money

See below my article which appears on the Politics Home website. The original article can be found here.

This week’s annual Overseas Territories Joint Ministerial Council meeting in London involving 14 overseas territories, and the publication next week of the much delayed Government Anti-Corruption plan alongside World Anti-Corruption day, provide a timely opportunity to reflect on the gap between the aspiration and the reality of tackling corrupt funds laundered in the UK.

The Prime Minister is to be praised for taking a personal role in promoting good governance and anti-corruption legislation, leading at the G8, G20 and Open Government Partnership on secret company ownership. Progress has been made in the Small Business and Enterprise Bill in requiring the beneficial owner of UK companies to be registered.

London still remains however a destination of choice for corrupt funds. In 2013 the then Financial Services Authority estimated that £23-57 billion (US$37-93 billion) was potentially being laundered in the UK each year. A report out last week by the Financial Conduct Authority highlighted serious failures, again, in the way small banks manage money laundering. It is not surprising when the biggest individual fine paid in the UK by a Money Laundering Reporting Officer is a derisory £17,500 in May 2012.

London is an easy place to hide corrupt funds. It has been designed as a financial hub through which a large proportion of all global money will either reside or transit. The UK accounts for 18 per cent of cross-border banking and houses 251 foreign banks, more than any other country.

There is a shattering human element to this crime. In 2013, an undervalued corrupt mine deal cost the DR Congo $1.4bn in lost revenues. The money was tied up in hidden ownership arrangements so that it could not be recovered. £1.4bn is twice the annual education and health budgets of the Congo combined. The new UK legislation on beneficial ownership for UK companies will not tackle this.

There are serious questions over the resourcing of anti-corruption enforcement. The UK has internationally respected expert investigators, but far too few of them. There are less than 100 investigators split across the Met Police, City of London Police, and Serious Fraud Office – which has seen its budget cut by a half over the last year. They are massively outspent by corrupt millionaires who have no financial constraints in the legal and accountancy expertise they can afford.

Alongside the resource challenge, time constrains placed on investigators who have just 38 days to prove to a court why a multi-million pound complex multi-jurisdictional transaction should not go ahead, and high evidential requirements, stack the cards firmly against investigators. This is compounded by a risk averse approach to court due to the crippling cost implications should a case not succeed.

The current challenges faced by investigators could get worse under the new Government anti-corruption plan if most of the existing expertise is lost because of a requirement to transfer to the National Crime Agency, where different staff terms and conditions are unattractive. Detectives with financial investigator experience are not quickly replaced, which could leave the new plan an empty shell.

Attempts to outsource investigations have proved poor value for money. Take for example the international concerns over corruption in Malawi, which led to an investigation earlier this year by DFID. This was outsourced to the International Centre for Asset Recovery, who used expensive consultants Baker Tilley paid for by the UK taxpayer. These consultants had no legal powers to require banks to provide information on financial transactions or to request intelligence from international partners. The Government has not disclosed how much has been spent on the investigation but there is no evidence of a single prosecution.

Vast sums of money are also wasted by the financial services industry, which is focused on regulatory compliance rather than targeted investigation and partnership working with law enforcement. Banks spend their time checking the passports of grannies and training retail bank cashiers to look out for bundles of cash, whilst the multi-million pound electronic transactions concerning high risk individuals – known as Politically Exposed Persons – are seen as too profitable to let go to a rival firm.

A suspicious activity report will be filed on large value transfers by high risk individuals and their relatives safe in the knowledge that around 95% are not looked at by any individual in law enforcement. They simply sit on file for intelligence purposes, with multiple suspicious activity reports on the same individuals accumulating. There are now over 315,000 suspicious activity reports filed a year. It is useful to banks as a defensive mechanism but bureaucratic and ineffective. It needs urgent reform.

Dirty money laundered in the UK is a stain on our country’s reputation. It has tragic consequences for the countries defrauded. Whether it is the corrupt Russian officials who tortured to death lawyer Sergi Magnitsky and used London to launder part of the proceeds of their tax fraud, or over $1 billion stolen from Nigeria in the Malubu Oil deal which was equivalent to two thirds of that country’s health budget, the UK needs a more proactive approach.

The Prime Minister has given his personal backing. Ministers have a new plan. It is now time to address resources, time constraints, evidential requirements, and the more effective relationship with industry, if we are to avoid the groundhog day that has characterised well-intentioned but flawed anti-corruption initiatives so far.

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