London, Money Laundering Capital of the World
London has become the dirty money capital of the world
The origins came with the big bang under Margaret Thatcher when she started liberalising the financial services sector, and then that carried on under the labour government with a commission on deregulation.
Fraudsters of the World come to London and bring their dirty money
Britain has benefited greatly from the corrupt- Fraudsters, Fugitives, Oligarchs, Economic Offenders & Criminals
· 335,000 of its listed companies do not reveal the name of their beneficial owners and 4,000 of the names it appears to reveal turn out on close inspection to belong to children aged 2 or under.
· UK was “the most notorious safe haven for looted funds in the world today”
The Financial Times published a lengthy investigation that revealed the involvement of British banks and law firms in money laundering operations. It said that London had for decades represented an incubator for corruption and criminals from all over the world, and that it did not turn a blind eye to Russian money, but rather welcomed it. The report said that 31 law firms, 86 banks and 177 educational institutions in Britain accepted or moved dirty money from around the world back home. It added that the London Stock Exchange welcomed many Russian companies, turning the United Kingdom and London to their European base.
Excerpts from the report: “Let's say you wanted to bring dirty money into the City of London and integrate it into the system, there are basically four key stages, placement, layering, integration, and defence. So let's start with bringing your money from, say, a Latvian bank account, a Cayman bank account, you want to then move that into a UK shell company,”. “You're supposed to tell the Companies House registry who the real owners, the beneficial owners, of the companies are. But in practice, it's really easy to evade those rules. And fundamentally, no one goes after companies that just lie.” "It is essentially a Wild West of information, which is unverified, and in some cases ludicrous,” Usually, the applications are approved within 24 hours. They do not actually have the statutory power to check the information, to investigate false information, or remove it from the register. "The next stage you want to layer to move this money around in a series of complicated financial transactions that will distance you from the money and from your source of wealth. That's where the UK banks come in. Some 86 banks have been involved in obtaining, moving corrupt wealth around the world,” The cash, by the time it arrives in London, has probably already gone through a couple of British overseas territories like the British Virgin Islands. "Step three is you want to integrate your wealth into the UK system. You want to buy assets, including UK property. Lawyers, real estate agents are on hand to help you do that,” The report detailed that one can own UK property through a shell company, even an offshore shell company. "And if you do own it through an offshore shell company, you don't have to say who really owns that property." Lawyers are on hand to advise on these complicated transactions, which creates an opaque ownership structure of some of the most valuable UK homes. Roughly 84,000 homes in the UK are owned anonymously. Some £6.7 billion of UK property has been bought with suspicious wealth.
Uncommon Wealth—the toxic legacy of empire
By treating the Commonwealth as a “family friendly reunion”, rulers can ignore and distance themselves from how remnants of empire are central to capital’s movement across the world.
WHY IS LONDON A TOP CHOICE FOR FRAUDSTERS?
Ø London is at the centre of dirty money is quite widely accepted
Ø UK is very forgiving of past crimes, provided you come bearing gifts, namely, money.
Ø According to British laws, refugees and absconders can stay on in the UK as businessmen, provided they invest at least 200,000 pounds in the British economy. This investment can take any form, from the purchase of real estate to invest in shares.
Ø There are statements on the record from Boris Johnson, ex. prime minister, from when he was the mayor of London, saying that he wanted to make London a hub for Russian money. The Stock Exchange welcomed lots of Russian companies, and wanted them to make the UK and London their European base.
Laundering through UK’s corporate structures
Britain’s most famous money launderer is HSBC, thanks to its systematic cleansing of the earnings of the Latin American drug cartels over the second half of the last decade, for which it was fined $1.9bn by the US government in 2012. But that was a tiny operation compared to the Danske Bank scandal. If gathered together, the suspect funds moved through the bank’s Estonian outpost could buy HSBC, with more than enough left over to buy Danske Bank too.
These people use British shell companies to cleanse their dirty money by setting up a shell companies, opening Bank Accounts in Banks like HSBC (who have loose KYC norms) and routing the money through maze of shell companies in a circular route. (See the methodology https://www.theguardian.com/world/2019/jul/05/how-britain-can-help-you-get-away-with-stealing-millions-a-five-step-guide)
How does money laundering in London take place?
There are 4 steps in which the whole process takes place, according to FT.
1. The first step is "placement". The money is brought into the country through foreign bank accounts and parked in shell companies' bank accounts.
2. Second, the transactions are "layered". Here, several complicated financial transactions are conducted with the money. This makes it difficult for the agencies to keep track of the origin of such funds. Several banks, too, are a part of the process. FT identified 86 such banks in its report.
3. Then, the money is "integrated" into the system. Costly assets like houses, watches, cars, and jewellery are bought with the money to integrate the money into the system. In the UK, offshore companies are allowed to buy a property without revealing the details of the person who is ultimately buying it. Around 84,000 houses have unknown owners in the country.
4. Lastly, if any cases are filed against the launderers, they are "defended" by the nexus of accountants and lawyers. According to a report by Transparency International, 86 banks, 81 law firms and 177 educational institutes have accepted dirty money.
What makes London a money-laundering hotspot?
Various reports have discussed why London is the 'Laundromat' of global 'dirty' money.
The first reason cited is the weak enforcement of the laws. According to a report by Financial Times, the money can be transferred to a UK company from foreign bank accounts without much trouble. Although the laws require the company's details to be recorded with the government, these laws are not implemented strictly. The money is usually transferred to the shell companies in the UK and then moved across various bank accounts to 'clean' it. Apart from implementation, a nexus of accountants, lawyers and oligarchs have been formed in the country. Lawyers and accountants help oligarchs evade the tax laws. Oligarchs, in return, pay them hefty fees.
“Companies House” has become a front organisation for organised crime.
Ø The UK has been cultivating a reputation as a gateway to the offshore world since the end of its territorial empire.
Ø Research by Transparency International UK uncovered 948 suspect Limited Liability Partnerships (LLPs) registered at the small property, Enterprise House, at Whitchurch Road in Cardiff, indicating money-laundering links were registered close to government agency’s HQ.
Ø UK LLPs can operate just like private companies but offer much greater secrecy and have therefore been popular with international crime gangs seeking to launder and conceal their billions in illicit funds.
Ø Transparency International’s research calculates that there has been a staggering $730bn-worth of known money laundering associated with UK LLPs. It identifies 21,000 LLPs – 14% of those created between 2001 and 2021 – as sharing almost identical characteristics to those used in major corruption and money-laundering schemes.
Ø Among the most frequent company names to feature – connected to more than a fifth of all these tainted LLPs – are just two notorious firms.
Ø These firms – Ireland & Overseas Acquisitions Limited and Milltown Corporate Services Limited – have been used to hide global networks of companies controlling criminal funds running into many billions.
Ø They are nominally controlled by two Latvian men, Erik Vanagels and Stan Gorin, but neither is the multi-billionaire he appears to be on paper. Instead, their companies have been used as fronts for criminal money.
Money laundering, as this process is known, is notoriously difficult to uncover, investigate and prosecute
Transparency International UK recently reported that such “questionable funds” could be to the value of billions. Properties in the central London areas like the City of Westminster and Kensington and Chelsea form a huge part of this.
The mechanism involved “It is held by companies in Britain’s Overseas Territories and Crown Dependencies. The secrecy provided by these offshore financial centres is often used by those seeking to hide their ownership of assets.”
No wonder then that economic offenders from all over the world view London as a safe haven like 2 people from India: Vijay Malaya and Nirav Modi who have been in the UK by playing through the British legal system, despite swindling money in India.
“So far for the last twenty-five years we have relied on this wealth to fund our financial services, to fund our economy and turned a blind eye to these monies and a good example of this is the golden visa problems,” said Mayne which forms the part of his most recent collaborative research, ‘Criminality Notwithstanding’, a Global Integrity Anti-Corruption Evidence programme report on the how and why the UK’s unexplained wealth order (UWO) system has failed against kleptocracies.
The critical importance of the financial sector to the UK’s economy means that money laundering, particularly high-end money laundering (the laundering of large amounts of illicit funds through the financial and professional services sectors) can threaten the UK’s national security and prosperity, and undermine the integrity of the UK's financial system and international reputation.
Finance is increasingly global, with money and assets moving quickly between jurisdictions, products and services.
Kleptocrats love this country, knowing full well they’ll be free from proper scrutiny
For years London was nicknamed “Londongrad” for its open-door policy to the Kleptocrats who have reportedly bolstered Putin’s rule for the past two decades.
Ø For over the past half century, the UK has carved out a reputation as the global centre of excellence for offshoring wealth.
Ø Britain has benefited so greatly from the corrupt we may soon be at a stage where we can't afford to clean up.
Ø The security services and the judges just shrug when oligarchs with links to hostile foreign powers use the intimidatory costs of England’s unreformed legal system to menace critics. No one likes hard questions about a nation’s guilty secrets, not even the men and women who are professionally obliged to ask them.
Ø In fact, tolerance of fraud is now part of the government’s economic strategy and the Treasury wants to loosen what few protections exist to compensate the financial services industry for the Brexit debacle.
Ø The presence of the global plutocracy’s valets at the top of government and society shows the UK no longer even bothers to pretend that it can.
Ø According to reports, the 'questionable funds' in the UK amount to over $125 billion every year. What makes London a hub for money laundering?
Ø For years, the United Kingdom (UK), specifically London, has continued to be a haven for economic offenders from other nations. Russian oligarchs have kept their money parked in the country in the form of property and other assets. It has earned the city an unenviable nickname, 'Londongrad'.
Ø Even Indian businessmen, like Nirav Modi and Vijay Mallya, who have been declared fugitive economic offenders (FEOs) by the Indian government, have been living in the UK, seeking asylum.
History of “Londongrad”
Along with Moscow-on-Thames, Londongrad is a well-merited nickname for the British capital, which has been a hub for Russian money since the fall of the Soviet Union.
1) London has long played host to Russian dissidents, émigrés and expatriates; Lenin and Trotsky would hang out in the British Museum. But it was only in the 1990s that Londongrad began to emerge, featuring newly minted billionaires and a gaggle of flunkeys to serve them.
2) The rise of Londongrad was planned. British governments of all stripes opened the country to Russian capital. In 1994, under John Major, the Conservatives introduced a “golden visa” scheme that handed residency rights to anyone who invested £1m. Tony Blair’s Labour government carried it on with enthusiasm. Ken Livingstone, London’s leftist mayor from 2000 to 2008, said he wanted “Russian companies to regard London as their natural base in Europe”.
3) For those arriving from Vladimir Putin’s Russia, London offered safety, security and secrecy. Britain has accommodating laws on tax, libel and property; enforced by an efficient, if expensive, court system—which is, moreover, accommodating in the matter of injunctions. Extradition to Russia, with its corrupt judiciary, is a no-no in the eyes of English judges. On top of this, the private schools are good and so is the shopping. London is an “everything haven”, in the description of Oliver Bullough, author of a forthcoming book, “Butler to the World: How Britain Became the Servant of Tycoons, Tax Dodgers, Kleptocrats and Criminals”. Discretion is the key. It follows the rule above a banya’s door: “Please keep conversation to a minimum.”
4) Britain’s new butler class is happy with its role. A public-relations firm can earn a £100,000-a-month retainer by providing an oligarch with pinkie-ring-toting smooth-talkers to fob off questions. Former politicians can earn six-figure salaries sitting on a board, which beats the £323 per diem offered by the House of Lords. Their reputation for big tips makes Russian oligarchs welcome in any restaurant’s private room. Lawyers love them, too. In “Londongrad: From Russia with Cash; the inside Story of the Oligarchs”, by Mark Hollingsworth and Stuart Lansley, one rich arriviste declares: “What you need to know about me is that I love litigation more than I like sex!” At £1,000 an hour, so do lawyers.
5) When dodgy Russian money evaporates, dodgy money from other sources will replace it. Russia is hardly the only country blessed by resources but cursed by its elites. Nigerian and Azeri cash sloshes around the City of London. Russia is merely the current pariah, not the only one. Saudi Arabia’s habit of chopping up journalists and blowing up its neighbors makes it an awkward ally. But the British state has few qualms about letting it buy prized assets (and even unprized ones, such as Newcastle United). Russians made up a fifth of the golden visas dished out since 2008; Chinese citizens accounted for a third.
6) What happens if China invades Taiwan? Expect the same wrenching process, except with Chinese rather than Russian wealth sieved out of the system. Londongrad has fallen. Another moniker will replace it. But the banyas will remain.
7) In the 1960s, Britain’s closest ally, the US, feared for the future of its old mother country. The US secretary of state under President Harry Truman, Dean Acheson, worried that “Great Britain has lost an empire and has not yet found a role”. Acheson underestimated the depth of the legal and financial roots that British capitalism had spread across the world over the previous few centuries. If the end of Britain’s territorial empire meant that the country was no longer the “workshop of the world”, the legacy of that empire meant that the workshop could be converted into a launderette, taking in and cleaning dirty money from across the globe before redirecting it across the new offshore world for a fee.
8) This is what the journalist Nicholas Shaxson has termed “Britain’s second empire” – the matrix of remaining British territories across the world that continue to facilitate the secret movement of global money. And it is this second empire, stretching from London’s Square Mile to the beaches of the Cayman Islands, via a hidden processional line of shell companies, secrecy trusts and mailbox offices, that Putin and the oligarchs that surround him have found so hospitable to their interests.
9) Britain’s reputation for harbouring offshore wealth began in the 1950s with some innovative thinking from a scrappy Birmingham bank called Midland. After the Wall Street crash of 1929 and the chaos of the Second World War, postwar politicians and economists agreed that it was important to control the cross-border flow of money more tightly. Capital controls limited the foreign ownership of assets and restricted banks’ trading in foreign currencies. The 1947 Exchange Control Act was passed in the UK, and with the empire in terminal decline, it appeared that the sun was setting on London’s time as the world’s financial centre.
10) However, Midland Bank realised that, in the divided world that was emerging in the early stages of the Cold War, a lot of people living in the eastern bloc, and therefore officially enemies of the US government, would nevertheless want to keep their money in US dollars, which had firmly replaced pound sterling as the world’s reserve currency. Midland quietly started letting Soviet bureaucrats and diplomats leave their secret dollars in British bank accounts. No one knows how long this was going on for, but in 1955 the Bank of England noticed that Midland Bank was holding large amounts of dollars, seemingly not for the purpose of specific transactions. This degree of transnational financial exposure was exactly the type of scenario that the restrictions on the flow of money were put in place to minimise.
11) The Bank of England was faced with a dilemma: ignore Midland’s actions and undermine the system of exchange controls, or discipline the bank but chase away a lucrative new source of foreign money and, perhaps more importantly, signal to the world that the curtains really were closing on the City of London’s spell as the centre of the international financial system. The Bank of England decided to go with the first option: it raised no objection to Midland’s holding large deposits of “offshore” US dollars, giving implicit permission to other British banks to do the same.
12) By the start of the 1960s, there was a mountain of dollars being held in the City of London. The term “Eurodollars” emerged to describe these secretive stashes of dollars that were escaping “onshore” regulation. Other countries began to get in on the action but the UK remained the epicenter of the offshore industry. This was not only because of the strong property rights and secrecy protections written into English law but also because at that very same moment, some of the forgotten corners of the old British West Indies, with the support of Westminster, were responding to the end of empire by priming themselves to become leaders of the offshore world. British overseas territories such as the Cayman Islands did not follow neighbouring countries like Jamaica and the Bahamas towards independence but instead developed a model for attracting foreign wealth based on a promise to keep it safe from the covetous hands of new sovereign governments that were springing up across the world.
13) In 2019, the Tax Justice Network revealed that the world’s three most corrosive corporate tax havens were all British overseas territories, with the British Virgin Islands topping the list, closely followed by Bermuda and the Cayman Islands. The term “tax haven” plays down their influence and appeal. The opportunities these islands offer go far beyond tax evasion: offshore financial centres allow wealthy individuals and companies to avoid corporate regulation, conceal the true owners and beneficiaries of property, and circumvent rules of transparency. These powerful secrecy protections for hidden pots of wealth are just as attractive as the low tax rates.
14) The overseas offshore territories became the ideal final resting place for the Eurodollars that were hiding in the City of London’s banks. By 1980, the Cayman Islands were home to around 30 billion Eurodollars. The combination of legal and financial expertise from the City of London and the protections offered by the offshore overseas territories began to corrode the system of the global control of money from within. When the Bretton Woods system of postwar financial controls collapsed in 1971, the New York Times termed London’s Eurodollar market “the villain of the crisis”.
15) A generation on, this history of protecting and “offshoring” private wealth made London the obvious choice for oligarchs who had profited immensely from the fall of communism. As inequality across the world went into overdrive, the global 1 per cent became even less accountable to the rest of us, and authoritarian leaders could more easily dismiss democratic pressures since they could rely on the support of well-insulated, wealthy elite. This is how Putin built his own power base, through a working alliance with a small group of businessmen who profited from the chaos of Russia’s post-Cold War economy before filtering the money through the offshoring expertise of London and its network of overseas satellites. Leading economists Filip Novokmet, Thomas Piketty and Gabriel Zucman estimate that Russian offshore wealth represented about 85 % of its entire national income in 2015.
16) One of the main reasons is the UK’s strong human rights laws. The United Kingdom is a signatory to the European Convention on Human Rights. Formed in the aftermath of the WW II, it allows the UK to extend its protection to anyone that it deems falls into the risk of human rights violation. The rights to life, right to liberty, freedom from torture, freedom of expression among others were very important in light of the massacre laid down by the Nazi Reich and the plight of the European Jews. However, the UK courts currently use these conventions to delay extradition requests from other countries. In other words, if the UK decides that a person is in the risk of facing torture or the death penalty, or if the extradition is for political reasons, it will extend its umbrella of protection to that person and delay, or even deny the extradition. Accordingly, the UK provides facilities and easy refuge to foreigners, especially those who come with a lot of money. According to British laws, if you invest 2 million pounds in the British economy, you will be granted a golden visa which allows you to reside in the country.
What is the UK doing to fight it?
After the war in Ukraine broke out, the UK House of Commons passed the Economic Crime Act, which makes it mandatory to register overseas entities and their beneficiaries with the government. It also aims to intensify sanctions enforcement in the country. Since the passage of the bill, Britain has sanctioned over 1,600 individuals and businesses, including 100 Russian oligarchs, according to a report by The Economist.
CA Harshad Shah, Mumbai harshadshah1953@yahoo.com