Last week a harrowing investigation into illicit global finance revealed that thousands of suspicious activity reports on money laundering are being filed by financial institutions while still allowing “dirty money” to flow through the international banking system.
The investigation, led by Buzzfeed News, included more than 400 journalists in 88 countries worldwide. A key trend that’s brought alarm to UK lawmakers is the number of British institutions embroiled in the scandal by merely turning a blind eye to what appears apparent incidences of money laundering.
Three thousand two hundred and eighty-two British companies were named in the leaked SARs, more than any other country. These reports, filed by financial institutions to the US Treasury Department, essentially alert law enforcement that a client might be involved in suspicious transactions. After they file the document, however, there’s little onus on them to do much more.
The high incidence among UK banks like HSBC, Barclays or Standard Chartered, triggered the US Treasury Department to call Britain a “higher-risk jurisdiction”, as revealed by a leaked report.
For instance, HSBC was found to have allowed millions of dollars of proceeds from a Ponzi scheme to flow through its accounts, even after it identified the wrongdoing.
The bank, which narrowly avoided criminal prosecution in 2012 over money laundering, said it had since “embarked on a multi-year journey to overhaul its ability to combat financial crime across more than 60 jurisdictions.”
“HSBC is a much safer institution than it was in 2012,” it added. Some commentators believe, however, that after filing numerous reports of a client’s suspicious activities, there comes the point you take action yourself by disengaging them.
Even the notorious UK address of 175 Darkes Lane popped up in documents: the registered address of more than 1,000 UK companies logged with Companies House.
The ‘dirty money’ identified in the leaks even skimmed dangerously close to tainting the UK conservative party, as it was revealed the husband of one of its biggest donors was secretly funded by a Russian oligarch with the Russian president. The donor, Lubov Chernukhin, spent £1.7 million (around €1.9 million) in donations to the party that gave her time with three prime ministers, while her husband received $8 million (around €6.9 million) from a politician who was liable to sanctions for his links with the Kremlin. Although, Chernukhin’s lawyers say the Kremlin’s influence did not blight her money.
The revelations have spurred MP Mel Stride, who chairs the UK parliament’s Treasury Committee, to request an investigation, particularly expressing concern over the UK’s designation as a “higher risk” jurisdiction and asked agencies to review efforts to secure the UK’s financial system.
“Some of the information coming from the release of the FinCEN papers is deeply troubling,” Stride said in a statement last week.
Stride has also posed questions to Prime Minister Boris Johnson’s administration of whether it’s doing enough to stop money laundering. He expressed particular concern about HM Revenue and Customs, the department overseeing taxes, and the Financial Conduct Authority (FCA), an enforcement agency of financial crime, and whether they are effective in this regard.
Meanwhile, Mark Steward, the FCA’s head of enforcement, was surprised banks viewed their duty to stop financial crime as a “bureaucratic exercise in red tape”.
Speaking to the paper City A.M., he said, “What that tells me is that the point of [anti-money laundering] controls has somehow got lost and gone missing from the challenge, and understanding that this is all about reducing crime of a very serious nature”.
With virtually no institution left untouched by concerns that came out of the investigation, reforms have already been mooted.
Companies House – the body where companies are officially registered in the UK – will be reportedly subject to changes. For instance, the appointment of directors will only be subject to verification of their identity.
It will also be empowered to interrogate and remove false information, so there is more credible data on each company.
Junior Home Office minister envisages the reforms would give law enforcement agencies and private sector entities a more accurate picture and evidence base to combat financial exploitation and avoid the kind of scandals that could ruin the UK’s reputation.