US calls for tighter safeguards on aid

AMERICA yesterday launched a two-pronged attack aimed at closing the loopholes used to siphon cash out of Russia.

Following revelations of Russian money-laundering in New York, the US Treasury and the International Monetary Fund are under heavy pressure to show that they are dealing with the issue. There is no proof that IMF cash has gone astray, but the topic will still loom over the annual international financial meetings which begin this weekend.

Russia must reform its legal system to prevent IMF money being siphoned off and squandered, Larry Summers, the US Treasury Secretary said.

"The situation in Russia remains a serious concern," Mr Summers said yesterday.

"We will discuss with the Russian authorities this weekend their prospects for putting a credible reform strategy in place, and certainly the dominant issue will be the establishment of a functioning rule of law." He said that a key priority of the US at the meetings will be to "identify ways to strengthen safeguards on the use of IMF and World Bank funds." The Fund should routinely require external audits of recipient central banks, he said. It should require clear and transparent rules for the way central banks handle foreign currency "so as to limit the scope for insiders to offer preferential access to favoured groups", a veiled reference to the way in which Russian officials managed to siphon off Moscow's reserves. And it should "deter and penalise misuse of its funds".

The Treasury Department and the US Department of Justice also unveiled a strategy aimed at combatting the problem from the American side. It includes new rules for casinos, money transmitters and stockbrokers, new legislation to extend money-laundering as a crime, and intensified pressure on overseas tax havens and the offshore banking industry. Ten US banks, including BankBoston and JP Morgan, may have been used to siphon off up to $15bn from Russia, USA Today reported yesterday.