Issue No. 596
Economy
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25 - 31 July 2002 Issue No. 596 Economy |
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| Published in Cairo by AL-AHRAM established in 1875 | Recommend this page | ||
A war against the money launderers
Egypt has passed a new law to combat money laundering. Mahmoud Mohieddin* looks at the issues
Egypt now has a law criminalising money laundering which enables our financial system to track illegal transactions, and prevent them from slipping undetected into the regulated market. According to Law 80/2002, funds going through the banking system -- as deposits, transfers, or investment capital, will all be scrutinised to ensure they are not associated with any criminal activity. The statutes of this law, announced on 24 June 2002, stipulate the formulation of a Board of Trustees of the Financial Intelligence Unit, to supervise the implementation of the law, with representatives from the Central Bank of Egypt (CBE), the Ministry of Justice, the Banks Union, and the Capital Market Authority. The Board of Trustees will ensure that the appropriate regulations are enforced and specific information is collected and shared with the international community. An annual report will be submitted to the president and the board of the CBE.
The law has been passed after years of controversy, during which many, including senior bankers, expressed reservations. One major problem is that money laundering is not easy to measure. Studies estimating the size of money laundering in various countries have been grossly inaccurate. Many of these studies tend to confuse transactions taking place in the informal, or parallel economy, with money laundering. Additionally, not all the revenues of the informal economy go through the banking system. Also, the size of the informal economy is a matter of conjecture. For example, the US parallel economy has been estimated at anything between four per cent and 33 per cent of GDP.
Money laundering became a public issue in Egypt when Financial Action Task Force (FATF) included Egypt, in June 2001, on the list of countries failing to cooperate in the fight against money laundering. The debate reached a crescendo after the 11 September attacks, when money laundering was said to be responsible for the financing of terror.
The recent law is more than mere reaction to international pressure. In 1990, Egypt joined the Vienna Treaty combating narcotics and proceeds from drug dealing. Since then, Egyptian legal experts have been debating the merits of a money laundering law. During the 1990s, expert teams from the Ministry of Justice recommended, more than once, the promulgation of such a law. These recommendations were weighed against the opposing argument, that Egypt already has enough laws to trace money earned through illegal means. It was the "name and shame" policy adopted by the FATF working team on money laundering that finally tipped the balance in favour of passing the legislation. The new law requires all financial institutions to report all suspect operations to the Financial Intelligence Unit. However, the clients of the Egyptian Financial system will not feel any perceptible change as the "know-your- client" procedure has been introduced since mid 2001.
Why has Egypt taken so long to pass this piece of legislation? The obvious answer is that Egypt has never been a known centre for money laundering. Unlike some of the so-called banana republics, where drug money would pass, undetected, through the banking system, and unlike some European countries, which permitted the investment of these funds with full security and confidentiality, Egypt does not provide a friendly environment for money laundering. Egyptian banks are strictly regulated, sometimes to the point of discouraging clean, let alone dirty money. The banks are normally in constant contact with their clients, which leaves little room for money laundering. Besides, Egypt is basically a cash-based economy, which means that money laundering, even if it exists, does not need to go through the banking system.
Egypt has never been involved in the money laundering network, but until June 2002 it did not have a law criminalising it per se. Today, we have the legal and financial tools to fight money laundering. Capital flows associated with illegal activities are not the type of funds that we did not have and do not wish to have in our financial system. In addition to the ethical and legal concerns, such funds are known to be very volatile, causing major instability in the financial and money markets of the "host" country. By and large, the anti- money laundering law is a positive sign that Egypt, which has been victim of crime and terrorism, understands international concerns and is ready to take action to alleviate them. This law is a very delicate one and its implementation, in a cash-based economy, requires a sophisticated team of well- trained financial and legal experts who are currently being prepared to join the Financial Intelligence Unit.
* The writer is a professor in financial economics at the Faculty of Economics and Political Science and member of the General Secretariat, the National Democratic Party.
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