In Monaco, money has no smell, it just flows

I have nothing against rich people, but when it comes to money laundering one cannot remain neutral. In fact many of the world's rich are good people and highly respected for the positive contribution they make in their own societies.

Monaco, the tax haven of the rich on the French Riviera, is trying to nurture an image of respectability and discretion. But many believe this city-state is defying the Mother State, France, and even the Organisation for Economic Cooperation and Development (OECD).

A tiny principality in the far south-eastern corner of France, Monaco measures less than two square kilometers. 2But despite its size, it has a large presence. Much of that is owed to its status as a tax haven independent from the French State.

Today the setting is as dazzling as ever, with yachts bobbing about in the harbour against a backdrop of the Cote d'Azure cliffs.

Monaco has been a hot spot for the rich since 1863, when what is said to be Europe's first casino opened here. Next to it, stands Hotel de Paris where your breakfast costs nowadays between $30 and $50.

Hotel de Paris welcomed the likes of Jules Verne, Alexander Dumas, Offenbach and later on, Errol Flynn, Gregory Peck and Jackie Onassis.

Unfortunately the scene is so different today. With its Churchill suite at $7,630 a night, the hotel is frequented mostly by Italian Mafia and the newly rich so-called 'businessmen' of the former Soviet Union republics, always in the company of beautiful and lip re-shaped blonds, and often followed by their French-trained body guards.

Officials here not only refrain from talking to the press about any accusation concerning money laundering or the tax system in Monaco, they also try to block any attempt to investigate.

But where ever you go, and who ever you meet up with on the beaches or evening social gatherings, every one seems to agree that this place stinks.

A top French judge has recently accused "senior justice officials" of blocking a major investigation into the Italian Mafia in Monaco, because it was getting too close to the royal family that rules this tax haven principality.

Charles Duchaine, a young (41) investigating magistrate who worked in the city-state, said the investigation uncovered evidence against a man alleged to have ties to the principality's glamourous Princess Stephanie.

The revelations come as the latest embarrassment to the Monaco authorities who are under fire from France and the international community to clean up its tax system, which acts as a magnet for laundering money earned from drugs, arms and prostitution.

There is no suggestion that Princess Stephanie was involved herself in anything criminal activity, or necessary knew of any alleged mafia connection.

Acting on a warrant from an Italian judge, Judge Duchaine was looking into a fraud involving the Mafia which led to a man then alleged to have connection to the Princess.

This comes as a blow to the Grimaldis, Europe's longest reigning royal family. Disgusted by his experience in Monaco in 1995-99, Duchaine portrays the principality in his book Judge in Monaco as a place "where money talks and the law obeys."

"I only tried to do my duty," he says. "I say 'tried', because Monaco is in reality a tax haven which often circumvents the bilateral agreements signed with my country."

"In Monaco," he says " money has no smell and the justice system is blocked at every level to better protect the rich investors who are behind the fortune and prestige of this princedom."

Monaco's drive to present itself as a law-abiding playground for the rich is exemplified by the way the mafia inquiry was stifled, he said.

"What I deplore most of all is the way the story was hushed up. They wanted to win on both fronts: shelve the case while making out that they were cooperating. Monaco's obsession is to preserve an image of respectability."

A survey by the Bank of France shows there were 340,109 bank accounts held in Monaco in 1998, 60 per cent of them in the names of non-residents.

The principality has only 30,000 residents. With GDP of about $27,000 per person, about a third higher than France's, Monaco is one of the richest country in the world.

It has more police officers (reputed for their rudeness and arrogance) in relation to its population than any other country, although their duties seem to consist mainly of directing traffic rather than solving crime.

The principality levies no income tax or inheritance tax on its residents, who include champion tennis players, racing drivers, retired senior officials and pop stars. There are no levies on capital gains, no taxes on interest-bearing accounts and no dividend tax, and its strict laws ensure banking secrecy.

OECD says Monaco has failed to commit to transparency in its tax system and to provide effective help in tracking down tax cheats. The Organisation, of which France is powerful member, has threatened it may take measures against the principality if it does not commit itself to reforms by next year


Mustapha Karkouti is the former president, Foreign Press Association in London.