Money-Laundering Allegations Under Probe at Monaco Casino : Gambling: Authorities suspect that drug lords, Mafia chieftains recycle cash in the tiny principality, whose many banks operate secretly.

In most resorts on the French Riviera, signs point to tourist sights or the nearest post office. In the tiny kingdom of Monaco, they point to banks.

Luxury fashion shops in the glitzy principality are outnumbered only by a vast network of French and international banks--45 separate institutions, only 13 of them Monegasque, and many more individual branches.

Investigators have long suspected that much of the cash in circulation in Monaco is the takings not of respectable millionaires but of drug barons and Sicilian Mafia bosses.

Allegations have recently blossomed, leading Prince Rainier to take the unprecedented step of launching a judicial investigation into the workings of Monaco’s casino, Europe’s biggest. It is still under way.

Described by British writer Somerset Maugham as “the sunny place for shady people,” tax-free Monaco is seen as vulnerable to money laundering, given its proximity to Italian organized crime, its banking secrecy rules and economic growth.

“This is a fiscal paradise, and the laws are fantastic. It’s not just a problem of bank deposits. Companies can be set up anonymously, and that allows people to hide their activities,” said French conservative deputy Francois D’Aubert, former chairman of a parliamentary anti-Mafia commission.

“The controls on the banks are almost nil, even though it would be relatively easy to control them because most of them are subsidiaries,” D’Aubert said in an interview.

A report by D’Aubert’s commission paid no heed to diplomatic niceties and described Monaco as one of the most popular recycling centers. In 1992, banks received close to $12 billion in cash deposits which, it said, came largely from Mafia funds.

Tracfin, a French agency that tracks clandestine financial movements, says dirty money may be used to buy property or may be fed through “front companies” in sectors with high cash turnover, such as construction and tourism.

Deposits also are believed to include illegal profits from subsidies or kickbacks on public works contracts, from fraud related to the European Union’s agricultural programs and from organized crime in Eastern Europe.

Anxious to preserve Monaco’s classy image from contamination by international gangsters, its rulers flatly deny that any money laundering takes place.

“Our banks respect the rules of confidentiality, but they do not lend themselves to laundering drug money. We are extremely vigilant,” Prime Minister Paul Dijoud said. “It is difficult to control the movement of funds, but Monaco is no different from neighboring countries. For the moment there are only rumors.”

Controversy has focused on the casino, a flamboyant tribute to Belle Epoque architecture, since six members of Monaco’s governing council denounced “the laundering of money near the gaming tables and the role of certain shadowy individuals.”

Passing on complaints from staff members at the casino, whose majority owner is Monaco’s ruling family, they said loan sharks tied to anti-Mafia probes in Italy pocketed hefty commissions from the casino on sums lent to players.

Worse, shady characters bought big quantities of chips for cash, played a few and redeemed the rest for a casino check.

Monaco’s biggest company, the Societe des Bains de Mer, which runs the casino, four hotels and other interests, denies the charges but acknowledges that it has overhauled its workings.

“This isn’t a cathedral. Some people who come here are not of an irreproachable morality. But we don’t accept clients buying chips and exchanging them for casino checks. We are selective,” said Alain Tabart, financial manager.

“We’re a bit more careful on taking cash back. An audit we commissioned said some small things had to be changed and some administrative procedures should be sharpened,” he added.

Monaco’s government points to recent reforms including extending money-laundering definitions in the penal code to cover profits from criminal activities other than drug trafficking.

It has also set up an agency akin to France’s Tracfin designed to follow suspected dirty money, with the help of a cooperation agreement between the two bodies.

The accord, however, explicitly prohibits the forwarding to tax authorities of any financial information passed between the two agencies.

Police investigators complain that more often than not, tight, Swiss-like secrecy rules apply, and they have difficulty in obtaining warrants to get information on banks or companies.