MPs Blast 'Shameful' UK Efforts To Tackle Dirty Money

Law360, London (June 30, 2022, 12:02 AM BST) -- Britain's role as a safe haven for corrupt wealth is a "stain on our reputation," an influential group of MPs said on Thursday as they urged the government to introduce tougher laws and enforcement powers to clamp down on kleptocrats using London to launder criminal wealth.

In its latest report assessing how the U.K. is combating the flow of illicit finance, the parliamentary Foreign Affairs Committee called for legislation to be sharpened to crack down on enablers of corrupt wealth. The lawmakers want tougher powers to be handed to authorities that are not sufficiently well-equipped to bring criminal cases to trial.

The cross-party group, which scrutinizes U.K. foreign policy, said government rhetoric is "not matched by reality." The MPs noted that it was "shameful that it has taken a war to galvanize the government into action".

Tom Tugendhat, the Conservative MP who chairs the committee, underlined the sentiment, adding,"It is shameful that it took a second invasion of Ukraine to force the Government's hand."

"We need much more fundamental — and long-lasting — legislative changes to weed out the scourge of dirty money," Tugendhat said. "The government must bring legislation in line with the morals of the British people and close the loopholes that allow for such rife exploitation."

The cross-bench committee said the Economic Crime Act, which was rushed through Parliament in March in response to Russia's invasion of Ukraine, does "not go far or fast enough."

The legislation establishes a register of beneficial ownership of overseas property and reforms to Unexplained Wealth Orders, a tool that allows prosecutors to order individuals to explain how they paid for assets that investigators suspect were bought with the proceeds of crime. But the changes "do little to address the fundamental mismatch between the resources of law enforcement agencies and their targets", the report found.

Among the proposals, the group called for an increase in resources for agencies responsible for tackling illicit finance and bringing cases to trial, such as the National Crime Agency or Serious Fraud Office.

"Without the necessary means and resources, enforcement agencies are toothless," the committee said.

Greater accessibility to beneficial ownership information is necessary, the MPs said. They called for reform of Companies House, including new powers for the company registrar to verify information as well as discretionary powers to remove corporate entities from the register for wrongdoing.

Wider knowledge of information about assets would improve broader compliance with sanctions and cut evasion of such measures, the committee said.

The U.K.'s existing sanctions legislation also got a boost from the introduction of an urgent procedure for imposing sanctions on individuals already designated by allied nations such as the U.S., the European Union, Australia and Canada.

But the report found the U.K.'s sanctions regime to be "under-prepared and under-resourced."

"Furthermore, the government appeared to lack a grip on both the enablers of potential sanctions targets and, crucially, their proxies to whom wealth was transferred," the committee said.

The MPs also said enforcement agencies should consider whether there was a criminal case for seizure of Russian oligarch assets frozen after the Ukraine invasion.

To do so, the government must provide the sanctions unit with the necessary additional funding as well as developing a "professional sanctions cadre" to develop sanctions design and targeting as a recognized professional specialism", the committee said.

However, legal experts have suggested that the new provisions do nothing to change the limits on the powers that authorities have to recover frozen funds and property.

The MPs also called on Thursday for reform of "outdated and ineffective" corporate criminal liability laws, which they said make it difficult to hold large companies to account for economic crimes.

The Law Commission, the organization responsible for reviewing Britain's legal code, has outlined several reforms, including making companies liable for failing to prevent fraud by their employees.

The growing use of strategic lawsuits against public participation, or SLAPPS, must be addressed, the MPs said, adding to the chorus calling for reform. These suits are often used by wealthy individuals to stifle investigation or criticism by bringing expensive defamation suits.

The committee said it would coordinate with other bodies to limit the potency of such lawsuits and to "curb professional enablers" such as law firms that "wittingly or otherwise help kleptocrats to establish a financial foothold in the U.K. and to stifle investigation of their affairs."

MPs also said the government should publish its review of the Tier 1 Investor visa scheme, known as Golden Visas, to ensure applications are granted to foreign individuals with the necessary due diligence.

According to the report, Transparency International said in 2015 that it was likely that the "golden visa" scheme — which allowed a recipient to stay in the U.K. for three years in exchange for a minimum £2 million investment — had been used to launder "substantial amounts of corrupt wealth" from Russia and China.

Whitehall must also say what action will be taken against individuals deemed to be a national security risk, the MPs said.

A government spokesperson said there is "no place for dirty money in the U.K., not least that linked to Russia. We have taken robust action to crack down on illicit finance including by toughening up enforcement action and transparency requirements in order to target corrupt elites, and earlier this year we set out our plans to go further than ever in bearing down on anyone who seeks to abuse our financial system.  

"We are one of the most active countries in financial sanctions enforcement in the world and our experts are on constant alert to combat the threat," the spokeperson added.

--Additional reporting by Richard Crump. Editing by Ed Harris.

Update: This story has been updated with comment from the government. 

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