It’s too easy to set up a company without revealing who benefits from it
On 20th March, the Guardian revealed that it had received documents from a three-year investigation by the Latvian and Moldavian authorities into what has been dubbed the Global Laundromat. According to the newspaper, these documents show that between 2010 and 2014, British registered companies and British-based banks helped move out of Russia at least $20bn of the proceeds of criminal activities.
This should come as no surprise. In 2016, the Home Affairs Select Committee concluded that the London property market was the primary avenue for the laundering of £100bn of illicit money a year. The investigative journalist Roberto Saviano has said of the international drugs trade: “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 have two main requirements. The first is a place crowded with financial transactions, in which their own will be easy to lose. The second is a place where those who enable the setting up of companies and opening of bank accounts are prepared to turn a blind eye to who is the owner of a business. Secrecy over the beneficial ownership of companies is the main conduit of money laundering.
Three academics—Michael Findley, Daniel Nielson, and Jason Sharman—undertook an experiment, detailed in their book “Global Shell Games.” They tried to set up a company in the way that a money launderer would (refusing to provide ownership information and other markers), emailing 7,400 solicitations to lawyers and corporate service providers in 182 countries. Contrary to what you might think, tt is more than three times harder to obtain an untraceable shell company in tax havens than in rich, developed countries such as the UK and the United States.
At the moment, the UK is a member of two organizations, the OECD and the European Union, which routinely publishes blacklists of countries that are deemed “high risk” when it comes to money laundering and a “danger to the international financial system”. The UK, US, and Switzerland have never been blacklisted. Instead, the usual pariahs of the west—Cuba, North Korea, Iran and so on—appear, along with small states such as Antigua or St Kitts and Nevis.
This motley collection of countries present the most marginal threat to the international financial system. They are merely powerless to respond to being listed. Former US official Juan Zarate has boasted that a dedicated team at the US Treasury uses its influence to get American enemies blacklisted and friends left alone, in the name of counter-terrorism. Banks face large fines for facilitating transactions with countries on these lists, and as a result, they have withdrawn services, leaving these countries stranded financially. Caribbean countries have lost the most correspondent relationships with international banks. The EU and OECD are in danger of pushing countries into the hands of the very people they listed them for helping.
There is a word in German—Lebenslüge—meaning the lie you have to tell yourself to live your life. It is appropriate here. We prefer to think that the success of the City of London and our property market relates to our skills honed in ancient universities, not the banking of nouveau riche criminals. Once British newspapers have salivated over the details of the latest money laundering ring, they quickly return to the narrative that the real threat lies on small, palm-fringed islands.
Yet in the Findley, Nielson and Sharman study, they were never able to set up a shell company in Caymans, Bahamas or the Seychelles. The politicisation of the blacklists has enabled London to become the global centre of money laundering. These criminals will not be defeated until our capital and others are no longer protected. Quite accidentally that time may come soon. Some in the City of London think that Brexit will allow them to prosper—but it could instead give the EU the opportunity to add it to a list.
by Avinash D Persaud