Long regarded as a safe haven for money from questionable sources, the UK, with London at the epicentre, has become home to a litany of billionaires from all over the world and their vast unaccounted for wealth.
The long list includes Roman Abramovich, (soon to be former) owner of Premier League football club Chelsea; Alexey Miller, CEO of Russian energy giant Gazprom; Gennady Timchenko, owner of private investment group Volga Group; Vijay Mallya, the embattled Indian liquor tycoon; and the family of former Kazakh president Nursultan Nazarbayev, to name but a few of the most notable examples.
Not only has the UK allowed these billionaires to buy £multi-million properties across large swathes of central London, it actively encouraged them.
According to a study by anti-corruption entity Transparency International, the Russian oligarchs alone own real estate in London and across the UK worth more than £1.5 billion, with The Economist calling London a “a slop-bucket for dodgy Russian wealth.”
Past efforts made little progress
The annexation of Crimea by Russia in 2014 raised questions about the lack of regulatory scrutiny that allowed Russian oligarchs to openly park their illicit wealth in the country, but did nothing to stem the flow.
Way back in 2016, when Former Prime Minister David Cameron was hosting an anti-corruption summit, he boldly declared that the government would pass a bill to expose unlawful ownership of offshore realty assets. Like so many parliamentary promises, the bill never materialised.
In 2018, the UK passed the Sanctions and Anti-Money Laundering Act to allow it to issue its own sanctions following Brexit. This was designed to enable the detection, investigation, and prevention of money laundering and terrorist financing, and to implement standards published by the Financial Action Task Force (FATF).
Yet the following year, the Treasury Committee identified numerous deficiencies and lapses in the way the UK was tackling economic crimes, which in turn led to a regulatory probe that proved without doubt that economic crimes were on the rise.
Despite all previous attempts to address this issue, it took Russia’s invasion of Ukraine and the resultant sanctions to galvanise the UK government into renewed action.
Enter the Economic Crime Act
Russia’s aggression stoked a sense of urgency in the way the UK’s regulatory machinery addressed sanctioned individuals and entities, opening up the broader question of dirty money being held in the country
The passing of the Economic Crime (Transparency and Enforcement) Act in the second week of March reflects the UK government’s hurried efforts to contain a money laundering network that has entrenched its roots in the country over several decades.
This bill makes adjustments to sanctions regulations to remove some bottlenecks while also updating the rules surrounding unexplained wealth orders to fix some of the flaws in the previous measure.
What perhaps marks the bill as being important, is that it imposes transparency on offshore companies that own property in the UK. This explains why the bill was rushed through the House of Commons in a single day – a process that normally takes months.
Another glaring problem that has been hurriedly addressed is the matter of company ownership in the UK.
Alongside the bill, in an effort to improve corporate transparency, reforms are being made that will change the role of Companies House, the UK’s register of businesses. The Government has published a White Paper on Corporate transparency and register reforms which will see Companies House change from being a mostly passive recipient of information to being an active gatekeeper and custodian of more comprehensive and reliable data.
The first cracks appear
The government’s hurried efforts to introduce the bill were fraught with difficulties and criticisms at every stage.
In the run-up to the passing of the bill, anti-fraud minister Lord Agnew resigned citing the government’s apparent apathy toward tackling fraud, an act that didn’t bode well for the future of the bill.
Even now, few observers believe that the bill will bring about the decisive and tangible change that is required if it is to put an end to the UK’s role as the home to kleptocracy.
While the bill appears ambitious, in essence it is old wine in a new bottle, and not a particularly good vintage at that.
The bill aims to bring under the radar those individuals who are the ultimate beneficial owners of assets, whatever form they take. The new beneficial ownership rules stipulate that any shareholders who reach the 25% ownership level are required to count as the person of “significant control”.
There is a simple way to evade this rule, and that is to share ownership with a number of close relatives or associates, thereby reducing individual ownership to below this 25% threshold.
Another completely legal way to circumvent the new legislation is show ownership through a professional corporate trust provider, who acts as a nominee, and can therefore be named in the place of the true owners on the ownership documents.
Or you could simply lie, as there are no checks on the information provided by the owners of shell companies. This is the exact same loophole that for years has allowed British-registered companies with falsified documentation to hide the ownership of billions of pounds laundered out of Russia.
Yet despite all these measures, one of the major flaws in the legislation are the timescales.
Owners have been allowed a six-month implementation period, which gives them plenty of time to restructure or sell off their assets, long before they can be seized or frozen under any new sanctions.
Furthermore, while the UK’s overseas territories (and the Crown Dependencies of Jersey, Guernsey, and the Isle of Man) have all agreed to establish a public register of owners, it will not take place until end of 2023. Thus providing a further 18 months for the wealthy to make use of tax havens and make provisions for the future.
During the discussion on the bill in the House of Commons, Home Secretary Priti Patel said the economic crime bill was hurried through to send a strong signal that the UK will not a haven for economic offenders and that she aims to introduce a second economic crime bill soon.
Yet Patel appeared to realise that her bill was flawed as she talked almost as much about a second economic crime bill she intends to introduce as she did about the first.
It would appear that the rush to get the bill through parliament simply exposed the UK government’s failure to introduce much-needed legislation years ago.
In the past, the UK has never bothered to hide its desire to accept funds from anywhere and anyone; to remain a haven for money earned through dubious practices.
As a result, the Economic Crime Bill is unlikely to achieve any real change. It’s all talk, and money would appear to talk the loudest.
By way of example, a recent investigation into the purchase of a Surrey mansion linked to sanctioned Russian oligarch German Khan perfectly illustrates the challenges the new bill will face, simply trying to untangle a deliberately designed web of deceit.
But how effective will the long promised new law be? And how easy will it now be to seize high-end properties? The seemingly deliberately designed challenge presented by the recent purchase of a Surrey mansion, linked to sanctioned Russian oligarch German Khan, illustrates the potential limitations.
How will the legislation be enforced?
Putting aside all the concerns about the effectiveness of the Economic Crime Bill, the question remains about who will ultimately be tasked with enforcement?
Law enforcement agencies face ever-shrinking budgets and legacy IT systems that are simply not equipped to deliver the level of monitoring that is required. The National Crime Agency (NCA) and Serious Fraud Office are hugely underfunded, and lack the resources to effectively pursue financial criminals through the courts.
While the new legislation does fill much needed gaps, the responsibility for its enforcement will most likely fall as much on the shoulders of private business as it does on the authorities.
At this point, it’s important to note that the provisions of the new UK economic crime bill also include a strict liability test for sanctions evasion offences. How can an organisation defend itself against any charge, where the absence of concern or suspicion on its part was due to the absence of a readily available solution?
So the very real challenge for any organisation which faces any degree of risk, is ensuring it has the ability to identify and counter an ever-evolving landscape controlled by an ‘enemy’ that is armed with an increasingly sophisticated set of tools with which to evade detection.
In order to maximise their ability to counter any risk, organisations must now employ highly sophisticated detection processes, that draw from the most accurate and up-to-date data sets available, while providing the ability to adjust to specific levels and types of risk exposure.
Thankfully, organisations now have at their disposal the technology that simplifies and automates the vast majority of the processes that are required.
It’s now up to the leaders of these organisations to take note and invest in these tools, or face the consequences.