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Unfair FATF?

M Ziauddin
On Friday last after having attended the spring moot of IMF-World Bank in Washington Finance Minister Asad Umarwhile interacting with a group of Pakistani-Americans said the next FATF review would take place in the middle of May and the deadline for Pakistan to send a report for the review is April 15 (today). He said Pakistan would send the report on time and then the review team would visit Pakistan in May but the actual deadline for the final decision is September. He said Pakistan had made significant improvements since the last review, recognised by “virtually everybody we talked to. The question mark we have is: are we going to be judged by a rigged jury?”
He said he recently wrote a letter to the FATF president asking him to appoint any other member country besides India as co-chair of the Asia-Pacific Joint Group. “The finance minister of India is on record saying that they will use every means at their disposal to economically isolate Pakistan. What better way to isolate Pakistan economically than to get Pakistan on a FATF blacklist?” The minister said with India co-chairing the proceedings, Pakistan did not expect a fair and unbiased decision from the FATF. He almost sounds as if he has thrown in the towel. But why is Pakistan, a developing country having limited financial intelligence abilities, is facing the risk of being blacklisted by FATF while one of world’s most developed countries like the UK whose property boom of one single city is being considered money laundering horror is not even being closely monitored by the international watchdog group?
The “weak link” in Britain’s money laundering defences is weaker than previously thought, says Chris Stokel-Walker (New Data Shows London’s property boom is money laundering horror—published in Wired magazine on Tuesday 9 April 2019).
Chris says money laundering has been pinpointed as a problem for the UK, with trillions of pounds thought to be sloshing through banks and properties. It has been pinpointed as a target for the government, with economic secretary to the Treasury John Glen saying that “money laundering regulation exists to help protect honest business, so anyone who flaunts the law should know that swift action will be taken.” However, in the opinion of Chris Stokel-Walker the perception of how swift and how meaningful that action is appears to differ from reality. HMRC has conducted fewer than 55 investigations against estate agents for breaches of the UK’s money laundering regulations in the last six years, according to information gathered by law firm Fieldfisher using freedom of information legislation. Estate agents have been singled out by the security minister, Ben Wallace, as a “weak link” in the UK’s anti-money laundering defences.
According to data gathered by the author of the column, the tax levying body oversees estate agents as well as six other industries, monitoring 27,000 businesses in all. It is one of around 25 different regulators overseeing and supposedly averting the risk of money laundering through the UK economy. The small numbers contrast with the vast scale of money laundering in the UK. “We have a huge problem, particularly in London with property,” explains Kyle Phillips of Fieldfisher. Until recently, UK legislation is unique, allowing people to buy property in the name of a company, rather than an individual. “If you’ve got money in whatever country – China, Russia or Saudi Arabia, for example – and you want to make that money legitimate, you buy that property in the UK in the name of the company.” That can turn illicit money into clean money through the value of the property and selling it on, or earning money through rent on the property. “It’s an easy way for them to launder money,” says Phillips. “They’ve put it through the UK property system, and all of a sudden it’s clean.”
But, aware of the risks that can come from money laundering, things have been changing. HMRC crowed last month of a “crackdown” against estate agents. However, that’s not a solution to the issue. “It’s all good and well having the laws in place,” says Phillips, “but if they’re not being implemented properly, there’s no point.” It’s not just ineffectual regulators that are the root of the problem, reckons Prem Sikka, professor of accounting at Sheffield University, who wrote a book, The Accountants’ Laundromat, warning about the scale of money laundering in the UK. It was published in 1998. “The real problem is we have too many money laundering regulators – about 25 of them – and there’s virtually no co-ordination, they work to different benchmarks and different priorities, and the finger is routinely pointed at lawyers and other intermediaries.”
In response to Fieldfisher’s request, HMRC said: “As well as criminal investigations, HMRC also carries out interventions on its supervised businesses to ensure they are complying with the money laundering regulations”. HMRC added that they had completed more than 5,000 interventions in the last three years, and that the value of penalties had “doubled [sic] in the last two years, increasing from £558,000 to £2.3 million, sending a clear message that supervised businesses must take their obligations seriously.” “They’re trying to give us the big talk,” says Phillips, “but there’s no way that every estate agent, every company they’re supervising, has these compliance procedures in place. Not a chance.”
These data are just the tip of the iceberg of the inefficiency of the UK’s anti-money laundering regulations, reckons Sikka. “HMRC is subject to freedom of information laws. But the accountancy bodies, law bodies, indeed 22 or the 25 regulators for money laundering, are outside the FOI net altogether. Yet they are supposedly statutory regulators. But the government has taken the view that they are somehow private bodies.” As a result, it’s impossible to measure their efficacy. Sikka and colleagues prepared a 111-page report for the Labour party in January 2019 suggesting a consolidation of regulators, and a requirement that those overseeing industries are detached from the people they’re meant to be monitoring. A report from the UK’s parliamentary Treasury Committee, released last month, recommended the anti-money laundering system be reviewed and reworked to work better. It suggested a greater role for HMRC in anti-money laundering, becoming the regulator. “The question then is HMRC capable of doing that,” asks Sikka. “It’s got too much on its plate already and not enough resources.”
And so the chaos continues, even as those in power profess to be acting. “The government hasn’t been able to resolve these issues, so the murky show goes on,” explains Sikka. “Everybody’s talking about money laundering but it seems like nobody’s doing anything about it,” says Phillips. “You can put in all these new laws, but ifnobody’s policing it, what’s the point?”
— The writer is veteran journalist and a former editor based in Islamabad.