Time to clean up the Lon­don laun­dro­mat

The UK needs to launch a con­certed crack­down on money laun­der­ing

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY THE ED­I­TO­RIAL BOARD, THE FT VIEW

Den­mark and Es­to­nia are in the spot­light over a money laun­der­ing scan­dal that saw bil­lions of dol­lars of sus­pi­cious funds from for­mer Soviet re­publics pass through a sub­sidiary of Danske Bank

Den­mark and Es­to­nia are in the spot­light over a money laun­der­ing scan­dal that saw bil­lions of dol­lars of sus­pi­cious funds from for­mer Soviet re­publics pass through a sub­sidiary of Danske Bank. But a coun­try with just as many ques­tions to an­swer — in the Danske case as in many oth­ers — is the UK. While Danske’s Es­to­nian busi­ness was, in 2007-15, a wide-bore pipeline for du­bi­ous fund flows, the en­ti­ties send­ing money through it were of­ten shell com­pa­nies reg­is­tered in the UK or its over­seas ter­ri­to­ries. For the sake both of its rep­u­ta­tion and — given the vul­ner­a­bil­i­ties that stem from be­ing a haven for Rus­sian or other dirty money — its na­tional se­cu­rity, Lon­don should launch a con­certed clam­p­down.

Be­com­ing a money laun­der­ing cen­tre is an in­evitable risk of be­ing a global fi­nan­cial cen­tre. But UK au­thor­i­ties have for too long been re­luc­tant to adopt or en­force tougher safe­guards against dirty money for fear of harm­ing Bri­tain’s im­age as an easy place to do busi­ness. There are, however, ways of fight­ing money laun­der­ing with­out im­pos­ing dis­pro­por­tion­ate bur­dens.

One is tight­en­ing con­trols on so-called lim­ited li­a­bil­ity partnerships and Scot­tish lim­ited partnerships that have be­come a ve­hi­cle of choice for money laun­der­ers. The UK passed a law two years ago re­quir­ing all Bri­tish com­pa­nies to iden­tify their ben­e­fi­cial share­hold­ers; many have still not com­plied. Pro­pos­als floated by the UK’s busi­ness depart­ment to re­quire lim­ited partnerships to have a prin­ci­pal place of busi­ness in the UK are worth en­act­ing. So is the idea of re­quir­ing for­ma­tion agents, who set up LLPs and SLPs for a fee, to prove they are over­seen by an anti-money laun­der­ing watch­dog.

Com­pa­nies House, the UK reg­is­trar, needs mean­while to be given ad­e­quate re­sources and pow­ers to check the ve­rac­ity of in­for­ma­tion that busi­nesses pro­vide. The reg­is­trar could then flag sus­pi­cious cases to law en­force­ment bodies, lead­ing to pros­e­cu­tions. A few suc­cess­ful tri­als of in­di­vid­u­als us­ing LLPs to laun­der ill-got­ten gains would be a strong dis­in­cen­tive to oth­ers.

The gov­ern­ment should also speed up adop­tion of a draft law to cre­ate a reg­is­ter of ben­e­fi­cial own­ers of over­seas le­gal en­ti­ties that own prop­erty or land in the UK. While put­ting its own house in or­der, the UK should use what in­flu­ence it has to en­sure com­pli­ance with a law that par­lia­ment adopted in May re­quir­ing com­pa­nies reg­is­tered in Bri­tish over­seas ter­ri­to­ries to dis­close their ben­e­fi­cial own­ers. The re­quire­ment should be ex­tended, too, to the UK’s crown de­pen­den­cies of Guernsey, Jersey and the Isle of Man.

Other valu­able steps would in­clude ex­tend­ing the prin­ci­ple of “fail­ure to pre­vent” to cover all fi­nan­cial crimes, not just bribery and tax eva­sion as now. This would im­pose crim­i­nal li­a­bil­ity if com­pa­nies could not show they had taken ad­e­quate mea­sures to stop mis­con­duct in­clud­ing money laun­der­ing.

The nerve agent at­tack in Sal­is­bury in March ap­pears to have stiff­ened gov­ern­ment re­solve to crack down, in par­tic­u­lar, on Rus­sian dirty money. Visas granted to for­mer Soviet ty­coons are un­der greater scru­tiny, while the au­thor­i­ties claim to be mak­ing more use of “un­ex­plained wealth or­ders” to force sus­pect own­ers of high-value as­sets to ex­plain how they were able to af­ford them.

The risk, however, is that a de­sire to en­sure the City of Lon­don clings to its sta­tus as a global fi­nan­cial hub after Brexit will lead to laxer stan­dards and en­force­ment. That would be a mis­take. The way for the UK to pros­per out­side the EU is not to be­come a qua­sioff­shore, low-reg­u­la­tion tax haven, but to strive to com­bine an at­trac­tive busi­ness en­vi­ron­ment with the high­est stan­dards of pro­bity and trans­parency.

UK au­thor­i­ties have been re­luc­tant to en­force tougher safe­guards against dirty money for fear of harm­ing Bri­tain’s im­age as an easy place to do busi­ness © Reuters

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