Wednesday, October 28, 2020

UK Government criticised for giving banks key oversight role over fraud and money laundering policy

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Government plans to combat money laundering, fraud and other economic crimes have come under fire for allowing banks that have previously been implicated in wrongdoing to play a key role in writing the new rules.

The National Crime Agency estimates that hundreds of billions of pounds of dirty money flow through the City each year despite obligations on banks to prevent such flows.

But under plans unveiled on Friday, HSBC, RBS, Barclays, Morgan Stanley and banking lobby group UK Finance have been given places on the Economic Crime Strategic Board, which sets priorities for combating economic crime and is charged with holding companies to account on the issue.

The news prompted allegations that the government had allowed “corporate capture” of a key area of policy.

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Conservative MP Kevin Hollinrake said current rules intended to prevent economic crime were not fit for purpose and have failed to deter offenders.

“In 2016 the government seemed committed to putting these measures in place so it is now very disappointing that it now seems to have dropped these plans without any explanation, despite the strong support for these changes on both sides of the house,” Mr Hollinrake said.

“It is also very worrying that the members of the body charged with the responsibility for this, the Economic Crime Strategic Board Taskforce, includes the CEOs of the major banks; Barclays, Lloyds and Santander and UK Finance. It seems unlikely that these executives would see it in their interest for this legislation to come forward.

One of the new board members, HSBC, agreed to pay a record $1.9bn fine to US authorities in 2012 after allowing drug cartels and terrorists to launder hundreds of millions of dollars through its US branches. American prosecutors said the bank was guilty of a “blatant failure” to implement money laundering controls.

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More recently, RBS and Barclays have also faced questions over their role in allegedly processing millions from a $80bn Russian money laundering operation known as the “Russian Laundromat”.

In March, majority state-owned RBS said it was looking into separate allegations of Russian money laundering at ABN Amro, the Dutch lender it acquired shortly before the financial crisis.

Now the banks will sit on the board that monitors and develops economic crime policy, presenting an apparent conflict of interest between setting priorities that crack down on crime and those that maximise their profits.

Sue Hawley, policy director of Corruption Watch, expressed concern that banks were present on the board.

“The UK’s largest banks and their trade body are being given a key role in holding the economic crime system to account, when that system should be holding the banks to account,” Ms Hawley said.

“It portrays the banks effectively as victims rather than potential perpetrators of economic crime. Clearly, they are both.”

This is “particularly egregious”, Ms Hawley said, because the government’s new strategy fails to tighten up the UK’s corporate liability rules, leaving banks effectively “above the law”.

Currently, companies can avoid prosecution despite turning a blind eye to serious economic crimes because they can be held liable only if someone senior enough to be considered a “directing mind” is proven to have been involved in or known about the criminality.

Two and a half years ago, the government committed to consult on extending the criminal offence of “failure to prevent” – which currently applies only to bribery and tax evasion – to economic crimes such as fraud and money laundering.

However, after an initial call for evidence, no progress has been made.

Duncan Hames, director of policy at Transparency International UK, called for urgent reform of the “Victorian-era principles underpinning the UK’s corporate liability laws which allow big corporates off the hook for turning a blind eye to economic crimes”.

Global Witness issued a scathing assessment of the government’s plans: “To all intents and purposes, this economic crime plan is formalised policy capture of the economic crime agenda by precisely the corporations it ought to be policing,” said senior campaigner Naomi Hurst.

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“Allowing banks an exclusive seat at the table to determine their own regulations was always going to be a recipe for disaster.”

Despite criticisms, some elements of the plans were singled out for praise. Ms Hawley of Corruption Watch said it was positive that the government had recognised the key role played in economic crime by professional enablers such as lawyers and accountants who set up companies and trusts through which criminals can move illicit funds. The government has also committed to find a way to sustainably fund economic crime enforcement.

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