Wednesday, April 18, 2001

Banks brace for euro fraud Huge trading volume expected to encourage money laundering By Frantisek Bouc The euro won't be available for spending in the Czech Republic until at least 2009, but the country's banks and financial watchdogs are already bracing for possible trouble. A tide of euro-inspired money laundering is expected to hit the European Union -- and nearby countries with economic loopholes like the Czech Republic's -- at the end of the year. That's when the last German marks, French francs and 10 other currencies are expected to be retired, providing a once-in-a-lifetime opportunity for white-collar criminals. "As European currencies approach the end of their validity, their owners will naturally be turning them in at banks in order to convert them into euros," said Karel Korynta, director of the Financial Analytical Unit (FAU) of the Finance Ministry. This country has softer laws compared with its European neighbors when it comes to large sums of cash, Korynta says. He points to the example of German marks. "It will be easier to convert them here than in Germany," he says, because Czech laws don't require customers to declare the origin of the cash they're depositing or exchanging, while German laws do. Korynta and other financial analysts estimate an equivalent of 50 billion DM ($22.7 billion/887 billion Kc) could be converted through Czech banks because of the euro changeover. With that volume, Korynta and others know crooks will be hoping to sneak their transactions through the cracks. "We're well aware of all potential risks connected with implementing the euro as of 2002," said Vera Vitkova, a spokeswoman for Ceska sporitelna, the country's second-largest bank. The bank launched an internal "Euro Project," a task force focused on all aspects involving the introduction of the euro -- including logistics, communication and the security issue. One employee has been given the full-time job of tracking potentially fraudulent transactions. All the country's banks have been instructed to step up monitoring, focus on conversions of larger amounts, and to closely report any suspicions to the FAU. Money-laundering haven According to data from financial and governmental institutions fighting money laundering, an estimated 180 billion Kc ($4.6 billion) has been laundered through the country's banks between 1993 and 1997. When the country's borders opened after the fall of communism in 1989, the often-chaotic privatization process was coupled with a lack of business regulations and frequent legislation gaps. It made the Czech Republic a virtual haven for money laundering, where illegally obtained money is funneled through different bank accounts in an attempt to distance it from its source. Many of the country's banks, eager to gain depositors, allowed customers to open large accounts with few questions asked. To help plug the legal holes, the Justice Ministry drafted an anti-laundering bill in the mid-1990s. It required all financial institutions, including banks, brokerages and even casinos, to identify clients and businesses involved in monetary transactions. But Parliament failed to pass a proposal last fall to do away with the anonymous banking deposits, despite the pressure from the European Union. "Anyone can put the money in such an account, and anyone can take it out," Korynta says. Banks are currently required to record identification information for transactions of more than 100,000 Kc. Other financial institutions, such as brokerage houses, must do the same for transactions of more than 500,000 Kc. Casinos and betting offices have to record information for anyone receiving a payout of more than 200,000 Kc, and banks are also required to report "unusual" transactions -- those suspected of being used to launder money -- to the FAU. Since its establishment in 1996, the FAU has received more than 5,000 reports of "unusual" transactions. Last year, 1,910 such reports were submitted to FAU, a 12 percent increase from the previous year. FAU passed 104 of those cases -- representing transactions worth more than 9 billion Kc -- on to the police to start investigations. Korynta said the FAU receives around 10 red flags each day from banks and tax and customs offices. Most cases feature fraud or tax evasion by Czech citizens, but foreigners -- such as Chinese, Vietnamese and Russians -- also surface frequently, Korynta says. The recent jump in investigated cases is the result of a new law that came into effect last summer, he said. It gives the FAU access to information from banks and government sources such as tax and customs offices, the police or the intelligence service. Korynta said another amendment to the anti-laundering law is scheduled to expand reporting duties to other intermediaries such as attorneys, accountants and auditors. This legal expansion is currently being negotiated in the European Parliament in Brussels. Frantisek Bouc's e-mail address is lbower@praguepost.cz More business stories Rusnok takes charge New minister dodges bullets on trade union background as he dons Mertlik's mantle Ceska sporitelna plans to hike ATM charges Customers of other banks may have to pay twice as much to get their cash Movers & Shakers First Czech takes over at KPMG Spaces & Places Opening with style E-world Go east Portal hopes to be pioneer in Ukraine's Internet industry The best of Czech digerati Kal's Korner