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Panama Papers: Assessing the UK’s response one year on

Written by Dominic Kavakeb on Thursday, 6 April 2017

On a warm Sunday evening at the beginning of spring last year, a new term resonated around the world, dominating the news agenda for the subsequent two weeks. A leak of 11.5 million documents from a Panamanian law firm – popularised as the Panama Papers – exploded into global headlines. Whilst the name may have been new, the story it told was a familiar one for Transparency International. Over half of the companies named in the Panama Papers, were incorporated in the British Virgin Islands, whilst British Anguilla and mainland UK were amongst the top 10 jurisdictions where companies had been incorporated. The UK’s role as a safe haven for corrupt money had become clearer than ever.

If the Panama Papers represented a seismic shift in global awareness of hidden flows of corrupt money, the UK coincidentally had an equally significant opportunity to do something about it through the hosting of a global Anti-Corruption Summit, just one month later. Transparency International has been keeping tabs on 15 of the UK’s commitments following this Summit here, assessing a mixed degree of success so far.

But more than just a Summit, the Panama Papers confirmed Transparency International research that serious reform was needed to ended the UK’s role as a location of choice for corrupt individuals from around the world. One year on we grade the Government’s response to the Panama Papers across three key areas, using a 5 star rating.

  • Transparency over the real owners of companies operating in the UK
  • The UK’s anti-money laundering regulation
  • The UK’s ability to recover stolen assets that have been brought into/ through the UK

The UK may be in a very different context to 12 months ago – a new Prime Minister and a mandate to leave the European Union – but the scale of the Panama Papers underlined that meaningful reform was urgent, more than a just a Government side project. Promises made at the time must be followed through into action; but progress so far has been at best limited and at worst simply not good enough.

Exposing the real owners of companies channelling funds through the UK

One of the most prevalent issues to come out of the Panama Papers, was the ability for corrupt individuals to use opaque corporate structures to hide their identity when making expensive purchases. Much-like how other criminals need to be able to safely store away stolen goods or money, to avoid detection by law enforcement, corrupt individuals also need a way to keep hold of their money without drawing attention.

The Panama Papers showed that such individuals can set up companies, inject them with stolen cash and then use those companies to make high-end purchases such as property or luxury goods. The trick behind this master illusion is that the corrupt individual’s name never has to go anywhere near the company being used to make the purchases – meaning no eyebrows are raised as to the source of this money.

Transparency International, alongside multiple other NGOs and campaigners, have called for public registers that reveal the identities of the individuals behind these companies – known as the beneficial owners. This would remove the secrecy that is so vital to corrupt individuals in hiding their identities and ultimately the source of their stolen wealth.

Immediately following the Anti-Corruption Summit the UK introduced a public register of beneficial ownership for UK companies, and promised to do the same for foreign companies bidding for UK contracts or purchasing UK property. This is a good start but closing one door, whilst leaving another wide open doesn’t stop people passing through. The good news is that the Government have now opened a consultation, proposing a public register of overseas companies that own UK property. The Government committed to introducing this by April 2018 and it is hoped that this timeline can be met. Until it is brought in, corrupt individuals can still anonymously launder money into the UK.

But there is a wider problem, and one that has seen fewer and fewer positive signals from the Government; the role of the British Overseas Territories and Crown Dependencies in facilitating global corruption. Whilst beneficial ownership registers for companies operating in the UK will limit the possibilities of corrupt money to be laundered into the UK, its Overseas Territories will still play an active role in the flow of corrupt money elsewhere in the world.

There is some debate, both practical and theoretical, over to what extent the UK should be pushing for change in its Overseas Territories. What is less up for argument is just how big a role the UK’s Overseas Territories play in global corruption. Over half of the companies named in the Panama Papers were set up in the British Virgin Islands – a UK Overseas Territory. Transparency International has called for these jurisdictions to set up their own public centralised registers of beneficial ownership, but they themselves don’t want to commit and the UK seems to have little appetite to enforce it. Some have committed to limited forms of sharing beneficial ownership data, but few have agreed to public registers. Certainly not the key places such as the BVI.

Without serious progress on this front, the UK’s Overseas Territories and Crown Dependencies will remain the weak link in the UK’s fight against dirty money.

Rating: 
Positive steps have been taken but there is still more to be done. Company ownership transparency is the remedy to unmasking the corrupt.

The UK’s Anti-Money Laundering Regulation

A central tenet of the UK’s defences against money laundering should be strong regulation. Sadly our research has found the UK’s anti-money laundering system to be simply not fit for purpose. Money laundering supervisors are responsible for ensuring businesses are implementing strict anti-money laundering rules and checking that they are not turning a blind eye to large sums of suspicious cash. This applies to estate agents, law firms, accountants, banks and other professional services with a high risk of money laundering.

The Panama Papers showed that the UK was the second most popular place for Mossack Fonseca to operate, working with almost 2,000 UK based “professional enablers” to set up companies, foundations and trusts for their customers.

The weaknesses clear, again urgent action was necessary. Promisingly the Financial Conduct Authority (FCA) – that regulates the banks – and the National Crime Agency (NCA) immediately launched an investigation following the Panama Papers, and last November made three arrests in connection. However there has been little in the public domain to suggest that other regulators are learning serious lessons from the Panama Papers.

Last month the UK Government announced reforms would be made to its anti-money laundering controls, including the creation of a new body to oversee the activities of the regulatory bodies, in order to bring some consistency to their work. However, other issues remain, such as the clear conflict of interest where supervisors are both regulators and trade bodies. Sadly, these new rules did nothing to address this issue and therefore the jury is still out to how effective it will be.

Rating: 
An understanding of the problem exists but it remains to be seen how effective the efforts that have been made so far will be.

The UK’s ability to recover stolen assets that have been brought into/ through the UK

When assets and wealth are stolen from the public purse this can never be a victimless crime. The potentially millions of people who may miss out on vital healthcare, see their education budgets plundered, or even suffer famines as a result are the everyday victims of corruption. The final piece in the jigsaw of fighting corruption is to ensure any stolen wealth is returned back to the people from whom it was stolen. The Panama Papers exposed the enormous levels of dirty money flowing through the international system, efforts must now be made to recover that cash.

Last May when Nigeria’s President Buhari was asked if he demanded an apology from David Cameron for referring to his country as “fantastically corrupt”, his response hit to the very heart of this problem – “What would I do with an apology? I need something tangible. I am not going to demand any apology from anyone. What I am demanding is a return of assets.”

Since then the UK and Nigeria have signed a memorandum of understanding on the recovery of corrupt money, but there is no public information to suggest this has happened. More worryingly, James Ibori, a former Nigerian Governor who is one of the only overseas officials to be found guilty in UK courts of money laundering, has now been released and is aggressively pursuing an appeal against his charges, employing top lawyers with the very same money that it is claimed he stole and despite the strong evidence of his guilt.

The failure of the UK to recover stolen assets can be most easily understood against the insufficient powers law enforcement have had to effectively tackle the problem. This may soon change, through the ascension into law of Unexplained Wealth Orders, a key component of the Criminal Finances Bill, and a legal tool Transparency International has been calling for since 2015

Unexplained Wealth Orders will empower law enforcement to ask individuals with suspicious wealth to explain where their assets came from. An insufficient response, or no response at all, could then be used in separate proceedings to recover those assets. It is encouraging that the Criminal Finance Bill is currently going through Parliament with cross-party support and we look forward to them coming into law soon.

But laws must also be backed up with serious intent. The Government’s recent impact assessment for the use of Unexplained Wealth Orders suggests a very conservative expectation of their use, which stands at odds with the at least £4.2 billion worth of property we recently highlighted, in London alone, some of which should be immediate targets for these powers.

Rating: 
Unexplained Wealth Orders will be a significant step in returning assets to the victims of corruption. But the proof will be in how widely and effectively they are used and the estimates so far do not make for great reading.

Overall rating: 
This might make for difficult reading for some who feel the UK are making more serious efforts in tackling corruption than lots of other countries, whilst others might feel this assessment is overly kind.

What is undeniable is the extent of the UK’s role as a safe haven for corrupt money and therefore the challenges are equally as tall. No one suggests this can change overnight and many of the commitments made are laudable, but as always actions speak louder than words.

In the fight against corruption a few legal changes will never be enough. Joined up, cross-Government thinking is needed to address the threat of dirty money on our shores and we therefore look forward to the publication of a UK Government Anti-Corruption Strategy. This was promised by last December but until now we are still waiting. The nature of and scale of corruption means patience is a necessary virtue, but the pace of progress must begin to pick up, or the danger is that corrupt individuals from around the world will simply find new ways to stash their dirty cash.

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Read 291 times Last modified on Thursday, 06 April 2017 13:32
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Dominic Kavakeb

Dominic is TI-UK's Communications Manager.  You can follow him on Twitter @DominicKavakeb

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