The Government has been criticised by MPs following the publication by the Guardian of allegations that British banks played a role in processing US$740 million in criminal funds being transferred out of Russia over a four year period as part of a money laundering scheme that has been dubbed “Global Laundromat”.
The Economic Secretary to the Treasury, Simon Kirby MP was questioned about the allegations in the House of Commons last week, with MPs accusing the Government of complacency and incompetence, pointing to the scale of the operation as being indicative of the fact that the current regime is inadequate, and not fit for purpose. The Government was criticised, not just for failing to prevent the transactions, but also for failing to ensure that criminal investigations were subsequently opened and charges brought.
Watching as Mr Kirby MP took fire from all sides, one could easily have asked oneself, “what more do they want from him?”
Putting aside for a minute the fact that, in the Criminal Finances Bill the Government is ushering in one of the most draconian civil recovery regimes the Developed World has seen; the fact that the draft Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 published earlier this month are due to come into force by the end of June this year; and the fact that the Government has just announced the proposed formation of an Office for Professional Body Anti-Money Laundering Supervision which would sit within the Financial Conduct Authority, it is important to retain a little perspective on the issue.
The allegations span the course of a four year period. The FCA estimates that, in the year 2015, UK transactions totalled US$113 trillion. Apply that average across the four year period, and the total sum from Global Laundromat alleged to have moved through British accounts amounts to less than 0.016% of the value of total transactions in the UK over that period. Furthermore, there appears to be no evidence of collusion or complicity by the UK institutions involved.
It is therefore difficult to see how a criminal prosecution could be fair or proportionate in the circumstances. Notwithstanding this, in an interview with the Guardian the head of the National Crime Agency David Little raised the insurmountable point that, in the absence of cooperation from the jurisdictions which are transferring proceeds of crime out of the country, there is little that we can do domestically to prove that the funds are the proceeds of crime. How could it be fair or proportionate in such circumstances to prosecute our domestic institutions for transactions which comprise less than 0.02% of their transactional operations?
Coming back to the measures the Government is implementing to address and mitigate the risks of money laundering, the Criminal Finances Bill introduces increased powers of investigation for a broader spectrum of regulatory agencies; improved information sharing powers between private institutions themselves as well as between private institutions and public agencies; increased scope for the civil recovery and asset forfeiture regimes; and increased powers to compel private institutions to provide information. All of these measures are designed to address the problem of proving that property transferred to the UK is the proceeds of criminal conduct committed in other jurisdictions.
Considering all of the above, together with the UK’s recent crack-down on Beneficial Ownership, (and not forgetting the current consultation on the extension of the concept of corporate criminal liability for “failure to prevent” to offences of economic crime (including money laundering)), it is difficult to see what more at this stage the Government could be doing to address and mitigate the risk of money laundering. That said, the Government will have cause to re-examine the adequacy of the Money Laundering Regulations (MLR) in due course as part of the exercise of extricating reams of UK regulations from their EU roots (the MLR implement and incorporate the obligations set out in a number of EC directives).
Anti-corruption enforcement should always be proportionate. A balance needs to be struck between addressing and mitigating the risk of financial crime, and encouraging and facilitating free and effective transactional business. In this respect, the economic impact of over-regulation should not be underestimated. To completely de-risk the banking sector would be to shut it down completely and, in the wake of the triggering by Government of Article 50, the UK banking sector will need to retain its competitive edge. It cannot do this if its back is broken by the weight of over-regulation and aggressive enforcement.