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Thursday
Jun252015

TI critiques UK anti-money laundering enforcement

This month, Transparency International published its survey of the UK’s AML enforcement and confiscation systems, particularly in relation to Financial Action Task Force (FATF) defined “grand corruption” (bribe-taking or kickbacks, extortion, self-dealing, conflicts of interest, and embezzlement from the national treasuries).

The report is available here.

TI recommends that the UK authorities should, in accordance with Article 20 of the United Nations Convention against Corruption (available here pdf), introduce Unexplained Wealth Orders (UWO) to shift the burden of proof on politically exposed persons (PEPs) to demonstrate that their possessions are legitimate -- but critically, without the necessity of the state obtaining convictions or producing proof that assets represent the proceeds of crime.

The publication provides a useful review of the UK’s existing confiscation legislation and its limitations when deployed in grand corruption cases. It graphically reveals the scale of the problem facing the authorities.

Even though the UK performs well against its OECD peers, the monies actually confiscated are minimal and are estimated at no more that .75% of global corrupt financial flows.  

Out of 14,000 Suspicious Activity Reports (SARs), only 94 were linked to “grand corruption” and out of those only 7 could be dealt within the 31-day period required for enforcement.

The Taskforce’s consultations with experts indicated that a large proportion of SARs are not refused consent simply due to lack of resources to investigate each SAR within the available timeframe….The amount of proceeds of corruption invested in the UK is believed to be very large, and, in practice, suspicious transactions and assets in the UK of foreign PEPs appear to be unrestrained apart from in a handful of cases. 

Although TI noted that the UK has a powerful legal tool in non conviction based asset forfeiture (NCBAF), it found that NCBAF was not deployed effectively in targeting grand corruption assets because of a working perception that a foreign conviction of a predicate offense was required:

Overall, the evidence indicates that current UK legislation is limiting the effective use of the SAR and NCBAF systems and preventing the UK achieving substantial effective asset recovery rates in grand corruption cases. Chiefly, the general reliance on a conviction in the origin country and the limited ability for the UK to take an independent and proactive approach to civil recovery was assessed to be the principal barrier to tackling the proceeds of grand corruption laundered into the UK.

TI said one of the major weaknesses of the UK’s AML system is the deemed consent to a SAR-transaction on expiry of the 31-day period. TI suggested that extra-territorial UWOs should be used in conjunction with SARs in order to suspend the running of time and enable an informed decision for making a NCBAF. TI referred to U.S. DOJ-funded research into the use of UWOs in Ireland, Australia and Colombia which revealed wide variations in their effectiveness with a strikingly poor Australian performance.

There is an interesting chapter in the TI report about the extent to which enhanced anti-corruption measures such as UWOs would be incompatible with the UK Human Rights Act. TI said the enhanced measure would be proportionate on the grounds that what is being sought is information and not evidence, and that individuals should be protected from self-incrimination.

TI invited the UK government to consider its recommendations. But perhaps its most telling observation -- the lack of state funding for investigations of existing SARs -- requires an explanation from the current government.

That's the minimum expected now of any bank failing to provide adequate resources for its own AML systems.

_______

Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.

Reader Comments (3)

What is a "PEP" as used in the phrase, "to shift the burden of proof on PEPs to demonstrate that their possessions are legitimate"?
June 25, 2015 | Unregistered CommenterAnn Longmore
It means politically exposed person.
June 25, 2015 | Registered CommenterRichard L. Cassin
Ann

"The shifting burden" aspect to your question in this sense is for the person (PEP in this case) to prove where their assets/wealth came from vs a law enforcement agency proving it came from ill gotten (read "improper") gains.

Hope this helps.

Kind Regards
Mark
June 25, 2015 | Unregistered CommenterMark Winters
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