Is a Corner Finally Being Turned in the UK's Fight Against a ‘McMafia’ World?

So, there we have it. Those resident in the UK may have spent eight Sunday evenings – if you are old fashioned and still view television programmes by consulting the Radio Times – hoping that the BBC’s glossy, globe-trotting series McMafia might spring to life.

We’ve now learnt all there is to know about London’s role as a hub for ‘sharp suits’ laundering the proceeds of international crime, and how the City funnels dirty money around the world for those that are seemingly above the law (or at least out of reach of the UK’s National Crime Agency).

Or that is what the UK government would perhaps have us believe as it seeks to address the apparently epidemic proportions of so-called ‘High-End Money Laundering’ in the UK.

Interviewed in London’s The Times (perhaps without having had the benefit or stamina to view all eight episodes), Ben Wallace, Britain’s Minister of State for Security and, of late, also Economic Crime, observed that ‘McMafia is one of those things where you realise that fact is ahead of fiction’.

An immediate response to this ministerial quip might be that if the government’s strategy for tackling London’s unenviable reputation as the money-laundering capital of the world is to be based on the BBC’s scriptwriters, then those enjoying the opportunities the capital offers to wash, hide and invest their ill-gotten gains (or those of their paymasters) can sleep soundly.

That London – and the UK more broadly with its Scottish Limited Partnerships and Overseas Territories, such as the British Virgin Islands – has a reputational problem when it comes to facilitating high-end financial crime is hardly breaking news.

The revelations produced by the Panama Papers, the various ‘Laundromats’, and a series of investigative journalistic campaigns regularly lay bare ample evidence of the UK’s central role in all these criminal activities.

London has all the tools financial engineers – some of whom do not care about the colour of money – need to ply their trade: the rule of law, which means that any regulatory response must be evidence-based; a panoply of professional services firms, including lawyers, company formation agents and accountants, and the efficient flow of capital into a range of investment opportunities from high-end real estate to liquid asset markets.

What London has lacked as this industry has burgeoned over the past ten–fifteen years is the law enforcement response to match. Resources are scarce and investment lacking. Financial investigators would rather answer the call of well-paid job opportunities and promotional prospects in the banking sector than persist with public service; the technology used by law enforcement officers to analyse and interpret the mountains of financial data with which they are presented is notoriously outdated.

The complexities of the schemes employed by many high-end financiers – crossing jurisdictions, obfuscated by shell companies and nominee shareholders, and employing every possible legal loophole – are designed to make the lives of those charged with disrupting these activities impossible.

And they succeed. Put simply, while the UK may be able to police the financial crime activities of a typical country of 65 million people, it has been unable to commit the law enforcement resources and investment needed to develop the capabilities to match its role as a leading global financial centre.

But perhaps 2018 will be the year where the UK begins to turn the corner, where those who seek, in the words of former Prime Minister and anti-corruption champion David Cameron, to stash their dodgy cash in London, begin to think twice.

Passed into law in April 2017, the Criminal Finances Act introduced Unexplained Wealth Orders (UWOs) into the armoury of those seeking to strengthen the integrity of the UK’s financial system. Those so-called politically exposed persons from outside the European Economic Area who are unable to explain the source of wealth used to, for example, purchase multimillion-pound properties, will have their assets frozen until a satisfactory answer is forthcoming.

Although much hope has been pinned on the arrival of these new powers, in force since the beginning of February, their success elsewhere in the world is mixed. In a report published by RUSI last year, Australia and the Republic of Ireland’s experiences were compared, both of which hold analogous ‘reverse burden of proof mechanisms’.

In the case of Ireland, a combination of efficient information-sharing, resources and a fertile political climate has meant that the country holds an impressive civil confiscation record. Australia, conversely, has yielded patchy results; with a lack of expertise in financial investigation, poor resource allocation and a degree of judicial reserve being attributed to the fact that use of the orders have not been prioritised. There is much that the UK can learn from both cases now that its own version of UWOs are on the table.

UWOs are undoubtedly welcome and, if deployed, will be a valuable tool for both freezing and deterring illicit investment in the UK. But UWOs will not by themselves address the challenge London faces.

A properly funded strategic response is required, a response that does not simply rearrange existing resources under a new banner, but rethinks how to tackle the UK’s role in high-end illicit finance. A response that assesses, from end-to-end, the activities of illicit financiers and moves away from the blanket suspicion placed on entire sectors such as estate agents.

Standards in the private sector must be raised by the greater use of enforcement, but so too must standards, investment and capabilities be raised within those government agencies charged with responding to these crimes. Until that happens, we are – to coin a phrase – simply rearranging deckchairs on the Titanic.

The UK government’s two-month vicarious engagement via the BBC with a serious international threat to which London is central is now over. However, the hard work begins, and that will be assessed by the global standard-setter for anti-money laundering (The Financial Action Task Force) in March.

If, as Wallace asserts, corruption and organised crime weaken Britain’s defences against terrorism, then the state’s response remains dangerously underpowered. That there was no sign of financial sector supervisors or law enforcement in McMafia is perhaps an unnecessarily critical detail.

Yet perhaps it is indicative of how absent the fear of suspicion or detection are for those that continue to use London as a central part of their illicit financial activity.

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