Written evidence submitted by Transparency International (IEF0020)
1.1. Transparency International (TI) is the world’s leading non-governmental anti-corruption organisation. With more than 100 chapters worldwide, TI has extensive global expertise and understanding of corruption.
1.2. Transparency International UK (TI-UK) is the UK chapter of TI. We raise awareness about corruption; advocate legal and regulatory reform at local, national and international levels; design practical tools for institutions, individuals and companies wishing to combat corruption; and act as a leading centre of anti-corruption expertise in the UK. We are independent, non-political, and base our advocacy on robust research.
1.3. TI-UK welcomes the Foreign Affairs Committee’s inquiry and its ongoing programme of work on illicit finance. We wish to make this submission in order to provide the Committee with relevant updates from our research into economic crime and corruption, and to set out where reforms are needed to address these issues.
2.1. Legislate at the earliest opportunity for the second Economic Crime Bill, and consider how the following reforms can either be included in this Bill or enacted through other urgent means.
2.2. Crack down on the enablers of economic crime by reforming the UK’s outdated corporate criminal liability (CCL) regime, overhauling the UK’s anti-money laundering supervisory regime, and providing a substantial and sustained uplift in the resourcing made available to law enforcement agencies.
2.3. Request full access for UK authorities to company registers in the Crown Dependencies and Overseas Territories, and bring forward the delivery of publicly accessible company beneficial ownership registers in these jurisdictions to this year.
3.1. The rules-based international order is undermined by the ease with which its opponents maintain incredible wealth, power and influence, a phenomenon exacerbated by Western economies harbouring the corruptly-acquired funds of kleptocrats and their associates from around the world. At present, the UK is one of these economies: our research has identified more than 400 corruption and money laundering cases with a UK nexus amounting to an estimated £325 billion in economic damage over the past three decades. This research was conducted using open source data such as court documents and data leaks, so the actual figure is likely to be much higher; for context, the National Crime Agency estimates that “there is a realistic possibility that the scale of money laundering impacting the UK (including through UK corporate structures or financial institutions) is in the hundreds of billions of pounds annually”.
3.2. It is clear that UK service providers have been involved in some of the most egregious corruption cases in our time, and that they have helped corrupt individuals – unwittingly or otherwise – obtain, move and defend vast sums of illicit wealth. The above research into over 400 corruption and money laundering cases with a UK nexus identified the involvement of 582 businesses, institutions, and individuals based in the UK. Countries with the highest number of cases appearing in this research were Russia (64), Ukraine (51) and China (45).
3.3. The impact of these activities ranges widely, but they are invariably serious. Shell companies from the UK and its offshore financial centres alone have played a central role in:
3.4. There has been significant reputational damage to proponents of the rules-based system, including the UK, for enabling corruption abroad by failing to prevent or prosecute economic crimes. Even our closest allies are alive to the problem of money laundering within our borders. The 2020 ‘FinCEN Files’ – a leak of over 2,500 US Financial Crimes Enforcement Network (FinCEN) documents comprising mostly suspicious activity reports (SARs) – revealed that the US Treasury considered the UK a “higher risk jurisdiction” for money laundering, akin to Cyprus.
3.5. Allowing the economic crimes that facilitate corruption to go unchecked presents an acute security risk. As we have seen, repressive regimes that maintain their power through corruption can feel emboldened to commission hostile acts on British soil and invade sovereign neighbours in peacetime. As the Intelligence and Security Committee noted of Russia in its 2020 report:
“its lack of democracy and rule of law allows its intelligence agencies to act quickly, without constraint or consideration; and its lack of strong independent public bodies and the fusion of government and business allow it to leverage all its intelligence, military and economic power at the same time to pose an all-encompassing security threat.”
3.6. If the UK is to be a global leader in mitigating these risks, it must contend with its role as a hub for illicit finance. The Government should:
3.9. If enacted, the recommendations we make in this submission would go far in reiterating the UK’s role as a leading proponent of the rules-based international order and mitigating the significant risks posed to our national security by the beneficiaries of illicit finance. We would welcome the Committee’s support for these recommendations, and are on hand to brief the Committee further on request.
4.9. Recommendation 1: The Government should legislate at the earliest opportunity for the second Economic Crime Bill and consider how additional illicit finance reforms can be included either in this Bill or enacted through other urgent means.
4.10. As the Committee will know, the Government tabled emergency legislation on the 1 March 2022 for the Economic Crime (Transparency and Enforcement) Bill in the wake of Russia’s invasion of Ukraine. This Bill was welcome. However, its key component – provisions to create a public register for the beneficial owners of overseas companies that hold UK property assets – was in no way novel. The UK has been committing to introduce this register since the London Anti-Corruption Summit in 2016. More recently, the Government reiterated this commitment to the Committee in 2018, stating that it intended “to introduce the Bill [for the register] to Parliament early in the second session”. Of course, the Government’s priorities are many and must be agile, but as it should now be clear to the Government that these issues are a matter of national and international security, they should as such remain a priority.
4.11. The reforms the Government has already committed to address in the second Economic Crime Bill will be welcomed, not least because reforms to Companies House are required to ensure the property register created with the first Economic Crime Bill is accurate.
4.12. Recommendation 2: The Government should crack down on the enablers of economic crime by reforming the UK’s outdated corporate criminal liability (CCL) regime, overhauling the UK’s anti-money laundering supervisory regime, and providing a substantial and sustained uplift in the resourcing made available to law enforcement agencies.
4.13. There is a pressing need for a more credible deterrent to wrongdoing by those who enable illicit finance and corruption.
4.14. At present it is very difficult to bring a successful prosecution against large companies for serious economic crime in the UK due to difficulties in establishing corporate criminal liability, a framework which is widely recognised to be unfair and unfit for purpose. The Law Commission found in 2010 that the current laws based on the ‘identification doctrine’ – which requires prosecutors to prove that a person who controls or directs the organisation is directly involved in the wrongdoing – can make it “impossibly difficult” to prosecute large corporate actors. In 2016, the Government’s own assessment was that “criminal law currently renders corporations that refrain from implementing good corporate governance and strong reporting procedures hard to prosecute and offers no incentives to invest in such procedures.” The Financial Action Task Force (FATF) also found in its 2018 evaluation that the UK’s ability to prosecute legal persons was “limited.” Meanwhile, prosecutors like the Director of the Serious Fraud Office (SFO) have consistently said that they are “hamstrung” by the current rules. New rules to ensure that enablers like large banks, law firms and accountancy firms can be held criminally liable where necessary for economic crime are desperately needed. A Law Commission review was due by the end of 2021 but has been delayed to June 2022. Without reform, these firms remain effectively above the law.
4.15. In a similar vein, the UK supervisory system for anti-money laundering (AML) compliance is in need of reform. It is inadequate, ineffective, and disjointed. A well-functioning regime depends on businesses having systems in place to detect corrupt wealth and report it to the police, and effective supervisors that can both provide guidance and hold businesses to account when they fail in these duties. However, the UK’s regime is currently failing on both fronts. The system requires radical overhaul in order to comply with the principles of consistency (providing consistent advice and guidance, compliance monitoring and enforcement functions, and being free from conflicts of interest), proportionality (targeting resources effectively and providing a credible deterrent to wrongdoing), transparency (openness about policies, actions and costs) and accountability (performance is subject to independent external scrutiny). At a minimum, there needs to be consolidation of the existing number of supervisors to make the system more coherent and consistent, a separation of AML supervisory and industry lobbying functions to prevent conflicts of interest that may adversely affect supervisors’ performance, and sufficient resources for AML supervisors to effectively monitor and ensure compliance with AML requirements.
4.16. Further, economic crime enforcement in the UK is woefully under-resourced, particularly given the scale of the challenge posed by the dirty money in our economy. Research from Spotlight on Corruption has shown that the Government spends the equivalent of just 0.042% of GDP to tackle economic crime that costs the UK at least the equivalent of 14.5% of GDP. They further note that the National Crime Agency (NCA) budget has declined in real terms by 4.5% over the past five years, despite requests from the NCA for its budget to be more than doubled. We wish to refer the Committee to Spotlight on Corruption’s work in this area and their proposals for boosting resourcing for economic crime fighting agencies.
4.17. Recommendation 3: The Government should request full access for UK authorities to company registers in the Crown Dependencies and Overseas Territories, and bring forward the delivery of publicly accessible company beneficial ownership registers in these jurisdictions to this year.
4.18. It has been apparent for some time that the secrecy afforded by companies registered in the Crown Dependencies and Overseas Territories is facilitating economic crime on a global scale. Our own research has identified 1,201 corporate vehicles from these jurisdictions alleged to have been used in 237 large scale corruption and money laundering cases. The British Virgin Islands featured most prominently – of the 1,201 entities identified, 1,107 (92 per cent) were registered in this jurisdiction. The cases we have found amount to over £250 billion worth of funds diverted by rigged procurement, bribery, embezzlement and the unlawful acquisition of state assets across 79 different countries. Former Soviet states featured in the most cases, with Russia, Ukraine, Kazakhstan and Azerbaijan amongst the top five jurisdictions in which cases involving companies registered in the UK’s Overseas Territories were identified.
4.19. To ensure anonymous companies registered in the UK’s offshore financial centres are not being used to evade UK sanctions, or to shift property assets while the property register set out in the Economic Crime (Transparency and Enforcement) Act comes into effect, the Government should request full access for UK authorities to registers of beneficial ownership in the CDOTs until public registers are in place. Currently, access to a company’s registration information in the CDOTs is granted by individual request rather than full, open access to central company registers (including, e.g., the British Virgin Islands’ Beneficial Ownership Secure Search (BOSS) System). The Government may wish to consider a new Exchange of Notes with the CDOTs to provide UK authorities with total access to company information registers until public registers are put in place.
4.20. The UK should also be doing everything in its power to ensure the CDOTs open their company registers to public scrutiny this year. Under the Sanctions and Money Laundering Act 2018, HM Government was required to draft an Order in Council requiring the Overseas Territories to open up their company registers. It has published a draft, noting it expects these registers to be in place by the end of 2023. By taking swift action on corporate secrecy now, the UK can be clear it intends those with dirty money should have nowhere to hide.
15 March 2022
 At Your Service: Investigating how UK businesses and institutions help corrupt individuals and regimes launder their money and reputations. Transparency International UK (2019). https://www.transparency.org.uk/sites/default/files/pdf/publications/TIUK_AtYourService_WEB.pdf
 The National Strategic Assessment of Serious and Organised Crime 2021. National Crime Agency (2019). Paragraph 143.
 Amnesty International, South Sudan: overshadowed conflict arms supplies fuel violations in Mayom County, Unity State (2012) p.20 https://amnesty.org.pl/wp-content/uploads/2012/06/South_Sudan_Mayom_ATT_briefing_June_2012_-_Final.pdf
 Well over 3,000 UK-registered companies featured in the FinCEN leak, more than any other country in the world.
 Russia. Intelligence and Security Committee (2020). p. 1 https://isc.independent.gov.uk/wp-content/uploads/2021/03/CCS207_CCS0221966010-001_Russia-Report-v02-Web_Accessible.pdf
 https://publications.parliament.uk/pa/cm201719/cmselect/cmfaff/1488/1488.pdf p. 6
 See https://www.transparency.org.uk/publications/dont-look-wont-find-weaknesses-supervision-uks-anti-money-laundering-rules and https://www.transparency.org.uk/publications/at-your-service
 For further detail please see https://www.transparency.org.uk/sites/default/files/pdf/publications/TI-UK%20submission%20-%20HMT%20review%20of%20the%20UKs%20AML-CTF%20supervisory%20regime%20FINAL.pdf