MONEY laundering by hardened criminals is fuelling the rise in business fraud, an independent watchdog claims.

The Fraud Advisory Panel -- founded by the Institute of Chartered Accountants -- is warning that traditional checks and balances are being eroded by organised crime, costing an estimated £2 billion a year in the North-west alone.

In the panel's annual report, chairman George Staple QC, a former Director of the Serious Fraud Office, says fraud has gone beyond just "fiddling the books".

He writes: "It is a crime increasingly linked to corruption and money laundering, and conducted by organised criminals."

Mr Staple has called on the Home Office to consider the creation of a National Fraud Squad in addition to a new body to co-ordinate the efforts of the existing 16 departments and agencies responsible for tackling business-related crime.

Anti-fraud specialist Ian Cherry, of the North West Society of Chartered Accountants, said today that it was increasingly difficult for the police to spot a bogus transaction intended to launder the proceeds of crime.

A recent investigation into a road haulage company in the Preston area revealed that the proprietor had sold a fleet of serviceable lorries and bought a replacement fleet.

It emerged that the business had been bought from the proceeds of crime. "The intention was to launder money and the selling and buying of vehicles was simply to muddy the financial waters," Mr Cherry said. Criminals had also developed a computer system aimed at dishonest businesses, programmed to "hide" one transaction in every 10, automatically paying the money into a secret account.

"It's as if the transaction had never taken place, eliminating the documentation that would be involved in legitimate trading."