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Last Updated: Wednesday, 18 June, 2003, 10:35 GMT 11:35 UK
Experts revise dirty money rules
The world's experts on fighting financial crime are gathering in Berlin to redraw the rules used to disrupt money launderers and those who fund terrorism.

High on the list of priorities for the Financial Action Task Force, whose annual plenary takes place this week, is the task of extending the scrutiny on financial flows from banks and other big institutions, the traditional targets, to lawyers, accountants, auction rooms, casinos and other, smaller finance-related services.

The so-called "40 Recommendations" - the bible of the anti-money laundering world, expanded with a further 8 rules on terror finance after 9/11 - will be further added to in order to make sure fringe financial services do not act as loopholes.

But according to some, there is also a job to be done in tightening up the existing rules - not in Caribbean or Pacific islands, often labelled as havens for funny money, but in the US and the UK.

Under the counter

Neither, critics say, is doing enough to stem illicit financial flows, despite being among the loudest voices backing the crackdown on the funding of terror.

According to reports in the Financial Times, German officials accuse both countries of being reluctant to put pressure on informal money transfer systems such as the hawala system that pushes funds between the West, the Middle East and South Asia.

Many experts believe this is a prime route for terrorist finance, and Pakistan and several Gulf countries have introduced tougher regulation.

The FT says the UK and the US are worried that too harsh a stance would hurt the communities whose relatives back home depend on the financial flows.

Open shell

But the official route presents problems too, German officials told the Wall Street Journal.

Some US states have very light regulation of corporate entities, making it easy to set up "shell" or front companies often used as a key part of the washing of illicit funds.

Delaware is often picked out as a prime example of places where commercial laws hinder investigators trying to find out who really controls a company.

The criticisms echo those made by offshore locations such as the British Virgin Islands and the Cayman Islands.

The International Trade and Investment Organisation, the lobby representing small offshore financial centres, published a study last year suggesting that regulation was laxer there and in Hong Kong than it was in ITIO members.

And earlier this month, the UK chapter of international anti-corruption group Transparency International published a report saying that the UK's own controls on money laundering needed to be tightened up.

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