The Home Affairs Select Committee has published a “Proceeds of Crime” report, which criticizes the UK’s attempts to prevent money laundering and to recover the proceeds of crime. Chair to the Committee, Rt Hon Keith Vaz MP, has stressed that: “At least a hundred billion pounds, equivalent to the GDP of Ukraine, is being laundered through the UK every year. The Proceeds of Crime legislation has failed to achieve its purpose. London is a centre for money laundering, and its standing as a global financial centre is dependent on proactively and effectively tackling money laundering”. The report lists various statistics to demonstrate how ineffective current efforts are, especially against criminals using increasingly sophisticated techniques to hide the proceeds of crime.
The report describes the “ELMER” database, which is used to capture Suspicious Activity Reports (SARs) and detect suspicious financial activity across the financial services sector and connected industries, as so overloaded that it’s “completely ineffective”. It also draws our attention to the regret expressed by many who provided evidence to the Committee, that criminal asset recovery is too often a post-conviction afterthought, before highlighting an inconsistent and seemingly unenthusiastic approach to the recovery of the proceeds of crime at prosecutor and court level, and agreeing with the National Audit Office that the Asset Recovery Incentivisation Scheme (ARIS) is flawed and unfit for purpose.
In addition, as Mr Vaz emphasised: “Investment in London properties is a major route which tarnishes the image of the capital. Supervision of the property market is totally inadequate, and poor enforcement has laid out a welcome mat for launderers and organised criminals” and yet, of the 1.2 million property transactions in the UK last year, only 355 SARs were actually generated. According to Transparency International, which also gave evidence to the Committee, 36,342 properties in London are held by ‘offshore’ companies and, while in many cases there may be nothing untoward in that, 75% of properties owned by people under criminal investigation for corruption are held through secret offshore companies.
The Committee calls for tougher oversight of the property market, including stronger supervision of agents, buyers and sellers, and for responsibility for tackling money laundering, to be consolidated and handed to the NCA. The Committee also recommends:
- The freezing of assets when criminals first become aware of an investigation against them – this will often coincide with arrest
- Initial and ongoing financial investigation training to be given to police officers
- An overhaul of ARIS
- The replacement of ELMER with a robust system for handling SARs, by 31 December 2016
- The creation of a specialist “confiscation court” designed to hear complex cases featuring cross-border financial transactions, use of corporate vehicles or very high value proceeds, to combat the current lack of interest and expertise in confiscation orders among prosecutors and judges.
The report comes just a couple of months after the Government published its new anti-money laundering Action Plan and the new UK Prime Minister, then Home Secretary, (a) emphasised the importance of sending a clear message that such behaviour will not be tolerated; and (b) announced that the Home Office was reviewing its anti-money laundering rules, considering a number of new policies, including “unexplained wealth orders (UWO), requiring those suspected of money laundering to declare their wealth”, and tougher powers for the NCA. The report also comes at a time of distinct uncertainty following the Brexit referendum which, with a weakened pound and cuts to law enforcement budgets, is reported to have increased the attractiveness of London to those who wish to launder their money through property – a factor that should make the Government’s response to the report of even greater significance than might otherwise have been the case.
Henry Stewart, an associate in the UK part of our asset recovery practice, has more information if you need it.
This post was first published on Cooley’s asset recovery blog.