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Money Laundering enforcement; the political race to the bottom

Ian Ross

The last four years has seen some seismic changes in both EU and UK anti-money laundering legislation along with related enforcement reporting initiatives. Updated UK Money Laundering Regulations were enacted in 2017. In early 2018, the UK Treasury set up a new body; the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), to act as a ‘supervisor’ of AML supervisors with responsibility for monitoring money laundering activity. 2018 also saw the first ‘Unexplained Wealth Order’ (UWO’) which allows seizure and freezing of assets without a criminal conviction.

In December 2020 the EU Parliament brought into force the 6th AML Directive with some stark changes to both penalties and reporting and data sharing policies.

At first, these developments seemed promising. Promoted by grand clichés of ‘tough new measures’ and ‘cracking down on’ money laundering, the new measures promised ‘progress’ when these new apolitical steps appealed to those who welcome either the (over)simplifying of enforcement against money laundering (the ones who consider the art of investigation to be ‘so yesterday’ as quoted by a senior UK detective) or appeasing a nationalistic political mood when it suits. Moreover, the transposition of the EU Directive into national EU member-state laws has been painfully slow. The scarcity of criminal prosecutions for breach of the UK Money Laundering Regulations enacted in 2017 is alarming. Likewise, criminal convictions for money laundering itself (Proceeds of Crime Act 2002) have been a minority of concerning proportions.

The political backpedalling …

Theresa May, who as both Home Secretary and Prime Minister had nothing to say publicly about the millions of Russian Oligarchs’ money pouring in as Tory donorships. Was stony silent on ‘anything money laundering’ until the Novichok poisonings in Salisbury in March 2018 and only then made a famously-feeble speech to ‘the House’. This was a Prime Minister who carried out the gigantic financial debauch of the UK police force and then claimed to take money laundering and corruption seriously.

Equally, the then Foreign Secretary Boris Johnson went with the way the wind blew. His pathological hue and cry after Russia and everything Russian revealed the rhetoric ruling the reality. And if David Cameron’s infamous 2016 gaffe about Nigeria and Afghanistan being ‘fantastically corrupt’ was not enough, Johnson beat him hands down with his press statements that played to the gallery but were neither ideologically or legally consistent.

Thereafter, Johnson turned the introduction of UWO’s into a political Exocet missile under the guise of a ‘clamp down on wealthy oligarchs with properties in London. But the ‘orders’ were challenged – successfully so. The UWO order rejection by the High Court (in the Aliyev family case) cost the UK taxpayer £1.5mllion in costs awarded against the NCA in one case alone, with no right to appeal. Pursuing more UWOs means 20 UWO applications per year would cost between £800,000 and £1.5m over ten years.

Hence, if the objective of the National Crime Agency (NCA) is to seize, to freeze, to confiscate without convictions, then some will regard this as being ‘successful’ but behind the smokescreen we see the NCA are following a political agenda (in an AML context, not other crimes). It also raises a question of how much of money seized is actually from crime? Account freezing orders are ridiculously easy to obtain.

Not one scintilla of evidence has been produced that Zamira Hajiyev (subject of the first ever UWO) has been involved in criminality. Yes, a spendthrift, a snooty, objectionable individual, married to a crooked banker, but a politically-motivated witchhunt has been the pattern throughout. And how the PR narrative has changed; from ‘fighting serious and organised money laundering’ at first, down to ‘addressing illicit finance’. Perhaps this watering down of the terminology has been brought on by UWOs being a failed experiment? With that also, why are the professional enablers not part of the operational remit? They who launder more money in an hour than a whole gang of ‘money mules’ through the airport put together.

More recently in 2018, Margaret Hodge MP and former Chair of the Public Accounts Committee (2010 - 2015) led a coalition for the UK to fall in with the 5th EU AML Directive. That directive took years to implement and was steered by the Egmont Group, a global network made up of Financial Intelligence Units (FIU’s) from 151 jurisdictions - including the National Crime Agency. The group met in February 2016 to discuss improving the flow of financial intelligence; access to sources of financial information; and, expanding the scope of creating Suspicious Transaction Reports (STR’s). Additionally, they sought to expand the definitions of Politically Exposed Persons (‘PEPS’).

The killer point is, it does not apply to UK affiliated offshore financial centres; namely the British Virgin Islands, Bermuda, Jersey, Guernsey, and the Isle of Man. Commonly referred to as ‘crown dependencies.’ So why chase legislation that would become de-facto unworkable post Brexit? (unless of course by some miracle we stop all money laundering by the end of 2022). Or keep running with this mutually-exclusive AML enforcement plan?

Here and now

A former UK Conservative Minister, Lord Faulks QC has just made a public press statement (15 Feb. 2022) stating he was ’leant on’ during Theresa May’s premiership. Lord Faulks had tried to introduce a public register of overseas property owners into the criminal finances bill in 2017. Faulks was summoned to a meeting where four civil servants were waiting. They told him in no uncertain terms to ‘drop’ amendments for which he had a voting majority in the House of Lords. The assurance was that it was “in hand” but not-so amazingly nothing came of it thereafter. The ‘deluded desire to protect the City of London’ was inferred to be the key reason for circumventing, if not sabotaging the new proposed anti-AML legislation. Faulks had innovated a healthy range of AML checks and balances and had a thing or two to say about handing out ‘golden visas’ only to be stomped on politically.

And - the following of the same political agenda continues. The conservative MP John Penrose was appointed the UK anti-corruption ‘Tsar’ in February 2022. Regrettably however, It strongly seems he has arrived 10 years too late with his genius for the obvious about London being a global money laundering hub. Another 10 years of talk and 'strategic' planning lies ahead. But even now, Penrose, like Lord Faulks before him is a lone voice in bringing in badly needed statutory change, but the current Finance Bill is being obstinately resisted and delayed by Boris Johnson, aided and abetted by Kwasi Kwarteng (Secretary of State for Business, Energy and Industrial Strategy) with his inane comments about fraud levels and quite a flippant attitude to victims of fraud. (And behind almost all money laundering there is a fraud of some kind).

So, fighting party corruption-friendly politics in his own government is his task before any corruption or AML work even starts, that is if Penrose doesn't get side-lined politically, fades away and goes the same way as Lord Faulks and later Lord Agnew, whose flimsy anti-corruption narratives were overpowered politically by his own party.... like shouting in the wind.

Transparency, that isn’t

Transparency International, after the Panama Papers’ publication, pushed for more public registers – but without knowing who the guilty actually are, and of what.

One former international police chief called for the ‘uberisation’ of data sharing, with no thought to the issue that one analyst sharing data with another on the other side of the world. Quite a tenuous exercise. A call for sharing information, which is predictable and readable to criminals – especially canny money launderers, leads to us falling into the same traps whilst money laundering just goes on and on…

The up-take in EU ‘blacklists’ and ‘grey lists’ put the UK on even more shakier footing. Malta has recently (by of way it’s mainstream press) have a strong point to make. That an entire financial industry in their country and all who work in it have been smeared as criminals by way of a political bout by the EU listing the country so harshly and dealing in nationalistic stereotypes.

Where is the consistency?

The banks are now deemed even by the courts to be a central part of organized crime (vilified by examples of Danske Bank (laundering over 200 billion euros over 7 years). NatWest, ABN AMRO, et al, and HSBC laundering more money in three years that the Russian Mafia did in ten) but despite record fines by the Financial Conduct Regulators, efforts to make senior executives in those in banks accountable, fail miserably. The criminal prosecution brought against NatWest in 2021 was to all intent and purpose, a mere repeat of a regulatory fine. No-one goes to jail. The more cynical among us see this as banks sharing a slice of the profits. Customers pay the fines (and likely as not, executives and other’s bonuses remain) with no accountability for the hands-on money launderers within.

In considering the case of UBS trader Arif Hussein, accused of manipulating the Libor interbank lending rate, Judge Timothy Herrington pilloried the UK Financial Conduct Authority. Why had the FCA spent five years pursuing the trader while failing to investigate senior managers? The Swiss bank had admitted to systemic rate-rigging and paid $1.5bn in penalties. The answer was simple: “As is the way of these things, the senior people somehow manage to keep their fingerprints off the relevant documents.” And THAT statement was from the FCA’s own counsel. The FCA handing out fines doesn’t placate the issue of regulators effectively creating immunity for crooked bankers at senior levels. ‘A culture of plausible deniability is widespread’.

Going down the transcending scale

Transparency International made reference to vast amounts of money in commissions being made by real estate agents when facilitating sales of ‘criminal’ properties. A valid point, given that an estimated 86,000 properties in the UK are owned through anonymous companies registered here. However, in June 2018, the HMRC told the Treasury Committee that as part of the next government ‘spending review’, it plans to end its role as the anti-money laundering regulator of estate agents, looking to other organizations that ‘would be better suited to the task’.

Given that only 0.12% of all reports to the police of suspicious activity from 2015 from 2017 were from estate agents, the HMRC backing out of a national key high risk money laundering industry raises the question of who will address this gap, if enforcement agencies are under resourced?

Then there is Companies House, whose AML operational efficiency is severely constrained. Of course, as a registration entity ‘CH’ have no statutory enforcement powers in an AML context, and have been let down to say the least by the Johnson government. But the ease with which criminals can set up dummy companies gets easier for them instead of harder. This is a factual concern, despite the ‘frustrations’ of staff and their ‘workloads’. On-line facilities are months behind and due diligence on new company registrations border on the non-existent. That political stalemate remains…

And so …

If the UK is the money laundering capital of the world, why is that so? Is it because we are so incompetent, we get overwhelmed? No, it’s due to laughably weak money laundering controls, and the ones responsible for controls and regulation in recent history are willing to avert their eyes to billions in illicit revenues pouring into a country, so long as it is pouring into the country. Ably indulged by belated political dramatizing and cheap opportunist political narratives having that dampening effect on enforcement.

Disclaimer: the views expressed in this article are solely those of the author and do not necessarily represent those of the European Legal Training Center.