Time to clean up the London laundromat
The UK needs to launch a concerted crackdown on money laundering
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