Regulated industries should be prosecuted for failing to report money laundering, says research group to Government inquiry

Compliance with anti-money laundering (AML) regulations will remain low until there is enforcement, according to recently published evidence submitted to the Government inquiry into economic crime.

Ricardo Soares de Oliveira, Professor of the International Politics of Africa, and Tena Prelec, Research Fellow, are among a group of researchers who contributed to the report, which was submitted to the UK Parliament’s Treasury Committee Inquiry into Economic Crime.

Their evidence suggests that the UK banking and real estate industries fail to properly implement the risk-based approach mandated in AML regulations. This is considered most likely due to insufficient effective enforcement.

It also found that banks are the most likely regulated industry to file ‘defensive’ Suspicious Activity Reports (SARs) so to as escape legal liability, rather than blocking the transaction and closing the client’s account.

Comparatively estate agents and conveyancers are not incentivised to file SARs, and SARs numbers in these sectors remain low.

While plans are underway to grant Companies House greater powers to investigate such individuals, their report argues that the reforms lack a clear timeline, as does the proposed tightening of the regulations regarding Limited Partnerships–identified as a common vehicle for money laundering.

In light of this, the research team recommended the following policy measures for the UK government:

• mandatory reporting to a state agency of transactions over a certain monetary value
• a requirement for UK registered companies to have at least one UK citizen/resident as one of their officers, which would reduce abuse of UK companies
• investigation of, and penalties for, those who submit fraudulent information to Companies House
• clear mandate and better funding of the National Crime Agency to investigate and prosecute enablers of money laundering
• re-examination of anti-money laundering legislation and Unexplained Wealth Orders in relation to politically exposed people.

Since January 2019, the research group who authored the report has been part of the Global Integrity Anti-Corruption Evidence (GI-ACE) programme, funded by the UK Government.

Their project, ‘Testing and evidencing compliance with beneficial ownership checks’, explored the checks on politically exposed people (PEPs) buying property in the UK, the checks banks perform on high-risk corporate clients, and the issue of ‘reputation laundering’ through philanthropic donations and other means.

In addition to this written evidence, Tena submitted additional written evidence on UK-Western Balkans relations to the House of Lords and oral evidence to the House of Commons in 2018, including on the rule of law and influence of authoritarian countries.

Further reading:

• UK Parliament Treasury Committee’s Inquiry into Economic Crime
  • Written evidence
• ‘Testing and evidencing compliance with beneficial ownership checks’, ace.gloablintegrity.org
• Prof Soares de Oliveira part of DFID-funded research project examining money laundering, politics.ox.ac.uk, 22 February 2019
• Tena’s contribution to the UK Parliament’s inquiry on the Western Balkans:
  • Written evidence (which was integrated into this House of Lords report)
  • Oral evidence, Foreign Affairs Committee of the House of Commons.