Can the new Economic Crime Bill really tackle the UK’s dirty money problem?

From Russian mon­ey laun­der­ing to a fraud epi­dem­ic, eco­nom­ic crime costs the UK at least £290bn a year. The gov­ern­ment must crack down on it

Russia’s full-scale inva­sion of Ukraine has final­ly forced the UK gov­ern­ment to get seri­ous about the country’s dirty mon­ey problem.

The wel­come mat that suc­ces­sive UK gov­ern­ments put out in ‘Londongrad’ for Russian oli­garchs and firms with close links to the Putin regime, now looks at best extra­or­di­nar­i­ly naïve and at worst wil­ful­ly neg­li­gent. This is espe­cial­ly true when you con­sid­er the strong warn­ings from bod­ies such as the Intelligence and Security Committee and defence experts.

The new Economic Crime Act – which was rushed through Parliament at break-neck speed in March, to make for­eign own­er­ship of prop­er­ty more trans­par­ent and make it eas­i­er for the UK to impose sanc­tions – was wide­ly seen as a long over­due shut­ting of sta­ble doors.

At the time, the gov­ern­ment acknowl­edged that there was more work to do, and more gaps to be closed. So will the new Economic Crime Bill announced in the Queen’s speech fill those gaps? Will it final­ly solve the UK’s eco­nom­ic crime prob­lem, whether it be dirty mon­ey laun­dered by klep­to­crats and mafia organ­i­sa­tions or the vast fraud epidemic?

Central to the new bill is reform to Companies House – a small part of the UK gov­ern­ment machin­ery, whose fail­ure to police com­pa­nies set up in Britain has been at the heart of an end­less stream of glob­al and domes­tic eco­nom­ic crime scan­dals over the past decade.

According to analy­sis by Spotlight on Corruption, the UK gov­ern­ment spends £852m a year fight­ing eco­nom­ic crime – the equiv­a­lent of just 0.042% of GDP. That’s despite eco­nom­ic crime cost­ing the UK econ­o­my at least £290bn a year – equal to 14.5% of GDP.

From ‘bounce-back’ COVID loans fraud, set to cost the tax­pay­er up to £4.9bn, to the Russian laun­dro­mat that saw Russia’s secu­ri­ty ser­vices and Putin’s fam­i­ly use UK com­pa­nies to syphon bil­lions out of Moscow, fraud­sters and crim­i­nals exploit the lack of checks on who runs UK com­pa­nies to laun­der mon­ey and evade detec­tion. In 2020, the US’s finan­cial intel­li­gence unit, FINCEN, clas­si­fied the UK as a ‘high­er risk’ juris­dic­tion because of the num­ber of UK-reg­is­tered com­pa­nies repeat­ed­ly crop­ping up in sus­pi­cious activ­i­ty reports.

Reforming the agency, to allow it to check who is behind com­pa­nies and cor­rect inac­cu­rate data, has been in the wings for more than four years. Earlier this year, openDemocracy report­ed on a litany of fake names used by fraud­sters and pranksters, with appar­ent­ly no attempt to stop them. In April, openDemocracy revealed that UK gov­ern­ment offi­cials have had their iden­ti­ties stolen by fraud­sters to cre­ate bogus companies.

With that in mind, the real test of the leg­is­la­tion will be whether new pow­ers allow for proac­tive pre­ven­tion of eco­nom­ic crime (not just iden­ti­fy­ing it after it’s hap­pened). That will neces­si­tate robust and com­pre­hen­sive screen­ing to weed out dodgy companies.

It will also require suf­fi­cient resourc­ing for the agency to imple­ment its new pow­ers. The cur­rent price of £12 to set up a com­pa­ny in the UK is ludi­crous­ly low (in the US it costs the equiv­a­lent of £400 to do so and in Australia £200). There is wide­spread agree­ment across the pri­vate sec­tor, civ­il soci­ety and Parliament that this should be sig­nif­i­cant­ly raised to help fund Companies House’s pow­ers to police the register.

Other than this reform – which is prob­a­bly the most impor­tant eco­nom­ic crime reform of the decade and is cru­cial to get right – the bill also cov­ers new pow­ers to police cryp­to-assets and allow banks to share intel­li­gence about bad guys. Law enforce­ment will now be able to seize cryp­to-assets where they are linked to criminality.

Concerningly, how­ev­er, the Queen’s speech also includ­ed a new Financial Services and Markets Bill, to cut “red tape in the finan­cial sec­tor to make the UK an even more attrac­tive place to invest and do busi­ness, while mak­ing sure that high stan­dards are maintained”.

Specifically, the bill envis­ages rolling out the “safe adop­tion” of cryp­tocur­ren­cies in the UK and “resilient out­sourc­ing to tech­nol­o­gy com­pa­nies”. This, plus the Brexit Freedoms Bill also includ­ed in the speech, sug­gests that a major dereg­u­la­to­ry dri­ve is on the agenda.

This is probably the most important economic crime reform of the decade. Getting it right is crucial

Both a rapid adop­tion of cryp­to and dereg­u­la­tion car­ry mas­sive dirty mon­ey risks. Last year saw cyber­crim­i­nals laun­der­ing $8.6bn worth of cryp­to, a 30% rise on 2020 lev­els, and there have been reports that Russian oli­garchs have been using cryp­to assets to evade sanc­tions. Proposals tout­ed in The Daily Telegraph, for the UK to allow mar­ket­ing of cryp­to assets and legal chal­lenges to reg­u­la­tors, car­ry high risks. It is essen­tial that the UK’s finan­cial integri­ty is not sac­ri­ficed on the altar of finan­cial innovation.

Meanwhile, major dereg­u­la­tion also car­ries sig­nif­i­cant dirty mon­ey threats. In its 2020 Russia Report, the Intelligence and Security Committee not­ed that “the pro­mo­tion of a light and lim­it­ed touch to reg­u­la­tion” was a major fac­tor in attract­ing Putin-linked oli­garchs to London. As Labour MP Margaret Hodge has argued, it is hard to see how dereg­u­la­tion and main­tain­ing high stan­dards can be reconciled.

To address these dan­gers, it is essen­tial that new dereg­u­la­to­ry mea­sures face an eco­nom­ic crime impact assess­ment before being intro­duced. The gov­ern­ment also needs to come for­ward with an ambi­tious new Economic Crime Plan – MPs in the bank­ing all-par­ty par­lia­men­tary group are tomor­row launch­ing a man­i­festo of ideas on which it can draw.

Within this plan, the gov­ern­ment must pri­ori­tise three key mea­sures. Firstly, it must mas­sive­ly increase resourc­ing for law enforce­ment. Secondly, it must get a grip on the crazy panoply of mon­ey-laun­der­ing super­vi­sors and the fact that legal and accoun­tan­cy sec­tors large­ly self-reg­u­late when it comes to dirty mon­ey. And final­ly, it must make it pos­si­ble to pros­e­cute large com­pa­nies and banks for finan­cial skul­dug­gery, which, shock­ing­ly, is still not an option in 21st-cen­tu­ry Britain.

Storm clouds are gath­er­ing over the econ­o­my and the gov­ern­ment is reset­ting to attract vot­ers. Now’s the time to make sure the rush to cash in on the much-vaunt­ed Brexit div­i­dend, through finan­cial dereg­u­la­tion, does not throw open new doors to dirty mon­ey just as the old ones begin to close.

Original source of arti­cle: www.opendemocracy.net