The UK's approach to combatting fraud, money laundering and other economic crime should be the subject of more frequent and broad review, a prominent committee of MPs has said.
In a new report published on Friday, the Treasury Select Committee said that the scale of economic crime in the UK "can reasonably be said to run into the tens of billions of pounds, and probably the hundreds of billions".
The committee called on the government to undertake analysis to better understand the precise scale of the problem and said it should not be so reliant on recommendations of and the "prompting" by the intergovernmental Financial Action Task Force to ensure the UK's "economic crime prevention, detection and enforcement systems remain fit for purpose".
"The Committee … recommends the government institutes a more frequent system of public review of the UK’s AML (anti-money laundering) supervision, and law enforcement, that will ensure a constant stimulus to improvement and reform," the MPs said in their report. "This review should take a holistic view of the entire system, rather than be undertaken by each individual component supervisor or agency."
Criminal defence and anti-corruption law specialist Neil McInnes of Pinsent Masons, the law firm behind Out-Law.com, said the Treasury Committee's report "provides a timely reminder of the importance of effective measurement of the impact of economic crime; as well as the need for continuous improvement of AML systems, in the context of the UK’s trade and mutual assistance relationships further developing internationally".
"From more use of big data in SARs to reform of corporate criminal liability, the report pulls no punches in the need for a proactive, coordinated and well-resourced approach to combating financial crime," McInnes said.
"For legal and compliance teams, there is important recognition of the role to be played by the private sector in partnership with law enforcement in information gathering and information sharing – and the scope for this public-private partnership to extend beyond existing networks within financial services to involve a range of other sectors managing their global AML and economic crime risks," he said.
In total, the Treasury Committee made 36 recommendations to improve the UK’s response to the continued threat of economic crime, focusing on AML supervision and sanctions implementation.
The Committee highlighted the risk that economic crime may go unchecked as a result of the fragmented approach to AML supervision in the UK, with particular problems identified with the property sector. It said work is needed to ensure UK entities involved in such transactions are properly supervised, and that HM Revenue & Customs (HMRC) should, for example, ensure all estate agents are registered with them for AML purposes.
To plug other weaknesses in the system, the Committee urged Companies House to be given greater powers and resources to properly scrutinise the information placed on the UK's public register of beneficial ownership.
The government should also create a centralised database of politically exposed persons (PEPs) – individuals whose prominent position in public life may make them vulnerable to corruption – to help AML supervisors in industry identify those people more easily, it said.
The MPs also made recommendations regarding suspicious activity reports (SARs) regime and the focus of reforms promised by a review already underway by the National Crime Agency and Home Office. SARs alert law enforcement that certain client/customer activity is suspicious and might indicate money laundering or terrorist financing.
"Reform should focus on increasing the number of SARs reports by those outside the core of the financial system, the so-called enablers," the Treasury Committee said. "We have heard a number of reasons why SARs may not be submitted by the enablers. It is a legal requirement for SARs to be submitted, so the system needs to be as robust and simple to use as possible."
The Committee's report also addressed Brexit and the opportunities and risks that presents to the UK's approach to tackling economic crime.
"The UK’s departure from the European Union will inevitably result in a change in international trading relationships," the Committee said. "Such new trading relationships may also provide opportunities to those wishing to undertake economic crime in countries that are more vulnerable to corruption. The UK must remain alert to that risk, including when it conducts trade negotiations. The government must be consistently clear about its intention to lead in the fight against economic crime, and not compromise that in an effort to swiftly secure new trading relationships."
"We recommend that the government retains, or replicates, the arrangements with the EU to maintain the flow of information to UK law enforcement agencies on economic crime. We recommend that the government work to develop strong relationships with other countries and strengthen mutual information sharing and law enforcement powers," it said.
The Treasury Committee's report was published just two days after a number of MPs called on the government to accelerate the move towards a new corporate criminal offence of failing to prevent economic crime such as fraud and money laundering. In a letter to prime minister Theresa May, the MPs said it was "high time for reform" given estimates that more than £100 billion of "laundered wealth" impacts on the UK every year.
Criminal offences already exist for failure to prevent bribery and failure to prevent the facilitation of tax evasion.
"The truth is that there is no real legal mechanism for holding large institutions criminally to account for wrongdoing, including for large-scale fraud or for laundering of the proceeds of corruption and other crimes," the MPs said in their letter. "It is now nearly three years since the government first announced it would consult on changes to the law to address this loophole in the UK's justice system without any sign of real change taking place."
The MPs also urged the government to task the Law Commission to "conduct a broader review of the UK's corporate liability framework". They seek reforms based on the Law Commission's recommendations within 18 months of the review commencing.
The Treasury Committee's report echoed the MPs' calls for the government to refocus efforts on changing the law on corporate liability around economic crime.
Corporate crime expert David Hamilton of Pinsent Masons said: "The extension of the corporate offence of ‘failing to prevent’ beyond bribery and facilitation of tax evasion has been on the slate for some time."
"The strict liability model is certainly attractive from a prosecutor’s perspective, obviating the need to identify the company’s ‘directing mind and will’ whose acts and state of mind can be imputed to the company before the company can be criminally liable – the so-called 'identification principle'. This has often proved a difficult hurdle for prosecutors to surmount," he said.
Hamilton said that extending the model that applies to the offence of failure to prevent bribery at the moment to other forms of financial crime "would undoubtedly have a knock-on effect on the vexed subject of self-reporting".
"The lower criminal liability threshold is an important factor in a company’s decision as to whether or not to come forward and mitigate potential sanctions, whether by way of a deferred prosecution agreement or otherwise," he said.
