Bill will widen insider trading net

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The Independent Online
INSIDER TRADING in gilt-edged stock would become an offence for the first time and the attack on money laundering would be widened from drugs to all types of crime, under a new Criminal Justice Bill outlined by the Home Office yesterday.

The Bill would toughen the attack on the profits of drug trafficking, make it easier to prosecute international fraud, replace current insider-dealing legislation and bring banking law in line with European Community directives.

Under the Bill, trading in gilts and related futures and options on the basis of certain types of government leaks would be a criminal offence. Options and futures linked to indices would be included. Criminal leaks would include advance knowledge of intertest rate movements, the redemption or conversion of stock or plans for new issues.

But the legislation would exclude leaks of general economic information such as inflation or trade figures, which would not lead to insider dealing charges. The Treasury thinks it hard to enforce action against leaks where the connection between the information and price movements is vague. But interest rate movements have a direct link to the price of bonds.

The plan to include gilts emerged in September only days after rumours in the City that some banks had profited from leaks of the Government's intention to raise a 10bn ecu ( pounds 8bn) loan to boost the reserves.

The insider dealing section may give mild relief to the City, which fought the original drafts because they appeared to crack down on routine exchange of information between companies, their institutional shareholders and analysts.

Some critics even said the attempt to tighten up on insider dealing in shares would cripple the work of analysts and threaten the traditional City lunch.

The Stock Exchange was disappointed that its demands for a wider-ranging review of how to tackle insider dealing had not been accepted. It wanted a review to include more regular use of civil actions against insider dealers.

The exchange said the Government 'could have done more to ensure that abuses of the market are brought to book rather than simply enacting a European directive'.

The exchange received a copy of the Bill yesterday and said it could not yet comment on whether the large number of detailed criticisms it had made of earlier drafts had been accepted.

But government officials claimed that nothing that has been legal in the past would be made illegal by the legislation. They also promised to produce a set of guidance notes clarifying where lines should be drawn between legal and illegal use of information. They pointed to the fact that only a secretary of state or the Director of Public Prosecutions could authorise a prosecution.

The definition of an insider would be extended to include anyone who obtains information as a result of his or her position, and not just those with a connection to the company whose shares are dealt in.

Transactions through a professional intermediary or a company would be embraced, as would dealings across borders. If an insider leaked sensitive information about a company and its relations with a customer - for example the loss of a contract - it would become an offence to deal in the shares of any other company whose business might be affected by that information.

The Bill would for the first time allow prosecution where frauds are masterminded from the UK but where the final act is abroad. The offence of money laundering would be extended to the proceeds of any crime, from car theft to jewel robberies. And it would be an offence to prejudice investigations by tipping off others - including newspapers - to the fact that a money-laundering investigation is under way. Newspapers would be caught if they published information. Officials said this would be a 'bit like the common law offence of perverting the course of justice'.