If 2016 is remembered as the year political disruption shook the Western world, 2017 will be the year we had to make sense of it. Whether it ends up being ‘hard’, ‘soft’ or just a grey ‘Brexit’, the result of June’s referendum on our membership of the European Union, and more recently the election of a political outsider and maverick businessman as leader of the free world, pose tough questions about why so many felt the way things were run didn’t work for them.
The signs were there: in April we saw the release of the largest leak of confidential information in history. Covering 11.5 million files, over 200,000 companies and 2.6 terabytes of data, the ‘Panama Papers’ provided unprecedented insights into the secretive offshore world and its role in facilitating global corruption – far from good business. Alongside various examples of tax evasion, it exposed how a string of high-ranking public officials, their families and associates from numerous countries have bought UK luxury property through faceless ‘anonymous’ companies that have no public record and no easily identifiable owner.
In some ways this was not news. For years, we at Transparency International UK have been highlighting the use of complex corporate structures registered in jurisdictions like the UK’s Overseas Territories and Crown Dependencies as vehicles for money laundering. Last year, we showed how the London property market was being used by corrupt officials as a safety deposit box for money they’d plundered from state coffers and solicited in illegal bribes. We also identified how the UK’s defences against money laundering were not fit for purpose – something painfully exposed by the documentary From Russia With Cash. However, the leaks have certainly helped place this corruption of global capital firmly on the domestic political agenda.
A month after the Panama Papers were released, the UK made a raft of commitments at the global anti-corruption summit hosted in London, including pledges to increase transparency in our property market, which would make it harder for illicit wealth to be hidden in Hampstead mansions, and new powers that would help law enforcement agencies seize these assets when they’re found. Although the former isn’t due to be legislated for until next year, the Criminal Finances Bill, which is currently before Parliament, contains some game-changing powers that if properly resourced could help end the UK’s role as a safe haven for corrupt autocrats and their associates.
These are welcome steps in the right direction and, encouragingly, they have broad cross-party support. However, more needs to be done in order to end the use of the UK and its professional services as facilitators of global graft.
Firstly, there still needs to be greater transparency around the hundreds of thousands of shadowy corporate entities that are registered in the UK’s Overseas Territories and Crown Dependencies. Even with data obtained from the Panama Papers, recent research by Transparency International UK and Thomson Reuters could not find even basic public information on almost half of overseas companies owning London property, the overwhelming majority of which were based in secrecy jurisdictions like the British Virgin Islands, Cayman Islands and Jersey. This is a problem faced on a daily basis by banks, lawyers and the UK’s other professional services who need information about who they’re doing business with in order to identify money laundering risks.
Secondly, we need a complete overhaul of the system for overseeing money laundering checks in the private sector. At the moment there are 27 bodies responsible for ensuring compliance with these rules, with 14 covering the accountancy sector alone. Many of these are riddled with conflicts of interests, being both the lobbying body and the regulator for their sector, and failing to comply with good practices of transparent and effective regulation. If we ever want to catch the corrupt we need to make sure those handling financial transactions have the right support, direction and incentives to flag suspicious activity.
And finally, we need tougher action against those who are complicit in helping corrupt individuals and regimes steal from their people. At the moment, there is not a credible deterrent against breaching the rules, in part because there is no individual liability for money laundering failings.
As the hard realities of a more uncertain world bite, there will be a temptation to lure investment from all quarters and without conditions. Standards may be left to slip and due diligence dropped in the name of jobs and growth. There is an alternative to this race to the bottom.
Businesses and investors around the world are already taking action to increase transparent company ownership. If companies are transparent about ownership we can put a stop to them being used as vehicles for crime and corruption. In an increasingly unstable world, good businesses and investors will look for places that they can trust. Modern economies like Britain’s should be their safe haven, not one for those who seek impunity from their crimes.