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Finance Ministers' Meetings

Conclusions of G7 Finance Ministers

London, 9 May 1998

1. Finance Ministers of the G7 and the representative of the European Commission met in London on 8 May, as a part of the preparations for the Birmingham Summit, 15 - 17 May. We reached conclusions on a group of issues, set out below. We will also be reporting our discussions to our Heads of State or Government, for their Summit next week. Michel Camdessus, Managing Director of the IMF and Jim Wolfensohn, President of the World Bank, joined us for our discussions on the lessons of the Asian crisis, and steps to strengthen the world's financial system.

World Economy

2. We reviewed recent developments in the world economy. We welcomed the historical decisions in Europe on Economic and Monetary Union. We look forward to a successful EMU which contributes to the stability of the international monetary system. We discussed and welcomed the substantial policy measures announced by the Government of Japan in April, aimed at achieving domestic demand-led growth. Japan expressed its intention to implement them quickly and stressed the importance of further strengthening the financial system. We also noted that the United States economy required vigilance to stay on a sustainable path.

Strengthening the global financial system

3. Globalisation brings clear benefits to people throughout the world but it also brings certain risks. Previous summits have agreed on ways to reduce these risks and strengthen the global financial system. However, the continuing process of globalisation and recent events in Asia have revealed a number of weaknesses and vulnerabilities in national and international financial systems, as well as in the lending practices of private sector investors. We need to act to strengthen the global financial system further, both to reduce the likelihood of such crises occurring in future and to improve techniques for containing and responding to crises when they do occur.

4. We have developed proposals where there is now an emerging consensus for modifications to the architecture of the international financial system. There are important aspects of the issues discussed that require further work. Discussion within our countries, with emerging market countries and with the private sector will continue over the coming months. For now, having restated the importance of sound economic policies, we have identified the need for action in five key areas:

5. We have set out our proposals in a separate report to our Heads of State or Government, which outlines how work is being taken forward in each of these areas and signals a number of areas for further work.

Financial Stability: Supervision of Global Financial Institutions

6. Since the Lyon and Denver Summits, work has been underway to strengthen the international financial system. Recent events in Asia, combined with the rapid consolidation and globalisation in the financial sector, have highlighted once again the need to improve urgently co-operation between supervisors of internationally active financial institutions. We welcome the work done by the international regulatory bodies in this area and urge them to move quickly towards implementation of the concepts they have devised. Today we have reached important conclusions in a separate report. We commend the 10 Key Principles on information exchange which we will be promoting throughout the world as standards to which all countries should aspire. The G7 also looks forward to the continuing contribution of the private sector to developing international standards that enhance the supervision of global financial firms, while reducing regulatory burdens. On the year 2000 issue, we call on the Basle Committee, the International Organisation of Securities Commissions (IOSCO), the International Association of Insurance Supervisors (IAIS) and the Committee on Payment and Settlement Systems (CPSS), and their newly formed joint Year 2000 Council to monitor the work that firms in the financial area already have underway, and to do all that they can to encourage compliance.

Financial Crime

7. The fight against financial crime is one of the major challenges of our times. We emphasise that, as both financial services and crime become increasingly globalised, this challenge can only be met if all major financial centres work together. Effective co-operation between financial regulators and law enforcement authorities at the international level is an essential element of this. A G7 expert group was set up by the Denver Summit to consider how this cooperation can be improved within our countries. We now agree to:

8. We have instructed the G7 expert group to provide a report on progress on all these areas and any further recommendations in preparation for the Köln Summit.

9. We also recognise that action must not be confined to G7 members and we emphasise that all countries should provide effective international administrative and judicial cooperation. In particular, we are concerned at the number of countries and territories, including some financial offshore centres, which continue to offer excessive banking secrecy and allow screen companies to be used for illegal purposes. We recognise that the Financial Action Task Force (FATF) has already taken significant steps in this area and endorse FATF's efforts to support the Offshore Group of Banking Supervisors in its mutual evaluation process. We therefore call on the FATF to review the present position and make recommendations to Ministers by the Köln Summit on what can be done to rectify these abuses.

Financial Action Task Force

10. We commend the work that the FATF has carried out since its creation in 1989 to develop and promote action against money laundering. Its Forty Recommendations remain the essential standard for effective countermeasures. However, although considerable progress has been made in the fight against money laundering, we agree with the FATF that much still remains to be done. We therefore endorse the decision of the FATF to continue its mandate for a further five years and the new strategy it has adopted.

11. We agree that the major task during this period should be the establishment of a world-wide anti-money laundering network encompassing all continents and regions of the globe. We support FATF's intention to expand its own membership to a limited number of countries meeting the agreed criteria and to encourage the further development of regional anti-money laundering bodies. We call on other international organisations to work closely with the FATF in its mission. We also consider it essential that the FATF continues to monitor money laundering trends and techniques and to ensure that its Recommendations keep pace with new developments.

12. We encourage FATF to implement its new strategy as quickly as possible and urge all countries to join in the fight against money laundering.

Tax Competition

13. We warmly welcome the OECD agreement on action to tackle harmful tax competition. This provides a strong basis for co-ordinated international action to curb harmful tax competition through preferential tax regimes and tax havens. And we note the complementary development of the EU Code of Conduct.

14. We strongly endorse the OECD recommendations, and we welcome the establishment of the OECD Forum on harmful tax practices. We will work through the Forum to secure effective implementation of the recommendations, and will actively support the proposed dialogue with non-OECD members to promote the agreed principles and recommendations on a global basis.

15. We urge the OECD to give particular attention to the development of a comprehensive programme to improve the availability of information to tax authorities to curb international tax evasion and avoidance through tax havens, and through preferential tax regimes. This would involve developing further the proposals to improve exchange of tax information between OECD countries to address the problems caused by restricted access to banking information and to improve the supply of information from tax havens by the negotiation of effective information exchange arrangements.

16. In addition we encourage international action to enhance the capacity of anti- money laundering systems to deal effectively with tax related crimes. Action here would both strengthen anti-money laundering systems and would also be an essential component of a coherent programme to increase the effectiveness of tax information exchange arrangements. Action could be based on furthering the following objectives:

a) Effective anti money laundering systems must ensure that obligations to report transactions relating to suspected criminal offences continue to apply even where such transactions are thought to involve tax offences.

b) Money laundering authorities should be permitted to the greatest extent possible to pass information to their tax authorities to support the investigation of tax related crimes, and such information should be communicated to other jurisdictions in ways which would allow its use by their tax authorities. Such information should be used in a way which does not undermine the effectiveness of anti-money laundering systems.

17. We intend to pursue the development and implementation of these objectives with our OECD partners and in other appropriate fora including the FATF.

18. We in G7 commit ourselves to giving a lead by working to further the foregoing objectives in all territories and jurisdictions for which we have international responsibilities or over which we have influence. And we will follow closely the progress of further work on harmful tax competition which the OECD intends to undertake and the related work on tax related crimes.

Customs Procedures

19. In Lyon we initiated an effort to standardize and simplify customs procedures. We welcome the further work undertaken since Denver which has produced a harmonised and simplified data set for import and export procedures, and urge our experts to reduce that data to a minimum consistent with customs responsibilities by the end of this year. We ask our experts to complete their work, including the development of standardised electronic declarations and to encompass the related import and export data requirements of other government departments and agencies. Our countries will, drawing on each others' experience, take all steps possible to establish customs prototypes or other procedures involving all the G7 countries, which will use an agreed G7 data set, by the Summit in the year 2000 if possible.

20. We also welcome the significant progress made on the Action/Defis programme of the World Customs Organisation to strengthen co-operation between enforcement agencies and associations of international carriers. We encourage further development of this work.

Ageing

21. We welcome the reports of the G10 and OECD on macroeconomic and financial implications of ageing populations. We ask the OECD to undertake further work looking at individual country ageing issues. We ask for a report from the OECD by the Summit in the Year 2000.


Source: Released at the Finance Ministers Meeting, London, England, May 8, 1998


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