Cracks in the UK’s anti-money laundering defences

The amount of dirty money passing through the City of London has, arguably, been one of the biggest open secrets of recent years. But now it seems as if the regulator is starting to point the finger of blame.

In a recent report, the Financial Conduct Authority (FCA) states that a lack of real oversight by lawyers, book-keepers and accountants is frustrating efforts to tackle the flow of illegally-obtained cash being piped through the UK.

It has raised concerns about the efforts of the UK’s 25 professional bodies overseeing the accounting and legal sectors, highlighting the fact that some were spending minuscule amounts on anti-money laundering (AML) supervision or even subcontracting this work to others. The FCA also reported on what it saw as weaknesses in these bodies’ use of their powers. This, it argues, has led to a drop in the use of fines against members who have breached the rules, as well as failures to share information with the relevant authorities.

Money laundering has to be done in a secretive, underhand way. As a result, it is difficult to say with any degree of certainty the precise amount that is being laundered through London each year. Although earlier this year, the then-deputy foreign secretary, Andrew Mitchell, claimed that almost 40 percent of the world’s dirty money was being funnelled through the City of London and the UK’s crown dependencies.

Some attention should be paid to the statistics put out by the National Economic Crime Centre (NECC), which make interesting and alarming reading. The NECC was, after all, created – and placed within the National Crime Agency – to bring together law enforcement and justice agencies, government departments, regulatory bodies and the private sector to tackle economic crime.

The NECC’s recently-published first annual report estimates that more than £12bn of criminal cash is generated each year in the UK. In addition, the report states that as much as £100bn of criminal profits is laundered through and within the UK or using UK-registered corporate structures.

Reading the FCA’s report - which is the fifth one to be produced by the FCA’s Office for Professional Body Anti-Money Laundering Supervision (OPBAS) - it is not hard to detect the regulator’s sense of frustration. If the NECC’s figures are anywhere near accurate, the FCA’s complaining about a lack of oversight by professionals and their professional bodies is understandable.

OPBAS was created seven years ago. Its role, to put it bluntly, is to keep an eye on the AML efforts of professional bodies in the legal and accountancy sectors. It aims to make sure those bodies are providing a robust and consistently high standard of supervision and ensuring collaboration and information sharing with law enforcement agencies. But, at present, OPBAS does not like what it is seeing.

This latest report sampled the work of nine bodies. They have not been named and it would be unfair to automatically assume that all the bodies OPBAS examines are guilty of the same shortcomings as the nine that have been assessed. Nevertheless, these are bodies that have to assess their member’s activities as part of wider efforts to ensure the cogs of the financial and legal worlds are turning legally and effectively. And a sizeable number of them do not appear to be excelling at their task.