The Parmalat Syndrome

The Bank of America transactions were run through a nonprofit entity set up by the Cayman Islands law firm Maples & Calder, which is the same nonprofit entity that harbored the shell firms that ultimately brought down Enron. For you to have an idea of how widespread these kinds of secretive, highly complex transactions are, though, you need to know that this is the same nonprofit entity used by bankers working on behalf of the San Francisco Municipal Railway two years ago, when they converted our city's light-rail trains into offshore tax shelters.

Indeed, the number of complex and opaque bond financing and private stock placement deals conducted in offshore banking havens has exploded during the past 10 years. It's said that some $500 billion of such transactions is currently routed through the Caymans alone. But nobody knows for sure, because there's no way to really find out.

Yet put "Cayman Islands" and "regulator" into Google, and you'll come up without many relevant responses, because there's no effective regulation of banking there. Meanwhile, there's no serious effort by the United States to coordinate financial law enforcement between European and other regulators save a bland SEC effort to standardize accounting terminology. There's not likely to be one anytime soon. And the offshore wizards know this. "When asked whether the role of the offshore administrator has changed in the wake of Enron, Parmalat, and other corporate scandals," a Maples & Calder partner said in a recent speech, "I typically respond that it has not."

If Parmalat hadn't failed to make its December 2003 loan payment, and therefore hadn't found it necessary to gin up a phony $4 billion bank statement, it might still be ripping off investors today, without any institution in place to stop it.

From a certain perspective, there's a bright side to this global regulatory failure.

The myriad, allegedly fraudulent transactions that fueled Parmalat's worldwide growth from the mid-1990s to late 2003 involved hundreds of perpetrators, collaborators, and victims in dozens of banks, accounting firms, and law firms. These purported scams were carried out steadily over nearly a decade, incorporating people, bank accounts, and shell firms around the world.

Perhaps the blind eye American regulators have turned on the U.S. nerve center that aided the Parmalat fraud is a perverse kind of jobs program. A jobs program for the Bush era.