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Lebenslüge of Money Laundering

Avinash Persaud (apersaud@me.com) is chairman of Elara Capital Limited and emeritus professor of Gresham College, London.

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We have seen the cycle before. A money laundering ring is busted open by a British newspaper following an investigation by foreign authorities. We learn that British companies and banks washed the proceeds of criminal activities in London and the United Kingdom (UK) dependencies. The British authorities respond the next day by saying that a thorough inquiry is underway or at least that they are seriously considering one. The story then slips from the front page until the next ring is broken open.

On 20 March 2017, the Guardian revealed that it had received documents from a three-year investigation by the Latvian and Moldavian authorities into what has been called the “Global Laundromat.” These documents purport to show that British-registered companies and British-based banks were heavily involved in the moving out of at least $20 billion (bn) of proceeds of criminal activities from Russia. Last year, separately, the Home Affairs Select Committee of the UK Parliament published a report suggesting that the London housing market was a primary avenue for the laundering of £90 bn of illicit money every year. Some of that may have come from India. The year before that, Roberto Saviano, a leading expert on the international drugs trade was quoted in the Independent, saying of the global drugs trade that “Mexico is its heart and London is its head.” 

London has not become the global capital of money laundering by accident. Money launderers and those financing terrorist activities need two things. The first is a lot of financial transactions in which they can quickly lose their dealings. When it comes to international financial centres, giants wash more and London is a giant. The second is a place where company and account opening staff turn a blind eye to who is the owner of a business or a bank account. Secrecy over beneficial ownership of companies is the main avenue of money laundering. 

Over the past five years, Michael Findley, Daniel Nielson, and Jason Sharman have carried out an interesting experiment where they adopt the usual tags of a money launderer, refuse to provide bene­ficial ownership information and try to set up a company. They made over 7,400 email solicitations to lawyers and corporate service providers across 182 countries. They then compiled an index based on the number of different providers they had to go to on average in a single jurisdiction before they were successful at setting up a company without beneficial ownership information. Amongst the seven countries with the largest financial centres, the UK was the easiest place to set up a shell company. Next came the United States.

Compliance with anti-money laundering rules has become a big business. Banks spend a fortune on it every year and even more the next. The UK is a member of two organisations, the Organisation for Economic Co-operation and Development (OECD) and the European Union (EU) that routinely publishes “black lists” of countries that these bodies deem “high risk,” a “danger to the international financial system” or uncooperative. London, New York, and Zurich have never featured on these lists. Instead, the usual pariahs of the West, Cuba, North Korea, Iran, Yemen, and Venezuela populate these lists. The listings also include a spread of small states. In the past, Antigua, Guyana, St Kitts and Nevis have been tarred. 

The only thing this motley collection of countries has in common is that they present the most marginal threat to the international financial system and are powerless to respond to being listed. The lists are political. North Korea flips on and off the lists depending on progress in anti-nuclear talks. And they are weaponised. Banks face large fines for facilitating financial flows with countries on the lists, and as a result, they have withdrawn payments services leaving these countries stranded financially. The EU and OECD are in danger of pushing these countries into the hands of the very people they listed them for helping. While the Findley study indicates that there are no Caribbean countries where it is easier to set up a shell company than in the UK, Caribbean countries have lost the most correspondent relationships with international banks. 

The British are in denial. There is a word for it in German—Lebenslüge—which means the lie you have to tell yourself to live your life. It is hard for the British to feel good about themselves if they thought the success of the City of London and the London property market, related in no small part to the worldwide proceeds from crime as opposed to their worldly skills. It does not help that finance and property were the two engines of economic growth for the UK over the past few decades. Once the British newspapers have revealed the latest money laundering ring, they quickly return to the narrative that the threat lies outside and, oddly, in tiny places. 

Money launderers are wise to the deception. While the gaze of the international authorities is firmly fixed in the Cayman Islands, Bahamas, and Seychelles, money launderers find it safer to flock to London. The politicisation of the blacklists has enabled money laundering in general, and London to become its centre. In the Findley, Nielson and Sharman study, after repeated efforts, they were never able to set up a shell company in Cayman Islands, Bahamas or the Seychelles.

 

 

Updated On : 18th Apr, 2017

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