Amid the uncertainties and volatility of recent times, some things have remained depressingly constant. It is now five years since the then Home Secretary Amber Rudd vowed to respond to warnings that the UK – London in particular – had become the world’s biggest money laundering centre. But while Rudd has long since exited the political stage, the financial criminals are very much still here.
New research just published by the foreign policy think tank Chatham House makes that clear. The UK’s regulations on money laundering are largely unpoliced and unenforceable, the research says. The result is that despite the UK’s efforts to pitch itself on the international stage as a jurisdiction where the rule of law matters, its claim to be the world capital of money laundering would be more convincing.
“The intertwining of financial globalisation and deregulation with the post-Soviet transition has, since the 1990s, created a new international political and economic environment,” Chatham House warns. “In this context, the UK’s relations with Russia and Eurasian states are characterised in part by features of transnational kleptocracy, where British professional service providers enable post-Soviet elites to launder their money and reputations.”
It would be unfair to question the commitment of Amber Rudd and her political colleagues. Successive governments and their ministers have tried hard to tackle money laundering, introducing a slew of new regulation. The problem hasn’t been ambition, but execution – new anti-corruption laws and regulation simply haven’t proved fit for purpose.
One problem is resourcing. A central plank of the UK’s anti-money laundering strategy is that banks and other professional services businesses are required to make suspicious activity reports (SARs) about any transactions they judge might be connected to illicit behaviours. It’s a good idea in theory, but in practice, the system is drowning: in 2020 alone, regulated industries filed more than 573,000 SARs. The National Crime Agency’s Financial Intelligence Unit has just 118 employees looking at these reports.
Unexplained wealth orders provide another example of a theoretically effective measure that has turned out to be pretty useless. A UWO enables the authorities to seize the assets of individuals who cannot explain where their wealth has come from, and whom the authorities suspect of illegal activities. However, just four of these orders have ever been issued in the UK – securing and enforcing a UWO has proved very challenging for prosecutors.
Elsewhere, Chatham House’s research complains that some professions simply aren’t doing what is expected of them in the fight against financial crime. It points to reports from the Office for Professional Body Anti-Money Laundering Supervision – an agency set up to oversee the anti-money laundering work of 22 professional bodies that supervise legal and accountancy firms – showing that more than three-quarters of these bodies have not implemented an effective risk-based approach.
Still, even if such work were to be complete, the odds would still be stacked in favour of the financial criminals. The reality is that well-connected and extremely wealthy individuals – including the politically exposed persons that money laundering regulation is meant to target – have access to the kind of legal support that prosecutors can only dream of.
These are not uniquely British problems, of course. The campaign group Open Democracy has recently published work highlighting similar weaknesses in the US, through which financial criminals have also channelled their ill-gotten gains. Other Western democracies supposedly committed to the rule of law also stand accused of standing idly by.
The question, of course, is whether anything will change. Well, in the US, there is just an inkling that it might. The Biden Administration has recently published the “United States Strategy on Countering Corruption” – dubbed a “watershed anti-corruption document” by Open Democracy. Among other pledges, it promises significant new resource for those fighting corruption.
In the UK, meanwhile, no such initiatives are currently in play – but Chatham House at least has a clear idea of what is necessary. New laws and additional resources will not, in themselves, deliver what is required, the think tank argues; it will also be necessary to target those who enable money laundering much more aggressively.
What that means in practice is far tougher punishments for the advisers and professionals on which criminals depend. If a banker, say, knows the consequence of looking the other way when working with criminals will be a prison sentence, rather than a fine for their organisation, maybe he or she will take their responsibilities rather more seriously. Until now, individual prosecutions of professional individuals for enabling money laundering have been very rare.
Such changes would, of course, come as a shock to the banking sector and other professions. But it is also likely that overhauling money laundering process, introducing new checks and balances, and investing in new tools and technologies to combat crime would all become much bigger priorities.
Don’t be surprised if this sort of sea change comes sooner rather than later. Slowly but surely, real damage is being done to the UK’s international standing by its complicity in financial crime. And as other countries seek to do more to bear down on illicit activity, and those that enable it, the pressure will mount on the British government to act.