UK’s anti-money laundering measures need complete reset, says report

Chatham House researchers say pro­fes­sion­al enablers con­tin­ue to offer for­eign klep­to­crats ‘a home-from-home in London’

Aerial of Knightsbridge with Hyde Park. The report urges min­is­ters to recog­nise that Britain’s laws do not sim­ply help organ­ised crime, but are a way for klep­to­crat­ic author­i­tar­i­ans to laun­der their ille­gal assets and remain in pow­er. Photograph: lemhartley/Getty Images/iStockphoto

Un-policed and often unen­force­able anti-cor­rup­tion laws have made the UK the glob­al mon­ey-laun­der­ing cap­i­tal for a post-Soviet Union elite, severe­ly dam­ag­ing Britain’s inter­na­tion­al rep­u­ta­tion and the rule of law, the London-based think­tank Chatham House says in a report.

The research calls for new mea­sures to con­strain what it described as a near-self-reg­u­lat­ed army of pro­fes­sion­al enablers – accoun­tants, lawyers and rep­u­ta­tion man­agers – that ser­vice Russian crim­i­nals in the UK.

Urging a com­plete reset in the government’s laws to com­bat mon­ey laun­der­ing, the report by coin­ci­dence will be pub­lished lat­er on the day that the for­eign sec­re­tary, Liz Truss, is due to address the think­tank about the UK’s for­eign pol­i­cy pri­or­i­ties. It was authored by lead­ing researchers from the uni­ver­si­ties of Exeter, Oxford, Cambridge and Columbia (New York) and was fund­ed by the Foreign Office’s own anti-cor­rup­tion evi­dence programme.

The report urges min­is­ters to recog­nise that Britain’s laws do not sim­ply help organ­ised crime, but are a way for klep­to­crat­ic author­i­tar­i­ans to laun­der their ille­gal assets and remain in power.

The British gov­ern­ment has placed com­bat­ing seri­ous organ­ised crime at the cen­tre of its for­eign pol­i­cy, but often fails to recog­nise the inti­mate con­nec­tions UK soci­ety and insti­tu­tions have with klep­to­crat­ic states and their elites, the lat­ter of which con­tin­ue to find a home-from-home in London,” it says.

It finds there is “a fail­ure of enforce­ment by the National Crime Agency (NCA) and oth­er UK state bod­ies, as expen­sive and capa­ble lawyers (hired by mem­bers of transna­tion­al elites or their advis­ers) defeat or deter the reg­u­la­tors’ often weak and under-resourced attempts to pros­e­cute polit­i­cal­ly exposed persons”.

The report unpicks the fail­ure of the key anti-cor­rup­tion pil­lars on the statute book, and finds most of them want­i­ng, espe­cial­ly the require­ment for reg­u­lat­ed indus­tries to flag poten­tial cor­rup­tion to the NCA by fil­ing sus­pi­cious activ­i­ty reports.

In 2020, reg­u­lat­ed indus­tries filed 573,085 SARs – 20% more than in 2019 – the vast major­i­ty of which (75.4%) were issued by banks. The report describes this lev­el of reports as a risk-averse response that is also risk-insen­si­tive, point­ing out that the NCA Financial Intelligence Unit has only 118 employ­ees to scru­ti­nise SARs. By con­trast, only 861 SARs were issued by estate agents in 2021, com­pared with approx­i­mate­ly 1,500 issued by legal pro­fes­sion­als in rela­tion to prop­er­ty deals.

Proposing a slew of changes to the law, the report con­cluds: “Without active­ly com­plic­it ser­vice providers fac­ing prison and neg­li­gent ones fac­ing puni­tive fines, it is hard to see how transna­tion­al klep­toc­ra­cy can be arrest­ed in the UK, how­ev­er well-draft­ed the law.”

The report high­lights the adop­tion of only four “unex­plained wealth orders” since the mea­sure was intro­duced with fan­fare in the Criminal Finances Act 2017. An UWO allows for assets to be seized if, on the bal­ance of prob­a­bil­i­ties, the wealth has been obtained ille­gal­ly. None have been issued since 2019. 

One rea­son for the fail­ure, the report says, is that seizure is per­mit­ted only if the assets are thought to have been acquired through an activ­i­ty that is ille­gal in the orig­i­nal coun­try. If the orig­i­nal coun­try is itself a klep­toc­ra­cy, the activ­i­ty is unlike­ly to have been deemed illegal.

The report also points out that the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) – a UK gov­ern­ment body set up to over­see the pro­fes­sion­al bod­ies that super­vise legal and accoun­tan­cy firms and com­pa­nies in regard to their anti-mon­ey-laun­der­ing pro­ce­dures – found that the vast major­i­ty (81%) of the 22 pro­fes­sion­al bod­ies had not imple­ment­ed an effec­tive risk-based approach, and only one-third of them were effec­tive in devel­op­ing and record­ing ade­quate risk pro­files for their sector.

The authors say the only suc­cess has been the lit­tle-known account freez­ing orders that allow UK law enforce­ment bod­ies to freeze the con­tents of a bank account if they can show rea­son­able grounds to sus­pect that mon­ey in an account was obtained through unlaw­ful con­duct or is intend­ed for unlaw­ful use.

 This arti­cle was amend­ed on 8 December 2021. An ear­li­er ver­sion referred to account freez­ing orders as “arrest freez­ing orders”.

Original source of arti­cle: The Guardian

Read Full Research Paper ” The UK’s klep­toc­ra­cy prob­lem ” in PDF