FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you for the opportunity to speak to you today as part of your program on the challenges of globalization. We use the term globalization for the unprecedented, rapid flow of private capital, ideas, technology, goods and services around the world. It began during the post-World War II economic recovery with the Bretton Woods agreements and the gradual development of tariff-free markets in Western Europe. It picked up momentum with the industrialization of Asia and exploded with the coming of computers and the Information Age. The world has integrated at an astonishing rate in recent years. Financial flows have more than doubled since just 1993. Today, the volume of merchandise trade is more than 15 times what it was in 1950 and foreign direct investment has experienced a 25-fold increase over the last 25 years.

By opening up once isolated nations and untapped markets, globalization has produced enormous positive rewards. According to a study by a University of California economist, worldwide gross domestic product (in 1990 dollars with constant purchasing power across countries) has increased ten times since 1950. The volume of manufactured exports has risen almost thirty times in the same period. Other data show that real incomes in developing countries are 50 per cent higher today than they were 15 years ago. The poverty rate in Asia has been cut in half over the past 20 years.

But globalization also presents risks. Not all countries have been able to benefit. The mobility of capital comes with risks of reversals of confidence, magnifying natural vulnerabilities in weak financial systems. The ease of electronic transfer has made money laundering into a vast international business, challenging the ability of law enforcement and regulators to control it, increasing crime and shattering lives.

Globalization offers vast new opportunities to industries and financial institutions, and corresponding challenges to the international practitioners who advise them. At the same time, it raises a host of challenges to national authorities. Antitrust regulators have noted that the increasing number of cross border mergers and other strategic business alliances require new definitions of the relevant market for the purposes of gauging whether monopoly power is being exercised. As to tax policy, every person who makes a purchase through the medium of global electronic commerce becomes in effect a resident of a town situated on a territorial border. The growth of e-commerce thus increases the significance of cross-border disagreements about taxation and the potential for conflicting jurisdictional claims resulting in inappropriate double taxation or in some cases inappropriate exemption from taxation.

One major challenge globalization presents to international law is how to encourage healthy commerce using agreed upon rules of the road, while still working within strongly held concepts of national sovereignty. In my experience, this challenge is being met most effectively by the growth of international institutions and through less formal arrangements that achieve agreement by negotiation and rely on national institutions to enforce their accords. I would like to illustrate this through three areas in which I have been personally involved recently: the creation and operation of the WTO, the efforts to control international money laundering, and the negotiations over Holocaust-era assets.

You will be hearing this afternoon about the critical importance of Chinese accession to WTO, but I want to discuss the contribution WTO makes to a rules-based trading system fully consonant with international law. The WTO has its roots in the General Agreement on Trade and Tariffs, or GATT, whose creation in 1948 reflected the lessons our nation and its allies drew from Depression and war. In the 1930s, the world went through a cycle of trade protection and retaliation, beginning with the Smoot Hawley tariff in the U.S. and continuing through European colonial preference schemes, which cut global trade by nearly 70 percent. Within a few years, the world was changed into a series of island economies, deepening the Depression and intensifying the political tensions resulted in a World War. In the last half century, through eight Rounds of negotiations, and as 112 new members joined the 23 founders of the GATT, we abandoned the system of closed markets and brought down barriers between the Allied nations, to the point where over a billion dollars worth of goods and services cross the Atlantic every day.

In the Uruguay Trade Round, the world's trading nations fundamentally reformed, updated and modernized the GATT system to meet the demands of a more integrated, technologically progressive world. The result is the WTO. Tariff reduction on manufactured goods is still central to its work, but to this has been added other agreements in such growing and important areas of international commerce as agriculture, services, intellectual property, and the most recent agreements on information technology, basic telecommunications, and financial services.

Creating the WTO has strengthened the rule of law. The GATT system had a limited set of essentially unenforceable rules that applied differently to different groups of member countries. The WTO has a more comprehensive set of rules, arrived at by consensus, which are enforceable and apply to every single member. Together with this is an array of oversight bodies that are used to monitor the commitments our trading partners have made, identify potential problems, and offer technical assistance or other expertise when necessary to help ensure compliance and implementation.

There is also a strong dispute settlement mechanism that the U.S. has used in 49 cases to preserve and enforce our rights. Rulings are made by a panel of impartial experts. Appeals may be made based on points of law. Final decisions are adopted by the WTO's full membership. No single country can block a decision, as was the case in the past. These cases have helped confirm basic legal principles: that all WTO members must keep their commitments; that trade policies must be nondiscriminatory; and that we and other trading nations have a fundamental right to set the highest standards of environmental protection and consumer safety.

Money laundering is a growing problem that affects virtually every country in the world. The former IMF Managing Director Camdessus has estimated the amount of laundering at two to five per cent of the world's gross domestic product-almost $600 billion annually even at the lowest end. In a globalized world where capital can silently traverse the globe with a simple keystroke, proceeds of crime can move just as quickly and just as quietly. We have recently witnessed a former executive at a bank in New York admit her guilt in a conspiracy in which she and her husband ran an operation that helped launder millions of dollars in Russian criminal proceeds. We have heard allegations that the brother of a former head of state laundered millions of dollars of drug money by exploiting legitimate private banking facilities at another American bank.

There is no doubt that enormous amounts of dirty money flow through the world's financial centers. And just as the underlying crimes give rise to illicit profits, the problem of money laundering extends to all nations. However, most of the world's financial centers have joined the international fight against money laundering and have tried to establish effective anti-money laundering systems. But too many sovereign jurisdictions intentionally act as havens for financial crimes committed elsewhere. Money that begins life as the proceeds of a drug deal or an illegal arms trade is often laundered in one of the more than 50 offshore centers around the world. These havens offer strict bank secrecy laws and "economic citizenship" that allow criminals to escape the legal reach of their countries of origin. Though the fight against money laundering of course requires us to vigorously enforce our domestic money laundering laws and close loopholes where they exist, we must also cooperate with our allies to reduce the incentives havens now have to accept dirty money.

The most important example of international cooperation in this area is the Financial Action Task Force on Money Laundering (FATF). Established in 1989 by the G-7, this international effort now consists of 26 nations, and develops and promotes anti-money laundering policies. The FATF process allows nations to strengthen their safeguards and coordinate their efforts in combating money laundering. It has issued forty recommendations that constitute a comprehensive set of counter-measures against money laundering, and are designed to be applied universally, including in off-shore centers. They include adoption of criminal laws, identification of client accounts, required reporting of suspicious transactions by financial institutions and international cooperation (including revising laws or regulations that prohibit such cooperation). Each FATF country has made a political commitment to implement the 40 recommendations, though the recommendations are not binding as a matter of international law. FATF members monitor each other's compliance with the 40 recommendations through a process of mutual evaluation. In addition, FATF has recently published its 25 criteria for determining non-cooperative countries and territories as part of an effort to identify specific jurisdictions that do not comply with these accepted norms and thus threaten the international community by acting as money laundering havens. This initiative is motivated by the fact that there are still many jurisdictions that are reluctant to clean their own houses and to cooperate with the international community in anti-money laundering efforts.

We strongly support and are fully engaged in the FATF process to identify non-cooperative jurisdictions, and would like to take coordinated action with our FATF partners with respect to countries identified as non-cooperative. We hope that this review will be complete and non-cooperative jurisdictions identified publicly in June. The Administration has proposed legislation - which has received bipartisan support and has been introduced by Chairman Leach and Representative LaFalce - that would enhance our ability to take such action. It would give the Secretary of the Treasury discretion to take actions in certain cases where a foreign jurisdiction, a foreign financial institution, or a type of international transaction is of primary money laundering concern to this country. The actions are graduated, targeted and discretionary. They range from requiring our financial institutions to make records of transactions available to the federal government to prohibiting, in extreme cases, the opening or maintenance of correspondent or payable-through accounts altogether. In determining whether a foreign jurisdiction has adequate barriers to money laundering -part of the process of assessing the threat -- we would give great weight to the global standards established by FATF.

We are also considering the role of the lawyers, accountants and auditors who function as "gatekeepers" to the financial system. While legal rules properly insulate professional consultations from overly broad scrutiny and create a zone of safety within which professionals can advise their clients, those rules should not create a cover for criminal conduct. All who work as gatekeepers need to be educated as to their professional responsibilities, so they do not find themselves in a position of being used by those who launder money. We have published materials for the accounting profession that highlight the risks in various industries. We have met with ABA committees to discuss the best way of proceeding on these issues, and other meetings are planned. This will be a cooperative process with the bar, to highlight to lawyers their professional responsibility.

As you know, there has been a significant expansion of litigation over the last decade in the field of human rights issues. The actions of past governments violative of basic human rights have been the subject of proceedings in nations ranging from Chile to South Africa. In the case of forced and slave laborers during the Nazi era, conditions developed creating the possibility of a remedy for injuries suffered decades ago.

During World War II, the Nazi regime used 12 million such laborers in their factories and fields, and in concentration camps. Almost 1.5 million still survive. Beginning in 1998, over 30 class action suits were brought in U.S. courts on behalf of these workers. The defendant companies, all of whom do business in the United States, denied legal liability but accepted moral responsibility. They made a dramatic and perhaps unprecedented offer: they would create a Foundation under German law, which would solicit contributions from other segments of German industry. Dignified payments would be made to slave and forced workers, as well as others who suffered at the hands of German companies during the Nazi era. In return, the German companies wanted "legal peace" in U.S. courts, which meant release from lawsuits based on actions taken during the Nazi era. That they did not wish to undergo discovery concerning the actions of their companies during the Nazi era, and did not wish to be the object of boycotts or sanctions were possibly also inducements to settle.

I have participated in many international negotiations, both as a government official and a private attorney. These have been the most complex. Around the table, in addition to plaintiffs' lawyers and German industry and its representatives are the Conference on Jewish Material Claims Against Germany, representing the Jewish survivors; the governments of Poland, Russia, Ukraine, Belarus and the Czech Republic, representing their citizens, mostly forced laborers; and the Government of Israel. Count Otto Lambsdorff, a former German Minister of Economics, and I are serving as mediators and facilitators, trying to achieve a settlement. It has taken eleven rounds of negotiations, over a period of thirteen months, to get to where we are today. The Germans began with an offer of 1 1/2 billion DM, or 750 million dollars, to settle all cases. Last December, after the personal intervention of President Clinton and Chancellor Schroeder, the parties agreed on a figure of 10 billion DM for all injuries committed by German industry-from slave and forced labor to unpaid insurance policies, confiscated bank accounts, stolen property and medical experiments on concentration camp inmates. Last month, we were able to agree on allocating this amount among the different countries and the different types of claims.

Our preference for the Foundation solution over that of class action litigation reflected the kind of judgments many of you must make in complex international commercial negotiations. The likelihood of success of litigation is questionable, given the variety of legal defenses available. Already, federal judges have dismissed two of the cases.

Second, litigation would take years to reach fruition, with lengthy and costly discovery motions and appeals. Survivors average around 80 years of age and are passing away at a rate of approximately one percent a month. Thus, few survivors would be alive to benefit from litigation directly, even if it were successful.

Third, the only survivors who could possibly recover in such litigation are those who were employed by the few German companies that still exist and have been sued in the United States. By contrast, we estimate that the Foundation will cover -- under relaxed standards of proof -- approximately one million workers, including those who worked for German companies now defunct, SS companies, and companies owned by the German government and even agricultural workers in those Central and Eastern European countries that choose to do so. For these people, the Foundation Initiative may represent the only possible avenue for obtaining a measure of long-awaited justice.

The elements of our negotiations must still be incorporated into legislation the German Bundestag must pass, to create the Foundation and to appropriate the German government's contribution, which amounts to one half the 10 billion DM. The U.S. and German governments must still sign an Executive Agreement memorializing our separate commitments. Assuming the establishment of a comprehensive Foundation, in any actions brought against German industry arising out of the Nazi era, our government will file in court a Statement of Interest stating that the Foundation should be regarded as the exclusive remedy for Nazi-era claims against German companies and that dismissal of such cases is in the foreign policy interest of the United States. This example indicates the direction in which a straightforward class action lawsuit can go in this modern era.

As globalization proceeds, the role of international organizations and non-governmental organizations will continue to grow. We may see more specialized bodies exercising quasi-judicial functions delegated to them by sovereign nations. Coordination between parties on one side of the table will be more efficient because of the ease and speed of communication, but that very factor will increase the number of parties seeking a place at the table. As a result of these trends, international practice will be even more complicated-and more interesting-than it is today. You are on the cutting edge of the profession and your work can enhance the positive rewards we expect from globalization in the future.

I wish you well.