27 May 1999
SPEECH BY FINANCIAL SECRETARY TO THE TREASURY, BARBARA ROCHE MP, AT FRAUD 4 CONFERENCE DINNER
Introduction
I welcome the opportunity to speak to such an important gathering, to welcome you to London and to wish you well in the difficult and important work you are tackling here this week.
Financial crime is a threat to our democracies, to our prosperity and to our people. Too often in the past it was seen as a gentleman's game - a crime without obvious victims. I'm pleased to say that - for the most part - those days are behind us.
Governments and citizens around the world have increasingly realised the links between fraud, money laundering, corruption, subversion, violence and serious organised crime.
The number of countries represented here today clearly demonstrates another aspect of the problem: that financial crime recognises no international boundaries. The IT revolution and the growing sophistication of capital markets have huge potential to raise our standards of living - in both developed and developing countries.
But we will not reap the benefits of globalisation unless we set in place the systems of law and regulation that help contain its costs. None of you will need reminding of the way the effects of the recent Asian economic crisis rippled around the world. Our exposure to financial crime and corruption has a similar potential to disrupt our economic prosperity.
The world needs to cooperate to improve the stability of the financial system. That's been the focus of a range of international initiatives in which the UK Chancellor Gordon Brown has played a key role. As part of this important international policy agenda - we also need to do more to cooperate effectively in the fight against financial crime. We must improve the transparency of financial markets. And - when it comes to the investigation of serious financial crimes - we must be more willing to share information.
The nature of financial crime
There are three areas of financial crime that we need to tackle.
First, there is fraud against individuals, and against markets. Often the victims are the most vulnerable people in society. And sometimes the victim is society itself - through the corruption of financial markets, of our political system, our civic society.
Second is tax crime. Tax fraud is often not regarded as crime - indeed some regard it as an honourable profession. But tax crime is against the law - it is a crime. It means the tax payer subsidies the tax evaders' lifestyle. And it effects the infrastructure of a civilised society: our systems of law and order, the schools our children attend, and health care we all rely on.
I hope you all agree that we must vigorously tackle tax crime.
The third major threat to the international financial system is money laundering. This is an area where we have a good record of international cooperation. I want to take this opportunity to pay tribute to the work of the Financial Action Task Force - the international body responsible for setting anti-money laundering standards that are now recognised throughout the world.
The challenges of the future
The nature of the work you are doing in the fight against financial crime is changing. International financial criminals are among the most sophisticated operators in the global marketplace. Many of today's financial criminals have moved on from the proverbial suitcase full of "dirty money". Today, they are often at the cutting edge of developments in financial markets and new technology. They use increasingly sophisticated and complex ways of ripping off their victims, corrupting intermediaries, legitimising assets, obscuring profits and hiding their identity. So we see the increasing use of securities, derivatives and insurance products as vehicles for fraud and money laundering. We see the exploitation of the Internet and electronic money, where money is moved around the world with relative ease and little trace.
But some themes remain constant. Almost all cases of serious fraud and money laundering involve the corruption of financial sector professionals - lawyers, accountants, company and trust service providers. That's why effective regulation of the financial sector is so vital. We simply cannot afford the reputation of such a key industry to be undermined by corruption. When it comes to matters as serious as financial crime, we cannot allow people to opt out of their legal responsibilities, and to hide behind a veil of excessive bank and professional secrecy.
Better exchange of information
The UK government has supported - and indeed initiated - a range of international initiatives to counter the threat from financial crime. In particular - we support the work of the G7, the OECD, the UN, and the Financial Action Task Force to break down the barriers to the effective flow of information internationally.
The G7, for example, is working to improve the information flows between law enforcement authorities and financial regulators. The results of that work will be published soon.
UK Overseas Territories and Crown Dependencies
The UK also recognises its responsibilities to our Overseas Territories and Crown Dependencies. Many of them have developed very effective financial centres. They have come a long way in recent years to improve their defences - and the UK Government welcomes and pays tribute to those considerable efforts. But the open nature of their industry still makes them vulnerable to financial crime and regulatory abuse.
Last year the Government commissioned a study of financial regulation in the Isle of Man and Channel Islands - the Edwards Report. The report came forward with a number of recommendations for improvement, and we're now working closely with the relevant Governments to take forward this work.
And we've recently announced that we'll ask independent regulatory experts to review financial regulation in the Caribbean Overseas Territories - including the Cayman Islands, Bermuda and the British Virgin Islands. Again - we want to work in partnership with those territories to bring their regulatory regime in line with international standards.
Getting financial institutions to get their own house in order.
Back closer to home - I want to emphasise the importance the UK places on the fight against money laundering. The Treasury - and indeed the whole Government - is committed to defending the integrity of our financial system. That's because we recognise the contribution that clean and effective financial markets make to stable and sustainable economic growth.
London is one of the three premier financial centres in the world - and one of the most open to international capital. So we recognise the vulnerability of the City of London to international criminal money flows. Our standards of law and regulation are among the strongest in the world. But the experience of a number of high profile financial crimes in recent years - including the BCCI and Maxwell affairs - have convinced us we need to go further. The continued reputation of the UK as a good place to do business depends on it.
Our new Financial Service and Markets Bill introduces a new single regulatory system for the UK. The new regulator, the Financial Services Authority has a specific objectives to reduce financial crime amongst the institutions it authorises. The new regulator will also have statutory objectives for consumer protection and financial education that will also help in the battle against fraud. And it will have the statutory authority it needs to cooperate with other agencies - in the UK and internationally.
Conclusion
I want to end by emphasising once again the importance of the issues you are here this week to discuss. We have shown already how much we can achieve through working in partnership. We have to build on this success to ensure we tackle the ever more complex and dynamic challenges we face.