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Increasing government pressure on the financial industry to devote its resources in battling terrorists financing schemes will drive worldwide spending on anti-money laundering (AML) software products, according to two separate studies.

Global expenditure on AML systems and staff training grew by an average of 58 per cent over the last three years an as much as 70 per cent in North America, results of a study of 224 banks in 55 countries by audit firm KPMG LLP.

Overall spending on AML technology alone is expected to reach US$375 million in 2009, up from US$335.4 million 2006, according to Celent Communications, a Boston-based analysts firm.

"Governments and regulators are only going to increase the pressure on banks and other financial intermediaries in Canada and elsewhere to devote resources, technology and people in the fight against money laundering," said James Hunter, Toronto-based KPMG partner and head of the firms forensic practice in Canada.

"Formerly tech- unaware, regulators in the U.S. and European Union (E.U.) are now emphasizing the importance of effective AML analytics as a cornerstone of compliance," says Neil Katkov, Celent analyst and author of the report Evaluating the Vendors of Anti-Money Laundering Solutions 2006.

More than $4.75 billion was slipped into the legitimate financial system by international terrorists and crime syndicates last year in 134 suspected laundering cases, according to estimates by the Financial Transactions and Report Analyst Centre (Fintrac).

Fintrac, a federal agency that Canadian banks report suspected criminal transactions to, said it detected 33 cases of suspected terrorist activity financing worth $256 million and at least one case deemed a threat to national security.

The Canadian Bankers Association (CBA) did not release any figures on how much Canadian banks were spending on AML systems or how much the battle against money laundering is costing financial institutions.

A statement from the CBA, however, said local banks are fully in support of government efforts and legislation to stamp out the crime.

The need for more stringent AML process will continue to grow, according to Hunter.

For example, the Proceeds of Crime and Terrorist Financing Act was recently beefed up to require Canadian banks to improve due diligence enquiries surrounding correspondent banking relationship. The government has also required financial institutions to enhance its background checks on clients who are considered politically exposed persons (PEP), said Hunter.

Hunter added that while half of the survey respondents agreed that legislations were "acceptable" the businesses "wanted improved focus" on regulations.

"Rather than rule-based regulations, banks want risk-targeted regulations," he said.

Hunter said an example of this would be the call for greater scrutiny of PEP clients.

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