Cleaning up dirty money.

Globalization has created new opportunities for organized criminal activities -- particularly money laundering. This year's International Money Laundering Conference (IMLC) will bring together experts from legal, law enforcement and financial communities from across the globe to identify common and lasting solutions to this international epidemic.

Money laundering. Think gangster movies. The mob. Attache cases. Wads of bills thick enough to choke a proverbial horse. Biker gangs. Offshore investments. Racehorses. Pornography.

Now think of quiet offices. Power suits.

Granite-walled financial institutions. The hum of electronic financial transactions.

A contrast? Not when dealing with money laundering, a modern financial epidemic that takes the profits of crime, illegal arms sales, smuggling, drug trafficking and prostitution -- and disguises their illegal origins. Add embezzlement, insider trading, bribery and computer fraud, and you have billions of dollars that criminals seek to legitimize through money laundering.

Money laundering changes the source of illegal money, alters the form of it and moves it from one financial location to another. Because it exists outside of the usual economic statistics, it's hard to put an exact dollar figure on money laundering. However, the International Monetary Fund has established a money laundering figure of anywhere from 2 to 5% of the world's gross domestic product, or between $590 billion and $1.5 trillion US.

The 2001 International Money Laundering Conference (IMLC), being held October 15 to 17 in Montreal, is shedding some light on the activities of criminals who use money laundering to make dirty cash clean. Organizers and participants are positive about the good things that can come from the IMLC, which follows a previous conference held in 1998, also in Montreal, in addition to regular conferences held worldwide on the subject.

The IMLC's mandate is to give stakeholders, from legal experts and law enforcement officials to members of the financial community, a chance to share experiences, interact and build a positive consensus for dealing with the issue of money laundering in future. Workshop topics include legislation harmonization and international co-operation, problems associated with tax havens, new technological trends, the globalization of organized crime, money laundering detection and repression.

Three years ago, the IMLC focused on new technologies and their impact on money laundering to promote partnerships and international co-operation. This year, the IMLC addresses the issues of organized crime and its role in money laundering by looking at various components and analyzing current trends to identify common and lasting solutions. It comes at an opportune time. "The laws that the police have are insufficient in today's global economy," says Jeffrey Robinson, author of several books on organized crime, including The Laundrymen and The Merger, and a guest speaker at the conference.

"There's no way that the police can keep up with bad guys," Robinson, a transplanted New Yorker who has been living in Europe for three decades, says matter-of-factly. "In a global economy the odds are weighted in favour of the bad guys. Until law enforcement is given the equipment to deal with them, they'll be behind the eight ball."

Stephen Harvey, senior manager, Anti-Money Laundering, with the Canadian Imperial Bank of Commerce's Internal Audit & Corporate Security Office, agrees, but adds that it's essential to continue finding solutions.

"I'm not sure that we can look forward to the day when we can comfortably say that criminals won't be able to find a loophole or find a way into the financial system," says Harvey, moderator of an IMLC session called "Financial Paradises, Private Investigations and International Co-operation."

Conference speaker Jean de Maillard also concurs with Harvey and Robinson. Maillard, judge of the Tribunal de grande instance de Blois, France, says there is "no specific method" to combat money laundering.

"There is no systematic approach from the police departments or the judges that would consist in searching for money laundering operations," says Maillard. "They have to act this way [treating it as an organized crime activity] because laundering supposes that the funds can be linked to an infraction like drug trafficking, prostitution, firearms, etc. In France, we're starting to see investigations into some very specific cases of money laundering, mainly cases that implicate political personalities."

Maillard says that the main reason for this situation which concerns all countries, is that concepts used for fighting money laundering are unsuitable. "We continue to consider that money laundering is a process that consists in 'cleaning' illegal money to reintroduce it in a legal, economic or financial network. In reality, money laundering today should be considered as an activity integrated in both legal and illegal sectors."

Regardless of the scope and nature of the challenge it's agreed that taking stock of the legal and financial environment is essential to ensure an end to money laundering. This can be done through an examination of recent trends in criminal activity and the development of solutions that provide the most effective means to end it.

One of the objectives of the conference is to find ways in which police agencies can harmonize efforts to work with the financial and legal communities to find long-term international solutions, increase the public's awareness of organized crime and money laundering and their impact, and build a sense of responsibility in all sectors of society.

In 2000, the Royal Canadian Mounted Police (RCMP) unveiled "Merchants Against Money Laundering (MAML)," a pilot program designed to inform and educate the commercial/business sector about money laundering. Developed in Ottawa, this training and information program has been well received by the business community, and is of particular interest to those involved in real estate, the travel industry, car dealers and jewellers. The RCMP hopes to see the MAML program extended nationwide to reflect a true community-policing approach to money laundering prevention.

On the global front, RCMP Commissioner Giuliano Zaccardelli says that the transnational nature of organized crime represents one of the RCMP's greatest challenges. "Partnership and co-operation between the RCMP and policing organizations worldwide are critical to future successes in combatting international crime, including money laundering," adds Zaccardelli, who will also be speaking at the Montreal conference. At present, the RCMP's liaison officer program works in co-operation with the Department of Foreign Affairs and International Trade and has some 30 RCMP liaison officers in 20 countries working to identify and investigate transnational crime.

Maillard says that major thinking should be focused on the different types of laundering and the methods used by the offenders to integrate laundering in their criminal activities. "This reflection process could help the police and the judges make money laundering a specific illegal activity that would require specific investigations, which isn't the case at this point," he says.

Action to curb money laundering is an international endeavour. Russia, long considered a hotbed of money-laundering activity, was recently lauded during an international meeting of finance ministers after the Russian Parliament, earlier this summer, passed a tough bill to curb money laundering. The measure requires that any transaction over 600,000 rubles, or $20,000 US, be reported to authorities.

And the international Financial Action Task Force on Money Laundering (FATF), a Paris-based, independent organization of 29 governments and countries, released a report last June that outlined progress in the development of suitable money laundering countermeasures in non-cooperative countries and territories, which are those jurisdictions that have no specific legislation in place. These countermeasures include enhanced surveillance and reporting of financial transactions. The FATF continues to urge non-cooperative countries to develop the legal means to combat money laundering.

Brian Butler, a CMA and manager of investigations with the Enforcement Branch of the Ontario Securities Commission (OSC), and also an IMLC workshop moderator, sees a dual problem in money laundering that can only be fought effectively through international co-operation.

"What we're seeing at the Ontario Securities Commission with respect to money laundering is two-fold: we're seeing situations where organized crime is trying to clean their money through the capital markets and, in some situations, they are not only cleaning their money but making a profit," says Butler, whose team of lawyers, accountants and securities investigators investigate issues of insider trading, manipulative trading practices and fraudulent conduct.

Money laundering tactics can include market manipulations, or "pump-and-dumps," in which the price of a stock is artificially driven higher before the stock is dumped, usually through an offshore bank account in a jurisdiction with strict secrecy laws. Butler says that the OSC is finding that there is much greater co-operation internationally to assist them with insider trading or market manipulation, as jurisdictions with strict secrecy laws -- sensitive to being linked to organized crime -- will do what they can to co-operate with other authorities.

Zaccardelli points out that the trends and typologies of money laundering are extremely fluid, and are influenced in no small way by globalization, liberal trade practices, and advances in communications. "Technologically, the global movement toward cashless societies, e-banking/e-commerce, smart cards and Internet gambling provide new opportunities for those seeking to disguise and move the proceeds of criminal activity, and bide its origins."

In North America, however, gains continue to be made, says Harvey. "The encouraging thing I'm seeing in the Canadian and U.S. industries is that we are much better today at anticipating potential opportunities for criminals to get into the [financial] system. We're looking critically at new financial products, so that when they are launched many of the things that were not contemplated 10 or 15 years ago are contemplated now. We're making it difficult for organized crime to gain access to these products."

Judge Maillard is admittedly skeptical. "The banking and financial sectors are concerned about money laundering only when they can be implicated," he says. "Almost everywhere in the world, financial institutions, insurance companies, banks, and all occupations sensitive to laundering only do the strict legal minimum imposed by national laws or by international agreements. Justice departments and police, and, in general, governments, have only acted timidly and in a disorganized fashion about money laundering. As a result, very little is done to fight it because the steps taken are totally inefficient."

He adds that the main consequence of economic and financial globalization is a near total freedom of fund circulation. "In a number of regions, certain restrictions exist only in the form of declarations," says Maillard. "For example, in France, if you want to transfer more than 50,000 FF to another country, you have to declare it and that's it. It's not a limitation to money circulation. Generally speaking, there is no restriction."

Profits from drug trafficking account for 85 to 90% of money laundering, says Robinson. "But the funds could be from any type of activity, from alien smuggling to tobacco and alcohol, even a guy who is trying to keep money from his wife when they get divorced."

Among the popular methods of laundering are the black market peso exchange, in which Colombian drug cartels purchase farming equipment in Canada, or spread betting, where launderers bet against themselves; they essentially win back the money they lost on one bet on a counter-bet, says Robinson.

Money laundering can even extend to governments, adds Maillard, a former examining magistrate in charge of police investigations with a background of research into criminal activities. "There is an increased preoccupation about money laundering by governments of politically unstable countries, particularly in Africa where a barter system exists in which raw materials are exchanged for drugs, which are in turn sold by a government. New discoveries not only show financial systems that lack vigilance in putting in place anti-laundering procedures, but also that they supply financial products and services to directly help money laundering."

Money laundering involves three stages:

* Placement: The entry of dirty money into the financial system. While this takes the pressure off the criminal for holding large sums of cash, it poses a high risk because it can raise suspicion in the banking community;

* Layering: The international movement of funds, where illicit money is separated from its true source. The term refers to the multiple layers of financial transaction that ensue following placement and which, in effect, cover up the audit trail, cutting off the connection of the money to the original crime. Criminals often make use of financial institutions in countries that have no appropriate legislation in place, taking advantage of loopholes or weaknesses in legislation;

* Integration: The money, now "legitimate," is returned to the criminal and is fully integrated into a legal financial system. Criminals may obtain their money again in ways that include a loan system operated by offshore companies. Money may also be laundered using "smurfs," people who take the illegal money and trade it for bearer bonds and travellers' cheques. These are then passed on to third parties who "launder" them further. It's estimated that 10 smurfs can turn $1 million into "legitimate" funds within two weeks.

The key to fighting this activity in Canada is Bill C-22, the federal government's act to combat money laundering and to establish the Financial Transactions and Reports Analysis Centre of Canada.

Introduced last year, the Act establishes measures to detect and deter money laundering and to facilitate the investigation and prosecution of money laundering offences. These measures include requiring financial institutions and those involved as financial intermediaries to keep records and report suspicious financial transactions. It also requires people importing or exporting currency over a prescribed amount to file a report with the Canada Customs and Revenue Agency.

The Financial Transactions and Reports Analysis Centre of Canada's mandate is to receive reports, and analyze and assess data with the potential of investigating or prosecuting a money laundering offence. As the Act states: "If the Centre has reasonable grounds to suspect that the designated information would be relevant to investigating or prosecuting a money laundering offence, it shall disclose only designated information to the appropriate police force and, if specified conditions are met, to the Canada Customs and Revenue Agency, the Canadian Security Intelligence Service, and the Department of Citizenship and Immigration."

The centre's focus includes working with the Canada Customs and Revenue Agency, the Canadian Security Intelligence Service and the Department of Citizenship and Immigration. In addition, the centre conducts research and undertakes education measures to inform the public, the financial community and the law enforcement sector with respect to money laundering issues and the measure necessary to deter and detect money laundering.

The onus to comply with these measures is on companies. According to Profitguide.com, a Web site for Canadian entrepreneurs, organizations must be aware that under the new legislation, they are responsible for identifying and reporting suspicious transactions. Breaking the law can carry a jail term of up to five years and penalties of up to $2 million.

In addition to understanding the legislation, companies should safeguard their interests by developing procedures to ensure compliance, implement a communications strategy to let their employees know about it, deliver an effective company training system, and investigate the potential use of automated systems to identify questionable transactions.

While it may be a daunting task for some firms, this new partnership in fighting money laundering is welcome news for the banks. "From a banking perspective, we certainly welcome a move toward what we consider to be a level playing field," says Harvey, who has been with CIEC since 1999, following a career in the banking industry that has taken him to the U.K., Asia and the U.S. He also represented the U.S. banking industry at the 1998 Financial Service Forum of the FATF in Brussels. "Within this industry, we have been doing much of this on a voluntary basis. It is understood, too, that there is some trepidation with the new regulations.

"In one of my capacities as chair of the CBA's (Canadian Banking Association's) Anti-Money Laundering Working Group, I consult regularly with government officials, and one of our challenges is to find a happy medium. After all, as a bank our primary responsibility is to provide banking services to our customers. We need to balance that with our greater societal responsibility as members of the community, and that is to identify those activities that appear to be unusual and potentially suspicious. We have to position things so that they are least offensive to the customer, and don't impede the individual's ability to transact their financial activities in a way that they deem is appropriate."

According to Robinson, policing financial transactions means giving police agencies instant access to information. Currently, police agencies must have a warrant to obtain information. The problem is that Bill C-22 doesn't allow police fast access to files, says Robinson, adding that the U.S. is more efficient at giving police access to financial information.

Harvey disagrees, saying that "from a structural perspective, the two regimes are remarkably similar. Despite the notion that U.S. authorities can just barrel in and ask for information, they, like their Canadian counterparts, must also have appropriate orders for gaining information."

On the other hand, there are vocal critics who consider Canada's laws too draconian. According to columnist Terence Corcoran, writing in the Windsor Star last June, sending $15,000 in cash to pay for your grandmother's hip operation at a U.S. hospital will land your name on a list of possible money launderers. While Robinson says the police don't have enough access to information, Corcoran counters that organized crime laws give police too many powers to break the law in order to enforce it. And provincial governments are stepping up their authority to deal with organized crime. In Ontario, the government has the ability to seize anyone's assets if they are suspected to have been gained through organized crime.

The bottom line for the IMLC is to drive forward a mandate of increased discussion and international co-operation, says Harvey, who has been involved with the issue of money laundering for 15 years. He adds that the conference is a great opportunity to share ideas. "Often you'll find there's a better idea Out there--you have a good dialogue and a better understanding of each other's positions. From our side of the table, it gives the banking community a chance to see what other jurisdictions are doing and develop closer ties with everybody involved."

John Cooper is a Whitby, Ont.-based freelance writer.