News 20th Oct 2015

A Golden Opportunity to Tackle Corruption Through the Tier 1 Investment Visa Scheme?

Nick Maxwell

Nick is the former Head of Strategic Engagement for TI-UK.

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Our latest research paper on corrupt capital flows into the UK, “Gold rush: Investment visas and corrupt capital flows into the UK” published today, highlights that substantial amounts of corrupt wealth stolen from China and Russia are highly likely to have been laundered into the UK through the UK’s ‘golden’ visa programme. This follows our work earlier in the year on laundering corrupt money through UK property, the shortcomings in the system for questioning suspicious unexplained wealth and our broader campaignto#unmaskthecorrupt.

In this report, we reveal that £1.88bn of Chinese and Russian private investment has been channelled into the UK through the golden visa scheme, but that the money laundering checks on these investments have been inadequate.

In return for £2m of qualifying investments, a foreign investor can receive a UK golden visa and, after five years, permanent residency in the UK. Our analysis shows that, out of 3,048 golden visas granted by the UK and 3.15bn of total investment flows into the UK through golden visas since the scheme began in 2008, 60% of visas been awarded to Chinese and Russian nationals.

Chinese and Russian official estimates of the massive scale of criminal and corrupt money laundered out of their jurisdictions, and the relatively open opportunities to launder wealth through the UK Tier 1 Investor scheme during the period from June 2008 to April 2015 in particular, is a reasonable basis for concern that the UK’s Tier 1 Investor programme has attracted corrupt Russian and Chinese high net worth individuals.According to the Chinese Central Bank, £82bn of suspected corrupt wealth has been laundered out of China and placed under criminal investigation by Chinese authorities since April 2015. The Russian Central Bank has estimated that annual outflows of illicit money from Russia could be as high as £31bn.

The Tier 1 Investor scheme is characterised by a lack of effective, up-front and transparent checks on Tier 1 Investor visa applicants by the UK authorities. If illicit money has entered the UK economy through the golden visa scheme, there are also widespread doubts as to whether  the UK’s system of anti-money laundering checks can be relied on to ensure that suspicions of money laundering of corrupt wealth are reported and acted upon in an effective manner. According to the Government’s own assessment, the UK’s anti-money laundering system has significant weaknesses in its supervisory structure and in terms of the level of compliance and reporting standards across relevant private sectors. Despite the risks, TI-UK reveals in this report that there are no investigations by UK law enforcement targeted at  UK money laundering of the proceeds of corruption stolen from China and Russia.

We put forward 10 recommendations to help establish greater integrity and transparency in the Tier 1 Investor visa scheme, improve mechanisms for international cooperation to identify and recover corrupt assets, and improve law enforcement capacity and the effectiveness of AML supervision in the UK.

But what does this mean for China and the UK in particular, given the context of the State Visit this week?

Undoubtedly, more needs to be done to support the recovery of corrupt assets from corrupt Chinese officials located in the UK.

A major barrier for effective investigations between China and the UK has been Chinese capital punishment for corruption offences. UK law enforcement authorities should never support investigations without explicit guarantees that the investigation will not result in capital punishment. There is also a risk that asset recovery from the UK to China may in some way be compromised by further corruption once repatriated, which could undermine political support for the recovery of corrupt assets in the UK more generally.

However, we believe that the UK Government should work with countries to achieve ‘accountable’ and transparent asset recovery against corrupt fugitives in the UK. Given the dominance of Chinese investors in the UK’s “golden visa scheme” and the anti-corruption context in China, the UK should look to develop a model asset recovery agreement with China. This should enshrine protection against capital punishment, effective intelligence sharing, civil recovery, and accountable and transparent asset repatriation at the heart of a joint commitment to tackle corrupt Chinese fugitives residing in the UK. This model asset recovery agreement can build on the Chinese asset recovery agreements with Australia and the US.

Money laundering of the proceeds of grand corruption is not unique to the UK, and a number of other major global financial and real estate investment centres are both vulnerable and attractive to the corrupt. However, the UK is well placed to lead international efforts to recover the proceeds of grand corruption, using its position as a leading global financial and luxury goods centre, the quality and expertise of its law enforcement agencies and the reach of its civil jurisdiction. Let’s see if the UK uses the Chinese State visit to make progress on the Prime Minister’s vision of a UK that is free from dirty money.

To read and download the publication, click here.