ICT Views

Secrecy for Sale: Time for the UK to Act or lose all credibility in AML?

by: (Director ICT Academic Faculty) on

The recent release of the International Consortium of Investigative Journalists (ICIJ) Report “Secrecy for Sale: Inside the Global Offshore Money Maze” is the latest in a series of powerful exposes highlighting the flight of criminal money to offshore centres. From the World Bank’s Report “the Puppet Masters”, to the study “The Price of Offshore Revisited” by James S. Henry, (former chief economist at McKinsey), we have seen a series of reports revealing the sheer enormity of the problem.

Yes, there are legal and legitimate reasons to use offshore centres, complex structures and nominees, but equally the scale of abuse and ineffective regulation has rendered the global attempts of FATF and member states virtually meaningless.

globeThe amount of assets under management in Private Banks in offshore centres continues to grow despite the global economic travails, and the on-going crisis in Cyprus will continue to push money even further to the margins of the offshore world away from the more effectively regulated centres such as Guernsey, Jersey and the Isle of Man. 

Looking at the findings from the ICIJ Report we see the British Virgin Islands (BVI) and the Cook Islands figuring large. Again the scale of the accounts identified where nominees are used to deliberately obscure the ultimate beneficial ownership and where Customer Due Diligence Information is not obtained or recorded adequately is farcical. Reading this report, the hard pressed AML Officer in any European or US Bank may well ask, “What is the point in me getting up in the morning?”

The use of Trust structures continues to figure significantly in attempts to distance assets held by corrupt officials and prominent public figures.  Two offshore firms are singled out for particular attention, Singapore-based Portcullis TrustNet and BVI-based Commonwealth Trust Limited (CTL). Both firms have, according to the report, systematically facilitated the use of complex and opaque structures by wealthy clients in contravention of AML laws.

So what should be done? The BVI is a British Overseas Territory. The UK Government need to take urgent action to review the approach to regulation and enforcement in the BVI and continue to exert maximum political pressure in this regard. Failure to take significant action will lead to an inevitable damage to the reputation of the other Crown dependencies, Jersey, Guernsey and the Isle of Man. The viability of these jurisdictions as reputable offshore centres is as stake if the UK government fails to take appropriate action.

There are positives here; in particular Jersey and Guernsey continue to lead the way in terms of best practice for regulation and AML rules. (FATF continue to recognise as much in their Mutual Evaluations) However, we should acknowledge that all offshore centres, by definition, will attract higher risk assets and such need to remain vigilant. Given the increased global pressure on offshore centres for greater transparency particularly in terms of tax (FATCA et al), the political temperature could not be higher at present.

For the UK to remain a credible advocate of AML reform at EU and FATF levels, clear actions must be taken to address the issues in the BVI. The problems and failure revealed by the fantastic work undertaken by the ICIJ must be responded to at the highest levels in the UK government.

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