FSA - reducing financial crime

• the latest developments in the FSAs investigation into any banks in the UK with possible links to funds associated with the former military leader of Nigeria, General Sani Abacha; and

• the role of the FSA as it prepares to take on its statutory objective of reducing financial crime, including preventing money laundering

General Sani Abacha

Commenting on the FSAs investigation, Phillip Thorpe said:

Although work so far has revealed that the flows of funds identified in the Swiss Federal Banking Commissions report involving banks within the FSAs jurisdiction are rather lower than has been reported - for example, of the $219mn reported to have flowed from Switzerland to banks the UK, $126mn in fact flowed from Switzerland to a bank in Jersey - this does not, of course, diminish the seriousness of the situation as far as UK markets are concerned.

Our probe is looking for possible control weaknesses at banks which appear to have handled these funds. We will focus on account opening, maintenance and monitoring procedures and banks will be ordered to take immediate remedial action where problems are found.

Any evidence of criminal activity will be passed to the relevant criminal prosecution authorities.

Looking ahead, he said that recent developments underlined the challenges that financial markets face in handling funds linked to potentates. The FSA and other UK authorities are exploring the scope for improvements to the existing regime to counter the risks more effectively.

Reducing financial crime

On the FSAs general role, Phillip Thorpe said:

Our powers to date in this area have been limited. The Financial Services and Markets Act, due to come into effect in mid-2001, changes that. It gives us an explicit role in reducing financial crime and gives us new tools with which to carry it out.

Our role will continue to centre on whether the firms we regulate have adequate systems and controls in place to prevent money laundering. But the new Act will for the first time give us powers to instigate criminal prosecutions and to fine firms where their arrangements fail to come up to standard. Any fines or other disciplinary action will be made public. That contrasts sharply with our existing powers where we can only order remedial action to be undertaken with no publicity attached to it.

We will address this objective in the same risk-based way as we address the other elements of our business. As we announced earlier this year, were already engaged on a project to examine the whole issue of money laundering and how it is dealt with. The aim is to improve the effectiveness of the anti-money laundering regime in the UK. As part of the project, we have sent a survey to a sample of some 1200 firms to get their feedback on the existing regime and how it can be improved. We will have more to say about the outcome of this work next year.

Notes for editors

1. Further analysis of the money flows identified in the Swiss Federal Banking Commissions report demonstrate the following.
   • Funds flowing to Switzerland
     Of the total flow of $123mn, around $40mn came from Jersey.
     The remaining $83mn came from banks in the UK. All but one of the accounts were in the names of companies rather than individuals. We will be checking what the banks concerned did to identify the beneficial owners of the accounts.
   • Funds flowing from Switzerland
     Of the total flow of $219mn, $126mn flowed from Switzerland to a bank in Jersey. The remainder flowed to banks in the UK.

2. The Financial Services and Markets Act, due to come into effect in mid-2001, gives the FSA four statutory objectives, including reduction of financial crime. The three main areas in which the FSA will play a significant role in this are: criminal market misconduct (eg insider dealing); fraud or dishonesty; and money laundering.

3. The FSAs money laundering role will comprise setting and enforcing standards on anti-money laundering systems and controls in FSA-regulated businesses. The essence of these systems and controls are: to take care when commencing business with a new customer; to be alert to the possibility of money laundering by a customer or a prospective customer; where suspicions of money laundering arise, to communicate them to the criminal authorities; to keep records which may prove significant for subsequent criminal investigations and prosecutions; to ensure senior management oversight and control; to secure and maintain the informed participation in these systems of all relevant employees of the business.

4. The FSAs three other objectives are: maintaining confidence in the financial system; promoting public awareness of the financial system; and securing the appropriate degree of protection for consumers.

5. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.