MPs are calling for urgent action to end the UK’s ‘safe haven’ for £100bn of money laundering annually, claiming that key tool for detecting suspicious financial activity across the financial services sector and connected industries, such as real estate, is overloaded to the point of being ‘completely ineffective’
A highly critical report from the home affairs select committee says poor supervision and enforcement in the London property investment market have ‘laid out a welcome mat’ for laundering the proceeds of crime. It calls for much stronger supervision of agents, buyers and sellers. The committee says it is ‘astonishing’ that just 335 out of some 1.2m property transactions last year were deemed to be suspicious.
The report noted: ‘At the moment it is far too easy for someone intent on laundering money to buy a property with their ill-gotten gains, and rent it out in a very buoyant and robust letting market, and take in clean money in perpetuity.
‘We recommend that, as with estate agents and other professional services, letting agents must use the Suspicious Activity Reporting regime (SARS) system and undertake appropriate due diligence when taking on new clients.’
However, the report also slates ELMER, the system used by the financial services industry to report suspicious activity via SARS, as ‘not fit for purpose’.
The committee found the ELMER system currently processes 381,882 SARs despite being designed to manage only 20,000 and, of this figure, only 15,000 looked at in detail.
It states: ‘We have reminded the government time and again that it must be replaced. The failure of ELMER has made the SARs system a futile and impotent weapon in the global fight against money laundering and corruption.
‘We note that the government has finally given a commitment to make the system work in this year’s Queen’s Speech, although we have yet to receive details of how this will be achieved. An effective regime to help organisations report suspicious financial activity must be introduced without further damaging delay.’
The committee calls for the creation of a specialist 'confiscation court' to combat what it describes as ‘the current lack of interest and expertise in confiscation orders among prosecutors and judges’. It wants the government to set up a dedicated, specialist court to hear complex cases featuring cross-border financial transactions, use of corporate vehicles or very high value proceeds.
The report cites research from the National Audit Office (NAO) which calculated that at September 2015 the total debt outstanding from confiscation orders was at £1.61bn. It says this figure is ‘problematic’ as nearly a third of it represents interest and penalties for non-payment, and because of the complexities of the cases involved, confiscation orders may be made for assets that never actually existed.
It points out that the overall enforcement rate for confiscation orders is 45%, but this varies enormously with the size of the confiscation order: 96% of orders up to £1,000 but only 22% of orders above £1m.
MPs said that given the organised nature of many of the criminals subject to large confiscation orders, it is likely that the majority of the assets that do exist are beyond the reach of the authorities. There are very few incentives for criminals to either engage with the courts or to pay the money back, with many choosing to extend their prison sentences to avoid paying.
The committee calls for assets to be frozen simultaneously with the criminal becoming aware of the investigation for the first time, often at the time of arrest, and says waiting for a conviction is far too late.
It wants the Asset Recovery Incentivisation Scheme (ARIS) – which it agrees with the NAO is not fit for purpose – to be overhauled, and the adoption of a new formula for allocation of recovered assets which ensures that at least 10% are returned or donated to the communities which have suffered at the hands of criminals.
Collection rates should be set in the context of 'collectable' and 'uncollectable' debts: not to in any way to ‘wipe the slate clean’, but to allow the authorities to concentrate on debts which can be collected.
MPs also want the government to confiscate the passport of any criminal subject to a confiscation order, until it is paid, and for non-payment of a confiscation order to be made a separate criminal offence. To enforce this no criminal should be allowed to leave prison without satisfying their confiscation order.
In addition, there should be an immediate, radical overhaul of the systems used to track seized assets, and the various databases holding information on seized assets to be merged into a single ‘asset recovery database’ accessible to all the agencies concerned.
The report is also critical of the lack of co-ordination between the various agencies involved in tackling money laundering and says the National Crime Agency to be made the lead agency for the recovery of criminal assets, co-ordinating and overseeing the various efforts and agencies operating at local levels.
It also draws attention to evidence that retention of investigators with necessary but scarce skills in financial investigation is a problem. It says skilled staff are being ‘poached’ from the public sector because it cannot match the remuneration incentives being offered by large financial firms—which may themselves be increasingly concerned about becoming the subject of financial investigations. Keith Vaz, chair of the committee, said: ‘At least £100bn, 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.
‘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.’
A Home Office spokesman said: ‘We are committed to attacking criminal finances, making it harder to move, hide and use the proceeds of crime, as set out in the serious and organised crime strategy.
‘And there is clear evidence we are making progress in this effort: the government seized a total of £1.2bn from criminals between April 2010 and March 2016, with more assets recovered in 2015/16 than ever before.’
The Home Affairs Select Committee Proceeds of Crime report is here
