30 Jul 2020
For those that have long railed against the UK’s role as a global hub for money laundering and illicit finance, when it finally emerged last week, the Intelligence and Security Committee’s Russia Report did not disappoint. It contained a full house of elements that have led many to brand the UK and the City of London with the ignominious designation of ‘the money-laundering capital of the world’: ‘enablers’; ‘investor visas’; ‘estate agents’; ‘light and limited touch’ regulation; and ‘laundromat’ were all accounted for. Cue the inevitable cries of outrage from politicians, activists and advocacy organisations. And they are not wrong; as one MP, Margaret Hodge, noted on Twitter, ‘Russia Report confirms what we already knew’.
And here is the issue. Despite strengthening regulation, providing law enforcement with greater powers and co-opting a popular TV series, the UK is not noticeably turning the tide on the flow of illicit finance facilitated by its financial services industry. To some degree this is hardly surprising. The UK plays a dominant role in global finance; it will inevitably attract an outsized share of dirty money. Laundering millions of dollars anywhere but the largest of financial centres would attract instant attention. Yet New York, another global financial hub, does not suffer from the same reputation.
As the Russia Report notes, decisions taken over the past quarter century have allowed money with questionable provenance, to become entrenched and – in a very real way – shape the country we live in today, from the success of football clubs to the growth of cultural institutions and the public relations and law firms that service this wealth.
PROMISES AND HURDLES
Alarmingly, in its response to the report, the government says that ‘Post Salisbury, [it] made its intentions clear that [it would] crack down on dirty money in the UK’, which suggests that it took a nerve agent attack on UK soil for the government to realise that it needed to address its problem with illicit finance.
Yet one point above all others in the report demonstrates the magnitude of the challenge the country faces and suggests that the current approach is doomed to failure. Much has been made of the introduction in the UK of unexplained wealth orders (UWOs) and the potential these have for the UK to deter and reverse the flow of dirty money, a notion supported by the then Security Minister Ben Wallace in his evidence to the Intelligence and Security Committee (para. 119). The reality of the effectiveness of this tool, introduced by the Criminal Finances Act in 2017, is less inspiring. As Lynne Owens, the director-general of the National Crime Agency (NCA) noted in her evidence to the committee, to disprove the explanation provided by the target of a UWO is highly complex and challenging for the NCA, particularly when the funds in question have been in the UK for many years (para. 119).
Furthermore, those subject to their potential application often have far bigger legal and financial guns at their disposal than the NCA. This led Owens to the candid assessment that she is ‘concerned about the impact on [the NCA’s] budget’, a point amply illustrated by the recent legal bill presented to the NCA following the failed attempt to apply UWOs to London properties linked to a Kazakh family.
This commentary does not reflect on the judgment for that case. However, more generally, many of those that activists and MPs would like to see taken down by the UK’s law enforcement agencies for sequestering dirty money in the country are simply too entrenched and have too many resources at their disposal. This is not a defeatist position but it is the current reality.
In the face of such challenges, should the country therefore give up? Of course not. The reputational damage to the UK – let alone the social impact – justifies a concerted increase in effort to identify and deter not just dirty Russian money that surges through the UK’s financial system but illicit funds from all corners of the globe that are channelled to, and via, the UK.
But this is not an effort that can be built on soundbites and parliamentary rhetoric, particularly the oft-cited 2018 UK review by the global financial crime watchdog, the Financial Action Task Force (FATF), which is repeatedly used by the government to endorse the country’s current response on the basis that the UK has ‘some of the strongest controls in the world’. If, despite this commendable characterisation by the FATF, the UK continues to lose the battle against dirty money, then it is surely time to rethink the approach to tackling illicit finance in the UK.
This is not to argue against the need for greater and faster progress on strengthening and investing in current responses: important and overdue systemic failings such as the weakness of Companies House must be fixed; the Registration of Overseas Entities Bill that would reveal foreign ownership of UK property, moribund for over a year, must be enacted; and law enforcement, notably the NCA, the National Economic Crime Centre and Regional Economic Crime Units must be properly and sustainably funded to play the dedicated, high-tempo role that the government needs them to play.
A BROADER, INTEGRATED RESPONSE
Yet there is another dimension to this mission that appears entirely absent. The Russia Report brings home the fact that there is as much to fear from licit flows put to illicit use as there is from the flow of illicit funds alone – money and its influence run as a thread throughout the report. Simply viewing this problem through an economic crime lens is inadequate.
The government’s response to the Russia Report states that it continues to ‘bring the full capabilities of law enforcement to bear against serious criminals, corrupt elites, and their assets’; yet little impact has been made. If the country is going to stand any chance of identifying and confronting illicit finance, it needs to place intelligence at the heart of its response. Dirty money – and legitimate funds entering the UK in support of activity aimed at undermining parliamentary democracy – threatens national security; and the proceeds of organised crime and corruption arriving in or leaving the UK likewise threatens national security in countries across the globe. However, unlike other members of the global Five Eyes intelligence community, the UK has no system in place to monitor funds flowing into and out of the country. Thus, on top of a greatly enhanced law enforcement capacity, the UK needs to develop a national security dimension that is appropriately resourced to meet this threat.
The current Integrated Review assessing the future of the UK’s security capability offers an opportunity to radically reshape the government’s response. The Russia Report refers extensively to the capabilities of the UK’s intelligence community, but one facet, financial intelligence, is missing.
Initiatives such as those of GCHQ supporting efforts to disrupt organised crime and the Joint State Threats Assessment Team at MI5 need to be boosted and supplemented to develop a meaningful and dedicated financial intelligence capability. Threat finance as a concept needs to be as woven into the UK national security strategy as it is into the activities of those that seek to harm the UK and abuse its financial services. Only when it starts to treat finance as a genuine national security threat, developing a strategic, intelligence-led as well as operational response, might the government start to live up to its hollow claim ‘that tackling illicit finance and driving dirty money and money launderers out of the UK is a priority’.
By Tom Keatinge, RUSI, 28 July 2020
Read the original article at RUSI
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