Manila, 26th March, 2004 : Prof. J.D. Agarwal, Chairman, Indian Institute of Finance while delivering a Key note address at Asian Pacific Bankers Congress 2004 in Manila, Philippines pointed that the size of money laundering worldwide through the banking sector, is estimated to be more than US$ 500 billion to US$ 1 trillion annually with about half of that circulated through US Banks. According to Prof. Agarwal, money-laundering not only economically destabilizes a country but also exposes it to terrorist attacks, threatening its integrity & sovereignty.

While addressing over 300 delegates from more than 23 countries representing 118 banks in the region, Prof. Agarwal said money laundering generally involves a series of multiple transactions used to disguise the source of financial assets so that these assets may be used without compromising the criminal who are seeking to use the funds. According to Dr. Agarwal, Money laundering is a result of both conviction due to lust for wealth, power and political influence on the one hand and compulsion due to excessive controls. Too much freedom like in United States and Switzerland some tax heaven countries and too much controls like in Russia add to the menace of international money laundering. At times, money laundering is done both illegally and through business operations - capital flight (over invoicing and under invoicing). According to Dr. Agarwal electronic transfers greatly facilitated and magnified the size and dimension of international money laundering where banks are directly involved. Prof Agarwal advocated quoting the BCCI case, that controlling money laundering is essential to avoid the dissolution of banks and heavy losses to its stake holders besides other ills of money laundering. Growth with minimum of risk of closure is to be kept in mind by bankers.

According to him, private bankers are trained to service their clients, set up accounts and move money around the world using sophisticated financial systems and secrecy tools leading them to miss or minimize warning signs and to use their expertise to evade what they may perceive as unnecessary "red tape" hampering the services their clients want, thereby evading controls designed to detect or prevent money laundering. He also said that most of the private bank clients are wealthy and also exert political or economic influence which may make banks anxious to satisfy their requests and reluctant to ask hard questions. Moreover, culture of secrecy, lax controls and secrecy jurisdictions apart from cut throat competition among bankers also contribute to the growth of money laundering globally. With organized crime in control of few banks, criminals are able to launder huge sums of money not only for themselves but also for other criminal organizations. Corruption also remains the chief impediments to anti-laundering efforts says Prof. Agarwal.

Banking Industry needs to be one step ahead of money launderers in order to control the menace of money laundering and financial crimes. One of the best control techniques for the banks to control money laundering is to know your customer, audit of customers, introducing transparency in large valued transactions, scanning of large valued transactions and movement of large abnormal capital flows, feels Prof. Agarwal. He reiterated that there is a need for strong and effective supervisory and regulatory control mechanism to be in place by the central bank of the country.

Apprising the delegates of the Anti Money Laundering measures taken in India, Prof. Agarwal said Government of India has already issued anti-money laundering guidelines before introduction of the Prevention of Money Laundering Bill in Parliament. Indian Bill embraces money laundering from drug-trafficking, terrorism, profits from prostitution, extortion, smuggled items like gold, diamond etc. The RBI panel has also recommended rules against money laundering by improving procedures and policies for preparing customer profiles & better coordination and cooperation with regulatory & other authorities. Apart from other measures, it also suggested creation of data bank of suspicious transactions, which could then be circulated to banks to help them defect patterns of suspicious behaviors, says Prof. Agarwal.

He strongly advocated that a broad international cooperation between law enforcement & regulatory agencies is essential in order to identify the source of illegal proceeds, trace the fund to specific criminal activities & confiscate their financial assets.

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