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Secret money crackdown fuels legal dilemmas

In the wake of recent events, bankers and their lawyers need to be much more aware of the need to balance effective legal compliance with a respect for client confidentiality.

Author: Nigel Page

With money-laundering now accounting for between 2% and 5% of the world's GDP (according to the IMF), the pressure on banks and their advisers to prevent criminal misuse of the global financial system has been increasing. Since September 11, however, there has been a substantial escalation in the drive to cut off terrorist funding. The result, for financial institutions worldwide, is an environment where compliance has become an urgent concern. Lax controls can create significant risk to reputation. This was true before September 11 - take, for example, the £350,000 fine imposed on the UK arm of PaineWebber by the Securities&Futures Authority for its sub-standard anti-money-laundering procedures (although the authority noted that no money laundering had taken place and no customers or clients suffered any financial loss). But the new climate of vigilance means that these risks have multiplied. Indeed, it is hard to quantify the fallout for any financial institution of revelations that Osama bin Laden's funds had passed through its systems undetected.

Jon Holland, a partner in Lovells' banking and financial litigation and international commercial arbitration group, points out that there had already been a lot of uncertainty among financial institutions about their legal obligations in this area - a situation that has been exacerbated considerably in light of recent events.

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