Graft, bank laws nourish Asia's dirty money

Graft, bank laws nourish Asia's dirty money

SYDNEY (Reuters): Money laundering is on the rise in Asia, and reasons cited are official corruption, strict bank secrecy laws, traditional ethnic underground banking networks and in some countries a lack of anti-laundering laws.

A recent U.S. State Department report pinpointed China, Hong Kong and Macau as major money laundering centers, and also named Indonesia, the Philippines and India.

In Indonesia, the report said, money laundering "continues to grow" due to bank secrecy laws and the archipelago's strategic location in Southeast Asia.

"It's difficult to estimate the amount of dirty money circulating through the financial system in Indonesia," said Chairul Imam, director of the corruption division in the Indonesian Attorney-General's office.

"It is very hard for a law enforcement agency to trace the flow (of the dirty money) because we have no set of laws against money laundering," Imam told Reuters.

Money laundering in Indonesia focused on drugs, fraud and corruption, said the State Department's Bureau for International Narcotics and Law Enforcement Affairs 2000 money laundering report, released on the Internet on March 3.

"Indonesia's banks are not subject to adequate supervision or regulation," it said, citing a 1999 Indonesian-commissioned report which found nearly US$80 million secretly transferred out of Bank Bali went into the accounts of people linked to former Indonesian President B.J. Habibie's Golkar party.

And, Indonesia has no plans to introduce anti-laundering laws soon. "I think it's not on our top priority. We have other more pressing problems," said Imam.

Indian money laundering was estimated to be worth half or equal to the country's legitimate economy, and focused on drugs, people smuggling, corruption and fraud, said the report.

"Tax evasion and the financing of terrorist and insurgent groups, issues related to money laundering, are also of concern in India. Given India's population and emergence as a regional financial center, Indian money laundering is a growing concern."

The former director of India's Central Bureau of Investigation, Joginder Singh, estimated US$10 billion of dirty money was laundered in India a year.

An anti-money laundering bill now being considered by the Indian parliament describes money laundering as a serious national threat. The new law would ban possessing, transferring or concealing proceeds of crime and carry up to seven months' jail and a fine of up to 500,000 rupees ($11,495).

But analysts are not very enthusiastic about the efficacy of the new law, especially when it comes to tackling drug money.

Narcotics trafficking was the major source of money laundering in Hong Kong because its organized crime gangs dominated Southeast Asia's drugs trade, said the U.S. report.

Other sources of dirty money were loan sharking, gambling and financial crimes, said the report.

"Foreign sources of criminal proceeds are likewise sent to Hong Kong for laundering and Hong Kong serves as a major transit point in international money laundering schemes," it said.

The report said Hong Kong had drawn up a serious crimes law in January which requires money changes and remittance agents to identify customers and keep records for six years of transactions exceeding US$2,500. But it said no enactment date had been set.

The Hong Kong government said the new law would take effect in a few months and that it had built up a "robust" anti-laundering regime. It also cited a new bill which will raise the maximum jail term for a person dealing with the proceeds of drug trafficking from 14 to 20 years.

"Hong Kong is more advanced in measures that counter money laundering compared with a lot of other places in the Asia Pacific region," said the Hong Kong government in a statement.

On the Chinese mainland, spiraling crime, especially in drugs, racketeering, people smuggling and intellectual property counterfeiting, was fueling money laundering, said the report.

It said anonymous bank accounts, which China allows, aided laundering, and official corruption protected laundering operations. It added that state-owned funds had been transferred to Hong Kong and then reinvested in China as foreign capital.

But the report said not all laundering in China was linked to crime, but also fear of devaluation of the yuan, citing China's recovery of US$10 billion worth of illegally converted yuan.

The report said organized crime groups in Macau laundered their proceeds through joint ventures and real estate purchases in China, cross border cash transfers, front companies, casinos, currency exchanges and China's underground banking.

The Philippines was rated a "concern" by the report, with rising crime, pervasive corruption and no anti-money laundering laws making it "vulnerable to money laundering".

"The Philippines has experienced an increase in foreign organized crime activity from China, Hong Kong and Taiwan. Philippine drug lords are known to launder and invest their proceeds in Taiwan and Hong Kong," it said.

"Insurgency groups operating in the Philippines fund their activities through narcotics and arms trafficking and engage in money laundering through alleged ties to organized crime."

An anti-racketeering bill, which will make laundering illegal, is pending in the Philippines congress, but banks fear any changes to their secrecy laws could case a flight of capital.

"Everyone should understand that it (bank secrecy act) is essential to preserving confidence in the privacy of deposit information which is necessary to prevent capital flight," Deogracias Vistan, president of Solid Bank Corp.