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Panama Papers expose UK role in global corruption

Written by Rachel Davies on Thursday, 14 April 2016


This article was first published in The Observer on 10 April 2016.


The Panama Papers confirm what has long been suspected – that the UK plays an extensive role in facilitating global money laundering and corruption. When corrupt individuals steal public funds, they need to find a safe place to hide them. The UK is a prime destination.

Of 214,000 corporate entities exposed, 113,000 were registered in the BVI, a British overseas territory. 1,924 UK professionals worked with Mossack Fonseca to manage the companies.

So why here? The UK is a global financial centre with links to offshore secrecy havens and a plethora of ways to buy a luxury lifestyle and gain respectability.

Investing corrupt funds into assets such as UK property is a safe bet. Rising house prices ensure a secure investment, and if you use a BVI company to hide your identity then the layers of secrecy facilitated by the offshore company structure will prevent law enforcement from discovering who you really are.

Transparency International research identified 36,000 London properties owned by secretive companies. Not even the Land Registry knows who owns these homes. Were all those houses bought using illicit money? Probably not, but the rules create an environment where the corrupt can easily hide. Potentially, money stolen from healthcare and education budgets is finding fertile ground in UK property. It’s not good news for Londoners either. The NCA has stated that an influx of laundered money is driving up prices.

The May Anti-Corruption Summit provides a crucial opportunity for the UK to get its own house in order. The Prime Minister has come under increased scrutiny this week, so what he does next is critical. Last year he said the UK would not be a haven for dirty cash. The rhetoric is good, but if there really is political will to back up the words then substantial action must follow.

Here are ten things that the Prime Minister should aim to achieve at the Summit:


Ensure the UK’s Overseas Territories and Crown Dependencies reveal who really owns the companies registered on their shores

These jurisdictions have committed to implement centralised registers of company ownership or ‘similarly effective systems’. This simply isn’t enough. The Panama Papers show the power of an inquisitive civil society with access to information, which is why having public centralised registers of the true owners of companies is essential to root out corruption. There should be nowhere for the corrupt to hide. The Overseas Territories and Crown Dependencies are within the UK’s control – The Prime Minister should make his move, as well as pressing for a global central register of true ownership once he can prove he has made real UK progress.

Root corrupt money out of UK property and reveal true holders of the keys to UK homes

The files include the details of 2,800 secret companies, or “vehicles”, linked to 6,000 title deeds worth over £7bn in the UK.  Historical data from UK law enforcement has confirmed that these anonymous companies are the main vehicles used by corrupt individuals to launder illicit funds into the UK property market. Overseas companies should declare who really owns them before purchasing UK property.

Act on unexplained wealth by increasing the capabilities of the UK to seize corrupt funds

Amidst allegations of corruption and exhibiting suspicious wealth, those with connections to public office, such as Alaa Mubarak or the family of the Azeri President, should be subjected to high levels of scrutiny by law enforcement when purchasing property via secret companies. A civil mechanism like unexplained wealth orders would require those with suspicious wealth seeking to acquire assets to explain the source of this wealth and prove its legality.

Develop accountable asset recovery agreements with cooperative jurisdictions

The papers have highlighted assets relating to at least one individual who is already on trial for corruption charges. If he’s convicted and UK law enforcement seize his assets, then they need to be sure that any repatriated funds aren’t stolen again. This can be achieved through an open and transparent asset repatriation process.

Overhaul the UK’s Anti-Money Laundering (AML) system

1,924 UK-based firms and individuals – known as “professional enablers” – helped Mossack Fonseca establish webs of opaque corporate structures for its clients. Many of these will be subject to the UK’s anti-money laundering rules. However, the system for monitoring and enforcing these rules is a messy patchwork of 27 regulators with varying levels of capability, capacity and competence. This results in questionable checks being undertaken by professional enablers. Consolidation is needed if the UK is to close the door to the billions of estimated illicit funds flowing through the system.

Ensure adequate levels of enforcement against money laundering and corruption

When AML supervisors do find wrongdoing, they need to make sure their enforcement actions provide a sufficient enough deterrent to stop future wrong doing. They also need to be proactive in identifying where corrupt money is being moved through the UK. The Financial Conduct Authority has the best track record out of all of the current supervisors, and its recent letter to 20 banks requiring them to investigate their relationship with Mossack Fonseca within a week shows a sense of urgency about the leaks. However, other regulators don’t appear to have been as quick off the mark. For example, HMRC do not appear to have highlighted to those it regulates, including estate agents, that the leaks have implications for money laundering checks, with their response being limited to worries over tax evasion. Likewise, enforcement authorities need proper resourcing. Recent budget cuts to the SFO are of concern, as is recent news that it could be about to lose its independence.

Prosecute and de-license professional enablers

Whatever happens next, all AML supervisors need to show that they’re able to take robust action to deter involvement in money laundering schemes, for example, by de-licensing professional enablers and swiftly passing on any potential criminal allegations to law enforcement.

Prevent UK golden visas opening the door to the corrupt

Corrupt individuals can use the UK’s Tier 1 (Investor) visa system to secure residency in the UK. If you invest £10 million into the UK economy, you can be awarded permanent residency within 2 years. Evidence suggests that between 2008 and 2015, neither the banks nor the Home Office conducted checks on the legitimacy of the money invested through the system. The Panama Papers involve numerous high net worth individuals, some of whom may have obtained their funds illicitly and could have obtained a visa during this period. However, because of a lack of transparency about successful applicants to this visa system we have no idea whether this is the case. There needs to be greater transparency about those applying for Tier 1 (Investor) visas, and retrospective checks on those who have already been admitted through the scheme.

Get the UK’s house in order

If the UK is to talk credibly to the rest of the world on corruption, it needs to get its own house in order – not just on AML, but on the type of corruption that usually goes hand in hand with the need to hide assets.  That means addressing difficult issues at home such as corruption in politics, the police and local government.

Develop a National Anti-Corruption Strategy

These actions will take time and they cannot happen in a vacuum. The UK has a national Anti-Corruption Plan, published in December 2014.  Now is the time for a coherent, long-term, National Anti-Corruption Strategy.


For more information on global anti-bribery and corruption best practice visit our free-to-use online Global Anti-Bribery Guidance Portal


Read 640 times Last modified on Thursday, 07 March 2019 13:57

Rachel Davies

Rachel Davies Teka is Head of Advocacy at TI-UK, and co-chair of the Bond Anti-Corruption Group. You can tweet her @rachelcerysd.

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