Reports on money laundering 'riddled with errors'

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The Independent Online

There is no evidence to back up the Government's figures on the extent of money laundering and little proof that anti-money laundering legislation is effective, according to an academic study.

Government departments and agencies regularly say that sophisticated criminals feed 2.5 per cent of gross domestic product in illegal funds through the financial system, but there is no proof for this in the chaotic data, said Dr Jackie Harvey, principal lecturer in finance at Northumbria University's Newcastle Business School.

Dr Harvey analysed Asset Recovery Agency data on civil recoveries and Home Office figures for criminal convictions. She said the information was inconsistent and riddled with errors, providing no evidence for claims about the extent and sophistication of money laundering. Those who were caught were financially unsophisticated, with basic savings accounts containing only small amounts of money, she said.

"Money does not appear to be entering the financial system on anything like the scale that is being talked about. If these are the only people we are catching, what are we achieving?" Dr Harvey said. "Money laundering is happening, but it has been happening since the financial system was invented."

With fresh legislation due to take effect by the end of the year, Dr Harvey said there is no evidence that the cost to the financial industry of implementing rules is worth the returns. The third European Union money laundering directive has to be implemented by 15 December.

Dr Harvey said the Government employs "rhetoric" about the threat to the financial system to justify imposing anti-money laundering measures on the banking industry, and that the perceived threat justifies the agencies' existence and boosts their budgets because they get a share of proceeds from recovered assets.

The financial industry is usually careful not to complain about money-laundering rules, though Sir Fred Goodwin, chief executive of Royal Bank of Scotland, said in 2003 that the burden fell too heavily on financial institutions. He added that penalties for not reporting suspicious transactions were so draconian that banks might as well report every transaction.

Dr Harvey's study will be presented today at the Cambridge International Symposium on Economic Crime.

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