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Economic Crime Plan not enough to combat money laundering epidemic

By Charlie Delingpole, CEO, ComplyAdvantage

It should come as a surprise to no-one that the UK government’s Economic Crime Plan falls well below expectations.

The plan fails to address corporate liability but manages to develop the corporate-government relationship through a new board for oversight on economic crime policy. A move made so the government can better understand money laundering and other financial crimes.

The UK’s economic environment has long been a comfortable one for criminals wishing to take advantage of a financial hub that’s designed to maximise legitimate competitive financial behaviour. This environment has been twisted over the years to create a haven for financial crime, and it has real effects, such as property developments being bought without being properly audited, or sometimes just non-audited.

London’s property market is just the tip of the iceberg. Money laundering is a crime that processes $2 trillion annually across the globe, yet less than 1% of that is ever reclaimed. When you consider at least £100 billion is laundered through the UK economy alone (only around £34 million of that was caught in 2018/19)an Economic Crime Plan costing £48million is less than impressive.

The previous UK government’s plan has been roundly criticised by campaigners seeking tougher penalties and a process that doesn’t validate having absurdly complex business structures.  Companies may only currently be held liable for wrongdoings if someone of sufficient seniority was aware – something that’s significantly easier to prove at a business with only a few layers of management.

Campaigners have latched onto this injustice and they are right to be annoyed. Criminal behaviour permitted by senior leadership is an issue for serious concern but it should be considered separately.

Companies should be held liable for the actions of their employees – it’s common practice elsewhere but for some unknown reason, financial crime is given a special set of rules.

Further criticism has been aimed at the plan’s decision to place some power in the hands of banks, those who some critics see as complicit in financial crime. It’s an unfair characterisation of the role big businesses play. And it fails to recognise the necessity of including banks in the decision process around finding a workable solution to financial crime.

In reality, banks are working hard to commit to stringent regulatory processes that cost eye-watering amounts to keep up with. Compliance officers need to be employed in the hundreds if not thousands and are then stretched to the limit through archaic processes and underwhelming legacy technology. Banks need to be closely involved with the board regarding its approach to financial crime – without that relationship, there could easily be miscommunications that result in unworkable regulations. That would achieve nothing but incur high costs and waste time. Ultimately, benefiting those who exploit the system.

The problem with the plan isn’t that banks are on the board, it’s the distinct lack of scope and ambition. Without a concerted effort by national governments the difficulty of eradicating financial crime ramps up significantly as it is left to private companies to deal with the issue without real support.

However, this plan is a step in the right direction. While the scope is lacklustre it does show a commitment and sense of will to honestly tackle the root causes of financial crime in the UK.

The relationship built between corporations and government through the board should help in identifying where the weak points are in the system that financial institutions are struggling to deal with alone.

Many of these weaknesses can be dealt with through modern technology platforms and by properly utilising data access. Unfortunately, that’s not possible using legacy providers and banks are missing out on delivering a solution that proactively works against financial crime by having to focus on reacting to crimes once they’ve happened.

It’ll be interesting to see if the new government revises the Economic Crime Plan to take a more robust approach. Especially in a regulatory environment that will allegedly soon be capable of creating as much or as little legislation as it wants.