Regulating Dirty Money in the UK

January 27, 2023

Euros and dirty money
Source: Getty Images

Over recent years, a series of reports and events have thrown a spotlight on the scale of economic crime in the UK. In 2020, the Treasury estimated that economic crime, including fraud, money laundering and bribery, costs the UK £37 billion a year. But this can only ever be an estimate. We only know about the tip of the iceberg when it comes to illicit money flowing through the veins of the UK, but its impacts on the public and the economy are very real.

The dirty money problem

Economic crime has long been an issue in the UK, but it has only really come into focus in the last few years. In 2017 and 2018, 3 new pieces of legislation were introduced to target economic crime, but more specifically money laundering. These were the Money Laundering, Terrorist Financing and Transfer of Funds Regulations Act 2017, the Criminal Finances Act 2017 and the Sanctions and Anti-Money Laundering Act 2018. Collectively, these acts give more powers to regulatory agencies to sanction corporations for money laundering misconduct, but they also raised the requirements for firms to combat money laundering themselves.

There have also been reports that have thrown a spotlight on economic crime in the UK. In 2020, the FinCEN report highlighted how in 2017 four major banks in the UK had been involved the laundering of £65 billion of money as part of a Russian scam, which had been ongoing since 2010.

Then the following year the Pandora Papers showed how the British Virgin Islands are being used by public officials, organised criminals and businesses to hide their activities and identities. This suspicious money is then invested around the world, including in the UK property market.

Lastly, the war in Ukraine has made us look at who invests not only in Russia, but in the UK. It has opened our eyes wider to illicit money coming from Russian oligarchs.

Regulating dirty money

If we look at anti-money laundering (‘AML’) deficiencies, bribery, economic sanctions and fraud data from Violation Tracker UK, there are a total of 381 known cases between 2010-2022 from 11 different agencies, with £3 billion collectively in fines.

Of these 381 cases, 91% of cases are AML deficiencies, 6% are bribery cases, 2% are for economic sanctions and 1% are related to fraud. Therefore, AML cases are more commonly enforced against than other types of economic crime analysed here.

The chart shows that from 2018 onwards AML cases start to accelerate more rapidly. There has been a staggering 42-fold increase in enforcement cases against AML infringements in the last 12 years. Meanwhile, the data also shows that bribery, fraud and economic sanctions cases remain steady, with far fewer cases. In its recent data update, Violation Tracker UK also shows that there have already been 2 cases of AML deficiencies, so this trend of increased AML cases looks set to continue.

Dirty Money Blog Post VT UK

Number of enforcement actions against corporations between 2012-2022, according to Violation Tracker UK.
Source: Violation Tracker UK

More Legislation: The New Economic Crime Act

The data has shown that AML cases have been more aggressively tackled over the last 5 years. This is possibly because the legislation has focussed on AML misconduct. In March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 gained Royal Assent. Its scope is wider than just money laundering. Its three main points of attack are firstly to create a register of overseas entities and beneficial owners of property; secondly to intensify sanctions of enforcement; and lastly to reform unexplained wealth orders. The Act has been in discussion since 2016, but it was fast tracked through Parliament last year.

There are still gaps that this new Act does not cover, such as the ease upon which new companies can be set up at Companies House, the murky world of crypto-assets interfering in the UK economy and better international inter-agency sharing of AML breaches. However, it is believed these are to be tackled in the next economic crime bill.

Since the war in Ukraine, economic crime within the UK has become an area of focus. Yet despite the growing number of AML cases as shown in the data here, the UK still has a severe problem with illicit money flowing through it. The second part of this series will focus more on Russian investment and the Dirty Dozen in the UK.

You can follow Violation Tracker UK on Twitter @VT__UK (note: there are two underscores).