Avoiding dirty money

With the government preoccupied with the fight against terrorism, Jeremy Summers assesses how new money-laundering laws will affect business

In the aftermath of the 11 September terrorist attacks in the US, politicians on both sides of the Atlantic spoke frequently of a war on terrorism that would be fought on several fronts, not least of which would entail cutting off the funds that terrorists had previously been able to access.

The terrorists spent around $500,000 on attacking the World Trade Centre and the Pentagon - funding that could only have been processed through recognised banking channels.While the reporting of smart bombs and anthrax scares all but reached saturation level, the government's determination to crack down on financial institutions and businesses that, even if unwittingly, allow terrorists to operate with a veneer of legitimacy has not generated the same coverage.

However, it would be a mistake not to detect, and react to, the change in the wind.Money laundering regulation is not new, yet there is evidence to suggest that it is still not regarded as a major threat by even the most blue chip of institutions.

Barely a month after 11 September, freezing orders were issued against accounts maintained at Barclays, HSBC, NatWest, Citibank and Deutsche Bank that were said to hold funds allegedly stolen from Nigeria by its late president, General Abacha.

What was perhaps surprising was that banks still continued to hold accounts in any way connected with the Abacha regime.

In March 1999, Mr Justice Colman granted similar relief against a number of defendants, including 13 banks in England, Europe and the US.

The proceedings launched with that order have taken up a vast amount of Commercial Court time and many column inches in the press.Now, stuck with the rhetoric it has used following 11 September, the government is faced with some uncomfortable statistics, which may go some way to explaining the apparent complacency previously shown by the City.

In the 10 years up to 1998, the UK brought 357 prosecutions for money laundering, of which only 136 led to a conviction.

The contrast with the US, which has prosecuted more 2,000 cases in a single year - and even Italy, which brought 538 prosecutions in the same 10-year period - is stark.

The government will not let this anomaly continue.

The legislative framework to achieve a change in this position was in place before 11 September, and the events of that day served to give new powers already under contemplation greater urgency.On 1 December, the Financial Services and Markets Act 2000 (FSMA) came into force.

This gives the government another body, the Financial Services Authority, with specific powers to investigate and prosecute money laundering.

It also creates investigatory powers, again backed by criminal sanctions, for market abuse and insider dealing.Also before parliament is the Proceeds of Crime Bill 2001.

It is at the second reading stage and is likely to be fast tracked onto the statute book.

This will add to the existing money laundering regime and bring into being a system of civil recovery when dealing with the proceeds of crime.Both these developments require careful consideration.

Firms, and more critically individuals, that do not ensure that they comply with the provisions face the real prospect of answering to a criminal court.There can be little doubt that the government wants to see high-profile, successful, prosecutions making front-page headlines much sooner rather than later.

Even if, which is doubted, the principal aim of the first prosecutions is pour encourager les autres, the boardroom, customers and shareholders of the business concerned will not be happy that it is their key individual who is doing the encouraging.Jeremy Summers is a solicitor in the criminal and investigations department at London-based law firm Russell Jones &Walkerl The Law Society is conducting a series of regional roadshows on money laundering.

The first will be held in Leeds on 14 February.

Contact Sirkka Goodhind, tel: 01924 299096.

These will be supported by a CD ROM.