Money launderers threaten City

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The Independent Online
STOCKBROKERS, life insurers and fund managers have not woken up to the risks they face from criminal penalties under new money-laundering legislation, according to a report this morning by Touche Ross, the accountants.

This is despite the fact that criminals are turning to these firms instead of their traditional channels of clearing banks and building societies.

In a survey of how firms are responding to pressure to catch money launderers Touche also found that stockbrokers, insurers and fund managers are concerned about a lack of direction from their self-regulating organisations in combating money laundering.

Clearing banks and building societies have been reporting suspected money launderers so effectively, under pressure from the Bank of England, that the criminals are turning to other types of financial institution. But these firms are much less prepared than the banks.

Routes for money laundering include purchase of investment bonds from life insurers and the use of venture capital organisations, according to Simon Haslam, a securities partner with Touche, who said one investment bank his firm had interviewed was still accepting bags of cash worth tens of thousands of pounds over the counter.

'There is concern that the criminals, having been locked out of the banks, are now going to use some of these other organisations.'

Legislation is going through Parliament to implement a new European Community directive on money laundering, the process by which the cash profits of drug-dealing and other criminal activities are hidden in the financial system.

Touche said that while all clearing banks and building societies had introduced training and a range of controls to raise awareness among staff, other financial institutions lagged behind, often regarding money laundering controls as either too expensive or not relevant to their businesses.

Under half of stockbrokers, 60 per cent of fund managers and 80 per cent of life insurers have introduced specific controls, but 100 per cent of building societies and clearing banks had done so.

All banks and building societies had trained their staff, but only half of stockbrokers, 80 per cent of fund managers and 40 per cent of life insurers had done so.

Under the legislation, there are penalties of up to five years' imprisonment for failing to report suspected money laundering. The Government has promised safeguards, including a provision that nobody will be prosecuted who passes on suspicions to a superior, but financial firms are still worried that the new law puts too much pressure on their staff.

Nevertheless, Touche found firms are just as concerned about the risk of bad publicity. The survey found 37 per cent saw publicity as the biggest risk, and 35 per cent felt criminal action against their staff was most important.

Mr Haslam said, 'Financial institutions that get caught up in money laundering, even accidentally, will undoubtedly suffer great harm.'

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