"My message to facilitators is this: we've had a lot of focus on banks; now my investigators are going to be focusing on you." This was the warning delivered by the Minister for State and Security to the so-called "facilitators" of money laundering at the sixth evidence session of the Treasury Committee's ongoing inquiry into economic crime.
The Minister for State and Security, Ben Wallace, gave evidence on 30 October 2018 alongside John Glen, Economic Secretary to the Treasury, and Robert Buckland QC, the Solicitor-General. The key issues covered in the two-hour session are set out below. They provide a useful insight into the priorities of the government in the fight against economic crime for 2019.
1. New focus on the "facilitators" of economic crime
As noted above, the key theme of the hearing was a new drive to crack down on the so-called "facilitators" of economic crime – estate agents, public schools, solicitors and accountants – who enable criminals to enjoy their "cleaned' money in the UK. Mr Wallace admitted that such facilitators had passed somewhat under the radar in recent years while the government's attention was focused on the banking sector.
In strikingly strong language, Mr Wallace warned that the National Crime Agency would now turn the spotlight on facilitators as a matter of priority: "we have not done enough in the past around the facilitators of dirty money...they put on a nice suit and pretend they are not really engaged in the dirty money themselves, but they are as bad as the people who traffic drugs and children."
Mr Wallace told the Committee that while 621,000 Suspicious Activity Reports (SARs) were filed by banks in the last financial year, only 710 were filed by estate agents, 2,660 by legal professionals and 5,036 by accountants. Mr Wallace was clear that there would be an increase in prosecutions for failure to submit SARs in these sectors going forward. The number of prosecutions would be a key yardstick by which the government judged the success of its facilitator crack-down.
Now that facilitators have been put on notice, it will be interesting to see if there is a quick uptake in their SARs filings in 2019. It is easy to imagine the shockwaves if, for example, an estate agent or law firm were to be prosecuted. For this reason, changing facilitator behavior should arguably be easier than changing the culture of large, international banks.
2. The offence of failure to prevent economic crime
The Committee requested an update from the Solicitor General on the progress of the long-awaited corporate criminal offence of "failing to prevent economic crime". The Committee pointed out that the call for evidence on the offence had concluded in March 2017.
Mr Buckland reported that he had not yet "formed a final view" on the offence, but was "looking carefully at international comparators and working out what the best route might be." Mr Buckland noted that, in particular, he was looking into the US model of vicarious criminal liability, whereby a corporate is held responsible for the acts of an employee, even if the corporate has taken steps to prevent the individual from wrongdoing.
Questioned by the Committee as to why so little progress had been made, Mr Buckland's somewhat rueful response was that he and his department were "rather busy on Brexit." It was agreed that a recommendation from the Committee would assist in moving the issue up the priorities list. With government time and attention so consumed by Brexit, however, it remains to be seen how much progress is made despite the best of intentions.
3. The impact of Brexit on the enforcement environment
Continuing the Brexit theme, a concern raised several times by the Committee was that the government might be tempted to take a lighter-touch approach to economic crime to attract investment post-Brexit.
Mr Glen and Mr Wallace firmly denied this, with Mr Glen stressing: "there is absolutely no appetite to gain competitive advantage by loosening the regulatory environment in the UK". Instead, both affirmed that the City of London's survival post-Brexit would depend upon a reputation for cleanliness and security. There was no desire for the UK to become the "Singapore" of Europe.
Mr Wallace even went so far as to suggest that leaving the EU could in certain respects help the UK in its fight against economic crime. One advantage, in his opinion, was that a post-Brexit UK would be able to impose sanctions unilaterally as opposed to agreeing them at an EU level. This would make it easier for the UK to target sanctions at specific individuals in the same manner as the US.
4. Inadequacy of Companies House Anti-Money Laundering checks
Finally, the Committee questioned Mr Wallace and Mr Glen about the role of Companies House in the prevention of economic crime. In particular, they raised concerns about the quality of data on the Companies House "Persons of Significant Control Register", set up in 2016 as a means of introducing transparency over the 'real' owners / controllers of UK companies. Issues flagged by the Committee included the following:
- One in ten UK companies still lists no person with significant control on the Register;
- Five owners on the Register control more than 6,000 companies; and
- 4,000 beneficial owners named on the Register are under the age of two.
The Committee questioned whether Companies House had the power to verify company information submitted, considering that only 20 staff policed the Register. Mr Wallace admitted there was a "need to do more", but that verification of company data must be weighed against the importance of being able to set up a company easily, without too many bureaucratic hurdles to jump through. Mr Wallace stated that the recommendations of the Financial Action Task Force (FATF), due to report on the UK in the next few weeks, would be the "starting point" on potential reforms in this area.
The Treasury Committee's inquiry into economic crime will continue into 2019. From the evidence submitted by Mr Wallace, Mr Glen and Mr Buckland, it is clear that a focus on facilitators will be a priority going forwards. With significant government time taken up by Brexit, however, and the future of Theresa May's government uncertain, it remains to be seen how much progress will be made in the short-term. What is certain is that FATF's impending report will place the UK's efforts in combatting financial crime firmly in the spotlight in 2019.
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