THE first duty of every British Government is to protect its citizens. Today, however, we face a very different challenge to any previous administration — because the biggest threat to citizens comes not from external forces but from organised criminals and terrorists living and operating inside our country.

As a people, we are proud of our traditions of liberty and tolerance and are determined to protect our rights, but the new threats we face from serious organised crime and fanatical terrorism place new responsibilities on us all — and require new powers.

Central to this challenge is recognising the links between organised crime and terrorism. When I discussed these issues with my American counterparts last week, I was struck that the US Treasury has been fighting these problems for more than 80 years, since the era of prohibition. The US authorities have always understood — from the era of Al Capone to the present day — that the way to defeat organised crime and terrorism is to follow the money trail and strangle the sources of finance.

We estimate that the economic and social costs of organised crime to the UK is more than £20 billion a year — in addition to the lives blighted by drugs, people-trafficking and prostitution.

Since 1997, we have responded to these threats legislatively, strategically and by enhancing enforcement.

One of my first decisions as Economic Secretary to the Treasury was to review and reform the rules on the benefits paid to the families of individuals listed by the UN due to their links to terrorism. I had to balance my duty to ensure that benefits paid to these households could not be diverted and misused against our responsibility to see that children in these households are not unfairly deprived.

While my decision first to stop these benefits and then to make all payments subject to strict licence conditions was controversial and is being legally challenged, I am confident that we struck the right balance.

Through legislation, Parliament has strengthened our toolbox to tackle the funding of criminal and terrorist activity. But because the nature of the threat is always evolving, we accepted the need for further regulation — expanding the scope of our controls beyond the financial sector to include the diverse range of UK businesses that risk being used for money laundering and terrorist financing. Yet in order to be effective, our controls must also be adequately enforced. That is why, on April 1 this year, the Serious Organised Crime Agency (Soca) came into being. Its mission is to disrupt and dismantle serious organised crime gangs nationally and internationally — and so both reduce their harm to society and seize far more of their assets.

Already our approach of concentrating on criminal and terrorist finance is reaping rewards. The obligations on financial firms to disclose suspicious transactions have led to the exposure and disruption of major money-laundering operations.

Our task now is to build on these controls. Our financial services sector is a world leader not just because of our economic stability and the quality of our companies and people, but also because of the renowned transparency and probity of the sector.

Our interventions must be well-targeted and not involve excessive regulatory burdens on the financial sector.

But we must also recognise the seriousness of the threat we face. It is in everyone’s interests, including the financial sector, that we strengthen our controls against money laundering and terrorist financing.

We have led the way by securing the adoption of the third EU Money Laundering Directive under our presidency last year. The directive provides an opportunity for a co- ordinated EU approach to disrupt the networks of international criminals and terrorists, and, crucially, it will provide a level playing field for firms across the EU and bring all European countries up to the standards we apply to counter money laundering and terrorist financing.

Today, I am publishing our proposals for implementing the Money Laundering Directive in the UK. Crucial to our approach is partnership. Government, law enforcement, regulators and, crucially, the businesses we regulate, must continue to work together in improving our ability to detect, deter and disrupt criminal and terrorist activities. And it is important that all interested groups help us to get the regulations right so that they are effective and proportionate.

I want to strengthen the partnership between business, Government and our law- enforcement agencies to tackle criminal and terrorist finance. It is no exaggeration to say that our future security and prosperity depend on it.

Ed Balls is the Economic Secretary to the Treasury

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