News 07th Dec 2018

FATF review is no grounds for complacency in fight against dirty money

Duncan Hames

Director of Policy

As Director of Policy, Duncan takes a strategic lead on UK focused work, building on TI-UK’s efforts to end the UK’s status as a “safe haven” for corrupt money, address corruption in the political sphere, as well as navigate new areas of work. He joins TI-UK after working on information security with Templar Executives, following 5 years as a Member of Parliament. He also serves on the board of the South London and Maudsley NHS Foundation Trust, where he chairs their audit committee

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Today the Financial Action Taskforce (FATF), the global anti-money laundering standards body, published its assessment of the UK’s anti-money laundering defences. FATF gave the UK Government the most favourable assessment to date, but in a global context where – as the recent Dankse Bank case shows – anti-money laundering standards remain low, this is no grounds for complacency.

Indeed the National Crime Agency estimates that an excess of £100 billion in illicit funds impacts the UK each year. In line with this assessment, our own research identifies the need for a major overhaul of how the private sector’s money laundering standards are overseen. This includes low levels of sanctions against those found to have weak systems to defend against dirty money.

Importantly, FATF does highlight a number of areas where the UK can improve to address its ongoing role as a safe haven for illicit funds.

Corporate liability laws

The report notes that the UK’s legal system makes it difficult to achieve convictions for firms complicit in money laundering. This is in part due to the UK’s hesitancy to introduce a failure to prevent economic crime offence. This means there is a lack of credible deterrent to those firms turning a blind eye to dirty money.

Beneficial Ownership transparency

FATF also highlights that the UK has acted as a global leader in corporate transparency, adopting the first public beneficial ownership register. However, the report notes that information on the register is “sometimes inaccurate” as it is unverified – Companies House does not have the power to verify information submitted to it. This system is open to abuse by money launderers. Last year research by TI-UK found 766 UK companies involved in corruption and money laundering schemes amounting to £80 billion.

Approach to detecting and seizing high-end money laundering

FATF acknowledges, but understates a key issue preventing the UK from getting to grips with high-end money laundering –  the UK Government’s deliberate policy decision to limit the role of the UK Financial Intelligence Unit (UKFIU) in undertaking operational and strategic analysis. This has led to only 10% Suspicious Activity Reports (SARs) being reviewed by a human officer.

The limited role of the UKFIU calls into question the quality of financial intelligence available to investigators, contributing to the UK making limited progress investigating and seizing assets related to “high-end money laundering”. FATF notes that these types of investigation make up just 0.8% of the police’s total caseload.

So, what now? Despite the positive rating, the UK Government must not ignore the significant areas of weakness highlighted by the FATF report.

Here’s what we at Transparency International UK think should happen next:

1. The Government should extend the ‘failure to prevent’ approach to corporate offending beyond bribery and tax evasion to other economic crimes such as money laundering, to enable prosecutors to hold to businesses to account for their role in enabling dirty money being laundered through the UK.

2. The Government should empower Companies House to verify the data in the UK’s Persons of Significant Control register to prevent companies registered in the UK being used to launder illicit wealth.

3. The UK should use existing laws to act on unexplained wealth connected to corrupt individuals to address its poor track record in seizing stolen assets.

FATF’s report might make good reading for the UK Government, but it will offer little comfort to people round the world losing billions of pounds per year to corruption, only for it to end up in the UK financial system. The UK has made a good start towards addressing its £100 billion a year problem, but there remains much to do.