THE Group of Seven (G7) countries will have money laundering on their economic summit agenda in Houston in two weeks. The recommendations put forward by a task force of the G7 countries (United States, Canada, Britain, France, West Germany, Italy, and Japan) cover a range of radical proposals for coordinated financial and administrative reform. They could end the use of the remaining tax havens by drug traffickers.
Other G7 proposals would place the onus on financial institutions to report suspicious transactions, and establish precise rules for the identification of the beneficial owners of bank accounts in order to weed out front companies sheltering traffickers.
The task force also urges greater vigilance at the ports to halt the movement of large cash consignments.
$500 billion drug traffic
The task force puts the annual turnover of the illicit drug trade in Europe and North America alone at $125 billion, yielding profits in excess of $85 billion. The United Nations believes that the global drug traffic is worth roughly $500 billion a year.
The major police forces investigating suspected drug money are especially concerned with the Channel Islands, Hong Kong, Panama, some Caribbean islands, Singapore, and Switzerland.
A simple way of laundering drug money is through investment in tax havens enforcing strong bank secrecy laws. The debt-equity swap schemes of some third world countries provide a more complex alternative for large sums. And some investigators fear that the inexperienced and capital-starved financial institutions of the new East European democracies could become easy victims of the traffickers.
Britain, which has recently assumed a leading role in the global fight against the drug trade, has brought together its financial institutions and the law enforcement agencies under the chairmanship of the Bank of England to take forward the G7 recommendations.
It has also established a working group - including Customs and Excise, the Crown Prosecution Service, the National Drugs Intelligence Unit and the Association of Chiefs of Police - to consider further legal reforms.
Britain's National Drugs Intelligence Unit estimates the annual flow of drug money through the country's financial institutions at $3.25 billion.
Britain recently signed a preliminary agreement with Bahrain to expose the money laundering operations of drug traffickers. The two countries will work on a further agreement to enhance mutual assistance in the tracing and freezing as well as confiscation of tainted cash.
``Like Britain, Bahrain is an important financial center and we regard it as a priority country with which to cooperate in the fight against trafficking,'' says British Home Secretary David Waddington, whose office deals with security matters. A similar memorandum of agreement has been signed also with Portugal. Further agreements with Italy and Saudi Arabia are expected very soon.
Britain's expanding network of partnerships intended to eliminate any safe havens for drug money already includes the United States, Canada, Australia, the Bahamas, Gibraltar, Sweden, Nigeria, Mexico, Switzerland, Spain, Malaysia, Anguilla, and Bermuda.
Improved mutual assistance between Britain and other countries in fighting the drug trade is provided under the Criminal Justice (International Cooperation) Act which has just come into force.
Impact of British law
The new law enables the law enforcement and judicial authorities to cooperate more fully with their counterparts overseas in hunting down traffickers, and it gives them the basic authority for the seizure of cash believed to be the proceeds of the drug trade. The instrument widens the scope of the 1986 Drug Trafficking Offenses Act and opens the way to British ratification of a key UN drug convention later this year (see box at left).
Like Britain, many countries will have to change their national laws before ratifying the convention. Pressure for legal reform is reinforced by the Council of Europe whose own draft convention on the tracing, freezing, and confiscating the proceeds of crime is in line with the UN instrument. The European Community is also considering a tough new draft directive on money laundering.