Where The UK Fails On Anti-Money Laundering

via PYMNTS

Hundreds of billions of pounds’ worth of criminal funds are laundered through the U.K. each year, while the non-compliant corporations and FIs that enable this receive little more than a “parking penalty” level fine. That’s according to Susan Hawley, Corruption Watch’s director of policy, who explains in this month’s AML/KYC Tracker how weak enforcement, toothless fines and lack of political will to scrutinize foreign investment all stand in the way of a cleaner system.

Money laundering is a major threat in the United Kingdom, one some watchdogs say is not being taken seriously enough. As a major player in cross-border banking and global finance, the country doesn’t just need to combat domestic financial crimes: It is also at risk of becoming a hub for transmitting and investing criminal funds obtained overseas. 

While the Financial Action Task Force (FATF), an intergovernmental body that develops policies to combat financial crime, recognizes the U.K. for its aggressive stance on some types of money laundering, there is limited evidence of how well the country investigates high-end money laundering – a “long-standing risk area” that watchdog organizations are also pressing with urgency. 

The National Crime Agency (NCA) estimates that hundreds of billions of pounds are laundered through U.K. banks and their subsidiaries every year. These illegitimate funds are then used to purchase luxury goods like jewelry, property and art, or to pay tuition to elite private schools and universities. Many banks and corporations do not look into the sources of such funding, however, and regulators often do not sufficiently penalize them for turning a blind eye. This does little to discourage the lax behavior, said Susan Hawley, director of policy for the anti-corruption non-governmental organization Corruption Watch.

“There’s very little enforcement action going on,” she explained. “The lack of enforcement action doesn’t create incentives for companies and businesses to have in place strong money laundering compliance regimes, [but] that’s the kind of thing that gets the industry to get its act together.” 

Hawley recently spoke with PYMNTS about the troubling state of weak money laundering prosecution in the U.K. and the philosophies that foster it. 

Regulatory Weakness

Among the U.K.’s key AML problems are that current criminal laws can hamper regulators’ abilities to respond to problems in a robust manner. U.K. officials are, by law, unable to fine banks or corporations for accepting laundered funds and must go after individuals instead, making it difficult to create long-lasting change. 

“One area where the laws are problematic is around big companies,” Hawley said. “It is actually impossible in the U.K., under current rules, for big banks to be prosecuted for money laundering.” 

In addition, many regulators are not keeping up with their responsibilities. A report from the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) released this week found that most of the professional lawyer and accountant bodies it oversees do not sufficiently prepare members to fight money laundering or supervise their compliance with AML laws. Nearly 25 percent of them do not perform any money laundering supervision, according to the study, despite EU requirements that they do so, and 80 percent failed to have the proper governance arrangements to combat it in their professions.

“There’s a systemic problem within the supervisory regime in the U.K.,” Hawley noted. “There isn’t enough regulation going on.”

Many entities responsible for regulating often have conflicts of interest, too. 

“These bodies that regulate are also the trade bodies, effectively, [that] want to lobby on behalf of the business[es],” she added, and key bank regulators are not always properly independent from politicians. 

A Slap on the Wrist

Conflicts of interest, legal limitations and their own non-compliance keep regulators from strongly prosecuting money laundering, and when such regulations do get enforced, penalized corporations often receive fines so small that the amounts seem trivial. Firms that fail to be fully AML-compliant have even avoided being publicly named in many cases, with regulators fining them just £1,000 – which amounts to little more than “a parking penalty,” as Hawley put it. 

More recent efforts to step up the regulatory game by Her Majesty’s Revenue and Customs (HMRC) involved naming non-compliant organizations – a rare move – and involved levying heftier fines, Hawley added. Real estate agency group Countrywide was penalized £215,000 ($283,000 USD) earlier this month for failing to comply with AML regulations, for example, but even that was a fairly low fine.

The Economic Incentive of Lax Regulations 

One driving force behind halfhearted high-end money laundering investigation efforts is a belief that more robust AML would chill international investment, Hawley explained. The assumption is that it is better to risk accepting criminal funds than to deter economic activity. 

“While the government might talk big on wanting to tackle money laundering, it also doesn’t want to make the U.K. unattractive as a place for foreign investment,” she said. 

The looming possibility of Brexit means it is possible that regulators will continue to prefer lax regulation implementation if it encourages investment and combats economic damage caused by instability. High-end money laundering is a constant threat in major economic hubs like the U.K., though. Firms should abide by strict AML-compliance regulations to detect and thwart illicit activities, and regulators should wholly investigate suspicious activities to ensure rules are being followed. 

The country will need to ensure its AML laws are robust and enforced if it hopes to tackle the high amount of pounds laundered through its banks each year.