DIRTY MONEY IS NOW BIG BUSINESS

Yesterday arrests were made at Calais after a suspected UKP50m drugs
money-laundering scam. Dirty cash is a rising global threat to financial and
political stability. Last week, in London, an intelligence conference took
the offensive.

Like everything else, the world's mafias have gone global. Drugs, people
smuggling, illicit arms dealing, prostitution and other criminal activities
combined now make up the largest single business sector and laundering the
proceeds is a huge enterprise.

According to Michel Camdessus, the head of the International Monetary Fund,
money-laundering is "one of the most serious issues facing the international
financial community." He says: "the estimates of its present scale are
almost beyond imagination - 2 to 5 per cent of global GDP." That means up to
$1,500 billion of criminal money could be entering the world financial
system every year. As long ago as 1994, a House of Commons Select Committee
was told by the Bank of England that one estimate of drugs money laundered
every year through Britain was UKP2.4 billion.

With such huge sums being made from crime, most western countries have been
implementing tough anti-money laundering legislation for the last few years.
And last week, 92 of the world's top spymasters met in London at the
European Bank for Reconstruction and Development. These members of the
financial intelligence community were gathered under the auspices of the
Paris-based Financial Action Task Force, which organises 26 countries in the
fight against the money launderers.

Britain's delegation was led by Simon Goddard, head of intelligence of the
Strategic and Specialist Intelligence Branch of National Criminal
Intelligence Service. Britain has a good reputation in fighting the money
launderers but, as Goddard points out, this can have its downside: any dirty
money successfully invested in Britain looks automatically respectable.

Currently Goddard and his counterparts elsewhere are turning their attention
to the professionals. In the old days, large amounts of dirty cash would be
divided up into small amounts and then deposited by "smurfs", small-time
criminals, into various accounts. Today the "smurf" is more likely to be a
well-heeled solicitor or an accountant well-versed in the legal niceties of
trusts and the ways of disguising ill-gotten gains by mixing them in with
legal earnings.

As Goddard puts it: "No nouveau riche gangster from a slum in Moscow just
opens front companies in Vanuatu or the Caribbean - he's paying
professionals to do it for him. It's happening all over the place but we're
concerned with the ones in Britain. Some of the nicest people I've ever
arrested have been solicitors," he muses.

This week's London talks were wide-ranging. On the top of the agenda was the
euro and how to prevent criminals using the conversion period to their
advantage. But, as the EU's anti-money laundering legislation has become
more effective, the delegates also tackled the question of how to deal with
cash being injected into the international financial system in places such
as eastern Europe and Russia and in what are dubbed "non-cooperative
countries", such as the Seychelles.

Russia, above all, has become the great black hole in the dirty-money
struggle because various mafia groups are believed to control such a
sizeable part of the banking sector. Thus, if Colombians sell cash, raised
from street sales of drugs in the US to Russians who take a cut and then,
using a legitimate company and bank, wire the money back to London and then,
say, on to Spain where it is invested in real estate, who is to know its
true origins?

Recent revelations that Russia's security police are often really gangsters
in uniform only bolstered suspicions about it at the London meeting. The
FATF has been asked by G7 ministers to expand, so it would be natural to
include Russia. However, there is a snag here. All members of the FATF must
submit to regular examinations of their financial institutions by experts
from other members. As one source said: "I don't think that the Russians
would be too keen on outsiders poking around in their banking system."

When it comes to dealing with countries such as the Seychelles or Vanuatu,
who have passed "no questions asked" investment legislation Patrick
Moulette, the head of the FATF, says that he believes it is best to take a
softly, softly approach to closing down the criminal opportunities. Pressure
and cooperation are his watchwords. "If you just condemn a small country,
they'll simply say that offshore banking is their only way to develop and
that the drug problem is yours, not theirs."

A softly-spoken Frenchman and former treasury official, Moulette also
laments the problem of displacement - "as soon as you close one loophole,
another will appear."

Also discussed were the opportunities, offered to money launderers, by
Internet on-line banking facilities and smart cards. According to a recent
report by Transcrime, an Italian think-tank on transnational crime, Russian
gangs "have infiltrated the electronic transfer systems of US banks and
securities firms. These gangs have been recruiting the unemployed and
disaffected computer scientists who were once privileged members of the
elite Soviet military-industrial complex." They have developed software
devices known as "sniffers" or "Trojan Horses" to "break through triple
electronic 'firewalls' to access global networks of US companies."

As Moulette explains it, money laundering is not only a financial problem.
"It corrupts financial institutions which can then corrupt a country's
entire financial system and hence its political system."

This was the recent fate of Albania. The collapse of pyramid banking schemes
controlled by various mafiosi, who had corrupted the country's politicians,
led last year to huge civil disorder. This, in turn, released a million
Kalashnikovs from the state armouries which provided the arms needed by the
Kosovo Liberation Army to begin their war against the Serbs.

It is to prevent such disastrous consequences as these that money-laundering
and transnational organised crime are now considered as serious a threat to
international security as biological and nuclear weapons in the hands of
terrorists.

Checked-by: Don Beck