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OPINION: Ukraine sets lackadaisical UK government acid test in tackling corrupt wealth

By <strong>Nick Kochan</strong> for AMLi
By Nick Kochan for AMLi

Nick Kochan is a commentator on regulation, enforcement and white collar crime. He is author of The Washing Machine, a study of money laundering and other works on corruption and fraud.

The UK has made some bold claims about the ferocity of its crackdown on Russian money invested in its London property market and its pursuit of oligarchs owning companies in its dependent territories.

But the reality is much less impressive. A group of Westminster MPs have found the UK agencies slow to act and they have found the legal tools at their disposal inadequate[i].

The MPs on the Foreign Affairs Committee, which has just published a report entitled “The Cost of Complacency: Illicit finance and the war in Ukraine” are far from convinced that London has managed to discard its reputation as the favoured haven for Russian and Chinese (among others) dirty money.

The MPs pour cold water on Britain’s Economic Crime (Transparency and Enforcement) Act 2022 (ECA) as a tool to toughen up UK law enforcement’s pursuit of oligarch wealth. The Act stiffens the UK’s register of beneficial ownership, it gives some financial cover to the National Crime Agency engaged in expensive legal action and it bolsters some sanction legislation.

But so much is left over for another day, like the reform of Companies House, measure to seize crypto assets (possibly something fast becoming redundant given the sector’s collapse), the control of Scottish Limited Partnerships, the protection of journalists and whistleblowers from threatening lawsuits and so on.

The Act, according to the MPs “represents a small proportion of the long-awaited measures that will begin to address the UK’s vulnerability to illicit finance.”

The MPs lay into the ease with which those who seek to evade disclosing their beneficial ownership can do so, given that only those owning 25% or more of a company’s shares or interests need to disclose their interest. The language is unambiguous. “Oligarchs could divest themselves of any legal interest in or control of their assets, such as transferring property to their children but continue, in all practical respects to enjoy it.”

One of the long-standing complaints expressed by law enforcement has been the problem in using the criminal law to freeze corrupt wealth so the UK introduced a civil law mechanism, the Unexplained Wealth Order. 

Legal attacks from oligarchs have been painfully successful, to the extent that only a single UWO has resulted in the return to the state of any corrupt assets. Despite some remedies in the ECA, the MPs are not optimistic that the measure will enable the state to pierce the veil of offshore companies holding criminal wealth any more successfully.

“The difficulty in investigating kleptocratic wealth is that the property may have been purchased via complex offshore structures,” said the report.

The law is not the only problem facing the prosecutors in pursuit of corrupt wealth. They are beset by resource issues, that have long plagued prosecuting agencies. “Law enforcement budgets prevent them from hiring financial investigators, technical experts and legal expertise.”

The MPs express the concern that the UK will become a paper tiger, that barks at holders of corrupt wealth but fails to rein them in. One route to a stronger performance (but surely not the only one) would be provided by adding to the funding of key prosecutors of corrupt wealth, like the Serious Fraud office and the National Crime Agency.

Citizenship arrangements have proved no less leaky. Oligarchs entered the UK almost unchecked while its Golden visa scheme was operative.

Between 2008 and 2015, those capable of making £1 million (and latterly £2m) worth investment in the country were waved through on the basis of ‘blind faith’ (a term used by the MPs) that the money was clean.

It took until February 2022 (and the invasion of Ukraine) for the British government to wake up to the risks to the financial system, that the scheme posed. A retrospective investigation into Tier One visa holders has found no less than seven have been sanctioned by the UK government.

The UK was a follower rather than a leader in the imposition of sanctions, say the MPs, pointing to the variance between the UK’s bellicose statements about its war on oligarchical wealth and its delivery. 

“The order in which oligarchs and others were sanctioned does not appear to be based on a coherent strategy but on following where allies led,” say the MPs, a damning indictment of British preparedness for Russia’s well signalled invasion of Ukraine.

More encouraging is the speed with which the Government has built up a Sanctions Taskforce. Between December 2021 and April 22, the force grew from 48 members to some 150, yet questions remain over financing.  Doubts persist over resourcing and financing of a sanctions system which is pushing both those in companies, financial institutions and government to the limits of their competence and resources.

The issue is complicated by the amount of information and guidance private sector operators require from government to avoid breaching the rules which would put them at risk. “The government has an obligation to help guide institutions through the sudden gear change in policy, not least because it has introduced a strict liability for breaches.”

Pressure on corrupt Russian wealth following the invasion of Ukraine has put something of a rocket under the lackadaisical British government’s easy treatment of corrupt wealth. Whether the pressure translates into action to discomfort some friends of the British government and of its financial community will be the acid test of its recent bravado.


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