Get Serious: Illicit Finance is a Threat to the US–UK Special Relationship

For the past four years, antics in the US have drawn a degree of international attention away from the UK’s problems combatting illicit finance. Investigations into President Donald Trump’s finances, Russian funding of interference in US democracy and efforts to reform the transparency of US company ownership have consumed the global illicit finance community. Over that same period, the leadership displayed by the UK in this field has waned.

But now, with the imminent arrival of Joe Biden in the White House, all this is rapidly changing, and the lack of UK political direction on illicit finance is becoming painfully obvious. As financier Warren Buffet famously noted, ‘you only find out who is swimming naked when the tide goes out’. For Boris Johnson and illicit finance, that embarrassing moment is about to arrive.

Biden’s Approach

Over a year before he formally entered the race for the Democratic Party’s presidential nomination, Biden made clear his position on illicit finance and, importantly, the vulnerabilities that allow it to threaten democratic political systems. His co-authored article laid out the ways in which Washington and other Western capitals should respond to the threat posed by illicit finance. The article rightly placed much of its focus on the significant weaknesses in the US that are freely abused by kleptocrats, the corrupt and those with malign intentions. But it should not escape the notice of readers – particularly those within the UK government – that the call to arms was not merely for a stronger response in the US, but also to all those responsible for the facilitation of illicit finance.

Earlier this year, Biden underscored the importance of tackling illicit finance, committing to combat corruption ‘as a core national security interest and democratic responsibility’ and ‘lead efforts internationally to bring transparency to the global financial system, go after illicit tax havens, seize stolen assets, and make it more difficult for leaders who steal from their people to hide behind anonymous front companies’.

Fast forward to today, and the centrality of the fight against illicit finance to the incoming Biden administration – both at home and abroad – is unmistakable. Jake Sullivan, selected by Biden to be his national security advisor, recently noted that one of his objectives is to ‘rally our allies to combat corruption and kleptocracy’. As an ally and leading global financial centre overseeing a network of enablers and financial tools that service kleptocrats and the corrupt, the UK should expect that much will be asked of it.

Furthermore, the rare bipartisan support for the raft of illicit finance-related elements of the National Defense Authorization Act, resoundingly passed in Congress last week, highlights the extent to which the US political leadership can be expected to support the incoming president’s mission.

London Calling. Or Not

None of this will have gone unnoticed in Whitehall, we can assume. And despite a series of steps in recent years, some remedial (efforts to reverse declining operational staffing), some organisational (the creation of the National Economic Crime Centre) and some innovative (the introduction of Unexplained Wealth Orders), the UK remains a central problem in global illicit finance, noted as a ‘higher-risk’ illicit finance jurisdiction by the US Financial Intelligence Unit (FinCEN) in recent leaks.

No amount of investment and operational shuffling of the deck can make up for a lack of leadership. The absence of ‘tone-from-the-top’ on illicit finance and the UK’s role in facilitating this damaging criminality has been striking. Indeed, when presented with an opportunity to demonstrate leadership on the issue at the time of the publication of the Intelligence and Security Committee’s Russia Report, Johnson and his lieutenants remained elusive, falling back on the tired and misleading refrain that the country was ‘praised’ by the Financial Action Task Force (FATF) when its response to money laundering was reviewed in 2018.

Some in government will point to the introduction and deployment of global human rights sanctions and the anticipated addition of a corruption regime as indicators of its ambition to ‘lead as a force for good in the world’. These indeed leverage the country’s ability to restrict access to its financial system, but the deployment of sanctions does nothing to address the tools with which the UK furnishes those seeking to launder and hide their illicit gains or the fragmentation of the UK’s response to its central role in the global illicit finance web.

What Needs to be Done

Boris Johnson and his cabinet colleagues are undoubtedly keen to build a positive rapport with the new administration against a background of Brexit disagreement and fragile credibility on the global stage. Honestly engaging with the threat of illicit finance and the role the UK plays in facilitating the profiteering of international organised crime groups, the actions of corrupt elites and kleptocrats, and those funding efforts to undermine democracy would certainly help.

So, what is to be done? As a matter of priority, the prime minister must put in train a series of unequivocal actions.

First, urgent re-energising of transatlantic collaboration mechanisms between London and both Washington and New York is required, including greater investment in the joint UK–US strategic dialogue on illicit finance to develop joint analysis and operations.

Second, the UK must move beyond viewing illicit finance simply through the prism of the FATF. As members of the government are keen on frequently repeating, the FATF ‘found that the UK has one of the strongest systems in the world for combatting money laundering and terrorist financing’. Yet this is merely a fig leaf, and despite this assessment, material problems persist as many illicit finance scandals are covered with the UK’s financial fingerprints. This suggests that the view of illicit finance as a technical problem, with the response centred on HM Treasury, must change.

Third, the widely fragmented UK response to illicit finance needs to be consolidated into a properly-resourced, centrally-led unit with the same profile and prioritisation in Downing Street as other national security threats. This should include expansion and investment in the network of international illicit finance advisors that form ‘SOCnet’ and the National Crime Agency international liaison officers, and the proper resourcing and empowering of the National Economic Crime Centre.

Fourth, active investigation of those suspected of abusing the UK financial system to threaten UK and international security and democracy must be pursued, notably those contained in the Russia Report and its confidential Annex.

Fifth, parliamentary time must be made to pass the ‘oven ready’ Registration of Overseas Entities Bill that will bring transparency to offshore property ownership in the UK; and the process for Companies House reform must be far more urgent and ambitious.

Sixth, the UK must ensure that along with the likely priorities of climate, global health security and post-coronavirus economic resilience, tackling illicit finance – beginning at home – is a priority for its G7 presidency.

The Need for Leadership

Finally, and most importantly, this broad initiative must be led visibly by the prime minister, anchored by a high-profile speech early in the New Year committing to use the UK’s position as a global financial centre to drive forward a transatlantic effort to combat illicit finance and accelerate the much-needed reforms at home.

As the UK strives to redefine its role in the world, Boris Johnson would do well to look at the tools he has at his disposal. London – and the UK more broadly – will remain a central player in global finance for the foreseeable future. Building on that role to display genuine leadership in combating illicit finance and the damage it causes both at home and around the world should be an easy choice – a choice that the incoming Biden administration may expect as a price for support in the coming years.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.