Combating Money Laundering and Recovering Looted Gains

June 11th, 2009

Anti-corruption watchdog, Transparency International UK, today publishes a new report that delves deep into the complex web of legal and regulatory armoury the UK employs to counter money laundering.

The report Combating Money Laundering and Recovering Looted Gains is both a review and a critique of the UK system which has been strengthened recently to meet the additional challenges of tackling the financing of terrorism. It reveals that despite recent improvements many flaws still exist – weakening the UK’s defences and allowing corrupt foreign politicians to find sanctuary for their ‘dirty money’ in the UK.

Once mingled with funds in a large financial centre like London, dirty money – whether the proceeds of looting by corruption, procurement bribery or other criminal activities – is easier to launder. The report therefore focuses on how robust the UK’s current defences are against money laundering, what should be done to strengthen them, and how – once those defences are breached – the UK should co-operate promptly to ensure looted funds are returned to the victim countries.

The team of experts who assisted in the preparation of the TI-UK report analysed the workings of the myriad laws, regulations, guidance, conventions and initiatives that make up the UK’s current defences, the interaction between the many organisations and institutions responsible for their implementation and enforcement, and their effect on real case studies.

The report reveals several serious weaknesses in the current system. For instance:

  • A corrupt foreign politician can still stash stolen money in a UK bank account
  • Trusts and shell companies can still be used to launder dirty money
  • The UK’s Overseas Territories can still provide havens for the proceeds of corruption.

Key recommendations to close the gaps identified in the TI-UK report are particularly focused on ensuring that cash and assets misappropriated by corrupt foreign politicians don’t get washed clean here in the UK, and can be repatriated speedily to their rightful owners. They include:

On preventing money laundering

  • The UK government should work with its smaller Overseas Territories (OTs)2 to ensure their financial centres and enforcement authorities have the necessary resources and capacity to prevent money laundering. If not, the UK should either invest in boosting their capacity or wind down weak OT financial centres.
  • Tighter systems to reinforce the efforts of UK banks and other institutions in identifying and doing due diligence on their high-risk customers – ie those whose profiles suggest they may be money launderers.
  • The establishment of a central database of other countries’ domestic restrictions on asset ownership by their citizens that could help UK institutions more easily identify customers who have breached those restrictions and are likely to be corrupt.

On more effective UK help for foreign countries in recovering stolen funds

  • The UK should do more to help return recovered stolen funds to their rightful owners, particularly through civil (as opposed to criminal) recovery routes.
  • A Memorandum of Understanding between all the UK organisations involved in combating money laundering and recovering stolen money should be agreed, aimed at improving co-operation and speeding up the process.
  • The UK should cushion the high cost of asset recovery for claimant states by supporting an international trust fund or providing loans and grants to meet those costs – which would be repaid once the stolen assets are released.
  • The UK should be more proactive in raising awareness of its asset recovery process among foreign countries to address current confusion and uncertainty.
  • The Department for International Development (DFID) should help developing countries increase their capacity for asset recovery – including investment in recovery specialists.

Commenting on the report, Chandrashekhar Krishnan, Executive Director of TI-UK said:

‘It’s clear from this report that despite much recent effort to tighten up its defences against money laundering and combat the financing of terrorism, the UK cannot rest on its laurels.

‘The UK is the world’s largest financial centre and is therefore vulnerable to reputational damage from allowing dirty money to circulate. What’s more, giving looted foreign funds a safe haven in this country only attracts more to its shores. That’s why the UK’s defences against dirty money must be robust and – if those defences are breached – an energetic and proactive system should be in place for repatriating looted funds.

‘Failure to tackle the weaknesses identified in our report will let down the citizens of those countries where politicians are corrupt, by continuing to allow them to stash stolen assets in the UK.’

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