Helen Liddell – 1998 Speech on Money Laundering

The speech made by Helen Liddell, the then Economic Secretary to the Treasury, on 1 June 1998.

I welcome the opportunity to speak to such an important gathering, to welcome you to London and to wish you well in the difficult and important work you are tackling here over the next two days.

Financial crime covers a multitude of sins ranging from advance fee fraud to market manipulation and insider dealing. Today I want to focus on one particular aspect of financial crime, the theme of this conference, money laundering.

This gives me an excellent opportunity to emphasise the importance the UK places on the fight against money laundering. The Treasury – and indeed the whole Government – is committed to defending the integrity of our financial systems and building stable and sustainable economic growth.

Money laundering is a threat to our democracies and our people. International organised crime, corruption, subversion, violence and misery inevitably thrives wherever criminal activities go unchecked. Estimates of the amount of money being laundered suggest that it is at least $500 billion per year. The risk that such flows of dirty money may destabilise our economies and corrupt our financial and legal institutions is apparent to all. And unless we can successfully tackle the proceeds of crime, we are not going to be effective in combatting the criminals themselves.

The international nature of money laundering means we have to tackle the problem together. Through international cooperation we can meet the challenge of building an alliance against crime that respects our legal, political, cultural and economic differences. Organised crime thrives on international inertia so we must act soon to seek out and plug the gaps in our approach.

The Commonwealth has always set high standards in this area and I am sure your work will add to that record of achievement.

The problem

Money laundering presents an ongoing challenge. The techniques and structures used by launderers are changing all the time as they try to circumvent the preventive measures we have introduced. Only ten years ago, in most of the world criminals could walk into a bank with the proverbial suitcase of ‘dirty money ‘ with little fear of challenge or detection. In many countries this has now changed – certainly the UK.

But if the criminals cannot risk putting the cash directly into the financial system, they transport it abroad to countries where questions are not asked. So issues concerning the use and transportation of high denomination notes are still with us. Indeed, this is one area where we are working closely with our European partners, as we prepare for the launch of the Single Currency. However, criminals are using increasingly sophisticated and complex ways of managing their financial affairs to legitimise assets, obscure profits and hide identity. There is increasing use of securities, derivatives and insurance products as well as the services of accountants, lawyers and financial advisors to launder money.

The Internet and electronic money also provide particular challenges, as they enable money to be moved around the world with relative ease and with little trace. So there is a need to constantly adapt and develop the fight against money launderers. Systems need to be flexible and experiences shared to ensure constant access to best practices.

The Commonwealth

The Commonwealth plays a crucial role in the fight against money laundering. Its role in the exchange of information is essential and I hope existing initiatives will be built on.

I particularly welcome the multi-disciplinary approach you are taking. To succeed, the legal and financial aspects of laundering must be tackled together.

We have worked together long enough to understand each other’s concerns. There is enough common ground to make us uniquely placed to contribute to raising the benchmark of international work on money laundering.

Financial Action Task Force

The leading international body concerned with developing policies to combat money laundering is the Financial Action Task Force – FATF. As many of you will know, the FATF has recently carried out a review of its future mission and strategy and the UK has played an active role in the agreement to extend the FATF’s mandate for a further five years.

The FATF’s 40 Recommendations are now widely recognised as the international benchmark in this area. But the FATF is not becoming complacent. It acknowledges that, although standards have improved enormously in the past few years particularly within its own membership, the challenge is to make those standards truly global. The FATF’s strategy for the future therefore emphasises the importance of establishing and strengthening regional efforts in every part of the world.

The great success and professionalism of the Caribbean Financial Action Task Force demonstrates how vital regional efforts are in moving forward. There are several reasons for the success of this regional approach. It encourages the use of mutual evaluation and peer group pressure. And crucially, it offers the flexibility to tackle local challenges with local solutions.

The Deputy Chairman of the Caribbean Task Force will be addressing you later. I urge you all to consider what role you can play in establishing and building up your respective regional bodies. Success is important not only in the fight against crime but also in encouraging soundly-based and sustainable economic growth.

Development and expansion of the regional Task Forces will be accompanied by the gradual expansion of the FATF itself. New members to Task Force are likely to be have key regional roles to play. The main Task Force should therefore to continue to grow in understanding and become more truly international in character.

The twin track approach, of strengthening and widening both the regional and main Task Forces will ensure real progress is made in the coming years.

G7

Encouraging news on international action to tackle financial crime also emerged from the recent meeting of the Finance Ministers of the G7. Ministers agreed to review the laws and procedures on international cooperation and information exchange between financial regulators and law enforcement agencies. The review will identify ways of improving our systems and ways of implementing these measures as quickly as possible. The review will be completed by October.

Finance Ministers also decided to take a number of practical steps to improve cooperation. A G7 reference guide to procedures and contact points on information exchange in our countries has been drawn up and we intend to expand this Guide to cover all major financial centre countries.

The G7 also agreed a new initiative to improve the coverage of anti-money laundering systems and the effectiveness of tax authorities. The Initiative is designed to ensure that financial institutions report suspicions of tax related crime and that this information is shared both domestically and internationally.

This work will begin to address the potential loophole which allows criminals to masquerade as tax-dodgers in order to avoid the reporting obligations of our anti money laundering systems.

I think we all welcome these measures taken by the G7 and other international organisations to tackle financial crime more widely, money laundering in particular.

UK

However, it is not only on the international stage that we are doing much to tackle money laundering. Many of you have active domestic programs. We are very busy in the UK too.

The anti-money laundering systems in place in the UK have, on the whole, been successful. There is, as indicated by the Financial Action Task Force’s mutual evaluation of the UK, some room for improvement.

We are actively addressing these issues. As a result of the Task Force report and an internal Treasury review of the impact of our money laundering systems, a number of weaknesses were identified which are now working to remedy.

Firstly, the Financial Services Authority, our new single regulator, will take a pro-active role in regulating compliance with money laundering requirements. This will be underpinned by a high level objective in primary legislation obliging the FSA to monitor, detect and prevent financial crime.

The FSA will have the power to make rules in relation to money laundering and bring criminal prosecutions for breaches of the UK’s money laundering regulations that are applicable to internal systems and training.

Secondly, we intend to introduce a system of civil penalties for behaviour which, though falling short of criminal, nevertheless damages, or has the potential to damage, financial markets. Again this power will be exercised by the Financial Services Authority.

Finally, our approach to asset confiscation has not been as successful as we had hoped. We are actively considering the idea of a national confiscation agency, that would have the remit to confiscate not only cash but also all property that might be derived from the proceeds of crime. These views are still at a tentative stage but the Government is determined to do all it can to take the profit out of crime.

Conclusion

I am delighted to have had the opportunity to address you on some of the key areas of activity on money laundering both internationally, and here in the UK.

I would also emphasise again my belief in the key role the Commonwealth can play in raising international standards in the struggle against financial crime. We have shown already how much we can achieve through working in partnership. We have to build on this success to ensure we tackle the ever more complex and dynamic challenges we face.

1 June 1998 wish you well in your work over the next two days – and perhaps more importantly – in carrying this work forward on the ground in the coming years.