14 January 2019, by Sue Hawley, Policy Director of Corruption Watch UK and SCSC Practitioner Fellow
This post was originally published on the Sussex Centre for the Study of Corruption website.
When FATF released its evaluation of the UK’s anti-money laundering and counter terrorist financing regime in December 2018, giving it almost full marks, civil society organisations were dismayed. Global Witness accused the review body of being ‘asleep on the job’. RUSI questioned “the relevance” of the evaluation given the UK’s repeated role in global money laundering schemes.
FATF – the global anti-money laundering body – is one of the most feared and respected review bodies on the international stage. Unlike equivalent review bodies such as the OECD or UN, FATF has the power to blacklist non-cooperative jurisdictions – a sanction that could seriously impact a country’s credit ratings and ability to access international finance.
Lacking transparency and stakeholder input
Unfortunately, FATF also happens to be one of the least transparent and participatory of the international review bodies, with very little public or civil society input into its reviews. It meets primarily with governments and the private sector, including civil society groups only to discuss one specific recommendation (8) on measures to prevent non-profit organisations being susceptible to terrorist financing, and then only a narrow set of CSOs. UK civil society groups asked the UK government and FATF several times to meet with evaluators to discuss broader money laundering policy issues – unsuccessfully.
The result of only meeting a narrow range of stakeholders is that FATF evaluators only hear the narrative of the government under review. Voices with good evidence that might question that narrative, such as civil society and academia, are effectively excluded. FATF’s UK evaluation is a perfect example of this.
UK’s high ratings ignore reality
FATF gave the UK one of the highest compliance ratings of any financial centre, finding it substantially or highly effective in 8 out of 11 key goals, and compliant or largely compliant with 38 out of FATF’s 40 Recommendations. The UK got 14 more full technical compliance ratings than the US and 17 more than Switzerland – the countries with the closest financial centres in size. The UK government was unsurprisingly jubilant, crowing in a press release that FATF had found the UK to be “leading the world in the fight against illicit finance.”
The UK’s high rating however seems seriously at odds with both the scale of money laundering through the UK, officially estimated to be hundreds of billions of pounds a year and evidenced in the UK nexus to multiple money laundering scandals, and with the results the UK has had so far in combatting it.
To take one example, the UK was given a substantial effectiveness rating for investigating and prosecuting money laundering. The UK achieves 1,200 convictions for money laundering a year. Despite the fact that the FATF report recognises that the vast majority of these are for minor drug-related offences and that UK companies are “rarely convicted” since the ability to prosecute large companies “remains limited” due to seriously outdated corporate liability laws, FATF concludes that the UK “routinely and aggressively” prosecutes money laundering. This clean bill of health provides no incentive for UK authorities to consider any serious improvements in this area, such as resources for fighting money laundering or corporate liability reform.
Lobbying for higher scores and removal of criticism
But FATF’s UK evaluation also reveals another extremely worrying trend that seriously threatens the credibility of the review process – the ability of large financial centres such as the UK to lobby their way into good ratings and get criticism removed. An impressive investigation by ACAMS moneylaundering.com found that, at the plenary in November 2018 where the final draft of the UK’s evaluation was discussed, the UK had managed to get its scores upgraded from substantial to high in three different areas.
Even more shockingly, between the plenary and final publication of the report, the UK appears to have lobbied successfully to get several key criticisms and recommendations removed or watered down.
The most stark of these was in relation to the UK’s supervisory regime for money laundering, particularly in relation to the effectiveness of the Financial Conduct Authority (FCA) and HMRC. The UK successfully lobbied to have sentences removed throughout the report that reflected private sector concerns that the number and level of sanctions imposed by supervisors was too low to provide any real deterrence. The sentence which summed up these concerns, stating “considering that the numbers of sanctions are generally low and their quantum is modest, there are concerns about whether sanctions are effective, proportionate and dissuasive”, was deleted.
Recommendations for “moderate improvements” required to the supervisory regime were reduced to “only minor improvements” and specific recommendations to the FCA and HMRC, requiring them to undertake reviews of their models and adopt more effective regimes, were downgraded; both bodies were simply required to “consider how to ensure appropriate intensity of supervision.”
Two days after the release of the FATF evaluation, the Financial Times reported that fines imposed by the FCA had plummeted 88% in 2018, falling to “near record lows.” But with FATF’s certificate of excellence in its pocket, the UK government is unlikely to feel much pressure to act.
The result is that despite all the money laundering links to the UK, despite frequent criticism of the lack of UK law enforcement and regulatory response, the UK can now rest on its laurels. This is a missed opportunity for the UK. But it is also damaging for FATF – if the UK can lobby to get criticism removed from its report, why shouldn’t other countries like the United Arab Emirates, due to be reviewed later this year, do the same? FATF’s credibility has been badly dented by the UK evaluation and that puts the policing of global anti-money laundering at risk.