London, the capital of money laundering?
The Financial Times has published a report analyzing how London has become the capital of money laundering. CURENTIS summarizes the FT report and evaluates it along the four stages of money laundering
London has been criticized for many years for not taking sufficiently consistent action against money laundering and has earned a reputation as the world's money laundering capital. Due to the Russian attack on Ukraine, special attention has recently been paid to the financial activities of Russian oligarchs in London.
A recent Financial Times investigation reports that 31 law firms, 86 banks and 177 educational institutions in the UK have accepted dirty money from around the world and transferred it to London. The investigation adds that the London Stock Exchange lists many Russian companies that have made the UK and London their European base.
Essentially, money laundering is divided into four phases:
- Placement
- Obfuscation
- Integration and
- Defense.
In the placement phase, "dirty money" is channeled into a legitimate financial system. Here, for example, the money is transferred from a bank account in the Cayman Islands to a British shell company. At this initial stage, the problem of money laundering can only be effectively combated if there is transparency about the identity of the beneficial owners of the company in question. It is precisely at this point that the British system is considered particularly money launderer-friendly. A company can register with the British company register "Companies House" for the equivalent of EUR 10 and set up a seemingly legitimate British company within a few minutes. The identity of the true beneficial owners can easily be concealed by using false names or so-called "straw men". But that's not all - the information of the companies registered at Companies House is not checked by anyone. This makes it easy for criminal money launderers to open dummy companies and park their dirty money there.
In the concealment phase, according to the Financial Times report, the money is moved in a series of complicated financial transactions to hide the real source of the money. The second phase is done with the help of various institutions such as British banks and often these transactions go through some British overseas territories such as the British Virgin Islands.
The integration phase is about bringing assets into the UK system. Money launderers want to buy assets, including UK real estate. In this phase, lawyers and real estate agents in particular are key players and often pave the way for money launderers to enter the UK's legal economic system. The Financial Times report reveals that it is possible to own real estate in the UK through a shell company without disclosing who really owns the property.
It is highly anticipated what steps the government will take next, particularly with regard to the Economic Criminal Act. A bill that was fast-tracked as part of the government's response to the Ukraine conflict will have a significant and long-term impact on the prosecution of financial crime and sanctions in the United Kingdom. The three main changes brought about by this Act are:
- Establish a public register of beneficial owners of foreign companies owning real estate or land in the United Kingdom;
- strengthening the system of the "Unexplained Wealth Order" and
- Modify the process for designating individuals and entities as targets of sanctions and strengthen enforcement of sanction-related offenses.
Despite the new laws, it will be a major challenge for the UK government to crack down on money launderers, whose sophisticated ownership structures often operate through shell companies. Important attention should also be paid to law enforcement agencies, as they play an important role in enforcing laws. After many years of the UK government doing too little to combat money laundering, CURENTIS believes that it will take several reforms in different areas to stop the influx of dirty money.
