Economic distortion and instability – Criminal money responds not to economic or financial signals but to opportunities for further crime and the threat of being caught. Therefore money launderers will not generally invest funds in activities that are economically beneficial to the country. iv. Loss of revenue – Money laundering makes governments’ tax collection efforts difficult and diminishes tax revenues. v.  Reputation risk – In today’s global economy, nations can not afford to have their reputations eroded by association with money laundering. Legitimate businesses will not want to deal with a bank or financial institution suspected to handle criminal funds. vi. Undermines the financial sector – The unchecked use of the financial system by criminal organisations risks undermining individual institutions and ultimately entire financial systems. When banks or financial institutions become part of a criminal network, they lay themselves open to loss from fraud if they do not screen out undesirable customers or if their own officers are compromised. In the face of the above economic, financial and political threats, the international financial community has recognised that public confidence in such institutions, and hence their stability, could be undermined if they became associated, even inadvertently, with criminals. In order to prevent the escalation of money laundering, the following measures have been undertaken: i. The Government has enacted the Prohibition and Prevention of Money Laundering (PPML) Act 2001 which has criminalized money laundering and provides for the forfeiture of property by offenders;  ii.
Emerging market economies are very vulnerable to the reputational risk of non-compliance. Therefore we must take one step at a time. The infrastructure for compliance - legal, accounting and market - must be established and is an essential pre-requisite which underlies the success of these initiatives. BIS Review 84/2005  1  The implications on the several sub sectors of our economy from Basle II will have to be examined carefully with regard to access to finance and the pricing of risk. Uneven playing fields may arise as a result of the internationally active foreign banks adopting more advanced approaches, thereby improving their competitiveness over their local counterparts. Will the models developed by the foreign banks be relevant for the risks in our markets? These are the regulatory challenges which have to be addressed by the regulators. In meeting these challenges, the local banks must make best use of the existing resources to minimize the cost of full compliance. They can build on their existing data bases and leverage on the default data available in institutions such as the Credit Information Bureau. They can benefit from data pooling within the industry. All these resources must be harnessed. It is important that the banks do not lose sight of the long term benefits of Basle II of better capital allocation and consequently, better pricing, because they are embroiled in the details necessary to meet the deadline. The ultimate objective is financial stability.