Wednesday 28 October 2020 4:36 am

Tough on dirty money? The UK has a way to go

Ruth Paley is legal director of Eversheds Sutherland

In 2016, the National Crime Agency estimated that £90bn is laundered via London each year. 

The UK government’s response was swift, with a commitment to “block dirty money flowing into the City of London”. It unveiled radical plans to “overhaul the approach to tackling economic crime, with greater partnering between the government, law enforcement and the private sector”. 

Ben Wallace, former minister of state for security and economic crime, talked passionately of going after those “who pretend their hands aren’t really dirty and profit from moving dirty money”.

These new initiatives spoke of a determination to tackle the facilitation of money laundering, to address at source the tacit permission — even overt participation — of a limited number of financial institutions enabling the movement of illicit funds for unlawful purposes.  

So has it worked?

One barometer of how successful the UK has been in flushing out those who facilitate money laundering is whether regulated banks and businesses are held to account under the criminal law.  

UK businesses in the regulated sector must comply with the Money Laundering Regulations (MLR): rules governing the management of money laundering risk and the conduct of banks and financial institutions, lawyers, tax advisers, casinos, estate agents and art dealers. 

The regulations are onerous and far-reaching, governing the conduct of customer relationships, including requirements for identity checks, customer and transaction monitoring and staff training. Compliance with the MLR is overseen by various bodies, notably the Financial Conduct Authority (FCA), the UK’s financial regulator. 

Regulators may deal with potential breaches by way of civil or criminal investigations, or open a “dual track” probe which could result in either civil or criminal sanctions. Civil penalties include fines or suspension of trading, while criminal enforcement may include custodial sentences of up to two years’ imprisonment.

Recent messaging from the FCA has largely kept step with government rhetoric, referencing a deepening resolve to use criminal powers to deal with breaches of the MLR. Mark Steward, FCA director of enforcement, has spoken of his desire to achieve criminal outcomes for serious cases involving strong evidence of “egregious” anti-money laundering systems and controls failings. 

The hard reality, however, is that this ambition has not translated into actual prosecutions. Far from moving in on rogue banks which make it easier for money launderers to deal with the proceeds of crime, the latest figures from the regulator reveal that it dropped half of its criminal probes into breaches of the MLR in the last year. 

Eversheds Sutherland, a global law firm with a significant experience in such investigations, lodged a Freedom of Information Request with the FCA. It revealed that its current criminal and civil investigation caseload consists of only one criminal-only and six “dual track” investigations ongoing, with seven such investigations into breaches of MLR discontinued since January 2020. 

The FCA’s response makes plain that the vast majority of its investigations into potential breaches must be solely civil in nature. This seems at odds with the ambition of “giving effect” to legislation designed to enable regulators to take criminal action where warranted. 

Given the scale of the money laundering problem as revealed in the FinCEN files, many are questioning why the number of full-force, criminal investigations remain so low. 

One explanation is that the figures signify a gradual realisation by the regulator that prosecuting breaches of the MLR to the criminal standard is not a straightforward process; that it’s quicker, easier and less expensive to pursue a civil outcome against regulated firms;  and that a civil sanction is frequently the more proportionate outcome.

The consequences of such a marked lack of criminal investigations are nonetheless serious. Against a complex backdrop of Brexit and market uncertainty, the government can hardly want to promote the message that prosecutions for poor governance and anti-money laundering failings are vanishingly rare. But if it wants to promote good governance and clean business, it seems there is some way to go.

Much work must be done before the “overhaul”of the approach to economic crime that was heralded four years ago is seen as a success in the area of MLR enforcement. Until then, London may retain its reputation as the world’s dirty-money capital.

Main image credit: Getty

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