The Home Office today launched its new Anti-Money Laundering Action Plan.  Here is what we think of it at Transparency International UK.

Why the Plan is needed

Corruption and organised crime have a devastating effect on society and the economy, both in the UK and overseas.  When a public official steals from the healthcare budget, ordinary people are denied healthcare; when a large multinational company pays a bribe, it undermines the economy in the country concerned, and the bribe may perpetuate the power of a corrupt politician or official.  In both cases, the money is often laundered through the global financial system.  That is why, as an anti-corruption organisation, Transparency International has a specific interest in the effectiveness of anti-money laundering systems (AML).

In common with most global financial centres, the UK does not have a great record in keeping out corrupt money.  The system set up about a decade ago is not working well, but there is enough experience and information to be able to identify where it is failing.  Since there is no comprehensively effective system elsewhere in the world, there is no obvious role model to adopt.  But there are enough pockets of good practice that it is possible to cherry pick the best ideas from around the world and meld them into a reformed system in the UK.  That is broadly the approach that the UK has taken in its new AML Action Plan.

How good is this plan? 

The headline message is this: we broadly welcome the Plan, but with some important caveats.  The proof of the pudding will be whether the good ideas are actually implemented.

Let’s start with the positive.  It is bold and imaginative in places, for example in proposing Unexplained Wealth Orders.  Credit must go to the Home Office and Treasury officials whose work has produced this plan.  It is based on a good analysis and solid understanding of the problem – the nature of global corruption and illicit financial flows and the flaws in the current system.  It contains some necessary technical reforms, for example to the Suspicious Activity Reports (SARs) reporting regime.  And it is sensible to involve the private sector as a partner, as the system still uses private sector institutions, notably banks, as our frontline defences against money laundering.

On to the caveats.  The most innovative parts of the Plan are not commitments – the only commitment on these parts is to explore or consult.  It is possible that along the way, key components of these reforms will be watered down by lobbying, or subject to political compromise.  Some elements, such as Unexplained Wealth Orders, are more important than others: but the Plan would work best as a package, and chipping away at the package would risk substantially weakening the whole structure.  On the private sector, many of the partner banks will themselves have faced big AML fines, so there will be a credibility gap – the onus is therefore on banks to prove they are worthy partners in this process.  And there are also a few important things that are not there.

First and foremost, is a continuing lack of plan to lift the veil of secrecy over the Overseas Territories and Crown Dependencies.  Given the scale of their involvement in the global financial system, and the unsavoury and often illegal activities hiding behind the veil of secrecy glimpsed through the Panama Papers, this has to be an important part of any credible UK AML planning.

Another omission is that there is no apparent plan to do retrospective due diligence on money that is already here, notably the potentially corrupt funds that were ‘invested’ in the UK through the Tier 1 Investment visas during the so-called blind faith period when visas were granted without checks on the origin of the funds being invested.

But there are further positives.  The proposal for an illicit enrichment law, in line with UNCAC; reform of the scattergun and ineffective supervisory regime; and the allocation of responsibilities and delivery dates so the plan is accountable.  These are all welcome.

What is the link to the Prime Minister’s forthcoming anti-corruption Summit in May?

There are good reasons why the UK might do this unilaterally – which safeguard the UK’s own economy and society from dirty cash.  Moreover, the U.K and its Overseas Territories and Crown Dependencies are such a significant part of the global financial system that this would help close off a major channel for corrupt capital and make it more obvious when the remaining financial centres are being used as an alternative route.  However, concerted global action would be even better, and conveniently the prime minister will be hosting an anti-corruption summit in London on May 12. That should be the ideal occasion to get others on board.

Will it happen?

In summary, if all this is implemented, the UK would lead the world in AML and it would be helping safeguard London’s reputation as a global financial centre. The Plan looks good: the question is, will it actually happen?