No insider trading before New York attacks, says FSA

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City regulators have found no evidence that people with prior knowledge of the 11 September attacks bought and sold shares to profit from subsequent stock market movements.

In the days before the atrocities, heavy trading in the shares of airline and insurance companies – which fell dramatically after the attacks – had raised suspicions of insider dealing by associates of the terrorists.

Sir Howard Davies, the chairman of the Financial Services Authority, told the Treasury Select Committee yesterday that the most likely explanation for the activity was that powerful investment funds had been trading aggressively in anticipation of a recession.

"There were initially some transactions that looked a bit odd. We have found in most of the transactions... there was a plausible reason. "

The FSA said last month that a surprisingly large trade in British Airways shares before the attacks had been made by a rival European airline as part of a strategy to hedge itself against an economic downturn. Didier Reynders, the Belgian Finance Minister, said European investigators had also found no evidence of terrorist insider dealing, although investigations were continuing.

Although there was nothing to suggest City involvement in funding the atrocities, Sir Howard warned that London "was not at the front of the leading pack" in money laundering controls. The comments came as the European Union unveiled new measures to combat money laundering, requiring accountants, estate agents and lawyers to join financial services firms in reporting suspicious transactions.

Sir Howard said the new powers being granted to the FSA in December, allowing it to prosecute financial institutions in breach of anti-money laundering controls, could probably be applied retrospectively if a firm was found to have been negligent at the time of the attacks. Today the FSA is restricted to a monitoring role.

The US government has asked financial institutions around the world to freeze assets of 39 people and groups suspected of being linked to terrorist activity, including Osama bin Laden, the chief suspect in the attacks, and his al-Qa'ida network. Sir Howard reported an increase in the number of reports submitted by financial institutions to the National Criminal Intelligence Service after the FSA circulated the names of companies and individuals suspected of terrorist involvement.

The City of London and the Crown Dependencies – Jersey, Guernsey and the Isle of Man – were last week depicted as a hotbed of money laundering in a damning 400-page report from the French, MP Arnaud Montebourg. Sir Howard rejected the criticisms as "excitable", adding that the Crown Dependencies were in the first division among offshore financial centres, with money laundering standards comparable to those of the FSA. The Treasury yesterday gave details of the £63m of Taliban assets which have been frozen in the UK.

These include 13 accounts at Da Afghanistan Bank worth £55m and two accounts with Ariana Airlines worth £0.4m.

The government will not continue to freeze assets held by the National Trading Company of Afghanistan because the company works "for the state of Afghanistan and not the Taliban." More than £23m held in an account held by Khalid Al-Fawwaz at who was the head of Mr bin Laden's London operation has been frozen. He is in prison while Britain considers an American request for his extradition.