Written evidence submitted by Justin Moore (IEF0023)

Improving cross government co-ordination and information on illicit finance

Key points

• This response addresses the inquiry’s question on “How, and how effectively, does the FCDO co-ordinate with other UK government departments and agencies to respond to illicit and emerging finance?”, specifically focusing on co-ordination for illicit finance. 

• A co-ordinated approach across government is essential to tackle illicit finance. To achieve its objectives FCDO relies on the effectiveness of agencies that are the responsibility of other departments.

• There are several information gaps which are likely to limit coordination and make it harder for FCDO to achieve its objectives in relation to illicit finance. However, there are practical steps which could be taken to address these gaps.

• Recommendations: To improve coordination, and increase effectiveness of its response to international illicit finance:

1)      FCDO’s 2022/23 Outcome Delivery Plan should include cross cutting outcomes and metrics relating to illicit finance, explicitly recognising the contribution of other departments to those outcomes.

2)      FCDO should co-ordinate with Home Office and HM Treasury on future updates to the National Risk Assessment of money laundering and terrorist financing, to include its priority developing countries in the assessment.

3)      Agencies delivering aid funded anti-corruption work should ensure their reporting provides a split between FCDO priority developing countries and lower priority countries.

Introduction

1. I’m a policy analyst with over 18 years’ experience and run Development Monitor, an initiative to promote better data about the UK’s interactions with developing countries. I publish a dashboard of major financial flows between the UK and developing countries, and research how better data can support more effective and coherent policies towards developing countries.

2. This response addresses the inquiry’s question on “How, and how effectively, does the FCDO co-ordinate with other UK government departments and agencies to respond to illicit and emerging finance?”, specifically focusing on illicit finance.  It considers gaps in the way FCDO coordinates with other departments and agencies, and identifies practical measures to improve coordination and effectiveness in responding to illicit finance. 

A co-ordinated approach across government is needed to tackle illicit finance

3. The Integrated Review recognised that a co-ordination approach across Government is essential to effectively deliver on the UK’s foreign policy objectives. Tackling illicit finance is a strong example of that.[1] The UK’s ability to tackle international illicit finance depends on the resourcing and performance of agencies such as the National Crime Agency and Companies House. Although stronger legislation is necessary, it is not sufficient, and many commentators have noted weaknesses in the UK’s enforcement of existing legislation.[2]

4. Those agencies are the responsibility of other departments, not the FCDO, and hence in order to ensure those agencies are effective in addressing the FCDO’s foreign and development policy objectives, effective coordination is necessary. For example, the FCDO may need to influence the priorities of those agencies and to understand whether they are delivering on its objectives.

5. There is rightly a great deal of focus on the effectiveness of those agencies in dealing with the threat of illicit finance from hostile states. However, the FCDO also helps a number of developing countries tackle corruption, recognising that is in the UK’s interests for those countries, particularly ones with close links to the UK, to become more peaceful, democratic and prosperous.[3] To support this objective, FCDO’s works with the NCA and other agencies to reduce the incentive for corrupt individuals in developing countries to launder money through the UK.[4]

6. Although cross government coordination can be challenging, three actions would support the FCDO’s coordination with other departments and agencies, and hence enable more effective government action on international illicit finance.

1) Outcome Delivery Plans should identify and report on cross government links on illicit finance

7. Outcome Delivery Plans (ODPs) are the basis of the Government’s planning and performance framework. Each department identifies priority objectives in their ODP and how their performance on that objective will be measured. They are intended to include cross cutting objectives / measures where departments need to work to work together to deliver outcomes.

“Each Outcome Delivery Plan sets out how the respective department is working towards the delivery of its priority outcomes. Outcome Delivery Plans place a greater emphasis on joint working between departments, enabling departments to plan together to deliver shared outcomes.”

“In areas where closer working between departments would achieve better results, outcomes were agreed on a cross-cutting basis between departments - reflecting the government’s commitment to breaking down silos and enabling stronger collaboration between departments.”[5]

8. In the 2021 Spending Review, HM Treasury published priority outcomes and metrics for all departments.[6] The spending review again stressed the government’s commitment to encouraging cross-departmental collaboration. Most major departments identified cross-cutting outcomes and explicitly identified the other departments that contribute to those.[7] For example, the Department for International Trade’s commitment to ‘secure world-class free trade agreements and reduce market access barriers, ensuring that consumers and businesses can benefit from both,’ identifies the nine other departments that contribute to that objective.

9. The FCDO’s ODP would have been an opportunity for FCDO to explicitly recognise the importance of cross department cooperation on international illicit finance, and formalise the contribution of other departments to that goal.

10. However, the outcomes and indicators in FCDO’s ODP are limited in scope. It does not identify any cross-cutting outcomes or metrics, and in particular does not identify any outcomes relating to illicit finance. As such, the core tool in the government’s performance framework fails to measure whether other departments and agencies are responding to the FCDO’s concerns in relation to illicit finance. The plan did however state that FCDO outcomes and metrics will be reviewed as part of FCDO’s next (2022/23) Outcome Delivery Plan.

11. Recommendation: FCDO’s 2022/23 Outcome Delivery Plan to include cross cutting outcomes and metrics relating to illicit finance, explicitly recognising the contribution of other departments to those outcomes.

2) National Risk Assessment of money laundering and terrorist financing - inclusion of more developing countries

12. The National risk assessment (NRA) of money laundering and terrorist financing[8] is published by HM Treasury and Home Office. It sets out the key money laundering and terrorist financing risks for the UK and the action taken to address those risks. It contains an international outlook which outlines those jurisdictions assessed to be particularly relevant to the cross-border money laundering risks faced and posed by the UK. It includes an assessment of risks relating to illicit finance from Russia, UAE, China, but only one developing country (Pakistan) where the UK is working to help tackle corruption.
     
13. The FCDO works to tackle corruption in a number of developing countries, and spends UK aid on this objective. Such countries include Afghanistan, Kenya, Nigeria, Tanzania, Ghana, and the Democratic Republic of Congo. These countries are not included the NRA. In other words, there is no assessment of the money laundering risk that the UK poses to the developing countries where it aims to help tackle corruption.

14. This suggests that there would be benefits from greater FCDO co-ordination with Home Office and HM Treasury in determining the scope of the countries considered in the next revision of the NRA, to include risks assessments for countries that the FCDO is seeking help tackle corruption.

15. Recommendation: FCDO should co-ordinate with Home Office and HM Treasury on future updates to the National Risk Assessment of money laundering and terrorist financing, to include its priority developing countries in the assessment.

3) Improve reporting for aid funded anti-corruption work

16. FCDO is responsible for the aid funded UK Action Against Corruption (UKACT) Programme[9], which aims to reduce incentives for corrupt individuals in developing countries to use the UK to launder money, and to reduce incentives for UK companies and nationals to bribe in developing countries. It does this by strengthening UK capabilities to investigate and prosecute corruption overseas, specifically through:

• Prevention, disruption, and investigation of grand corruption (the theft of significant public assets by senior foreign officials) and international bribery
• Stolen assets being frozen, recovered and returned to developing countries

17. The programme is delivered through funding of the National Crime Agency’s (NCA) International Corruption Unit and Bribery and Corruption Intelligence Unit (BCIU).
     
18. FCDO identifies its ‘priority’ countries for this work as lower income, lower middle-income countries ‘with a connection to the UK'. For example, these would include: Afghanistan, Nigeria, Tanzania, Ghana, and Kenya. It acknowledges a risk that work on lower priority countries (eg upper middle income countries such as China and Brazil) could divert resources from work on FCDO priority countries. [10]
     
19. However, none of the reporting from the agencies that FCDO funds, nor the reporting of the aid funded UKACT programme breaks down their activities, resourcing or outcomes by priority and low priority countries. For example, the UK ACT programme reports on the total number of money laundering cases under investigation but we do not know the split between those relating to priority countries and low priority countries. For example, we would not know if the aid funded work has mostly led to investigations in relation to higher income countries.
     
20. More generally, a report by Spotlight on Corruption[11] found that it is extremely difficult to get accurate and consistent data on the resourcing and activities of agencies working on anti-corruption.
     
21. Therefore, it is currently impossible to know if these agencies are delivering on FCDO priorities, and whether more effective coordination with the FCDO is needed to ensure that they are.

Recommendation: Agencies delivering aid funded anti-corruption work should ensure their reporting provides a split between FCDO priority developing countries and lower priority countries.

March 2022