UK: The Home of Organised Crime LLP

In January 2019, the Financial Action Task Force praised the UK as:

"a global leader in promoting corporate transparency and understands the potential money laundering risks posed by legal persons and arrangements" - (Ref No.1)

So why is it that every time there is a major money laundering scandal, companies formed in the UK are right in the middle of the story?

• the $200bn Dankse Bank scandal
• $23bn BCCI scandal, way back in the 1990's
• The Panama and Paradise Papers
• $80bn Russian money laundering through Scottish LLP's

And now this past week #29 Leaks about Formations House in London. - (Ref No.2)

When you learn there is a company in London, still active today, that has created 400,000 companies, clearly being used by organised criminals to launder money and hide their beneficiaries from authorities, you have to question:

What exactly the FATF evaluation review team were looking at, when they decided to give the UK such a glowing review?

In 2018 when it was revealed that Scottish LLP's had been used to launder $80bn of Russian money, the UK government announced a "crackdown on bogus firms". - (Ref No.3)

So how can a company, very much on the radar of the UK authorities, that specialises in creation of bogus firms, still be running in the UK today?

As the brilliant OCCRP has revealed, this is not small time stuff. We are talking about Mafia families, sanctioned Iranian Government oil companies, Eastern European Organised Crime gangs and many more.

In many conversations I join around the world, I hear criticism of emerging economies failures to manage the risk around opaque company formations and ownership, like free-zones in the UAE and offshore banking on tropical islands.

Just as often I hear praise for the quality of the AML regimes in so called mature economies, such as the UK and the US.

But is that fair?

Winston Churchill once said,

"However beautiful the strategy, you should occasionally consider the results"

The results for the UK are not good. The consistency which companies legally formed in the UK appear in these scandals is there for all to see.

Equally, the US, widely recognised as the most aggressive regulatory regime in the world, is also home to the State of Delaware, a global leader in shell company formations.

In fact, the excellent Global Financial Integrity report in March 2019 (Ref. No.4), revealed:

"in every State in the US, you are required to provide more identification proof to get a library card than you require to legally create a company"

The point being, for me, until the issue of hidden ownership is addressed properly, all the work being done to strengthen AML/CFT efforts, is akin to adding new bolts and locks on the front door, while the back door is left wide open.

In the year that the FATF turned 30, there have been more questions than ever about the need for a shake up of the whole organisation.

When you have a process that can praise a country as a 'global leader in transparency' when the reality is that it is the choice of home for criminals looking to hide their identity, something is clearly going wrong.

The Egmont Group has made the issue of beneficial ownership it's number one priority. The 4th, 5th and soon to be 6th EU AML Directives, all focus on this issue.

When I asked the 2018/2019 MENA FATF President (Mr Mansour) what he thought was the biggest issue we face in fighting financial crime, he said hidden ownership.

But right now the truth is that even the countries being paraded as best in class examples are failing.

In fact a quick look at the FATF Mutual Evaluation Reports of every country who has undergone the most recent 4th round of evaluations, shows that every single one has failed dismally in regards to Recommendation 24 and Immediate Outcome No.5 of the FATF guidance on beneficial ownership.

As we move in to a new decade, it's about time there was a reality check on what exactly is being done to close the back door.

It's about time there was an honest assessment of the blatant loopholes that exist in so called advanced regulatory framework countries.

The loopholes that are a major reason that as an industry we are doing such a bad job catching criminal funds - that famous 1% statistic again!

It's about time that the UK genuinely cracked down on bogus companies and it's about time we stop praising the strategy and start considering the results.

Thank you for reading

NB: The opinions expressed in this article are my own personal opinions and do not represent the views of any professional organisation I am affiliated with or represent.

1. https://www.lawsociety.org.uk/support-services/risk-compliance/anti-money-laundering/uk-performs-well-2018-fatf-assessment/
2. https://www.occrp.org/en/29leaks/
3. https://www.thetimes.co.uk/article/crackdown-after-scottish-firms-used-to-launder-russian-crime-cash-s6zpbb2kv#
4. https://www.gfintegrity.org/wp-content/uploads/2019/03/GFI-Library-Project_2019.pdf