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Monday 1 October 2018
Professional Foul
By Richard Brooks

Richard Brooks is a journalist with Private Eye magazine and author of Bean Counters: the Triumph of the Accountants and How They Broke Capitalism
It’s time that the west’s leading lawyers and accountants cleaned up their anti-money laundering act.


The methods and consequences of money laundering out of the former Soviet Union are increasingly well-documented. First the money is stolen, often through corrupt contracts signed by well-connected oligarchs controlling state-controlled enterprises. Then it’s siphoned through banks in satellite countries and, finally, converted into luxury and property in cities such as London.


Less examined is the role of the professionals who ought to act as gatekeepers in this process. Auditors, for example, should be highlighting the material levels of corruption in large companies’ businesses. As they should when the banks sending the proceeds round the world become substantially money laundering operations. Then, when the beneficiaries invest the loot in prime London property, the UK’s most expensive lawyers should be checking that they’ve acquired the cash legitimately.


Yet, with hundreds of billions sloshing through this system, much of it successfully finding its way into the UK, it’s clear that the system isn’t working. In a recent report for Private Eye magazine, Looting with Putin, I set out the failures at each stage. Despite the enormous scale of ‘related party’ transactions stripping money out of major Russian companies such as Gazprom, auditors say not a word. The only meaningful example of the bean counters objecting to a company’s accounts came when PwC was pressured into withdrawing a decade of clean audit certificates for oil company Yukos, as part of the Kremlin’s battle with its jailed owner Mikhail Khodorkovsky.


The acquiescence of the auditors in the face of corporate corruption reflected the reason they had ventured into the region at the start of the 1990s: money. As the leading partner at KPMG Moscow, sitting in an office taken over from the Communist party, put it at the time: “This is a huge market”. By the 2000s all the Big 4 firms were reporting double-digit annual income growth in the region, much of it from consultancy and the corporate finance deals (from which the west’s elite law firms were also benefiting handsomely).


Just as importantly, the Big 4 were stamping their highly-valued seal of approval on the banks that were now whisking the cash away. The most egregious ones were a new generation of so-called “non-resident” banks springing up in Latvia. Many of them became little more than money laundering operations, later exposed in a series of “laundromat” revelations from the Organized Crime and Corruption Reporting Project. Yet, despite plentiful red flags and, in the case of Parex Banka in Latvia evidence presented by a well-placed whistleblower directly to auditors EY, the accountants signed off all these banks’ accounts without mentioning the risks of serious money laundering.


Only in Ukraine did the auditors face any consequences. Last year PwC was banned from auditing banks in the country after overlooking rampant fraud. Corporate investigators estimated 95 percent of loans to have been made to ‘related parties’ with money coming in from “very extensive use of special purpose vehicle companies based in offshore jurisdictions”. Long after it became widely known that these were invariably used for money laundering, the auditors still signed clean audit certificates.


And while the Big 4 may seek to characterise scandals abroad as matters for the local firm, the arms of their firms performing the audits were integral part of global firms, managed as part of regional structures that were overseen by the most senior partners in the UK and US. Some of them weren’t shy of schmoozing Vladimir Putin’s government in pursuit of the business.


When it comes to enjoying their ill-gotten gains, the oligarchs are often helped by some of Britain’s leading lawyers. Transparency International estimates conservatively that £4.2bn of UK property has been acquired from suspicious wealth, much from the former Soviet countries and sometimes by obviously corrupt figures. Most of the property is owned through secretive offshore shell companies, with Land Registry records showing that a number of high profile law firms are helping hundreds of wealthy individuals use this structure.


Guidelines for British lawyers on applying anti-money laundering laws ask them to consider before taking on business whether “jurisdictions in which your clients, or the beneficial owners of your clients, are based… have deficient anti-money laundering legislation… high levels of acquisitive crime or higher levels of corruption [and/or] are considered to be ‘offshore financial centres’ or tax havens”. Whether the lawyers are always honouring these obligations must be seriously open to doubt.


It is no exaggeration to say that without the assistance of the world’s leading accountancy and law firms the international laundromat would not work with such devastating efficiency. A review of the rules governing the leading professionals’ anti-money laundering obligations, and whether they are following them, is urgently needed.


Transparency International has been fighting corruption around the world for a quarter of a century. As we turn 25 we’re asking what does corruption look like in today’s tumultuous world, and importantly how we can best fight it? For this blog series we’ve canvassed opinion from some of the leading voices in the anti-corruption world and will be sharing those here. Views expressed on this blog do not necessarily reflect those of Transparency International and where possible we encourage robust discussion and debate.


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