Heading for the Brexit? Tackling Financial Crime Needs More, Not Less Partnership

As the date for the referendum on the UK’s membership of the EU approaches, the focus of debate has settled on the impact that so-called ‘Brexit’ would have on security, the economy and immigration.

For the financial crime-combating community, the question of Brexit brings together two of these issues: security and the economy – or, more precisely, the issue of fighting crime and the position of the UK as the leading international global financial centre. The latter point has received much media coverage, with most ‘current practitioners’ in the financial sector expressing a preference to remain part of the EU given the benefits that accrue to locating a financial services business within the EU and ‘passporting’ activity seamlessly into the other member states without incurring further regulatory impediments. The former issue – security/crime-fighting – has also been widely discussed by politicians and former security and intelligence leaders in broad terms; however, the impact that Brexit would have on tackling financial crime has so far been neglected.

The UK has, over the past two years, placed considerable national security emphasis on the importance of tackling financial and economic crime. The recently published Action Plan for Anti-Money Laundering and Counter-Terrorist Finance reiterates the government’s commitment to protecting the security and prosperity of citizens and the integrity of Britain’s world-leading financial system by vigorously pursuing those who abuse it for illicit means. It therefore seems right to question the extent to which this commitment would be affected by the UK’s exit from the EU.

It would seem that, prima facie, leaving the EU would be entirely negative for the UK’s efforts to tackle financial crime (including terrorist financing) for the simple reason that, given the globalised nature of finance, tackling the associated crime needs more, not less partnership. The former heads of the Security Service and of the Secret Intelligence Service (MI5 and MI6) have drawn attention to the importance of the cross-border data sharing within the EU on which the UK relies to help ‘reveal the associations and activities of terrorists and cyber-attackers’. This co-operation is equally imperative for combating the financing of such malevolent actors and identifying those that perpetrate extortion, money laundering and corruption.

Finance is a highly globalised industry. Payments, particularly those associated with corruption, trade-based money laundering and sanctions circumvention, are necessarily transnational and can only be disrupted if information can be exchanged between nations and financial institutions efficiently. As evidenced by the hand-wringing of international leaders after each of the recent terrorist attacks in Europe and further afield, accomplishing arrangements for the sharing of information is a challenging task. Lack of trust and different cultural approaches to – and legal positions on – data privacy frustrate, at the best of times, the sharing of information to disrupt all forms of crime and terrorism, including financial crime and the financing of terrorism.

Of course, Brexiters will retort that many of the structures created to combat financial crime and terrorist financing are themselves global and are thus unrelated to EU membership. First among these is the Financial Action Task Force (FATF), the global standard-setter for anti-money laundering and counter-terror finance. The UK is, in its own right, a leading member of this group of 35-member jurisdictions and two regional organisations, and it would continue to benefit from the FATF’s work regardless of its status within the EU.

Likewise, the UK Financial Intelligence Unit’s membership of the Egmont Group of Financial Intelligence Units would be unaffected by Brexit, as would the UK’s membership of the G20 and G7, other bodies that busy themselves with matters related to financial crime and terrorist financing. Similarly, the status of the UK banks that are members of the Wolfsberg Group, an association of thirteen global banks which aims to develop frameworks and guidance for the management of financial crime risks, would also be unaffected by Brexit, since their membership is a function of their size and global importance. Yet most of these structures are focused on policy, not the operational reality of disrupting financial crime, which requires close, cross-border co-operation and information sharing.

As with everything currently discussed within the Brexit debate, the interconnectedness of the UK with other EU member states means that it is simply impossible to walk away from the EU and not continue to feel the impact of its rules and regulations. The recent Schrems case provides a timely reminder that non-EU countries’ data privacy laws must be ‘essentially equivalent’ to EU law if data is to be shared with a country outside the EU. In that case, an Austrian citizen, Maximillian Schrems, argued that – contrary to the view laid out in a 2000 European Commission directive – the US did not comply with the EU’s data protection standards. The European Court of Justice found that, given the 2013 Snowden revelations, the Commission’s directive was now invalid. Given the significant financial links between the UK and the rest of the EU – both for business and for tackling financial crime – it is hard to imagine that the UK would risk breaking critical information-sharing links by turning its back on Brussels-derived data protection regulation, even though this regulation at times frustrates the UK government’s efforts to widen its own data sharing and surveillance powers. So if the UK wants to maintain its information-sharing links it must abide by EU data protection regulation, yet leaving the EU would mean having no say in the development of this regulation.

The value of EU membership for fighting crime, particularly cross-border crime, has been well argued: it provides civil judicial co-operation measures; it provides access to EU police and criminal justice tools that ensure effective collective action and also grants access to European criminal records information. In addition to these general crime-related procedures and agreements, EU membership also gives the UK access to specific financial crime-fighting systems such as FIU.net and other initiatives run by Europol.

While some might welcome escaping the clutches of allegedly ‘bizarre’ EU legislation such as the 4th Money Laundering Directive, which advocates greater scrutiny of domestic politicians, the globalised nature of finance and the necessarily cross-border nature of efforts to respond to associated criminality mean that – at a time when the sharing of information to combat financial crime and terrorist financing is an international imperative – any action that reduces the UK’s ability to participate in information-sharing mechanisms and forums would seem counter-intuitive.

For those tasked with tackling financial crime and fulfilling the UK government’s pledge to make the country ‘a more hostile place for those seeking to move, hide or use the proceeds of crime and corruption or to evade sanctions’, Brexit would be a significantly retrograde step.