BIG WORLD BANKS SIGN PACT TO END LAUNDERING

Eleven of the world's biggest banks have unveiled plans to implement a
uniform code to stop criminals from laundering illicit profits through
the world's financial systems.

The initiative follows new Canadian anti-money-laundering legislation
requiring financial institutions, casinos, currency exchange
businesses and individuals acting as financial intermediaries, such as
lawyers and accountants, to file reports for cash transactions
exceeding $10,000.

The pact was led by Switzerland's largest bank, UBS AG and includes
ABN AMRO, Banco Santander, Barclays Plc, Chase Manhattan Corp.,
Citigroup, Credit Suisse Group, Deutsche Bank, HSBC Holdings, J.P.
Morgan, Societe Generale, and Bankers Trust, now part of Deutsche.

It is the first time banks have made a coordinated effort to formulate
such a doctrine -- the Wolfsberg Anti-Money Laundering Principles --
named after the Swiss town in which the guidelines were agreed on at
the UBS training centre.

"We have managed to extend the anti-money laundering net, so it is now
stronger than ever," Georges Gagnebin, head of UBS Swiss private
banking, said at a media briefing.

However, the banks involved concede the initiative may have
shortcomings despite its good intentions.

So far, the rules are being applied only to private banking, the
traditional business of serving wealthy individuals, leaving out
brokerage accounts at investment banks.

In the U.S., banks and legislators earlier this year balked at
proposed "know-your-customer" banking legislation backed by U.S. regulators.

Hans-Peter Bauer, chief risk officer of UBS AG's Swiss operations,
said it is important that as many banks as possible sign on, given
that they "cannot exercise sanctions over competitors.

Banks are also hobbled by laws that prohibit them from passing
information on shady customers to competitors, and the fact it is
difficult at times to draw the line between yesterday's government
leader and today's corrupt dictator.

Chris Duncan, wealth management risk director at Barclays Bank Plc,
said the focus could be on drug money, "the most worrying of all"
illegal sources.

Such guidelines come amid a host of new efforts to curb money
laundering, which has run into walls in areas in which it conflicts
with customer protection laws.

The Canadian legislation imposes fines up to $2 million and jail
sentences up to five years for individuals or institutions which fail
to report cash transactions exceeding $10,000.

It also includes creation of an analysis centre to collect and analyze
information to assist in detecting and prosecuting money laundering

Peter Eigen, head of Transparency International -- a non-government
organization aimed at fighting corruption -- said no one knows how
much hot money flows through the world's financial systems.

Some estimates have put the figure at close to $600 billion, although
that figure may apply only to drug money.

"Nobody has a good figure, but it clearly amounts to hundreds of
billions of dollars each year from narcotics dealers, organized crime,
crooked business tycoons, corrupt politicians and civil servants. The
victims are the world's poor," he said.

Lexicon Of Laundered Loot:

Money Laundering: The generic term applied to the process of concealing the
illegal source of cash income. Criminals try to cover their tracks by
converting the proceeds of crime, such as drug trafficking, to "legitimate"
assets.

Placement: The first stage in money laundering -- taking the proceeds of
crime and putting them into the economic system, thereby hiding the origin.

Layering: The second stage in money laundering -- moving the placed money
into accounts and institutions abroad so that when it comes back in to
Canada, the audit trail gets cut.

Integration: The third stage in money laundering after placement and
layering, bringing the money back into Canada and using the 'clean' money
with no link to its criminal origins.

Smurfing: The practice of many individuals depositing cash or purchasing
bank drafts in amounts under $10,000 to avoid suspicion.

Loan back: A criminal provides an associate with illegitimate funds.
The associate provides a loan or mortgage back to the criminal for the
same amount with loan/mortgage documentation creating the illusion of
legitimate funds.

Lottery scam: This scam involves purchasing winning lottery tickets
with criminal proceeds so that the dirty money has a legitimate cover.
Generally, a lottery ticket wholesaler contacts other wholesalers or
lottery vendors to identify winning ticket-holders. The wholesaler
will purchase the winning ticket for the criminal at a price 20 per
cent to 50 per cent greater than the face value.

Diamond Industry "Cheques for Cash": This scam involves criminals
obtaining third-party cheques from diamond dealers in exchange for
dirty money. Diamond dealers are not subject to the same record
keeping procedures that financial institutions are, so they are
involved with many cash transactions with little or no
documentation.

Black-Market Peso Exchange System: Colombian peso brokers, who act as
middlemen in the money-laundering scheme, give Colombian importers IOUs in
exchange for pesos. The pesos are then used to buy U.S. dollars from drug
cartels, providing the cartels with clean, useable currency. Then the
brokers use the dollars to purchase goods from American companies and
smuggle them into Colombia on behalf of the importers, who thereby avoid
government tariffs and taxes on foreign currency exchanges.

Chinese Flying Money: This scam involves the use of corporate accounts to
remit money to and from Asia on behalf of third parties. For a fee, Chinese
traders in foreign countries arrange for funds deposited by a third party
to be made available for withdrawal from another trader in China. The
accounts would then be settled by the two traders through the normal
process of trade. These transactions are very difficult to detect because
they are virtually paperless, and very few witnesses cooperate.