EU set to tighten rules against money laundering Â

Europe stepped up its battle against the financing of terrorism yesterday when it moved to tighten its rules on money laundering.

The rules, agreed by EU finance ministers in Luxembourg, are likely to be backed today by the European Parliament, elements of which once threatened to block them.

Under the deal, the EU ban on money laundering, which is directed at proceeds of the drugs trade, will apply to funds earned or used in many serious crimes, including terrorism.

The measures will also increase the obligation on lawyers, bankers, accountants, bureaux de change and others to report dubious financial transactions to law enforcement agencies. A promise of support from one key MEP, Klaus-Heiner Lehne, was given only after nation states were given more leeway in the way they interpret rules for lawyers, some of whom had complained about the risk of compromising their clients' confidentiality.

Last night, Glyn Ford, a Labour MEP and member of the committee negotiating the legislation, predicted the measure will be approved today. He said: "Both sides have realised that, in the current climate of opinion, the public would find it bizarre if we were not able to come to a compromise."

The ministers agreed yesterday on the need to take punitive action against states seen not to be adhering to international norms on combating money laundering. They also endorsed calls for better exchanges of information.

The Chancellor, Gordon Brown, said: "We call on the rest of the world – including off-shore centres – to implement regulations requiring institutions to report suspicious assets. We should stand shoulder to shoulder to root out the financial lifeblood of terrorism."

Mr Brown also urged his colleagues to set up expert "economic crime units" to trace "underground banking" and called on nations which had not ratified the UN's convention for the suppression of financing of terrorism to do so within weeks.

Ministers reviewed their agreement to freeze the assets of a UN-approved list of terrorists and terrorist organisations which are believed to have been involved in the US atrocities. But the European Commission is pressing for new powers which would close a loophole which may have allowed those who held accounts to clear them before they were frozen.

Until now, the EU has frozen accounts across the 15 member states by using an existing agreement to implement financial sanctions agreed by the UN. The UN, however, only acted after US produced its lists of terrorist suspects and took some days to process the measure – leading to an interval of about two weeks before the legislation was in place.

One official said yesterday: "The consequence is that, firstly, we are slow to act and secondly, we have to depend upon the consensus of the UN Security Council. We want to acquire an autonomous capability for the EU to decide sanctions such as the freeze of financial assets."