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Money laundering a global problem

Neville Nankivell

Financial Post, Weekly edition, Tuesday, May 12, 1998

At last weekend's meeting of Group of Seven finance ministers in London, British Chancellor Gordon Brown rightly called finding ways to combat the international spread of financial crime as "one of the major challenges of our times."

As financial services have become increasingly globalized, so has the nature of financial crime. The amount of money laundered around the world as a result of drug trafficking is estimated at a staggering US$400 billion annually.

Finance ministers of the G7 group of the world's largest economies will launch a series of initiatives involving closer co-operation between national and international financial regulators and law enforcement agencies. The main thrust they agreed to in London will be the creation of a worldwide network of anti-money laundering agencies.

The finance ministers' recommendations will get the go-ahead later this week from heads of government meeting at the G8 Birmingham summit. The leaders group includes Boris Yeltsin of Russia. It has a huge organized crime problem, with tentacles that reach out globally -- including into Canada.

The aim of the moves agreed to by the G7 finance ministers is quick and more efficient exchange of information between regulators and law enforcement authorities domestically and across national borders. They involve government commitments -- including Canada's -- to ensure financial institutions report suspicious cash transactions that may be related to the proceeds of crime.

Our government will introduce legislation this year to toughen its bank reporting rules. This is needed because, despite some progress, Canada is still regarded as an easy target for drug-related and other kinds of money laundering. "It will put Canada into a position of real leadership on the issue," says Finance Minister Paul Martin. "It's very much focused on the whole issue of money laundering and international crime."

Martin doesn't think the problem in Canada is increasing any faster than in other countries, although some law enforcement groups would disagree with this. "But the fact is it's become a worldwide blight and is increasingly sophisticated," he says. "This makes it a growing concern in Canada because we're part of that world."

The key to success, however, will be action that also involves jurisdictions outside the G8 grouping. Dozens of smaller countries and territories continue to condone excessive banking secrecy. It's easy in these areas for professional criminals and crooked business people to set up "dummy" companies for illegal purposes. A lot of money laundering is done through small offshore financial centres that are often beyond the reach of investigators. The finance ministers are looking at ways to counter this.

What's also needed are changes in laws to allow the freezing of accounts when commercial crimes are suspected and to make it easier to seize the proceeds of financial crimes such as the laundering of dirty money. The G7 finance ministers also hope to strengthen anti-money laundering systems by dealing more effectively with tax-related crimes. Often the two activities are intertwined. More leeway is needed for reporting of transactions related to suspected tax offences and other financial crimes. Anti-money laundering agencies will have to be allowed to pass information along to tax authorities in support of investigations and also to give it to agencies in other countries. The trouble is this gets into the sensitive area of confidentiality on tax matters and also sticky cross-border jurisdictional issues. Sorting these out will be difficult.

The G7 finance ministers have set an October deadline to identify how systems to combat organized international financial crime can be improved and how action can be implemented quickly. The initiatives taken in London build on work started after last year's Denver summit. They deserve high policy priority and support from the legitimate financial and business community.

(Ed. note) Neville Nankivell is The Financial Post's editor-at-large, based in Ottawa.

Source: This information is provided by the Financial Post.

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