Closing loopholes, one Overseas Territory at a time

By Rob Horton, BAE Systems Head of Financial Crime Solutions, EMEA

Criminals will soon have fewer safe havens in which to hide their money and disguise their activities.

An amendment to the UK’s Sanctions and Anti Money Laundering Bill made earlier this week will force Britain’s Overseas Territories to implement public registers of beneficial ownership by 2020, shedding light on the previously secret relationships between companies registered in those jurisdictions and their owners.

This is a crucial step forward in the fight against financial crime, money laundering, organised crime and terrorism. This information will help compliance officers in financial institutions to better assess money laundering risks while performing customer due diligence checks and conducting investigations. As a result, criminals will find it harder to hide the source of illicit funds.

The fight against financial crime is a global one and it relies on a “network effect”, which is only possible through collaboration between all parties: law enforcement, banks, other financial institutions and regulators. It is very significant that, in the future, this information will be available to all, whereas today only a small number of these territories have registers which are only available to law enforcement.

UK Charity Transparency International notes that three quarters of UK properties that are investigated in corruption cases used offshore corporate secrecy to hide true ownership. In one year alone, £3.8 billion worth of UK property was purchased by British Virgin Islands-registered companies. Last year, the Financial Times reported that hundreds of British shell companies were implicated in nearly £80 billion of money laundering.

But this move is not just about uncovering nefarious use of secret shell companies – greater transparency will also make it easier for those who have legitimate links to overseas territories, for example, by making it easier for banks to on-board legitimate customers and provide access to banking services.

Some may disagree with the way that this has come about – in 2014, David Cameron made transparency in British overseas territories a priority, but the approach of working with overseas territories to gain consensus for legislative change has not worked. In 2018, the approach is radically different: against their will and despite the risk of further impact to hurricane-impacted economies, the UK government has essentially imposed this measure on the overseas territories.

Despite this, I believe that this imposition is both necessary and right. Just as organised crime and the resultant money laundering is a global problem, leading financial centres must take bold actions that have a global impact. In taking this step, the UK has shown further commitment to making London’s global financial services industry a hostile place to launder dirty money.

But is this enough to tip the balance in the fight against financial crime? We certainly welcome the move and, even though there are still jurisdictions where secrecy is available, it will certainly land a blow to criminal money laundering operations globally. However, the UK’s anti money laundering regime needs further reform. Financial institutions currently spend huge amounts from their compliance budgets implementing systems to monitor customer activity for possible money laundering and reporting this activity to law enforcement authorities, however very few of these reports result in direct action. One change we strongly advocate is to move to an intelligence-led approach to identifying money laundering and other financial crime, using modern technology to focus on suspicious networks of behaviour and entities, rather than transactions.

By Rob Horton, BAE Systems Head of Financial Crime Solutions, EMEA

Criminals will soon have fewer safe havens in which to hide their money and disguise their activities.

An amendment to the UK’s Sanctions and Anti Money Laundering Bill made earlier this week will force Britain’s Overseas Territories to implement public registers of beneficial ownership by 2020, shedding light on the previously secret relationships between companies registered in those jurisdictions and their owners.

This is a crucial step forward in the fight against financial crime, money laundering, organised crime and terrorism. This information will help compliance officers in financial institutions to better assess money laundering risks while performing customer due diligence checks and conducting investigations. As a result, criminals will find it harder to hide the source of illicit funds.

The fight against financial crime is a global one and it relies on a “network effect”, which is only possible through collaboration between all parties: law enforcement, banks, other financial institutions and regulators. It is very significant that, in the future, this information will be available to all, whereas today only a small number of these territories have registers which are only available to law enforcement.

UK Charity Transparency International notes that three quarters of UK properties that are investigated in corruption cases used offshore corporate secrecy to hide true ownership. In one year alone, £3.8 billion worth of UK property was purchased by British Virgin Islands-registered companies. Last year, the Financial Times reported that hundreds of British shell companies were implicated in nearly £80 billion of money laundering.

But this move is not just about uncovering nefarious use of secret shell companies – greater transparency will also make it easier for those who have legitimate links to overseas territories, for example, by making it easier for banks to on-board legitimate customers and provide access to banking services.

Some may disagree with the way that this has come about – in 2014, David Cameron made transparency in British overseas territories a priority, but the approach of working with overseas territories to gain consensus for legislative change has not worked. In 2018, the approach is radically different: against their will and despite the risk of further impact to hurricane-impacted economies, the UK government has essentially imposed this measure on the overseas territories.

Despite this, I believe that this imposition is both necessary and right. Just as organised crime and the resultant money laundering is a global problem, leading financial centres must take bold actions that have a global impact. In taking this step, the UK has shown further commitment to making London’s global financial services industry a hostile place to launder dirty money.

But is this enough to tip the balance in the fight against financial crime? We certainly welcome the move and, even though there are still jurisdictions where secrecy is available, it will certainly land a blow to criminal money laundering operations globally. However, the UK’s anti money laundering regime needs further reform. Financial institutions currently spend huge amounts from their compliance budgets implementing systems to monitor customer activity for possible money laundering and reporting this activity to law enforcement authorities, however very few of these reports result in direct action. One change we strongly advocate is to move to an intelligence-led approach to identifying money laundering and other financial crime, using modern technology to focus on suspicious networks of behaviour and entities, rather than transactions.