International Development CommitteeSupplementary written evidence submitted by The Department for International Development (DFID)

Tackling the Illicit Flow of Assets into the UK

As a leading global centre for financial and legal services, the UK is a significant target for attempts to launder criminal proceeds obtained through corruption overseas. This can take any number of forms including acquisition of property in the UK, payment of private school fees in the UK or bank transfers via the UK to other financial centres.

There is no consensus on the size of total illicit flows from developing countries into the UK but there is little doubt that stemming such flows and tackling the underlying problems is critical for developing countries both in economic terms and the governance impact associated with the elites that benefit.

HMG Strategy on Tackling Corruption from Developing Countries

There has been progress in tackling the problem of illicit flows from developing countries. Politically exposed persons (PEPs)—those in public positions and at risk of being corrupted—are the focus of a cross-Whitehall “Politically Exposed Persons Strategic Group”. This group brings together the key government ministries and agencies to co-ordinate UK strategy and action in relation to PEPs. The HMG strategy and the roles of the ministries and agencies are set out in a policy document “Combating Money Laundering by Politically Exposed Persons” (attached as an Annex).

DFID Support to UK Law Enforcement

DFID has been providing support to UK law enforcement since 2006 to tackle money laundering from developing countries. Since 2006, the Department has supported two police units—the Metropolitan Police Service Proceeds of Corruption Unit and the City of London Police Overseas Anti-Corruption Unit. In 2011, the Department extended funding support to the Crown Prosecution Service Asset Recovery Team and plans are in progress to fund an enhanced intelligence cell in the Serious Organised Crime Agency. The total cost since 2006 has been in the region of £6million.

The following table showing figures from 2006 to June 2012, shows the current level of assets “restrained, recovered or returned”. Assets that are “restrained” means assets under a restraint order under the Proceeds of Crime Act; “recovered” assets means assets recovered or confiscated following a trial and a confiscation order; and assets “returned” means assets which have been returned to developing countries.

The figures in the table change regularly as more assets are restrained; or as the assets are re-valued at various points in the criminal process.

ASSETS RESTRAINED RECOVERED AND RETURNED 2006–2012 (IN £S)

	Identified for restraint	Restrained	Confiscated/Forfeited	Returned/Recovered
Met Police		63,013,000	11,508,000(a)	1,295,000(c)
City of London Police Overseas Anti-Corruption Unit	6,750,000	4,750,000	11,250,000(b)	64,000(d) 35,000(e)
SOCA		61,000,000 19,000,000
Civil recovery				12,400,000(f) (recovered)
Total	6,750,000	147,763,000	22,758,000	13,794,000

Notes

(a)Includes:

Forfeited funds of £1,115,000 ( £1,000,000 relates to the DSP Alamieyeseigha case—returned to Nigeria; and £115,000 relates to the Joshua Dariye case, also returned to Nigeria);

Funds under Confiscation Orders amounting to £10,393,000; of which the following has been collected: £180,000 related to Joyce Oyebanjo in the Dariye case (that was returned to Nigeria); £3,253,346 in confiscation cases relating to the James Ibori; and £543,000 that does not relate to PEP corruption.

(b)£11,250,000 from Macmillan’s Publishers civil disposal with SFO.

(c)Funds included in the Confiscated/Forfeited column that have been returned.

(d)Returned to Costa Rica.

(e)Returned to Uganda.

(f)Recovered UK property transferred to ownership of Nigerian Government.

Total of assets restrained, confiscated or forfeited (Total of columns 2 and 3)	£170,521,000
Total assets recovered or returned (Column 4)	£13,794,000

The cases that are completed and where money has been returned are:

Metropolitan Police Cases:

Alamieyeseigha case: £1,000,000 has been returned to Nigeria.

Joshua Dariye case: £115,000 has been returned to Nigeria;

Joyce Oyebanjo: £180,000 has been returned to Nigeria (Oyebanjo was an associate in the Dariye case).

City of London Police cases:

£35,000 has been returned in the Ugandan case of Chemical, Biological, Radiological, Nuclear (CBRN) Team Ltd. The defendants were Tumukunde (from Uganda) and Tobiasen (from UK, now deceased).

US$100,000 has been returned in the Costa Rica case, a joint case with the SFO against Pearson Webb Springbett International Ltd (PWS) The UK defendant was called Messent.

It should be noted that it is a long process to restrain and recover assets and so most of the biggest cases, including the cases of James Ibori and associates, are not yet complete. It is not possible to provide a breakdown of amounts relating to cases such as these, which are going through a judicial process.

June 2012

COMBATING MONEY LAUNDERING BY POLITICALLY EXPOSED PERSONS

HM Government

HM Government’s Perspective on Combating Money Laundering by Politically Exposed Persons

This document outlines HM Government’s commitment to tackling money laundering by “politically exposed persons” (PEPs). PEPs include senior public officials, their families and close associates. The aim of the document is to highlight the importance of effective PEP controls, to set out Government’s objectives and to explain the role of key public sector organisations involved in combating money laundering by PEPs.

The content is relevant to UK Anti-Money Laundering (AML) supervisors; industry bodies; senior managers, money laundering reporting officers (MLROs) and staff in the regulated sector. Other organisations involved in anti-money laundering and asset recovery, within the UK and internationally, may also find this document informative.

The document is structured as follows:

1.Why are PEPs high risk customers?

2.What are the UK’s international obligations?

3.What are the obligations for regulated firms in the UK?

4.How is the Government helping to tackle money laundering by corrupt PEPs?

5.Appendix: members of the PEPs Strategic Group:

Glossary of Key Terms

AML	Anti-money laundering
CPS	Crown Prosecution Service
FATF	Financial Action Task Force
PEP	Politically exposed person
PoCU	Metropolitan Police Service Proceeds of Corruption Unit
SAR	Suspicious activity report
SOCA	Serious Organised Crime Agency

1. Why are PEPs high-risk customers?

Politically Exposed Persons (PEPs) hold prominent public functions1. As a result of these positions PEPs are vulnerable to corruption, possessing the capacity to misuse their power, divert funds for their own benefit or take bribes. Although the majority of PEPs undertake legitimate business, a corrupt minority make this a high-risk category of customer for money laundering. In certain cases, business undertaken by corrupt PEPs will also be associated with organised crime or the drugs trade.

As a leading global centre for financial and legal services, the UK is a significant target for attempts to launder criminal proceeds obtained through corruption overseas. Previous cases have shown that UK financial institutions have been used as repositories for stolen funds from a number of countries across Asia, Africa and the Americas.

The UK has a robust legislative framework to deter, detect and disrupt money laundering and other financial crime. This includes regulations providing for enhanced due diligence procedures designed to mitigate exposure to the risk from corrupt foreign PEPs. It is important that the regulations, and the corresponding policies and procedures employed by firms, adapt to remain relevant to changing risks. There is a potentially significant risk for individual firms’ reputations, and more widely the UK marketplace, if risks from corrupt PEPs are not managed in an appropriately robust way.

Corruption by PEPs is not a “victimless” crime. Corruption undermines political systems leading to instability and potentially growth in organised crime, which can impact on all countries. In developing countries corruption hurts the poor disproportionately by diverting funds intended for development: limiting resources for health and education; discouraging foreign investment; distorting governance and accountability mechanisms; leaving the environment vulnerable to exploitation; undermining human rights.

No sector is immune from exploitation by corrupt PEPs and their associates seeking to steal and launder illicit funds. High risk sectors, products, transactions and countries of origin are likely to change in response to factors as effective deterrence & political shifts.

2. What are the UK’s international obligations to tackle PEPs money laundering?

The Government is at the forefront of international anti-corruption efforts and has a comprehensive anti-money laundering regime. The UK was a founding member of the Financial Action Task Force (FATF), the international body that develops global standards to combat money laundering. The UK also works with partners in the FATF and FATF-style regional bodies to encourage all countries to effectively implement the FATF standards. The UK was one of the first countries to have ratified the UN Convention Against Corruption, the first global anti-corruption treaty.

The FATF standards include special requirements for enhanced due diligence relating to PEPs, outlined in box 1 below.2 The legislative framework for money laundering in the UK is set by the Money Laundering Regulations 2007 (“the Regulations”) and the Proceeds of Crime Act 2002.3 The 2007 Regulations include specific provisions on foreign PEPs, based on the FATF recommendations and the Third EU Money Laundering Directive.

Note on FATF Recommendations

FATF’s 40 recommendations on money laundering include customer due diligence measures that financial institutions and designated non-financial businesses and professions should take when establishing a business relationship with a customer or carrying out transactions. Identifying and verifying the identity of the customer and the beneficial owner; obtaining information about the purpose and nature of the business relationship and ongoing monitoring are part of these customer due diligence measures.

The additional requirements for PEPs, within FATF Recommendation 6, are to:

(a)have appropriate risk management systems to determine whether a customer is a PEP.

(b)obtain senior management approval for establishing business relationships with PEPs.

(c)take reasonable measures to establish the source of wealth and source of funds.

(d)conduct enhanced ongoing monitoring of the business relationship.

3. What are the obligations for regulated firms in the UK?

The UK operates a risk-based approach to customer due diligence checks that requires enhanced procedures in high-risk situations, such as when customers are not physically present, or where the client is a foreign PEP. Every regulated business has a statutory AML supervisor under the 2007 Regulations. Several supervisors and industry groups have produced detailed guidance for firms setting out good practice and explaining how to apply risk-based approach in their sector.4 A simplified overview of PEPs-specific obligations is outlined in box 2 below.

Regulated firms are required to implement equivalent customer due diligence and record keeping measures across their entire group (ie in all branches and subsidiaries including those located abroad), unless local laws prohibit it. If this is the case they are required to inform their supervisor.

Regulated firms also have to comply with suspicious activity reporting requirements under the Proceeds of Crime Act 2002 and the 2007 Regulations. Businesses and their employees must disclose information to the Serious Organised Crime Agency (SOCA) via a suspicious activity report (SAR) when they have reasonable grounds to suspect that someone is engaged in money laundering or terrorist financing. SOCA advises firms to use the glossary of terms to highlight within the “reason for suspicion” if the suspicions relate to a proven or suspected PEP5.

Overview of requirements relating to PEPs AML

Senior managers and MLROs (“nominated officers”):

Assess the firms risk from PEPs money laundering and ensure that the firm has appropriate risk-based procedures in place to identify PEPs.

Ensure staff are aware of AML requirements through regular training, including PEPs AML (risk sensitive basis).

Ensure that senior managers are required to approve new relationships with PEPs.

MLROs to review internal SARs, including PEPs SARs, and submit to SOCA.

Staff managing client relationships:

Be aware of the firm’s risk assessment and AML controls, including PEP provisions.

Carry out enhanced due diligence on PEPs, on a risk sensitive basis.

Gain approval from senior management for establishing a business relationship with a PEP.

Take reasonable steps to establish the source of wealth and source of funds.

Conduct enhanced ongoing monitoring.

Submit PEPs SARs to the MLRO where there are reasonable grounds for suspicion.

What happens to SARs when they are submitted?

SARs are processed by SOCA’s Financial Intelligence Unit (FIU) and added to the Elmer database, which is accessible to law enforcement authorities.6 SARs which can be identified as relating to money laundering amongst PEPs are passed on to the Metropolitan Police Service Proceeds of Corruption Unit (PoCU) for further investigation. Where investigations lead to evidence capable of leading to prosecutions the PoCU will work closely with the Crown Prosecution Service (CPS), which has responsibility for prosecution and ultimately asset recovery through confiscation.7

Objectives

How is the Government helping to tackle money laundering by corrupt PEPs?

HM Government aims to make the UK a hostile environment for corrupt PEPs. Specific PEPs investigation capacity was established within the Metropolitan Police Service Proceeds of Corruption Unit in 2006. With the support of SOCA and the CPS, over £160 million of assets has been frozen and £20 million recovered.

Ken Clarke, the Ministerial Anti-Corruption Champion, is the overall lead on government efforts to fight international corruption, of which the anti-money laundering regime is an integral component.

Government departments, public sector bodies and law enforcement agencies are working together to achieve the objectives 1–4 below:

Objective 1: To Establish an Effective Deterrent Against Corrupt PEPs Money Laundering through Improved Intelligence Capability

Government is working to promote greater collaboration both across law enforcement agencies and between law enforcement and industry, to improve the sharing of information relating to the risk of corrupt PEPs. This information will be analysed in conjunction with SARs and international intelligence sources.

Improved intelligence should strengthen knowledge of the sectors, products, services and countries at highest risk from attempts to launder proceeds of corruption by PEPs.

Objective 2: To Optimise PEPs Suspicious Activity Reports (SARs)

SOCA is dedicated to continually improving the SARs regime. As part of this there is a focus to specifically optimise the quality of reporting on PEPs-related suspicion through improved feedback to reporting sectors. SARs which include a full explanation of the grounds for suspicion enable law enforcement to prioritise resources efficiently and to continue to build understanding of PEPs risks.

It is widely recognised that identification of suspicious PEPs is a challenge for reporting entities. SOCA will work with supervisors and sector representatives in order to develop sector specific messages to facilitate identification, such as trends, warning signs and indicators.

The Government does not intend to compile a universal list of PEPs as a risk-based approach to identification offers a more targeted, effective and sustainable approach.

Objective 3: To Maximise the Recovery of Stolen Assets in the UK

The Government is pursuing opportunities for increasing the Metropolitan Police’s investigation capacity and to enable the CPS to take further action against those who seek to hide the proceeds of corruption in the UK.

The UK is leading a project within the FATF to identify the obstacles to cross-border confiscation and asset recovery. This is closely linked to the work being carried out through the World Bank’s Stolen Asset Recovery (STAR) initiative.8

The NPIA chairs the International Criminal Finances Working group to identify obstacles to cross border financial investigation and asset recovery. This identifies capacity building of AML regimes overseas as key to support international financial investigations. DFID is also supporting the International Centre for Asset Recovery to support developing countries develop capacity in this area.

Objective 4: To Maintain an Effective and Proportionate Legal and Regulatory Environment

The Government continually seeks to improve the regime. In line with this, the UK is conducting a review of the effectiveness and impact of the Money Laundering Regulations 2007, which includes consideration of the risk-based approach and measures relating to PEPs.

The Government also regularly engages with a range of partners and stakeholders on further enhancements to UK defences. For example, the Money Laundering Advisory Committee (MLAC), chaired by Home Office and HM Treasury, includes AML supervisors, industry representatives and law enforcement agencies. MLAC works to ensure that AML measures are effective and proportionate. The AML Supervisors’ Forum, comprising the 28 UK money laundering supervisors, also meets quarterly. This aims to spread best practice between supervisors, and to highlight general and industry specific risks and trends.

Identifying innovative approaches including use of visa bans and civil action.

Government activities to achieve the objectives above are co-ordinated via the PEPs Strategic Group, a cross Whitehall stakeholder forum including law enforcement agencies and the FSA. The members of this group and their roles specifically relating to PEPs anti-money laundering are described in the Appendix.

Roles and Responsibilities of Government Departments and Key Public Sector Bodies Relating to PEPs Anti-Money Laundering

These organisations are members of the PEPs Strategic Group.

a) Key policy stakeholders

Her Majesty’s Treasury www.hm-treasury.gov.uk	HM Treasury oversees the UK’s anti-money laundering strategy and is responsible for implementing AML Regulations. Treasury and Home Office co-chair the Money Laundering Advisory Committee (MLAC), a high level strategic forum of Government, industry and law enforcement representatives. Treasury liaises directly with AML supervisors via its Supervisors’ Forum. Treasury also leads the UK delegation to meetings of the FATF and works within the FATF and FATF-style regional bodies to encourage all countries to effectively implement international standards on anti-money laundering.
Department for International Development (DFID) www.dfid.gov.uk	DFID manages Britain’s aid to poor countries to reduce global poverty. It works to maximise the impact of aid, including helping build effective and accountable states. As lead department for UNCAC, DFID is responsible for ensuring that the UK’s international commitments are fulfilled. DFID therefore acts as the Secretariat for the PEPs Strategic Group, and promotes co-ordinated action amongst its members.
Home Office www.homeoffice.gov.uk	The Home Office is the lead department for primary legislation such as the Proceeds of Crime Act. Treasury and Home Office co-chair the Money Laundering Advisory Committee (MLAC), a high level strategic forum of Government, industry and law enforcement representatives.

(b) Key operational stakeholders

Serious Organised Crime Agency (SOCA), UK Financial Intelligence Unit (UK FIU) www.soca.gov.uk	SOCA is responsible for management of the SARs regime, including issuing feedback on SARs to reporting entities. The FIU gets over 200,000 SARs every year, which are processed and disseminated to other law enforcement agencies. SOCA liaises with AML supervisors via the Supervisors’ Forum (chaired by HM Treasury). SOCA delivers direct feedback to reporting entities via the SARs annual report, intelligence alerts and mainstream communication under the “Payback” banner. The International and PEPs Unit within the FIU liaises with international FIUs via the Egmont Group. SOCA also investigates some international asset recovery cases, depending on the source of intelligence and predicate offence. Most PEPs related investigations are led by the PoCU.
Metropolitan Police Service, Proceeds of Corruption Unit (PoCU) www.met.police.uk	PoCU was established in 2006 to combat money laundering in the UK by PEPs and their associates. Investigations are driven by PEPs-related SARs from SOCA and other intelligence. PoCU investigations have identified activity common to different cases including the use of regulated professions. PoCU conducts parallel investigations with the jurisdiction where the offence(s) occurred and with other jurisdictions that may have been used to hide the origins of corrupt assets. This includes providing advice and support to “victim” jurisdictions. PoCU is part of the International Corruption Group, part-funded by DFID, which also includes the City of London Overseas Anti-Corruption Unit (OACU). OACU focuses on foreign bribery by UK businesses and nationals.
Crown Prosecution Service (CPS) www.cps.gov.uk	CPS is responsible for public prosecution of people charged with criminal offences in England and Wales. A team in the Central Confiscation Unit works on overseas corruption cases. International Policy Unit works on capacity building overseas.

(c) Additional members of the PEPs Strategic Group

Department for Business, Innovation and Skills (BIS, formerly BERR), Anti-Corruption Unit www.berr.gov.uk (redirect)	The Anti-Corruption Unit (ACU) provides guidance to UK business on bribery law and in managing the risks of international corruption, working with UKTI on country-specific issues. It promotes best practice standards for avoiding bribery and support Government procedures to safeguard public money from being tainted by contact with international corruption. Internationally, the ACU represents the UK at the OECD Working Group on Bribery and supports DFID in taking forward the UN Convention Against Corruption. BIS ACU also supports the Ministerial Anti-Corruption Champion to oversee all cross government anti-corruption initiatives.
Her Majesty’s Revenue and Customs (HMRC) www.hmrc.gov.uk	HMRC has a dual role:
	(a)	as supervisor under the MLR 2007: to register and maximise compliance for money service businesses, high value dealers and other defined businesses;
	(b)	as a law enforcement agency to investigate and take action against businesses failing to comply with the regulations.
City of London Overseas Anti-Corruption Unit (OACU) www.cityoflondon.police.uk	OACU was established to investigate foreign bribery by UK businesses and nationals. Funded by DFID, OACU works closely with SFO and international counterparts.
Serious Fraud Office (SFO) http://www.sfo.gov.uk/	SFO is the focal point for receiving any allegations of corruption offences by UK nationals or incorporated bodies overseas. It maintains a register for overseas corruption cases. Holds information on financial pathways used by PEPs/intermediaries. SFO undertakes the investigation and Prosecution of Corruption and is assisted by and works closely with LEA’s both in the UK and Overseas. It works with the ACPO lead force on Corruption, City of London OACU, other Police forces (including Ministry of Defence police) , HMRC and other government departments in combating Corruption both overseas and domestically.
Foreign and Commonwealth Office (FCO) http://www.fco.gov.uk/	The FCO has a number of priorities of relevance for asset recovery work. These include ensuring the good governance of the UK’s Overseas Territories. The FCO can also provide local knowledge and contextual information on political situations within countries and regions.
UK Central Authority (UKCA) http://police.homeoffice.gov.uk/operational-policing/mutual-legal-assistance/?version=1	The UKCA leads on Mutual Legal Assistance (MLA) policy and legislation for the United Kingdom. It is also responsible for negotiation and implementation of treaties and other international agreements in the field of MLA. The UKCA is responsible for MLA casework in relation to England & Wales and Northern Ireland. UKCA determines whether assistance requested by overseas authorities should be provided and whether it is appropriate for requests for assistance in restraint and confiscation cases should be forwarded overseas. Requests for assistance relating to Scotland are handled by the Crown Office.
Financial Services Authority (FSA) www.fsa.gov.uk	The Financial Services Authority (FSA) is the regulatory body for the financial sector in the UK. Its statutory objectives include to promote confidence in the UK financial system and to reduce the scope for regulated firms being used to further financial crime. It supervises firms for compliance with their legal and regulatory obligations, including those related to PEPs.