Pubdate: Wed, 01 Nov 2000 Source: Vancouver Sun (CN BC) Copyright: The Vancouver Sun 2000 Contact: sunletters@pacpress.southam.ca Address: 200 Granville Street, Ste.#1, Vancouver BC V6C 3N3 Fax: (604) 605-2323 Website: http://www.vancouversun.com/ Author: David Baines, Vancouver Sun with Reuters

BIG WORLD BANKS SIGN PACT TO END LAUNDERING

Eleven of the world's biggest banks have unveiled plans to implement a uniform code to stop criminals from laundering illicit profits through the world's financial systems.

The initiative follows new Canadian anti-money-laundering legislation requiring financial institutions, casinos, currency exchange businesses and individuals acting as financial intermediaries, such as lawyers and accountants, to file reports for cash transactions exceeding $10,000.

The pact was led by Switzerland's largest bank, UBS AG and includes ABN AMRO, Banco Santander, Barclays Plc, Chase Manhattan Corp., Citigroup, Credit Suisse Group, Deutsche Bank, HSBC Holdings, J.P. Morgan, Societe Generale, and Bankers Trust, now part of Deutsche.

It is the first time banks have made a coordinated effort to formulate such a doctrine -- the Wolfsberg Anti-Money Laundering Principles -- named after the Swiss town in which the guidelines were agreed on at the UBS training centre.

"We have managed to extend the anti-money laundering net, so it is now stronger than ever," Georges Gagnebin, head of UBS Swiss private banking, said at a media briefing.

However, the banks involved concede the initiative may have shortcomings despite its good intentions.

So far, the rules are being applied only to private banking, the traditional business of serving wealthy individuals, leaving out brokerage accounts at investment banks.

In the U.S., banks and legislators earlier this year balked at proposed "know-your-customer" banking legislation backed by U.S. regulators.

Hans-Peter Bauer, chief risk officer of UBS AG's Swiss operations, said it is important that as many banks as possible sign on, given that they "cannot exercise sanctions over competitors.

Banks are also hobbled by laws that prohibit them from passing information on shady customers to competitors, and the fact it is difficult at times to draw the line between yesterday's government leader and today's corrupt dictator.

Chris Duncan, wealth management risk director at Barclays Bank Plc, said the focus could be on drug money, "the most worrying of all" illegal sources.

Such guidelines come amid a host of new efforts to curb money laundering, which has run into walls in areas in which it conflicts with customer protection laws.

The Canadian legislation imposes fines up to $2 million and jail sentences up to five years for individuals or institutions which fail to report cash transactions exceeding $10,000.

It also includes creation of an analysis centre to collect and analyze information to assist in detecting and prosecuting money laundering

Peter Eigen, head of Transparency International -- a non-government organization aimed at fighting corruption -- said no one knows how much hot money flows through the world's financial systems.

Some estimates have put the figure at close to $600 billion, although that figure may apply only to drug money.

"Nobody has a good figure, but it clearly amounts to hundreds of billions of dollars each year from narcotics dealers, organized crime, crooked business tycoons, corrupt politicians and civil servants. The victims are the world's poor," he said.

Lexicon Of Laundered Loot:

Money Laundering: The generic term applied to the process of concealing the illegal source of cash income. Criminals try to cover their tracks by converting the proceeds of crime, such as drug trafficking, to "legitimate" assets.

Placement: The first stage in money laundering -- taking the proceeds of crime and putting them into the economic system, thereby hiding the origin.

Layering: The second stage in money laundering -- moving the placed money into accounts and institutions abroad so that when it comes back in to Canada, the audit trail gets cut.

Integration: The third stage in money laundering after placement and layering, bringing the money back into Canada and using the 'clean' money with no link to its criminal origins.

Smurfing: The practice of many individuals depositing cash or purchasing bank drafts in amounts under $10,000 to avoid suspicion.

Loan back: A criminal provides an associate with illegitimate funds. The associate provides a loan or mortgage back to the criminal for the same amount with loan/mortgage documentation creating the illusion of legitimate funds.

Lottery scam: This scam involves purchasing winning lottery tickets with criminal proceeds so that the dirty money has a legitimate cover. Generally, a lottery ticket wholesaler contacts other wholesalers or lottery vendors to identify winning ticket-holders. The wholesaler will purchase the winning ticket for the criminal at a price 20 per cent to 50 per cent greater than the face value.

Diamond Industry "Cheques for Cash": This scam involves criminals obtaining third-party cheques from diamond dealers in exchange for dirty money. Diamond dealers are not subject to the same record keeping procedures that financial institutions are, so they are involved with many cash transactions with little or no documentation.

Black-Market Peso Exchange System: Colombian peso brokers, who act as middlemen in the money-laundering scheme, give Colombian importers IOUs in exchange for pesos. The pesos are then used to buy U.S. dollars from drug cartels, providing the cartels with clean, useable currency. Then the brokers use the dollars to purchase goods from American companies and smuggle them into Colombia on behalf of the importers, who thereby avoid government tariffs and taxes on foreign currency exchanges.

Chinese Flying Money: This scam involves the use of corporate accounts to remit money to and from Asia on behalf of third parties. For a fee, Chinese traders in foreign countries arrange for funds deposited by a third party to be made available for withdrawal from another trader in China. The accounts would then be settled by the two traders through the normal process of trade. These transactions are very difficult to detect because they are virtually paperless, and very few witnesses cooperate.