Britain is jurisdiction of choice for dirty money, warns MP

Dame Margaret Hodge MP blames exces­sive dereg­u­la­tion, under­fund­ing and an absence of trans­paren­cy for the lack of progress on tack­ling eco­nom­ic crime.

After years of strug­gling to get peo­ple to think about eco­nom­ic crime, the war in Ukraine is help­ing to make the issue front-page news, as the focus on sanc­tions high­lights the scale of the prob­lem of dirty mon­ey in the UK, Dame Margaret Hodge MP told del­e­gates at the Fraud Conference this week.

Hodge, who chairs the All Party Parliamentary Group on Anti-Corruption and Responsible Tax, explained that wide­spread accep­tance of a spec­trum of bad behav­iours – from the shad­ow econ­o­my to tax avoid­ance, tax eva­sion and eco­nom­ic crime – had led to a “depress­ing” sit­u­a­tion where Britain had become a juris­dic­tion of choice for illic­it finance and dirty money.

She blamed years of exces­sive dereg­u­la­tion of the finan­cial ser­vices sec­tor, bad­ly under­fund­ed and “pathet­i­cal­ly weak” enforce­ment agen­cies, and the absence of trans­paren­cy for a lack of progress on tack­ling eco­nom­ic crime.

Britain’s stand­ing in the world would suf­fer unless efforts to address eco­nom­ic crime were ramped up, Hodge warned. “We still have this veneer of being a trust­ed juris­dic­tion, so peo­ple think it’s a good place to car­ry out their bad busi­ness. But we’re los­ing trust and Britain will nev­er ever, in my view, pros­per and grow as a strong and healthy econ­o­my if we depend on dirty money.

“Whether it’s the big organ­i­sa­tions set­ting up struc­tures that have no pur­pose oth­er than to avoid tax, whether it’s the enablers’ mar­ket­ing schemes that involve “unlaw­ful” behav­iour, whether it’s the bad peo­ple who laun­der their wealth into the econ­o­my in the UK – peo­ple in busi­ness and peo­ple work­ing to advise and sup­port busi­ness­es are behav­ing bad­ly,” Hodge said.

Conservative esti­mates sug­gest that eco­nom­ic crime costs the UK econ­o­my £290bn every year, accord­ing to Spotlight on Corruption. Hodge also cit­ed TaxWatch, which esti­mates that 43% of HMRC’s tax gap in 2019/20, equat­ing to £15.2bn, was the result of fraud­u­lent activ­i­ty and delib­er­ate non-compliance.

Despite the eye-water­ing scale of the prob­lem, a dis­pro­por­tion­ate focus on oth­er frauds pre­vails. “In the 11 years to 2018/19, there were eight and a half times more peo­ple giv­en sus­pend­ed or indi­vid­ual sen­tences for ben­e­fit crime than there ever were for tax crime,” she said. “The num­ber of peo­ple pros­e­cut­ed for crim­i­nal activ­i­ty in rela­tion to tax has decreased by 35% since 2015. Something is going bad­ly wrong.”

Hodge said the pletho­ra of enforce­ment agen­cies was unhelp­ful and sug­gest­ed that reor­gan­i­sa­tion was need­ed. “If there are too many, respon­si­bil­i­ty for fight­ing cor­rup­tion ulti­mate­ly becomes nobody’s respon­si­bil­i­ty.” Meanwhile, all the agen­cies are appalling­ly under­fund­ed, she warned. The NCA saw a 5% bud­get cut in real terms over the past five years and obtained few­er than five pros­e­cu­tions a year over that peri­od for eco­nom­ic crime.

She said the pro­ject­ed £100m a year that the gov­ern­ment expect­ed to earn from the Economic Crime Levy paled into insignif­i­cance in the con­text of the £49.5bn spent col­lec­tive­ly by the banks’ anti-mon­ey laun­der­ing departments.

A focus on the four pil­lars of trans­paren­cy, bet­ter reg­u­la­tion, more robust enforce­ment and prop­er account­abil­i­ty were need­ed to devel­op an effec­tive agen­da for com­bat­ing eco­nom­ic crime, Hodge said. In addi­tion to the reform of Companies House cur­rent­ly under way, she said she would favour tighter reg­u­la­tion to bet­ter hold the enablers of mon­ey Iaundering to account, includ­ing accoun­tants. Too many approached the cur­rent Suspicious Activity Report regime as a box-tick­ing exercise.

She explained that rein­vest­ing the mon­ey gen­er­at­ed by fines and cap­ping claims, and bring­ing in experts from the pri­vate sec­tor, would help to improve the effec­tive­ness of enforce­ment agen­cies, and annu­al reports on progress would beef up account­abil­i­ty. “Unless new tools are prop­er­ly reviewed, there’s no point. One of the ways you can see if they’re serv­ing the pur­pose for which they were intend­ed is by hav­ing a report telling you that once a year, and that should be pub­lic,” said Hodge.

“Those of us who care about the moral com­pass of our coun­try, those who want to restore our glob­al rep­u­ta­tion as a trust­ed juris­dic­tion and those who real­ly want to have zero tol­er­ance for eco­nom­ic crime in our soci­ety are grasp­ing this oppor­tu­ni­ty. I hope you’ll work with us to get this as right as we can.”

Original source of arti­cle: www.icaew.com