In the EU, we've now had three anti-money laundering directives, with a fourth just hitting the implementation phase. Yet the body responsible for anti-money laundering enforcement in the UK, the National Crime Agency (NCA), still estimates that £100 billion could be laundered through the UK every year.
It is against this background that two major reports in recent weeks have proposed new measures to strengthen anti-money laundering in the UK specifically and the EU more widely.
Europol, the EU law enforcement agency set up to assist member states to tackle serious international crime, issued a report a couple of weeks ago entitled "Why is cash still king?". This contains a fascinating analysis of how cash continues to be widely used and laundered by criminals throughout Europe, but the measures available to prevent and detect the laundering fall short.
Among the gems reported is the story of how a small group of people have been able since 2008 to physically transport over US$500 million from one small town in Ukraine, via Romania and Bulgaria and on to Turkey, in rented mini-vans. Each trip carries US$500,000 to US$1 million, with the cash declared in accordance with cash control regulations. Despite these obviously suspicious circumstances, the authorities are unable to demonstrate sufficient links to criminality to seize the cash. Another is the story of the Spanish authorities investigating a drug trafficking group and discovering that the same group operated a side business producing high quality forged EUR500 notes, which it then used to pay for the drugs it was trafficking!
In fact, the EUR500 note comes in for particular criticism. The report notes that EUR1 million in EUR500 notes weighs only 2.2kg and will fit inside a small laptop bag, making it relatively easy to smuggle. Noting that the UK has already removed the EUR500 note from wholesale circulation, and that the UK, the USA and Canada all manage without such a high denomination bank note, Europol calls on EU authorities to investigate and understand better the extent of legitimate use of the EUR500 note. Although it stops short of calling for the note to be withdrawn altogether, it does suggest that a tracking system for high denomination notes be considered.
Europol also make a series of recommendations for enhanced EU harmonisation and cooperation with regard to cash controls and cash movement monitoring. They are broadly sensible measures, but given the fourth EU anti-money laundering directive was approved as recently as May 2015, it must be doubtful whether the EU will act on them in the near future.
Europol's final recommendation is for the introduction across the EU of unexplained wealth orders (UWO), under which the authorities would be able to confiscate assets if the apparent owner was not able to demonstrate that they derived from a legitimate source. UWOs are also the principal recommendation of the second report, last month, from Transparency International (TI).
TI's report is focussed on the proceeds of corruption involving foreign public officials. It takes issue with a number of the features of the UK anti-money laundering regime (which is materially derived from the three EU anti-money laundering directives referred to at the outset of this article). First, there is the need for a prior conviction in the country where the corruption took place. Then there is the limited time that the NCA has to refuse consent when faced with a suspicious activity report. TI records that around 14,000 suspicious transactions are reported to the NCA every year, but that in 2014 law enforcement agencies were only able to take action on 7 individual reports of suspicious transactions that were identified as the possible proceeds of international corruption.
The TI's principal solution to this is UWOs, requiring those against whom sufficient suspicion of criminality is raised to explain legitimate and legal sources of wealth for suspicious UK assets or transactions, failing which the assets in question would be subject to a civil recovery process. Usually, the trigger for a UWO would be a suspicious activity report, and TI proposes that in those circumstances the time limit for refusing consent to a transaction would be paused.
The proposals are well thought through, but recognise that implementing UWOs will not be without difficulty. In particular, requiring someone to prove that they obtained their wealth legitimately raises potentially complex questions about the reversal of the burden of proof and the removal of the presumption of innocence. TI considers that these issues can be overcome, on the basis that an appropriate balance can be struck between the rights of individuals and the public interest. Nonetheless, its suggestion that its proposals for UWOs are considered by the UK Law Commission or a Parliamentary Committee are a sensible way to encourage a full airing of such issues.
It is noteworthy that within a few weeks of each other, both a leading law enforcement agency and a leading anti-corruption campaign organisation have both alighted on a similar solution to an age old problem. Perhaps in the future we will look back at these reports as the catalyst for a fundamentally more aggressive approach to money laundering in the UK and Europe.