Do not be beguiled by the soothing tones of the UK’s FATF Mutual Evaluation report

Hand-holding-cash

Speed read: Jonathan Fisher QC reflects on the new FATF report on the UK’s anti-money laundering infrastructure. There is a contrast between its praise of the UK and the reality of money laundering as a continuing threat to high-risk businesses. Emphasis is placed on the need to remain diligent with reporting; despite what FATF says, London is not yet free of its money laundering infamy.

Money laundering reporting officers would be mistaken if they lowered their guard following publication of the Financial Action Task Force’s (‘the FATF’s) Mutual Evaluation Report on the United Kingdom, published in December 2018. Broadly speaking, the FATF report has given the UK’s money laundering (‘ML’) and terrorist financing (‘TF’) regime a clean bill of health. The UK’s legal architecture is highly praised. FATF sees the UK as a global leader in promoting corporate transparency, with a good understanding of the ML / TF risks posed by companies and trusts. The framework for customer due diligence is described as comprehensive, and supervisors’ outreach activities (presumably a euphemism for enforcement and disciplinary processes) are found to be generally strong. The UK is also praised for its robust understanding of ML and TF risks and its aggressive identification, pursuit and prosecution in these cases.

Some interesting statistics published in the FATF report reveal that each year the UK achieves around 7,900 investigations, 2,000 prosecutions and 1,400 convictions annually for standalone ML, or where ML is the predicate offence.

However, without wishing to be a ‘party pooper’, a dispassionate observer might ask how, if the UK’s response to ML is a paragon of virtue, London has earned itself a name as the ML capital of the world. The National Risk Assessment published in 2015 noted the substantial risk from high-end ML, typically involving the laundering of the proceeds of major frauds, corruption or tax evasion through exploitation of financial and other professional services. The National Risk Assessment identified significant intelligence gaps in this area, particularly in relation to the precise roles and types of professionals involved, and noted that there were gaps within law enforcement understanding, especially in terms of high-end, complex ML. Key findings of the National Risk Assessment published in 2017 continue to represent that high-end ML and cash-based ML remain the greatest areas of ML risk to the UK. They exploit the global nature of the financial system, often transferring funds through complex corporate vehicles and offshore jurisdictions. New typologies continue to emerge, including risks of ML through capital markets and increasing exploitation of technology. In consequence, the UK has designated high-end ML as one of the top six national priorities for agencies tackling serious and organised crime.

The UK’s vulnerability to these activities could not be hidden from the FATF, and there is a gentle rebuke for the UK’s dilatoriness in tackling the problem. Although investigations of high-end ML have increased since being prioritised in 2014, the FATF noted that these cases generally take years to progress to prosecution and conviction and limited statistics are available on high-end ML investigations, prosecutions and convictions prior to its prioritisation. As a result, it is not yet clear whether the level of prosecutions and convictions of high-end ML is fully consistent with the UK’s threats, risk profile and national ML/TF policies. In 2017, the National Crime Agency, HM Revenue & Customs and the Serious Fraud Office commenced 62 investigations into high-end ML, compared with 26 in 2016. Notwithstanding, the FATF also noted that the level of suspicious activity report filings by lawyers, accountants, and corporate service providers could be improved given the high-risk activity they are exposed to, including high-end ML. In addition, suspicious activity reports filed by accountancy sector, legal sector and MSBs are decreasing. It is against this background that Donald Toon, head of the National Crime Agency’s Economic Crime Command (Mr Toon’s official title is Director of Prosperity), described lawyers and accountants to the Financial Times in an interview in September 2018 as ‘professional enablers’, warning that they will be expected to file far more reports flagging suspicious transactions.

The message for ML reporting officers is simple. They must not be beguiled by the soothing tones of the FATF’s mutual evaluation assessment. The detection, investigation and prosecution of those involved in high-end ML remains a priority and a distinct area of risk for lawyers, accountants, and corporate service providers, as well as the ML reporting officers who guide them.

This piece is based on the quarterly commentary published by the Lloyds Law Reports: Financial Crime (January 2019), written by Jonathan Fisher QC.