FINANCE-BRITAIN: New Powers to Check Money Laundering

By IPS Correspondents Reprint | | Print |

Samanta Sen

LONDON, Dec 2 2001 (IPS) - Britain’s financial regulators have acquired new powers to fight extensive money laundering operations taking place through London.

Ten individual financial regulators combined to form a single regulator Saturday. New regulation through the Financial Services Authority (FSA) will mean added powers to investigate suspicious transactions and to ensure monitoring of transactions by financial institutions.

The FSA will now be the prosecuting agency for offences of money laundering. And it will have powers to name and shame individuals and institutions that fail to meet the given standards.

The new powers follow reports of extensive money laundering through the financial system in London. Money laundering is a complicated business of placing illegal money under a front organisation, layering that transaction over with many others and eventually converting that money into legitimate money.

London has been particularly vulnerable to such transactions that are known to have funded both terrorism and the narcotics trade. London had strong regulation in place already “but because of its sheer size, the markets in London have a high exposure to money laundering,” managing director of the FSA Carol Sergeant told IPS.

There can be no precise estimates but many billions of dollars in such money are estimated to pass through Britain’s financial systems every year. London has the biggest share of trading in many international financial markets. The City of London, which is the financial district of London, is the world’s leading centre for trading in the euro even though Britain is not in the euro.

London has 481 foreign banks, more than any other city. These banks manage more than half of Britain’s banking sector assets, totalling more than 5,000 billion dollars.

The foreign exchange market in London is the largest in the world with a daily turnover of more than 500 billion dollars in April this year. That was about a third of the total turnover in the world, and more than New York and Tokyo combined. London is also the world’s biggest fund management centre with total assets of about 4,200 billion dollars.

The new FSA will take over regulatory responsibility for everything from investment banks to building societies. That regulation has been tightened for its own sake and also to bring close surveillance to detect use of funds for terrorism or in the narcotics trade, Sergeant said.

The targets for investigation will include foreign banking and systems of banking under which agents substitute accounts and written contracts. The FSA is setting up teams to monitor banks, particularly banks that deal with clients in what are called “non-compliant jurisdictions”, Sergeant said.

The key position in the new system will be that of a money laundering reporting officer for each bank or financial institution. The FSA will clear the appointment of all these officers, and monitor their reports and what action the management took on them.

Public institutions that do not comply can be named and shamed. The FSA would have the right to “withdraw permission for some kinds of financial activity” to these institutions. “If we find individuals at fault we will put their names on our website so that they cannot work in financial institutions again,” Sergeant said.

The focus of the new measures will be to home in on suspicious transactions. “Following September 11 financial institutions are making an enormous effort to support the efforts of the law enforcement agencies,” Sergeant said. “We will work to detect what look like suspicious transactions, and then investigate whether they are really suspicious or not.”

Vincent Harvey, Director of the National Criminal Intelligence Service (NCIS) in Britain told media representatives last week that investigations will spare no one. “Some of the people we are looking at are some of the richest in the country,” Harvey said. That includes some described in Britain’s lists of the rich to have been almost as rich as the Queen. Another person who was about the 40th on one list was sent to prison for violations earlier.

The NCIS will not hunt the super-rich criminal alone. “The clue to the first bombing of the World Trade Centre came through a 600 dollar visa card transaction,” Harvey said. “There is no minimum amount for a suspicious transaction.”

Harvey told IPS later that a new computer-aided system had been involved to detect ‘hawala’ transactions. Hawala is the name used in South Asia to describe transfer of undeclared money through informal channels run on personal trust. The word now describes all undeclared transfers outside the financial system.

“Britain is well ahead in this technology,” he said. “The system will be used to detect transactions unusual for a person’s profile”. The new system will maintain a chart for each person. The technology and training in such detection is being offered to regulators in other countries, he said.

Britain is working internationally to strengthen the Egmont system under which systematic exchange of financial information and intelligence takes place. “This is a complicated system of exchanging financial intelligence,” Harvey said. Secure websites are being maintained between governments for instant communication. Another secure website is being developed for European countries “for discreet exchange of information”.

Ian Mullen, chief executive of the British Bankers Association told IPS that banks will be taking a hard look at corrupt money trying to reach clean outlets. “But a lot of terrorism is also funded by legitimate money used for corrupt purposes,” he said. “We are developing new techniques to tackle and unearth this kind of money.”

The new powers have led to some misgivings that they could be abused. But fundamental protection will remain in place. “A banker cannot reveal confidential information without a court order,” Mullen said. A court order will be needed but the prosecuting agency now expects that the new measures will accelerate procedures.

“Britain has a pretty good record of catching terrorists,” Harvey said. “But terrorists are always learning new ways, and we have to keep catching up,” he said. “If new steps are taken by countries individually this will be exploited and that’s why we are developing co-operation among intelligence agencies across countries.”