Revenge of the sixth
While our European colleagues busily prepare to comply with the new Sixth Anti-Money Laundering Directive requirements – and in some cases continue to work towards full implementation of the fifth – those of us in the UK get to sit this one out. Our government believes we have equal or greater existing provisions already and it’s certainly true that our Criminal Finances Act broke ground in this regard.
In the UK we have a different set of problems to address; Europol is just one of the array of EU and EEA agencies that our national anti-financial crime framework has come to rely on, and whilst UK and EU law on information sharing remains compatible, the UK’s new status as a Third Country means before that for that information sharing to continue, there are significant GDPR barriers to overcome.
Where are we going?
All of this is widely agreed upon; the analysis is well established, and we know there is work to be done. But what is not so evident today is the direction of travel of the UK regulatory regime, and the pace of any divergence from the EU’s. It seems that some divergence will prove irresistible, though. London’s pre-eminence in financial services derived from its long history of specialisation in the sector, but owed much of its attractiveness to its EU membership. In the new world, this is an advantage it will need to replace ultimately and few seem to believe this will be most effectively achieved through dedicated adherence to the European standards.
At best this would position London as a Frankfurt wannabe or a Paris tribute band, and why would anyone choose the lookalike when the real thing is available just as freely?
It seems clear that the UK’s strategy here must be to offer some level of regulatory advantage over our neighbours, whether or not politicians are yet ready to give voice to the idea quite so bluntly. In the Free Ports initiative, we see the first strands of divergence beginning to emerge, and many will be eyeing this development with considerable alarm. The British public at large is not enamoured of tax dodgers and the characterisation of the independent UK as Europe’s new offshore tax haven is not a comfortable one. Nor is its realisation a foregone conclusion.
Where are we going?
The UK has never been a haven for predicate crimes. That is to say, the crimes that give rise to money laundering have never taken place in great volume in the UK.
Tax evasion, for instance, is a predicate crime, and not a particularly prevalent one in the UK compared with some of its near neighbours. The UK has been more closely associated over many years with activities at the very start and the very end of the criminal trails. We have created and exported the tools of criminality, such as the (then) innovative business, legal and tax frameworks we built for our overseas territories, our financial and banking innovations, such as the Eurobond and its more exotic and often baffling descendants, and such as our corporate entities and services which have become ubiquitous wherever there is an international capital laundromat.
That much of this has continued, grown or even arisen in the first place while the UK was a full member of the European Union needs to be recognised. And the UK has not been alone in these endeavours. Now that membership has lapsed, we can expect our overseas territories to be added to the EU’s black or grey lists of non-cooperative tax jurisdictions, one imagines. Their absence from these lists for so long has been solely down to the scope of the lists encompassing only Third Country territories, which will continue to keep those parts of the Caribbean flying the Netherlands’ flag unlisted. The EU does not need an offshore tax haven, being already well equipped with a number of its own.
Luxury homes prime location to hide dirty money
At the end of the money laundering chain lie the western countries that have long been trusted guardians of wealth and value. Property on the streets of New York and in the mews and squares of London and Paris is where illicit funds go to enjoy a peaceful retirement, indistinguishable by that stage from entirely legitimate funds. Brexit does not provide illicit funds with a new home; they moved in and settled down long ago. Any potential eviction is now in the hands of the UK alone.
The choice between regulatory rigour and competitive advantage is perceived widely to be a binary matter; you can either be enterprise-friendly or demand high regulatory standards. But as we learned from the UK’s and EU’s respective approaches to securing COVID 19 vaccine supplies, speed of decision making and regulatory adherence are not incompatible, whilst bureaucracy can significantly hamper the rapidity of action.
To conclude
Where does this leave us? I think that the future of UK anti-financial crime is more dynamic than its past. As a lone actor, the UK can legislate considerably more quickly than it could in concert with 27 partner nations. Its defences can be shaped around its particular vulnerabilities and be more mindful of potential collateral damage to legitimate individuals and businesses within its borders. One thing that will fuel that dynamism is the UK’s abundant resources in the fields of anti-financial crime and supporting specialisms. Our onshore data scientists, for example, virtually created the field and their expertise will be key to delivery in the new era, both for the UK and for our friends around the world.
