US documents obtained by the Guardian reveal for the first time why the drug enforcement agency and other US authorities were so concerned about millionaire Tory treasurer Michael Ashcroft’s offshore world in the 1990s.
The original discovery that references to the Florida-based Tory donor existed in DEA files led to controversy two years ago. Mr Ashcroft issued a libel writ against the Times, which published a correction, and he declared there was nothing to support “allegations that I am a drug runner and money launderer.”
Mr Ashcroft was correct. No evidence exists to implicate him in committing crimes. Nor was he investigated on suspicion of doing so. What worried the Americans was that the Ashcroft-inspired tax haven in Belize in central America was, as a side-effect, encouraging fraud, money laundering, drugs and bribery in a small, poverty-stricken jungle state with corruptible officials.
Mr Ashcroft had arrived in the small former British colony at the beginning of the 1990s. He moved many of his interests there and bought control of the largest local bank, the Belize Bank, and encouraged local politicians to pass laws between 1990 and 1992 which set up flags of convenience, and secretive offshore “international business companies” and trusts, in return for paying annual registration fees to the government.
Crimes that followed in the lawless atmosphere of Belize and alarmed the Americans included:
• The Banner Fund. Two Californians exploited the Ashcroft-inspired offshore legislation to set up a Belize offshore company in 1993 which swindled US and British citizens out of $6.5m (£4.6m).
• The Ricke case. A US drug smuggler and his associates moved $700,000 of drug proceeds into Belize offshore companies, US authorities believed. One sum of $25,000 was allegedly paid into the bank controlled by Mr Ashcroft (There is no evidence the bank or Mr Ashcroft knew the money was tainted).
• The half-ton of cocaine. The DEA saw a problem in the existence of such tax haven legislation in a country vulnerable to corruption. A DEA-backed triumph when they arrested in Belize a trafficker linked to the Cali cartel ended in farce when, as the embassy reported “he effortlessly escaped from prison” in 1995 with the help of corrupt officials. Belize was subsequently listed by Washington as “a major drug transit country”.
The newly-installed DEA office in Belize sent an excoriating report to Washington in April 1993 about the tax haven regime Ashcroft had helped to set up, and which was operated by the local bank he controlled. Anyone in the world could establish a company under the 1990 international business companies (IBC) act.
“Some members of the government and the business community are sceptical regarding the act’s real benefits to the country. They see some benefits going to lawyers and accountants associated with Belize Bank, but little benefit to the rest of the country,” said the report, which was disclosed by the US under the freedom of information act.
“It is … a mechanism whereby illicit activities could be disguised by shrewd operators. The secrecy of information would allow drug traffickers freedom in establishment of companies under the IBC act to conceal or transfer drug proceeds. The confidentiality of companies, names, officers and account information makes it almost impossible … to investigate any allegations of illegal activities.”
The government’s offshore registry had been sub-contracted to the privately-owned Belize Bank. Although the bank carried this out properly and efficiently, the legislation was flawed: “The lack of [government] oversight could … result in the Belize Bank allowing almost anyone to become registered.”
The report acknowledged that the legislation helped Belize to attract overseas investors. But it warned that directors and shareholders could remain anonymous, and could hold meetings anywhere in the world, even by phone. “Money launderers never have to leave the safety of their own countries, while enjoying the secrecy and services that the IBC act offers.”
These IBC companies were not required to be audited, “so a fake company can declare whatever profits it wants and then transfer these profits, tax free, to a legitimate bank account”.
That was the US official view of Mr Ashcroft’s offshore centre in Belize. Mr Ashcroft himself had a different view. He appeared at the US embassy in 1996 to complain that the Americans had inspired a local press article implying he was involved in money-laundering. “Ashcroft insisted that little, if any, money laundering is conducted in Belize,” the subsequent embassy cable recorded. He told the ambassador most of his bank’s dollar deposits came from US bank accounts and were therefore subject to the US’s own “thorough anti money laundering precautions.”
Mr Ashcroft also launched an anti-drugs charity, Crimestoppers. He said: “I have always been violently opposed to drugs. Crimestoppers, the anonymous tip-off service I set up, has led to the arrest of more than 9,000 drug users and dealers.”
In the same 1999 newspaper article, Mr Ashcroft boasted that “not the slightest bit of evidence has been found” to support the theory that the offshore centre he had set up in Belize had been used for money laundering. “This is because there is none.”
But what Mr Ashcroft told the British public seems to have been mistaken, according to documents the Guardian has unearthed. These show:
• The Banner Fund. It was in 1992 that two US fraudsters, Eddie Blackwell and Lloyd Winburn decided to take advantage of the “offshore centre”, with its facilities for secret “IBC” companies, and inaccessible offshore trusts.
With the promise of enormous returns, they were busy collecting cash from 10,000 credulous US and British investors whom they referred to contemptuously as Joe lunchbags. The money was supposedly to invest in a unit trust, the Banner Fund International Offshore Arbitrage Leveraging Program, run by their company, Swiss Trade & Commerce Trust.
In the words of a subsequent federal court judgment: “They moved Swiss Trade to Belize City where they established it as a Belizean international business company.” The money from the “Joe Lunchbags” was lodged in irrevocable Belizean trusts, from which it was impossible for them to recover it.
As the US securities and exchange com mission drily noted, although they advertised the fund as a phenomenal opportunity for the “little guy”, in fact “defendants failed to engage in any leverage or arbitrage activity, but instead spent the money on real estate and a shrimp farm in Belize, and on various trusts in the US engaged in lending money to defendants’ relatives and friends.”
• The Ricke case. A major American drug trafficker, Thomas Ricke, was believed by the DEA office in Phoenix, Arizona, who were investigating him, to have sent $700,000 of drug proceeds to buy property in Belize. They received intelligence that on one occasion, a man had been sent to put $25,000 in cash into a Ricke account in the Bank of Belize.
Ricke and others eventually pleaded guilty. But the US government could not recover money Ricke invested in Belize properties. It was found to be in the name of several anonymous IBCs, the ownership of which could not be established.
It was as a result of these criminal activities by other people that Mr Ashcroft’s name started to crop up in DEA inquiries. The Phoenix office of the DEA asked their newly-opened local branch in Belize for information about Belize Bank.
Researchers found Mr Ashcroft’s name had already been mentioned in DEA files. This was merely because in 1989 he had been in the habit of travelling from the US to Iceland in a private plane to hold mid-Atlantic meetings with business associates.
His name was one of many checked out in a survey of the use of small planes to ship drugs and drugs cash across the Atlantic – Operation Icetrack. There was no suggestion he was involved in any wrongdoing.
And the 1993 Belize background report on Mr Ashcroft also gave him a clean bill of health. It reported he was “acquiring significant assets in Belize” and that ADT, his large second-hand car auction and burglar alarm business had dealt with the occasional individual suspected of drug dealing. The 1993 DEA report said this was unsur prising, given the large size of the business. “There appeared to be no evidence of criminal activity on the part of ADT.”
The only other mention of Mr Ashcroft the next year, 1994, was again in an innocent context, when a further DEA report was filed in Savannah, Georgia, noting that he had used a private plane linked to drug smugglers, to fly to Nassau in the Bahamas. (Mr Ashcroft says the flight would have been chartered by others on his behalf, and was entirely unconnected to drugs).
• The half-ton of cocaine. The US authorities’ hostility seems to have continued to focus on Mr Ashcroft’s responsibility for the lax Belize offshore financial system. In December 1995, the Belize embassy’s narcotics control report to Washington said Belize had a “rudimentary infrastructure for combating drug trafficking”.
Their solitary achievement (with DEA help) in 1995 had been to seize 536kg of Colombian cocaine and arrest a suspected Cali cartel member, who had promptly bribed his way to freedom. “The potential exists for Belize to become a major transhipment point for cocaine.”
The report said although they had no evidence Belize was yet an active money laundering location, “money laundering must still be considered a major potential threat”. The 1990 IBC act had been “reportedly” drafted by Mr Ashcroft himself. No laws made money laundering a crime. No laws regulated currency movements. Bearer shares and bonds were allowed. There were “loose regulations”.
Handing control over offshore registrations to Mr Ashcroft’s bank had led to “sidelining of the government of Belize’s regulatory and oversight responsibilities” and the embassy was continuing to receive complaints about the fraudulent Banner Trust which had “left 10,000 depositors, mostly Americans, unable to access their funds”.
Less free enterprise
The July 1996 cable, marked sensitive and headed “Ashcroft, BHI, Offshore Services and money-laundering in Belize” called for “more regulation and supervision and rather less free enterprise”.
Although the “Wild West” offshore system was cleaned up to an extent in 1996, after pressure from Britain and America, the US continues to be upset by the situation Mr Ashcroft has brought about. In 1999, the state department in Washington reported: “Money-laundering remains a significant potential threat in Belize.” Mr Ashcroft’s secret IBC company legislation still presented “viable loopholes for money laundering”. No one could discover the beneficial owners of offshore trusts – “another serious weakness”. The number of IBCs offering secret facilities had risen in 10 years from zero to 16,000, each having to do little more than pay US$100 a year for the privilege.
In 1999, a DEA foreign situation report said there was a potentially dangerous threat of movement of currency through Belize and “increasing movement on the black market of large amounts of US currency”. The offshore system was “originally created to provide tax shelters for companies owned by Ashcroft” who also controlled Belize Bank. “Intelligence … indicates cash deposits made by the bank … increased dramatically.” (Though it was not suggested the bank was aware of any money laundering.)
This March the state department publicly registered its concern about Belize publishing a report saying the offshore sector made it “vulnerable to money laundering”. Its report said not a single money laundering case had been prosecuted by the Belize government, despite passing their anti-laundering law under US pressure. The offshore trusts were prevalent “because they do not have to be registered with any regulatory body”.
Yesterday, Alan Kilkenny, Mr Ashcroft’s PR man, to whom the Guardian put these points, said: “I’d ask you to demonstrate that money laundering is taking place on a wide scale. Money laundering is taking place elsewhere on a far wider scale. Why should Belize be singled out?” He questioned whether the Banner Trust fraud was truly a case of money laundering. Of the Ricke case, he said the $25,000 deposited in the Belize Bank was “peanuts”. More money had gone through other banks. Asked about the use of IBCs to launder the Ricke money, Mr Kilkenney said: “All this is de minimis”
Last week, US government sources specialising in money laundering issues, said: “The government of Belize knows very little about what is going on … the US government has been putting pressure on the Belize government for years to tighten up the regulation of the IBCs. No one knew, or could know, how much money laundering was taking place through the Belize IBCs because it is so furtive.”
Experts believed 90% of money laundering in the world was probably done through offshore havens. Given this, the sources said, “it is highly unlikely that all the IBCs are clean”.
These gloomy assessments, then, remain the Tory party treasurer’s Belize testament.