According to the UK government, the country is one of the best in the world at tackling money laundering.
Nothing could be further from the truth, says a leading think tank: the UK has a severe kleptocracy problem.
In a research paper published yesterday, Chatham House said that the UK is a safe haven for dirty money, much of it emanating from Russia and the former Soviet Union.
Chatham House, also known as the Royal Institute for International Affairs, is a London-based policy institute, founded in 1920.
It receives funding from a range of governments and corporations, as well as family foundations and private donors.
In the 60-page paper, Chatham House pointed out critical shortcomings in the current UK anti-money-laundering (AML) regime.
It said the UK’s AML policy had been poorly designed, relying too much on private sector professionals to conduct appropriate checks and overburdening the regulators as a result.
“Evidence indicates that the system is effectively risk-insensitive, with banks over-reporting suspicious activity, and thereby creating a deluge of reports for UK authorities to process,” the think-tank said.
Chatham House said UK regulators and law enforcement bodies had failed to do their jobs properly, leading to several flawed judgements by UK courts.
Expensive UK-based lawyers, hired by trans-national elites, had defeated or deterred regulators’ often weak attempts to prosecute politically exposed persons, Chatham House went on.
Foreign oligarchs had also been able to make use of libel actions, quasi-defamation cases and public relations campaigns to deter journalists and other transparency campaigners, it added.
The think-tank criticised UK universities’ and charities’ secrecy in processing charitable donations, pointing out that due diligence had been flawed in several past cases.
It said that foreign oligarchs had successfully improved their public profiles by means of other cleverly targeted gifts.
“Donations to charities—especially those headed by members of the British royal family—are a key part of reputation laundering by post-Soviet elites,” Chatham House said.
“Post-Soviet elites are ensconced in the UK, fight their legal battles in the UK and seek to gain cultural and political influence in the UK”
And Chatham House sounded the alarm about the risks of subversion in UK politics as a result of foreign money flows.
“Westminster—and the Conservative parliamentary party in particular—may be open to influence from wealthy donors who originate from post-Soviet kleptocracies, and who may retain fealty to these regimes,” Chatham House said in its report.
“Post-Soviet elites are ensconced in the UK, fight their legal battles in the UK and seek to gain cultural and political influence in the UK via philanthropy and political donations, especially to the governing party.”
Chatham House was sharply critical of the UK prime minister’s efforts in this area.
“Unlike the Biden administration, the Boris Johnson government makes no public mention of kleptocracy, remains uncertain as to whether future sanctions and unexplained wealth orders can be used against kleptocrats, and is reported to be planning cuts of around 80 per cent to its funding of anti-corruption research,” it said.
In 2016, the UK government said it planned to launch a public beneficial ownership register for UK property.
Offshore companies, which typically hide the names of their ultimate owners, have played a large part in the UK property market in the last two decades, especially in London.
According to Transparency International, more than 12,500 London properties worth over £48.5bn were sold by offshore companies in 2012–14, while a total of 36,342 London properties were owned by offshore
But despite including in the 2019 Queen’s Speech a commitment to introduce full transparency of ownership for UK property, the government has so far stalled on this legislation.
In its paper, Chatham House called for an effective anti-kleptocracy drive in the UK. It said this would close legal loopholes, demand transparency from public institutions, deploy anti-corruption sanctions against post-Soviet elites and prosecute British professionals who enable money laundering by kleptocrats.
However, Chatham House cautioned against expecting too much from a purely national approach to combating illicit financial flows.
“We must recognize [money laundering’s] larger geography,” it said.
“Corruptly acquired capital does not merely flow to ‘havens’ in Europe and the US, but also increasingly to Middle Eastern and Asian financial centres such as Dubai, Hong Kong and Singapore. This is truly a global problem.”
In September, the son of murdered Maltese journalist and anti-corruption campaigner Daphne Caruana Galizia called for global action against the professional services firms that facilitate financial crime.
The enablers of money laundering include the many jurisdictions that allow financial secrecy, the accountants, the corporate service providers and the government officials involved in the illicit schemes, Matthew Caruana Galizia said.
“These are enemies of transparency. The damage they are doing is simply not quantifiable. It’s too enormous to even imagine,” Matthew Caruana Galizia said.
In June NorthRow, a UK-based technology company, said $1trn a year is stolen every year from the world’s poorest countries and laundered through a complex network of shell companies, trusts and other legal structures, many based in London.
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