Archer (R-Tex.) says he won't consider any major tax-shelter legislation this year and has blasted the Administration for antibusiness bias, saying: "Corporations are not bad. Corporations are very, very good."

Corporate tax officials say Summers' disclosure provisions are too vague to work. To protect themselves against possible penalties, companies might disclose thousands of deals to the government, drowning unsphisticated revenue agents in a sea of paper. Administration officials acknowledge that Internal Revenue Service auditors will have to be far better trained if the new disclosure rules are going to work.

A tireless advocate of financial transparency during the Asian crisis, Summers would also use disclosure to attack offshore tax havens, such as the Cayman Islands. Most payments made to businesses in havens would have to be disclosed to the IRS.

Summers, who Administration insiders say is likely to stay at Treasury if Gore wins, knows the battle against global financial crime won't be a cinch. "These are not problems that are going to go away overnight," he notes. "But it's important that we be mindful of the challenges as well as the benefits of ever-more-sophisticated capital markets."

Summers' solution: concerted global policing and considerably more discretionary power for Treasury. In the highly charged environment of a U.S. election year, he's not finding the going particularly easy. But bored he's not.

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