If there is one overarching theme of the preliminary conclusions of our research, it is that laws and regulations are meaningless if they are not enforced. This holds true across the various strands of our project, which focuses on money laundering in the banking and real estate sectors, and also tackles issues such as philanthropic donations and ‘reputation laundering’.
At a recent GI-ACE event*, Jason Sharman presented some initial findings from his banking study with colleagues Dan Findley and Mike Nielsen. This entailed the sending out of over 40,000 emails to banks across the world enquiring about the possibility of opening an account. Based on the responses, the research indicates that banks are surprisingly insensitive to the risks of corruption, with no notable difference in positive response rates from banks in relation to the risk profile of the solicitation. Sharman and colleagues’ research shows banks are remarkably insensitive to risk.
In essence, anti money-laundering regulations that cover banks – which call for enhanced due diligence in high-risk situations — are being ignored. And when money laundering does take place, a key finding of our research on real estate indicates that the gatekeepers of dubious transactions are not being sanctioned through the laws that govern these regulated industries. For example, there have been only a handful of convictions brought under Section 330 of the Proceeds of Crime Act, a failure to report a suspicion or knowledge of money laundering across the regulated sectors of banking, real estate, accountancy and others.
There are areas where awareness of foreign corrupt practices could be better, and regulations tighter. One strand of research has examined the codes of conduct governing the acceptance of donations from academic institutions. This research, conducted by Tena Prelec, is part of our work on ‘reputation laundering’ – where oligarchs and foreign officials will donate to academic institutions or charities in order to whitewash their past and allow them access to new markets and relationships – a relatively unexplored issue. Prelec has found that just six out of the 24 Russell Group universities in the UK have established both public guidelines and an independent gifts committee.
These findings have implications for the UK government and its commitment to tackle foreign corruption, especially in light of its recently published Integrated Review. What is noticeable is that the emphasis in this review appears to be more on financial flows related to organized crime, rather than foreign grand corruption. On the plus side, the review mentions the UK’s introduction of legislation, similar to the U.S. Global Magnitsky Act, which will sanction officials involved in corruption. But in the review’s claim to “reinvigorate our efforts to tackle illicit finance,” the emphasis is very much on illicit finance that funds “organised crime groups, terrorists and other malicious actors”, rather than those specifically involved in grand corruption or kleptocracy.
This stands in contrast with the new U.S. administration, which has placed kleptocracy at the heart of its anti-corruption efforts. It is an issue that the new president appears to understand, having co-authored a piece on the dangers of what he termed “foreign dark money” in 2019. Biden went further in 2020, saying that if elected he would issue a presidential policy directive that “establishes combating corruption as a core national security interest and democratic responsibility”, a directive that is being implemented by, among others, Biden’s National Security Advisor Jake Sullivan.
As always, it will depend on how existing and new legislation is implemented. When the legislation on Unexplained Wealth Orders was introduced in the UK in 2018, it was accompanied by much sabre rattling from government officials on how the orders would be used to target corrupt foreign – specifically Russian – money. Three years later, there have been no known unexplained wealth orders that have targeted Russian money, and only two cases that featured foreign political figures, one of which ended in a disastrous failure for the National Crime Agency.
There appears to be a disconnect between government ministers, who will often laud UK’s laws and regulations, and research projects such as ours that present a different story on the ground. What is concerning is that the outlook on whether this gap between rhetoric and reality can be narrowed is not good, with reports of government plans to cut specific anti-corruption programmes by as much as 80 percent. A project reportedly at risk is one to bolster law-enforcement efforts to tackle international flows of illicit finance, a key component in the fight against corrupt officials who rely on cross-border transnational networks to funnel their ill-gotten gains out of their home countries. The government has pledged funding to reform Companies House to clamp down on fraud, a welcome step, but only a joined-up approach can counteract the illicit flows that use UK companies but originate from abroad. The coming years will be critical as the UK adjusts to a post-Covid economy: will we see government ministers take the threat posed by foreign dark money seriously or will a broken economy lead to a race to the bottom?
*On March 14, GI-ACE hosted an online webinar entitled Enabling Kleptocracy in the UK? which detailed the early findings of the project