John Redwood's tome for the Conservatives continues to offer insane policy suggestions. Take this one:
[I]t would be useful to have an independent study of the costs and benefits of the anti-laundering regulations hurriedly imposed on banks in most countries after September 11, 2001. Initial impressions from industry specialists are that these have done much more harm than good. Economic growth can rarely happen without flows of funds. Where these regulations have blocked innocent financial transactions, they will undoubtedly be reducing the prospects for economic growth not just here, but worldwide.
Now, I'm far from saying the world's money laundering rules are working as they should. They don't. But this is insanity. Redwood clearly wants the free flow of capital without questions asked. The result? More capital flight from the developing world and a massive increase in tax evasion. All of that will, of course be shovelled into the London housing market and the London stock market. Which Redwood would then call growth.
But the cost to the people of the world, let alone it's developing nations, will be catastrophic.
And then there's the issue of these requirements being international commitments made by the UK which we do not have the right to abandon at will. But Redwood wouldn't worry about that.
And there is of course the issue of terrorist financing and the crime that is always associated with tax havens. But is Redwood worried about that either? No, of course he isn't.
But he will have kept his friends in the City and in the world's tax havens happy. Who worries about international obligations, the poor people of the world, crime, terrorism or tax evasion if you've managed to do that? Not Redwood, clearly.
PS I bought the Daily Telegraph today to try to find someone who liked what Redwood said. Even they can't raise any enthusiasm.
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Counter-money laundering laws the world over are a mess.
The reality is that the UK’s laws are so badly drawn that compliance is uncertain and expensive yet the results from those laws are very limited.
A wide range of businesses are driven to enormous costs in order to be seen to be trying to comply. Others, who are in fact often better placed to provide the necessary information (lawyers and accountants) weasel out of proper obligations.
A far simpler, more effective and cheaper to implement regime should be the objective of all governments, not simply adding layer after layer onto what is already deeply flawed.
In this, Redwood’s approach is correct.
Nigel Morris-Cotterill
The Anti Money Laundering Network.
Nigel
Agreed. They are a mess. But that wan’t what Redwood said. His tone is to reduce controls.
And you’re right. Accountants and lawyers do weasel round these things. They do it via tax havens. The need is for a concerted attempt to close the activity of these so-called professional people in those places.
Richard
Accountants and lawyers do not need so called tax havens to avoid their obligations. They do it through claiming “legal advice privilege” – and through pressure on governments and the EU to exempt them from, or limit their duty in relation to, making suspicious transaction reports.
Those who set up illegal tax evasion schemes using extra-territorial arrangements are a different problem, however. They are conspirators and, arguably money launderers as principals.
The truth is that the topsy-like growth of legislation, regulation and guidance that afflicts the financial services industry and an ever-widening group of non-FIs is incomprehensible, contradictory and – even worse – provides criminals the opportunity for arbitrage between different systems that are in theory similar.
Redwood is not suggesting that we abandon action against money laundering – merely that it be proportionate, does not cost industry more than it produces in frozen assets (which it does currently by many factors) and that efforts are directed to where they are needed rather than the buckshot approach currently taken by most governments and supra-national bodies.
It is simply not true to say that this is a “tax haven” problem – if we really want to find where the money is laundered, it’s London, New York, Frankfurt, etc. Low and Zero Tax economies are merely a part of a global problem, not either a cause of it nor even the major players.
Tax evasion is a crime, and as such should be subject to counter-money laundering laws. Funding terrorism is similarly conduct which we should all be trying to combat. But we also have to accept that governments should not be pushing the cost of investigation onto business, but that is what is happening. FI’s and others should be subject to a wide duty to report suspicions, but beyond that. it should be a matter for the state to analyse and investigate, and to find the funds to so do.
The simple truth is that governments used 11 September 2001 as an excuse to push through measures that would never have otherwise reached the statute books for a wide range of reasons. It is absolutely right that those measures should be reviewed, and considered for both effectiveness and value for money.
From inside the counter-money laundering industry, I am able to say with absolute certainty that the costs suffered by industry in technology, people, training and general compliance plus ever increasing fines and “civil penalties” are disproportionate to the value that they provide for society. There are much simpler and cheaper ways of achieving what has been achieved.
If governments want to use counter-money laundering laws as a principle tool in combating tax evasion, then that’s absolutely fine. But they should come clean about it and not say “it’s all about organised crime or terrorist financing” and then pretend they have just noticed that the same laws apply to tax evasion too. Yet, that’s exactly what governments have been doing since 1991.
If the UK’s current government wants to demonstrate its credentials in this arena then it should immediately consider ordering freezing of assets of some of the suddenly-rich who have arrived in London but are shielded against actions by their own governments alleging e.g. embezzlement, fraud or corruption.
To turn to Redwood’s precise comments as you quoted, flows of funds between countries have been severely handicapped as a result of largely arbitrary and politically driven sanctions, in particular the Financial Action Task Force’s Non-Co-operative Countries and Territories list. That resulted in presumptions of suspicion. The USA PATRIOT Act has been used for solely political purposes – which has been demonstrated by independent investigation and report now before the US Courts – to put pressure onto North Korea. There are now proposals before the US Senate to put similar measures in place if countries refuse to provide information in relation to demands from the US Treasury but no indication as to how the targets are supposed to pay for the work the US Treasury will cause, nor the fact that the demands are an interference with the sovereignty of nations.
These issues are because some countries consider that their political ideology is better than that of another. That, in my view, is a matter for diplomacy not for the use of counter-money laundering laws and sanctions overlaid on them.
Having said that, the suggestion in the Conservative document that you refer to which says “Money laundering. The money laundering regulations could be amended to say that no
financial institution which accepts payment from a customer in the form of a cheque drawn on
a UK regulated high street bank or building society need take any further action to satisfy itself about the origins of the money” is the product of the same vested interests that have plagued the development of effective laws for the past 15 years and in the real world is simply silly.
Further, the small business rules it refers to are imposed by the FATF / EU and they in fact increase the attractiveness of those businesses for money laundering, rather than to militate against it. Again, like the incumbent government, the Conservatives are listening to those who don’t want to help, i.e. those who think that detecting and deterring money laundering will reduce their business opportunities.
Nigel
It seems to me that we’re on the same side here. Bar one comment (which is that assets frozen should cover the cost of action taken) I have little to diaagree with you on the above and much to support. I only disagree with the assets frozen comment because in an ideal world the law would be 100% effective – and in that case there would be no assets to freeze but it would still be worth doing.
So, my request is – what do you think we should be doing? You say “There are much simpler and cheaper ways of achieving what has been achieved.”. Please tell us more.
And, if you’d like to end it to me may I post it as a blog in its own right?
Richard
Nigel writes that this is not a tax haven problem, and correctly identifies London, New York and Frankfurt as major money laundering centres. This is precisely why we identify these three major offshore finance centres as tax havens — because they provide an enabling juridicial environment for facilitating illicit financial transactions.
My connections with the compliance industry would share the view that (in London at least) the current regime has become largely a tick-box exercise, but this is largely the result of the continued culture of wilful blindness that prevails within the financial services sector. Outside of those rarified circles, the people involved would be called fences, i.e. a dealer in stolen property, but when serious money is involved, blindness seems to be infectious – as I witnessed at first hand when working in Jersey.
Wholesale reform of the AML is absolutely vital, but Redwood gives no indication of a willingness to take that route — his instincts are to reduce regulation at any cost — and Nigel offers no clue as to how this can be done. As far as I am concerned, it is vital to widen the AML regime to include crimes such as tax evasion, insider trading, as predicate crimes. I’d be interested to know whether Nigel sees this as achievable.
John Christensen