ishrat husain : seminar on anti - money laundering welcome speech by mr ishrat husain, governor of the state bank of pakistan, at the anti - money laundering seminar, islamabad, 29 - 30 march 2005. * * * mr. prime minister, distinguished guests, ladies and gentlemen : good morning. i am honoured to welcome you all to this international seminar on anti - money laundering. i am grateful to the prime minister for taking time out of his busy schedule and inaugurate this seminar. i would like to extend a special welcome to the foreign visitors and wish them a pleasant and productive stay in our country. the topic of the seminar is of great importance in today ’ s world. one of the main objectives of this seminar is to discuss the core issues, which significantly involve financial sector in the fight against money laundering and terrorist financing. i hope the seminar comes up with practical suggestions for effective tackling of money laundering and terrorist financing. while the speakers would be highlighting the technical aspects of money laundering and terrorist financing, i would like to mention a few general observations about the menaces. the process of laundering dirty money by way of placement, layering and integration is harmful for each and every segment of the society. its ill effects on society, institutions and governments have been enormous. the tainted money adversely affects productive sectors of the economy in multifarious ways. the financial sector is particularly hurt if used for laundering of ill - gotten proceeds. the adverse consequences for financial institutions include reputational risk, operational risk, legal and concentration risks. it costs the financial institutions, in the following ways : • loss of profitable business • liquidity problems through sudden withdrawal of funds • termination of correspondent banking facilities • investigations costs and fines / penalties • assets seizures • loans losses • use of senior management ’ s time in doing damage control. • declines in the stock value of the financial institution concerned. society, as a whole, bears the costs of money laundering in multiple ways. unchecked money laundering enables criminals to enjoy the profits of their crimes who in turn commit more crimes. when there are more frauds and robberies in banks, depositors will receive less return on their deposits and will have to pay high rates on their loans. when public projects are inflated by corruption, citizens have to pay in the form of more taxes. these acts further distort equitable distribution of wealth and, hence, increase in the incidence of poverty. terrorism in its all forms

a country from brussels can be politically difficult when all seems to be going well. this is an area in which national independent authorities could have a role. a very important issue concerns the lessons we have learnt from the crisis for the design and the conduct of our monetary policy, as well as for its interactions with macro - prudential policies. if anything, the crisis has confirmed that we should firmly stick to our objective to deliver price stability in the medium term. indeed, the credibility of the eurosystem in pursuing this objective was crucial in allowing us to adopt exceptional measures without compromising the anchoring of inflation expectations. the crisis has also shown how important it is to interpret credit and money developments properly and take them into account in our decisions, in particular by “ leaning against the wind ” in case of credit booms and asset price imbalances. this is embodied in the eurosystem setup, insofar as the careful monitoring of monetary and credit aggregates helps to identify risks both to financial and price stability. a crucial issue is how to detect the accumulation of systemic risk in time. i am confident that the new framework based on the esrb will provide a fundamental contribution in this respect. enhanced interaction among macro - prudential bodies, between them and the micro - prudential authorities, and between macro - prudential and monetary policy authorities will be crucial. with reference to the ecb ’ s securities market programme, suffice it to say that developments in financial markets called for special interventions. the programme is in line with the shared principles of european monetary policy - making and does not represent a change in the monetary policy stance. the current financial crisis has been described as valuation crisis. in fact, bond spreads for several euro - area countries widened beyond any reasonable level, and severe tensions in the bond market hampered the monetary policy transmission mechanism, demanding action by the central bank. however, a very important and more immediate issue is the exit from the exceptional monetary policy measures that have been adopted. all the various non - conventional measures that central banks, including the ecb, have taken over the last years have been directed at avoiding a financial and economic collapse. that collapse has not materialized. the relevant issue now is the timing and speed of the exit from these measures. this will have to be guided, on the one hand, by the need to maintain support for the orderly functioning of the money and financial markets and to sustain credit flows to the economy, and, on the