Proceeds of crime Contents

3Money laundering

Money laundering and proceeds of crime

51.A number of witnesses pointed to the connections between money laundering in the UK and the ability of recovery agents to effectively deprive criminals of their assets. Transparency International UK provided a definition of money laundering:

Money laundering is the process of concealing the origin, ownership or destination of illegally or dishonestly-obtained money by hiding it within legitimate economic activities in order to make it appear legal. It can mask corruptly acquired wealth—such as bribes, kick-backs, illicit political contributions, embezzled funds and loans—as well as the proceeds of other crimes. It helps corrupt individuals to escape justice and, after the funds have been successfully laundered, they can enjoy their illicit wealth or move the money on for other purposes.74

The successful prevention of money laundering is particularly pertinent to effective recovery of proceeds of crime because, if a criminal is able to successfully hide their criminal proceeds within legitimate financial transactions, it renders the investigators, prosecutors, courts and enforcement agencies powerless to seize or recover the illicit gains.

Money laundering in the UK

52.Robert Barrington, the Executive Director of Transparency International UK, told us that “it seems likely that in terms of money laundering going through the UK system every year, it is at least £100 billion”.75 That is a staggering figure, equivalent to twice the size of Panama’s whole economy.76 Mr Barrington went on to explain why the UK was such a target for money launderers:

Clearly one of the things that makes the UK attractive as a centre for money laundering is its historic links with the Overseas Territories and Crown Dependencies, because you can move money very quickly to jurisdictions that are very well-linked and for whom your bank of lawyers and accountants will have very close connections and can easily set up shell companies and so on.77

Transparency International publishes its ‘Corruption Perceptions Index’ on an annual basis. According to the Centre for Global Development, any country scoring 60 or below on that index (shown in Figure 4) is considered to be a high risk country for money laundering by the Financial Conduct Authority.78

Figure 4: Corruption Perceptions Index 2015

Source: Transparency International, Corruption Perceptions Index 2015 (January 2016)

53.Jonathan Fisher QC told us that the UK (and London in particular) was particularly susceptible to money launderers, not just because it is a global financial centre, but because of the lifestyle and culture this wealth has brought with it. We asked him where the authorities should be looking:

It is going to be high value, easily portable assets. [ … ] I rather get the impression that sophisticated criminals are quite adept at using the financial system in London, so I would not necessarily exclude not simply property in the sense of real estate, but bonds on our financial markets.79

54.Henry Pryor drew our attention to London’s property market. In his opinion it was ‘without question’ that the property market was a destination for laundered money.80 Last year there were 1.2 million property transactions in the UK. According to the NCA those 2.4 million buyers and sellers generated just 355 Suspicious Activity Reports. Mr Pryor suggested that the “regulations and the rules and the penalties for breaking those rules are quite sufficient but it is woefully inadequately policed”.81 He continued:

I would say that if, for example, the buyer of a property was the second son of a world leader in a country in the middle of South America—how does he have £8 million to buy a flat in Mayfair—personally I would be suspicious. But it does not seem that my professional colleagues are as sceptical as I am, which is unfortunate.82

55.Some of our witnesses encouraged caution and perspective. Donald Toon of the NCA agreed that the value of money laundered through the UK was likely to be “hundreds of millions of dollars” a year.83 He went on to highlight, however, that this figure represented a tiny fraction of financial transactions going through the city every day:

It is critical to put that in context when we are talking about a financial system that, in some areas of trading, can involve £1.5 trillion to £2 trillion a day in terms of transactions. It sounds like a large figure, but it has to be put against a very large volume and value of transactions.84

Nevertheless, Mr Toon believed that combatting money laundering remained crucial to the success and stability of the financial system. He stated that this was not an issue restricted to London, but was taking place in other UK cities as well:

We have to recognise that it is happening in the UK. It is overwhelmingly happening in the City of London, but quite a lot of financial work goes on elsewhere—Edinburgh would be a good example. 85

Henry Pryor and Laurence Sacker agreed that the UK would not suffer if it “cleaned up its act”. In Mr Sacker’s view “there is enough honest money floating around that the reputation would probably improve considerably”,86 while Mr Pryor told us:

I don’t think that London property would suffer. I don’t think London’s reputation would suffer if we cleaned up our act. At the moment we do have the equivalent of a welcome mat out for anybody to come if you want to launder your money. I am afraid that school leavers would know how to do it.87

The effectiveness of government policy

56.The Government has a variety of tools available to investigate, prevent and prosecute money launderers in the UK. The NCA described itself as the “lead enforcement agency for responding to this threat” and preventing and prosecuting money launderers.88 The NCA works with its partners to:

The Home Office also highlighted the work of the NCA, which it told us led “the Joint Money Laundering Intelligence Taskforce (JMLIT), which brings together banks and law enforcement agencies to share information to tackle money laundering”.90

57.Despite this, Robert Barrington of Transparency International UK told us that the supervisory system of those responsible for monitoring and reporting money laundering was not fit for purpose:

When the system was put into place in the UK, it was unique in that there were 27 different supervisors for the anti-money laundering regime and it was largely contracted out to the private sector. Some of those supervisors are also trade bodies, so there is a huge conflict of interest between trying to regulate your members at the same time as promoting your members.91

Transparency International UK recommended that:

The UK Government should consolidate the patchwork of anti-money-laundering supervisors and consider introducing a single ‘super-supervisor’. It should also ensure supervisors meet the good practice standards of transparent enforcement, risk-based regulation, the separation of commercial and regulatory interests, and guaranteeing that the UK is effectively implementing the Financial Action Task Force standard regarding professional enablers.92

58.Mark Thompson, the Head of the Proceeds of Crime Unit at the Serious Fraud Office, was sympathetic to that view, stating that “the regulatory landscape is fragmented” and should be “regulated more robustly”.93 He concluded that “a unified supervisor [was] worth looking at”.94

59.During the course of our inquiry, the Home Secretary made two announcements of note in this area. She described the first announcement, in April 2016, as the “biggest reforms to money laundering regime in over a decade”. That announcement launched the Government’s “action plan for anti-money laundering and counter-terrorist finance”, which set out three priorities:

(1)An enhanced law enforcement response to the threats we face—that means building new capabilities in our law enforcement agencies and creating tough new legal powers to enable the relentless disruption of criminals and terrorists;

(2)reform of the supervisory regime to ensure that it is consistent, effective and brings those few companies who facilitate or enable money laundering to task; and

(3)increase the international reach of law enforcement agencies and international information sharing to tackle money laundering and terrorist financing threats.95

Secondly, in May 2016, the Home Secretary addressed an audience at the Serious and Organised Crime Exchange 2016 in which she stated that she had:

Galvanised international commitments to support new public private partnerships to combat economic crime, establish an International Anti-Corruption Coordination Centre, hosted by the NCA, and introduce new powers to bring those gaining from corruption to justice and reclaim their ill-gotten gains.96

60.Money laundering is undoubtedly a problem in the UK, as with any established and large financial centre. It is disgraceful that at least a hundred billion pounds is being laundered through the UK every year. If the UK is to remain the centre of global finance, this must be addressed. The evidence we have received leaves no doubt that the success of POCA, and indeed the standing of the UK as a global financial centre is dependent on proactively and effectively tackling it. The Government has recently announced some significant and wide-ranging policies towards improving its record in preventing and prosecuting money launderers. We expect the Government to provide a report on the impact of these policies by January 2017, before we return to this issue next spring.

61.We heard that money laundering takes many complicated forms. These range from complex financial vehicles and tax havens around the world through to property investments in London, to easily transportable and high value jewellery. It is astonishing that just 335 out of some 1.2 million property transactions last year were deemed to be suspicious. This suggests to us that supervision of the property market is totally inadequate, and that poor enforcement has laid out a welcome mat for money launderers. The recent policies announced by the Government must include enhanced supervision of the property market and both sides of the transaction—buyers and sellers—must be included.

62.At the moment it is far too easy for someone intent on laundering money to buy a property with their ill-gotten gains, and rent it out in a very buoyant and robust letting market, and take in clean money in perpetuity. We recommend that, as with estate agents and other professional services, letting agents must use the Suspicious Activity Reporting regime (SARS) system and undertake appropriate due diligence when taking on new clients.

75 Q94

76 The World Bank, ‘GDP ranking data,’ accessed 10 June 2016 [NB: On that date 1 USD=1.44 GPB]

77 Q94

78 Center for global Development, ‘Why arbitrary measures of money-laundering risk are nonsensical and unfair,’ accessed 15 June 2016

79 Q29

80 Q227

81 Q227

82 Q227

83 Q341

84 Q341

85 Q341

86 Q232

87 Q227

88 National Crime Agency (POC0017) para 4

89 National Crime Agency (POC0017)para 4

90 Home Office (POC0019) para 10

91 Q96

92 Transparency International UK (POC0025)

93 Q99

94 Q100

95 Home Office, HM Treasury and the Rt Hon Theresa May MP, ‘Biggest reforms to money laundering regime in over a decade,’ accessed 15 June 2016

96 Home Office and the Rt Hon Theresa May MP, ‘Home Secretary’s speech on the threat of serious organised crime,’ accessed 15 June 2016

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11 July 2016