institutions. the asian crises in 1997 - 1998 and the recent experience of argentina are examples of such modern twin crises. another challenge related to the massive and liberalised capital flows lies in the area of international fraud and money laundering. the detection of such activities is a crucial preventive policy objective. money laundering enables criminal activities to grow and cause further damage, the most serious case being terrorist financing. it also leads to potentially high moral and reputational costs for the financial system and for society at large. finally, it generates inefficiencies and volatility in the allocation of resources, as launderers move their funds not in response to economic rationale, but in an effort to disguise the origin of their money. in the end, this runs counter to the desired benefits of financial liberalisation. however, in an environment where private capital moves quickly from one country to another without any permission being required, seeking the best short - term returns, it is naturally more difficult to detect fraudulent or money - laundering transactions. the environment is also made more challenging by the growing sophistication of financial products in the liberalised and globalised markets and by frequent use of off - shore centres for tax - optimisation purposes. the ongoing financial innovations and recent negative experience have led to a widespread conviction that the international policy and financial architecture needs to be strengthened. moreover, it has become widely understood that regulation must be co - ordinated internationally, as tightening it in only some markets and / or countries might merely shift the negative phenomena to other places, without reducing their overall severity. there have been numerous suggestions pointing in this direction, the most ambitious of which include proposals to establish a global lender of last resort and / or a supervisor. so far, however, the actual solution has been the creation of a comprehensive set of international standards and recommendations by international organisations. i consider this approach to be appropriate, as it fosters the desired degree of international standardisation of the rules, yet leaves enough room to take into account the specific features of each country and its legal system. in the macroeconomic policy sphere, the key set of international standards for monetary, financial and fiscal policies are embodied in the code of good practices on transparency in monetary and financial policies and the code of good practices in fiscal transparency, approved in 1999 and 2001 respectively. among other things, these principles deal with the independence of central banks and financial regulators, restrictions on monetary financing of state budgets, greater transparency of policy - making,

and data provision. these ideas have indeed had a marked effect in practice, and the first tentative conclusion is that they have helped to mitigate the international contagion of adverse shocks. in the financial regulatory and supervisory area the work to strengthen international standards has also been very intense. the key pillar here is the basel core principles for effective banking supervision, released in 1997. the ongoing work on the basel capital accord, known as basel ii, is a well - known initiative for the future. transposing all these standards into national legal and regulatory systems has become a key part of the newly founded fsap, a joint programme of the imf and the world bank. in the anti - money - laundering ( aml ) area, too, the response to the recent challenges has taken the form of more rigorous international standards. the key standards here are the 40 recommendations of the financial action task force ( fatf ), first issued in 1990 and revised twice in 1996 and also this year. after the events in september 2001, eight further recommendations were added, focusing on combating terrorism financing. these recommendations have been accepted by the international financial organisations as a basis for anti - money - laundering criteria in the financial sector. the basel committee published a document entitled “ customer due diligence for banks ” in october 2001 specifying details of the “ know - your - customer ” principle for banks. the imf has added the recommendations to its surveillance work within the fsap missions and offshore financial centre assessments, having developed a methodology for assessing the general principles in practice. these aml standards are thus on a par with all the other international codes and best practices and form an integral part of the strengthened global financial architecture. i should also note that an increased awareness of the crucial role played by the aml regulations in today ’ s world is also apparent among private financial institutions themselves. this has been demonstrated, for example, by their adoption of the “ wolfsberg principles ” and the involvement of the banking associations in many countries in aml issues. the aml regulations require financial institutions to identify their customers in certain transactions, either in suspicious ones, or in standard ones such as opening bank accounts, safety boxes, etc. the growing use of modern communications channels, e. g. telephone banking and e - finance, has made it necessary to ensure that the identification requirement is observed equally strictly for these transactions, too. financial institutions are also obliged to store data that can be used for detecting money laundering and