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Penny’s Vision, Pound Wise: Global Financial Centres must Collaborate to Tackle Illicit Financial Flows

Tom Keatinge
Commentary, 11 May 2018
AML/CTF, Organised Crime
The cross-border flow of criminal finances benefits from a continued failure of money centres to cooperate

Divided by language, laws and time zones, what do Hong Kong, London, Dubai, Singapore, New York, Mumbai and a handful of other cities around the world have in common? They are all money centres that regularly feature in financial crime scandals. Between them, these cities provide all the necessary professional services – lawyers, accountants, bankers and trust and company services providers – and investment opportunities – chiefly real estate – for those seeking to undertake the large-scale laundering of the proceeds of organised crime and grand corruption.

There is no doubt that offshore financial centres (including the UK’s Overseas Territories) must do more to introduce the transparency needed to strengthen their defences against abuse by criminal actors; and countries beset with corruption must redouble efforts to bring transparency, governance and accountability to their corrupt procurement processes, state-owned enterprises and industries such as construction and mining. But the failure of global financial centres to collaborate with the objective of strengthening the integrity of the global financial system means that those seeking to enjoy ill-gotten gains still have easy access to all the tools they require.

Collaboration between global financial centres is not such an alien concept. Cities around the world collaborate frequently on issues such as climate change, resilience, policing and boosting trade and prosperity. But collaboration to strengthen their combined defences against financial crime is virtually non-existent – they are more likely to point fingers of blame at each other – despite most revelations of egregious money laundering or corruption scandals exposing the material involvement of one or more of these global financial centres.

The pivotal role of global financial centres is hardly surprising. Few domestic financial sectors can support the scale of laundering, the size of transactions and the complexity of structures employed by those seeking to launder and invest the millions of dollars they need to hide.  Crime conducted on an industrial and multinational scale needs the same financial services as a globally operating company.

Against this background, recent comments from the current UK International Development Secretary Penny Mordaunt were welcome. Addressing an audience in London in mid-April, her speech included the suggestion that the Department for International Development (DFID) would ‘explore setting up a presence in the world’s financial centres ... [working] with the National Crime Agency [NCA] and the City of London to ensure there are no hiding places for illicit flows’ within the global financial system.  This demonstrates the emergence of an understanding – at least at DFID – of the role global financial centres must play in addressing illicit financial flows. 

Billed as ‘Penny’s personal vision’ by DFID’s Permanent Secretary Matthew Rycroft, and devoid at that time of any further details, how might this vision come to pass?

It certainly won’t be advanced by posting additional NCA officers here and there. They, or other UK government crime-fighters, are often already located in these financial centres engaging with local governments to assist in addressing threats to the UK and the host government, be it from illicit trade, tax fraud, drug-smuggling or terrorism. These are tactical deployments and should continue, but do not constitute a vision. 

What is needed is a strategy of collaboration not just between the UK and the host government, but between a network of financial centres that respond to the fundamental role these locations play in the circulation and laundering of illicit financial flows. Tackling illicit financial flows requires the entire system to be strengthened, for criminal actors will target any weaknesses in the integrity of the financial system. Cooperation between financial centres is thus key. The mindset, previously illustrated by former UK Prime Minister David Cameron’s comment that ‘The UK has a long history of benefiting from over-regulation elsewhere’ needs to be reversed. Put simply, a ‘race-to-the-top’, not the bottom in regulatory and legal standards needs to be facilitated.

So, what could ‘Penny’s personal vision’ look like in practice?

First, a core group of global financial centres should be assembled and commit to using its position of influence and facilitation to tackle illicit financial flows.

Second, this group must commit to: share financial crime typologies, details of cases that involve each other and knowledge of criminal actors who are, for example, certainly benefiting from the current failure to collaborate by setting up companies in one country, opening banking accounts in another and then investing ill-gotten gains in a third. This information asymmetry must be addressed. Several financial centres – London, Singapore and Hong Kong – are already taking strides to promote better information sharing domestically to tackle financial crime. The power of connecting these initiatives must be harnessed.

Third, these centres must commit to share and implement best practice. Greater use of information sharing models such as the UK’s Joint Money Laundering Intelligence Taskforce, Hong Kong’s Fraud and Money Laundering Intelligence Taskforce and Singapore’s Anti Money-Laundering and Counter-Terror Finance Industry Partnership are needed. But so too is the wider use of other anti-financial crime initiatives such as Unexplained Wealth Orders in the UK and Geographic Targeting Orders focused on illicit finance in real estate in the US.

Fourth, as well as getting their own houses in order, financial centres need to enforce higher standards on offshore jurisdictions – and if these jurisdictions will not reform then impose restrictions on their use by finance professionals located in this network of global financial centres. Investors and bankers presented with financing structures involving ‘secrecy jurisdictions’ are already starting to take matters into their own hands, declining to support deals including locations such as the British Virgin Islands.

It is right that governments and international organisations should support less sophisticated countries to develop governance, accountability and anti-corruption measures. But it would be wrong for these efforts to ignore the facilitation role played by global financial centres. If the tide is truly to be turned on the flow of illicit finance, then the system needs to be strengthened from top to bottom, to advance the integrity of the entire financial network.

This should not just be Penny’s personal vision; it should be the vision of us all.

BANNER IMAGE: The downtown financial district of Hong Kong. Courtesy of Wikimedia

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


Tom Keatinge
Director, Centre for Financial Crime and Security Studies, RUSI

Tom Keatinge is the Director of the Centre for Financial Crime and Security Studies at RUSI, where his research focuses on matters at... read more

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