Opening Remarks by Managing Director

Seminar on Anti-Money Laundering

16 May 2001

Ladies and Gentlemen

Mr Winfield, President of the Association of Offshore Banks

Colleagues from the Financial Industry

Let me welcome you to this first among a series of training programmes which the Bank of Mauritius proposes to conduct for the benefit of the financial sector and that of professionals and practitioners in related fields. This is a subject of keen interest for the Bank of Mauritius as well as industry professionals committed to keeping our centre clean of money laundering activities.

With the assistance of my good friend, Roger Winfield, Managing Director of Deutsche Bank (Mauritius) Ltd who has kindly extended his support, we will avail ourselves this afternoon of the extensive experience of Stephen Platt, Managing Director of Finance Sector Compliance Advisers of Jersey. Mr Platt who had been referred to us on an earlier occasion as a potential trainer by one of my old acquaintances, Collin Powell, Chairman of Jersey's Financial Services Commission, specialises in providing advice and training to financial sector regulators. I am given to understand that the training he imparts has a strong practical bearing. So, we can look forward to many answers to questions which might have remained unanswered. If you take a look at your programme, you will indeed observe that quite a few interactive sessions are planned.

Mauritius has just undergone a peer review by way of an OECD based Financial Action Task Force(FATF) type of mutual evaluation under the aegis of the Offshore Group of Banking Supervisors, of which the Bank of Mauritius is a member. The evaluation team has concentrated its efforts on the anti-money laundering measures in place and the efficiency with which those measures are being enforced in our jurisdiction. The evaluation mission has received strong support from Government with our Senior Ministers making time to receive the mission to explain Government's philosophy towards strengthening the financial centre and maintaining high standards of regulation and supervision and the commitment of Mauritius to international pursuits in this respect. I feel confident that the mission's Report will recognize all the efforts we have been making in Mauritius to be seen as a responsible world citizen.

Like Mauritius, several other jurisdictions including Jersey, Guernsey and the Isle of Man, have been scrutinised recently about their anti-money laundering systems. Attention is increasingly turning sharply nowadays towards the emerging markets for potential weaknesses in their anti-money laundering efforts. Briefly, there exists a wide range of concern about the efficiency with which the problem is being addressed in different parts of the world including the developed financial markets which, unsurprisingly, it has recently come to light, do not enjoy any immunity from the inroads of laundering activities.

Concern over the abuse of financial systems by money laundering, that is, the set of evolving processes employed by financial and other criminals to give legitimacy to illegally obtained funds, was raised on a significant scale some 15 years ago. Many believe that the spate of financial sector liberalisation which began in the 1980's, entailing free capital movements and an ever-growing volume of cross-border financial services to the tune of a market turnover of over US$1.3 billion per day as at present, acted to facilitate the money laundering process. We cannot turn the clock back on global financial market liberalisation and its evolution. We can, however, strengthen the systems of internal controls to cope with the problems that have come up with the freer flow of capital on a highly networked global financial system.

In 1998, the IMF estimated that funds amounting to between 2 to 5 per cent of World GDP, representing proceeds from crimes and illegal activities, are laundered each year at the global level. In terms of 1998 World GDP, the amount of money laundered would have thus ranged from US$590 billion to US$1485 billion. Three years before, that is in 1995, the volume of funds laundered annually was set at US$500 billion. Assuming the same proportions as in 1998 for the year 2000, the volume of proceeds of money laundered globally would have ranged anything from US$628 billion up to US$1570 billion in that year. These figures are staggering, considering the size of the GDP of individual countries. For instance, Mauritius' GDP comes to around US$4 billion a year at present. What is important to keep in view, however, is the proportions these figures could assume if there was no attempt to make concerted efforts to arrest the growth of money laundering, taking into consideration the contagion aspects of this illegal activity for individual countries' financial systems and their social implications.

There are various implications from money laundering activities to both individual countries and the global financial system. First, it reflects the size and scope of the underground economy. The larger its size in relation to overall economic activity, the more it reflects the absence of overall governance and the scale of underlying corruption. Second, it highlights the potential for crime and criminal activities in as much as these activities impact directly on social stability. Third, by affecting macroeconomic indicators, it impairs the normal policy signals being given which, in turn, are distorted by a whole range of undesirable activities such as tax evasion, insider trading, and so forth, with generally destabilising effects on markets. More importantly, it exposes the extent to which the financial system can be put to corrupt use, making it an instrument in the perpetration of local and international criminal activities.

Because the financial system is at the heart of all money laundering activity, both at the local and international level, concerted actions are necessary to give ourselves the means to combat money laundering. Various international organisations, including the United Nations, the Council of Europe, the Basel Committee on Banking Supervision, IOSCO and the FATF have combined their efforts to protect financial systems the world over from being abused by drug traffickers and perpetrators of all crimes through their money laundering activities. The UN invited nations as far back as 1988 to ratify the Vienna Convention with a view to doing away with bank secrecy provisions which are susceptible to be abused by drug traffickers to frustrate international crime investigations. The Convention also provides for extradition between states involving trial of money laundering cases. Ratification of the Vienna Convention by Mauritius is now a question of days, and, I am sure, will confirm our existing good position in the eyes of the international community.

The most sustained efforts in the field of money laundering must be placed to the credit of the FATF which has laid down 40 recommendations in the international fight against money laundering. The recommendations of the FATF are pronounced around four broad themes:

(i) The overall environment in each country, such as the willingness of individual countries to promote international cooperation, mutual assistance in the furtherance of investigations, prosecutions and extraditions and the extent to which secrecy provisions hinder international cooperation.

(ii) The criminalisation of laundering and the proceeds of crimes which concerns powers countries give themselves to freeze, seize and confiscate assets relating to laundering activities.

(iii) The role of the financial system and its regulators in so far as they have to be committed to the application of the Know Your Customer principle, keeping of financial records and audit trails, maintenance of internal policies, procedures and controls with regard to suspicious transactions and support given in criminal investigations and prosecutions.

(iv) The strengthening of international cooperation through exchange of information among authorities in different countries based on shared legal concepts. This cooperation involves mutual assistance arrangements between jurisdictions and relates to the production of records by financial institutions, the freezing, seizure and confiscation of criminal proceeds as well as extraditions and prosecutions.

As money launderers keep refining their techniques, it is of utmost importance that all involved in the fight against money laundering keep themselves abreast of the latest techniques used by them to infiltrate the official financial system. This calls for adaptive training on a continuous basis. It is also recognized that money launderers will exploit financial systems that are the least guarded by good legal, institutional and procedural arrangements and where the supervisory oversight is relatively inefficient and weak. There is no reason to believe that the abuse would necessarily be limited to the less developed financial systems in developing countries. Given the complex transactions money launderers have shown themselves capable of weaving so as to blur any audit trail whatsoever and requiring the most sophisticated forensic accounting methods to uncover, it is no surprise that they would also be exploiting the very most sophisticated market places themselves as part of their strategy not to be uncovered.

Be that as it may, no country can consider itself immune from becoming a victim of money launderers, the more so in the context of high speed international payment systems operating through networked global systems. For this reason, as a responsible world citizen, Mauritius has a stake in fostering a clean global financial system free of the ingress of illegal proceeds of crime in the legitimate financial system.

The Bank of Mauritius as well as other regulators in Mauritius are committed to support the international drive against money laundering. For, without such commitment, money laundering activities will end up undermining the credibility of the country's financial system. It is vital therefore for all of us to be on our guards. I must say that this commitment is not only at the professional level. It also encompasses the fact that if we want to survive as a thriving financial centre, well into the future, and as a centre more or less autonomous of the rich economic hinterlands of America and Europe, this commitment is the main plank on which we can assure our future viability. Unless we protect ourselves against the growing sophistication of money launderers, we run the risk of foregoing the creation of thousands of financial sector jobs which we can bring about as a respected financial centre in the coming period.

The wide attendance of so many participants from different areas of the financial and legal sectors of the country to the training which has been organised this afternoon is a proof of this strong commitment and the realisation that much is at stake in the building up of a credible financial centre for Mauritius. It must be added here that this commitment to keep the Mauritius financial centre clean has been consistently endorsed by the Government of Mauritius in several international fora and is a source of great comfort to us as operators as well as to the international community.

We know that the major risk for not protecting our financial system against money laundering and all the criminal activities underlying the laundering activity is loss of reputation. I am given to understand that glass, porcelain and reputation are easily cracked and that, once cracked, it is extremely difficult to mend them. We do not propose to be there.

With these words, may I invite Mr Platt to begin the training and give all of you valuable insights into how to go about tracking the money laundering activity.

Thank you.