Accountants, estate agents and art dealers who breached money-laundering rules were fined an average of just £1,134 last year, according to a report that says the UK’s anti-money laundering controls are not fit for purpose.
The report, Don’t Look, Won’t Find, by Transparency International, an anti-corruption NGO, also found that 15 of the 22 regulators it examined also lobby for the companies they oversee, creating potential conflicts of interest.
The findings will boost concerns that safeguards to prevent corrupt money being laundered through or into the UK are insufficient. Last month, the government’s first national risk assessment of money laundering found banks and other financial institutions were at “high risk” of exposure to corrupt funds.
“Given that the prime minister has rightly said that dirty cash is not welcome in the UK, it is appalling that a shambolic system is failing to stop that flow,” said Rachel Davies, a senior advocacy manager at Transparency International.
“Corrupt individuals are still finding the UK to be a safe haven for their ill-gotten gains and the vast majority of institutions that are meant to prevent that from happening are not up to the job. The average house price in central London is more than the total amount of fines dished out to those who laundered money through property last year.”
The organisation is calling for the government to consider stripping the 22 watchdogs of their responsibilities and creating a single regulator to ensure UK commercial firms are not assisting the corrupt.
Although most closely associated with the banking sector, where failure to properly control for money laundering risks has resulted in large fines in recent years, a range of professional services sectors – including accountants, lawyers, estate agents, high-value dealers and art and auction houses – are required to observe due diligence controls to ensure their services are not unwittingly provided to criminals. Each sector has its own regulator; sometimes there are several possible ones.
Breaches of AML procedures can involve not checking the identity of clients, failing to carry out sufficient due diligence on a client or the source of their wealth, or failing to notify the National Crime Agency when suspicious activity is detected, as companies are required to do.
Responsibility for issuing punishments falls to whichever regulator oversees the company in question. The majority publish no information about the fines they issue, and the government refused to provide individual regulators’ annual reports to Transparency International on the grounds it would compromise the commercial interests of the regulators, the NGO said.
While HMRC told Transparency International it had issued 677 penalties worth a total £768,000 in 2014-15, it refused to say which firms it had fined or why the fines were issued, and refused to break down the total by sector.
Several of the regulators are also affected by potential conflicts of interest that could interfere with their willingness to tackle money laundering within their sector, according to the report.
In October, in its assessment of the UK’s vulnerability to money laundering, the government warned that almost all the regulatory organisations are also lobby groups for the sectors they oversee or are funded by the companies they would be obliged to investigate.
Fifteen of the 22 regulators, including the Institute of Chartered Accountants in England and Wales (ICAEW), failed to separate their lobbying and supervisory roles, according to Transparency International. The ICAEW said it agreed that more needed to be done to reinforce the value of effective AML procedures, but it added that it had recently established a regulatory board to enhance further “the distinction between ICAEW’s representative and regulatory roles.”
Some sectors are also failing to submit suspicious activity reports (SARs) to the National Crime Agency when their due diligence procedures identify possible criminality, the report found. While 320,000 SARs were submitted by financial services firms between October 2013 and September 2014, other sectors submitted vanishingly small numbers of reports within the same time period.
Just 179 SARs were filed by estate agents, despite widespread recognition that the UK high-end property sector has become a target for money laundering. At least £180m of UK property is subject to criminal investigation, and David Cameron has pledged to bring in transparency measures in an effort to force corrupt money out of the sector.
The report also found an absence of individual accountability in companies where breaches had occurred. Last month, the government watered down plans to make named executives at financial firms personally responsible for regulatory failure.
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