Tax Haven Monaco facing more hard questions

As Monaco prepares to bury Prince Rainier III, who transformed the seaside mini-state from a glitzy gambling resort into an offshore banking center and diversified economy, it would be easy to assume that his only son and heir, Albert, has it made.

But the death of the 81-year-old Grimaldi dynast on April 6 has prompted renewed questions about Monaco's attitude to money-laundering and tax evasion -- subjects Rainier had fought hard to close. Dealing with them could be Albert's first test as sovereign.

"Money-laundering casts shadow over principality," proclaimed an irreverent headline in French daily Liberation the day after Rainier died, while Le Parisien, another popular title, called Monaco "A very opaque haven." Despite repeated assurances that it is now tackling the dirty money head-on, the critics say, Monaco still deserves the description writer W. Somerset Maugham gave it decades ago -- "a sunny place for shady people."

"Monaco's role as a financial center is still a dubious one," said Arnaud Montebourg, a French Socialist lawmaker who has built a reputation as an anti-corruption crusader. "It will be Albert's job to bring it up to modern standards."

Montebourg was co-author of a June 2000 parliamentary report that accused the Riviera enclave of turning a blind eye to tax evasion, drug trafficking and the mafia. Later that year, two more reports by the French justice and finance ministries bemoaned Monaco's "very inadequate" anti-money laundering controls and its "significant gap between law and reality."

The late Prince Rainier reacted angrily by demanding more independence for his French protectorate -- Paris supplies the principality's police, judges and civil servants -- but soon afterward returned to the table with concessions, including a pledge to collect France's wealth tax from its Monaco-based nationals.

Monaco has also increased staffing and resources for Siccfin, the unit investigating suspect transactions reported by banks, and now trumpets its endorsement by the international Financial Action Task Force on money-laundering.

Despite its global push against dirty money and terrorist financing in the wake of the Sept. 11, 2001 attacks, however, the FATF has not reviewed Monaco since 2000 and says it has no recent information on law enforcement there.

"The test is not the number of civil servants in your supervisory authority, it's the number of convictions you get," said French deputy Montebourg. "And there, nothing's changed in Monaco."

The principality has 30,000 residents but 130,000 banking clients worth euro60 billion (US$78 billion) in combined deposits, according to the Monaco Banking Association.

Daniel Serdet, Monaco's chief prosecutor, said his office receives some 20 suspect transaction reports each year and opens "about a half-dozen" investigations. He declined to give any numbers for convictions obtained but conceded there are very few.

"The reason for that is that the procedures we open come to nothing, precisely because of a lack of information," Serdet said. "Investigators everywhere encounter the same difficulty."

Probes into suspect money trails are often thwarted by a lack of cooperation from overseas jurisdictions -- just the kind of stonewalling, in fact, that has been attributed to Monaco in the past.

Observers say Albert, 47, will build on his father's efforts to portray Monaco as a haven for legitimately earned wealth where ill-gotten gains aren't welcome. No date has yet been announced for his formal investiture as crown prince.

But Monaco is likely to come under pressure to be a little less welcoming to overseas tax dodgers and their savings, which it still refuses to consider ill-gotten.

For decades the principality has cooperated with French tax authorities but withheld the same information from other governments, earning itself a place on an OECD blacklist of "uncooperative tax havens" -- alongside Andorra, Liberia, Liechtenstein and the Marshall Islands.

"All we were asking for was a political commitment to work with us to improve," said Grace Navarro, a tax expert at the Paris headquarters of the 30-member club of industrialized countries. "So far they haven't agreed to cooperate."

Recently Monaco has been forced to apply a new European Union savings tax, while still preserving the confidentiality of its 350,000 bank accounts, but is likely to fight hard against any further demands on tax cooperation.

A lot is at stake for Monaco. Fiscal cooperation with France already means that "the French business as far as the banking community is concerned is close to nil," said Jean-Claude Eude, head of the banking association.

So while Monaco is anxious to show that its banking secrecy will not hamper probes into money-laundering and other serious financial crimes, its banks still draw a firm, unrepentant line at routing out mere tax dodgers.

"Confidentiality stops where there is wrongdoing from the point of view of money-laundering and the like," Eude said. "But we don't mix that with tax evasion."