Uruguay Prodded by G-20 to End Bank Secrecy

As the rich flock to Punta del Este to visit their money over the long Christmas season known as la temporada, Uruguay faces diplomatic pressure from France and other G-20 nations to ease the strict bank secrecy that has earned the nation of 3.7 million the nickname "the Switzerland of South America."

A small nation with a relatively high standard of living, Uruguay being put on the "grey list" for not sharing enough information by the Paris-based Organization for Economic Cooperation and Development (OECD) blurs the distinction between bank secrecy and corruption and is a reminder that the major powers define corruption to fit their political agendas. Meanwhile, Transparency International, which the Guardian calls the world's most reliable index of corruption, gives Uruguay a Corruption Perception Rating better than France.

The Broad Front government of president Jose Mujica and banking leaders are being called out for doing the same thing that Switzerland and larger flight capital havens do as Uruguay's money hungry allies look to control fund pools they think can help them ameliorate the ongoing crisis. Uruguay has been considering development of a tax information treaty with Argentina and Brazil, but the issue has taken on greater importance now that capital flight is a major theme in French president Nicholas Sarkozy's reelection campaign.

Team Obama discussed flight capital issues with Argentine president Cristina Kirchner during her recent visit to the White House. But while Uruguay is just an hour by hydrofoil from Buenos Aires big money from Argentina continues moving at record rates into the U.S., not Montevideo banks. Rothschild and Safra, two houses who provide relationship banking to French and some Russian oligarch capital, maintain operations in Uruguay, as does Citibank.

With France surrounded by flight capital centers like Andorra, Luxembourg, Monaco, the Channel Islands, Lichtenstein and Switzerland, President Sarkozy turned the spotlight on distant Uruguay, using a recent G-20 meeting to call the nation a "tax paradise." Shifting the focus helps Sarkozy, since his political opponents continue to link him with the Clearstream Affair, a scandal involving a Luxembourg financial house that doesn't want to go away.

But while Uruguay's bank secrecy provides a high level of privacy, nearshoring vendors from France and India whose operations become more profitable with less rigid banking laws seek to set up low wage cyberplantations in Uruguay. These middlemen cater to big global outsourcing firms who are moving data operations out of countries that feature high wage and sometimes unionized data workers like Argentina, Brazil and Chile. Because Mujica's Broad Front government now provides public school kids with free laptops and Internet connectivity, computer-savvy Uruguayan millenials are a target of opportunity for the human capital brokers.

Corruption is also a concern among Uruguayans since India rates a low score of 95 on the Transparency International Corruption Perception Index. Uruguay is in the top 15 percent of the world's less ethically challenged nations with a score of 25.

President Mujica, a rancher and farmer, is also a former Tupamaro guerilla leader who spent 15 years in prison courtesy of a U.S.-backed military regime, two of them in solitary in a dungeon that would make Human Rights Watch blush. Although he has followed a centrist course like president Dilma Rousseff of Brazil, another former guerrilla, Mujica, like Venezuelan leader Hugo Chavez, is suspected in some conservative quarters of being indifferent to extremist organizations who might exploit Uruguay's banking laws.

Use of the bank secrecy issue in an effort to play Latin sovereigns against each other only helps advance the geopolitical agendas of China and Russia, who have developed special relationships with Brazil, Colombia and Venezuela. And Saudi Arabia and Uruguay are now working together in the areas of energy and food security. U.S. Latin policy, meanwhile, is operated increasingly outside the White House by private sector organizations led by former diplomats and feature a business-to-business orientation.

Outsourcing of the U.S. regional relations business to foundations and NGOs offers little accomodation for populist political movements like Peronism in Argentina or Brazil's Workers Party that still seek broader income distribution and increased social spending. Uruguay used Woodrow Wilson's "Fourteen Points" as a foundation for a century of cooperation with the United States. Today, however, young Uruguayan kids in the affluent barrio Carrasco are indifferent to the building blocks of American democracy, preferring to tweet up TED and other high cost lifestyle pathways. Meanwhile, poor Uruguayan families who depend on government infrastructure for an economic future are flooding into Montevideo in search of jobs and bumping up street crime and social problems.

Public diplomacy efforts to project a more culturally sensitive regional outreach merely provide a patina of inclusiveness that covers and perpetuates traditional economic interests associated with the inter-American system that is structured to ensure that wealth is pumped up to the top of the economic pyramid. The resulting continuation of poor income distribution has created an opening for the nascent CELAC economic organization bearing the imprint of Hugo Chavez. CELAC is gaining momentum among Latin America's political class as a vehicle to counterpoise the U.S.-dominated Organization of American States (OAS) as the major forum for hemispheric issues .

France, the United States and Canada are all excluded from CELAC membership. Meanwhile, China is working with Colombia to build an intermodal railway connection linking Atlantic and Pacific ports to augment the Panama Canal it now effectively controls. Russia is involved in multi-billion dollar oil for military hardware deals with Chavez that help keep him in power. Moscow sometimes turns a blind eye to his dealings with Iran and other rogue nations, which helps give the Kremlin geopolitical leverage in other corners of the world.

Pressing Uruguay to give up bank secrecy disrupts the free movement of capital, which is still the way banks and wealth management firms stay healthy and make money. And quiet relationships between central bankers and security services already tag rogue and extremist frontsters, who still get overlooked by senior intelligence and security officials as easy as the gun walkers in Tucson, Arizona did.

The bank secrecy issue is becoming a red herring, taking on the characteristics of a game of Who Moved My Cheese. And with the majority of Latin flight capital continuing to find a home in the United States, just as it did during the cocaine cowboy days of Edge Act banking along Miami's Brickell Boulevard, it might be better if France calls out Washington. But since Olivier Sarkozy, half-brother of the French president, is a major player at The Carlyle Group, who would want that to happen. Especially now that former dictator, narcotics broker, CIA informer and Poppy Bush lunch buddy Manuel Noriega is home after being released from a French jail to stand trial in the real drugster tax haven of the Americas, Panama.