Terrorists and their money: UK money-laundering risk assessment finds big enforcement gaps

Last month the UK’s Treasury and Home Office published the first national risk assessment of money laundering and terrorist financing in the UK.

The NRA warns that money laundering presents a serious threat to the UK’s national security with money launderers and terrorist financiers using similar methods to store and move funds.

Worryingly, the NRA acknowledged “significant intelligence gaps, in relation to ‘high-end’ money laundering, where the proceeds are often held in bank accounts, real estate or other investments, rather than in cash,” and that the UK’s enforcement agencies wanted to know more about the role of the financial and professional services sectors (banks, legal, accountancy and trust and company service providers) in money laundering.

The NRA acknowledged that the UK’s law enforcement response to money laundering had been weak for an extended period of time.

A considerable portion of the NRA reports statistics for suspicious activity reports (SARs) of which 350,000 were filed last year with the UK Financial Intelligence Unit. The submission of a SAR provides a defense from a money laundering or terrorist prosecution arising from the reported transaction.

The NRA does not provide any real detail about how enforcement agencies assess and action SARs. There is certainly plenty of anecdotal information to suggest that a considerable number of SARs are not actioned and the reasons for that are probably threefold.

First, if it is difficult to prove money is tainted in domestic jurisdictions, it is almost impossible in the case of internationally sourced capital.

Second, the UK’s enforcement agencies are simply not set up or sufficiently resourced to deal with the number and complexity of SARs.

Third, having to deal with transactions of foreign offshore companies that conceal beneficial ownership compounds the difficulties in proving dirty money.

That the NRA seeks to criticize and shift the obligation onto the private sector to police money laundering is perhaps not that surprising but it is entirely unrealistic. Instead, the revenues generated from London being a global financial center should be sufficient to fund effective specialist enforcement.

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Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.