This Week in AML

Is London the Capitol of Dirty Capital?

The UK has become a haven for rich Russians. The lax approach to regulation has allowed money laundering to flourish. Recent government action in response to the Russian invasion of Ukraine is making a difference, but won’t erase the longstanding relationships that foster financial crime. John and Elliot discuss the challenges presented by the facilitating behavior of gatekeeper professionals and the global nature of the issues in the UK.



Is London the Capitol of Dirty Capital? TRANSCRIPT


Elliot Berman: Hi, John, how are you this week?

John Byrne: I Elliot good. Back from San Francisco, we had the west coast AML for that Chuck Taylor, myself, and Tim white had been involved in for quite a long period of time. And it was well-received as we've talked about our program, the AML Partnership Forum. This is an attempt to base on that model.

So this is the original model with strong support from the IRS and other aspects of law enforcement. And next year it'll be their 30th event. So that's a pretty impressive run that they've had. And again, it's all about what we're trying to do here. You know, private-public partnership, which is so important to our community. So another good program.

Elliot Berman: Yeah, it's great. I know that you and Chuck both talked about how successful it was and the whole partnership issue. You and I have been talking about it and working on it with lots of others for many, many years, and I think we're making good progress.

So that's really critical. So this week, I saw in the economist an article with the intriguing title, Why is London so Attractive to Tainted Foreign Money? I wonder if you saw that.

John Byrne: Yeah, I saw it. And what was interesting on many levels was they go into obvious detail about the UK's reaction to the Ukrainian attacks by Russia but looking at oligarchs, but making a pretty strong statement that London has been a hit for dirty capitol, dirty money for a long period of time. Not, unlike some places in the US, by the way, or other countries. So they looked at how this all started. There was a sort of a welcome mat situation where you would get visas if you invested money that started under the prime minister, John Major, at the time.

So in the early nineties, they talked about legislation that passed fairly quickly. A couple of weeks after the invasion of Ukraine and they asked the question will this matter? Because there's so much that's already there. So yeah, I think any of us that are in the community that we're in would be well-served to take a look at this.

Elliot Berman: Yes. I agree. As in most jurisdictions that we've talked about and certainly that others have talked about in terms of hiding money or facilitating dirty money being moved. The article talks about a particular facilitating methodology called the Scottish Limited Partnership. Which, again, like many of the vehicles we've talked about in the US and others, you have a lack of disclosure of actual ownership and no requirement to track the source of funds and all of the other things that make it easy to do this.

There were also some really interesting things about it—kind of the gatekeeper issue. And as you and I talked before, we started a recording of this. When you read through this article in the end, if you're going to put it in one category, this is, again, all about the gatekeepers. In some cases, people who are lawyers, accountants, and other bankers who, for a fee often an exorbitant fee, are willing to step outside of their ethical or legal obligations and assist people for a payoff. I'd love to say it's not happening, but it is happening. And in all different ways on the litigation, front, the structuring front. And so there was a quote in here, which I probably now won't be able to quickly put my fingers on.

John Byrne: Yeah. Well, I think they say the penalties for banks, lawyers, and other enablers of dirty money or paltry. And then they say lawyers may be looking at this one. Lawyers who turn a blind eye can expect no more than a rap on the knuckles, is what they say. And there's also a reference to a 2021 report by Chatham house. And that was called the UK kleptocracy problem. And basically, it's interesting; folks in our US will recognize this. It says Britain's adopted quote, "a risk-based unquote approach to anti-money laundering. So much of the policing is with the banks, lawyers, and others in the private sector."

But this is another good quote from the report—failures of enforcement or implementation of the law. Plus, exploitation of loopholes by professional enablers has meant that little has been done in practice to prevent wealth and agendas from entering Britain. So there's a number of studies besides the article in the economist that point to this and seem to sort of a cast a questionable look, if you will, on whether these laws they're trying to pass now. I guess they passed one on anti-corruption a couple of months ago, but whether there'll be enough behind it, resources, enforcement, you know, the pay is fairly paltry from what they suggest is as well. So again, I don't think it's overstating it to say.

We've recognized that this has been a problem in London, but as they point out in the same article, it's also been a problem in our own country. And they talk about the number of countries that have issues similar to the UK. And they say, for example, in the United States, New York skyscrapers and Miami condos are a wash and corrupt capital, especially from Latin America.

When you and I pointed out many times, Delaware and Nevada, allow these shell companies. And South Dakota does as well in terms of trusts. And that's why we have the beneficial owner debate. The question is, will the registry be impactful? That sort of thing.

Elliot Berman: Yes. It was interesting to me, as a lawyer, that there are a number of provisions in UK law that I'm sure we're not put in for this purpose but do end up facilitating some of it. One is that the loser of a civil lawsuit in the UK, pardon me, has to pay the other side's legal fees. And so part of what happens, according to the article, is that top law firms representing some of the bad actors charge exorbitant fees because they believe that they'll have an opportunity to collect those fees and encourage the client to pay those fees. Because they outmatch the other side. And so, it just encourages what we might call unnecessary litigation here in the United States.

And there are states in the US that've explored that type of law, and it would be nice if they saw some of the unintended consequences that we see in the UK.

John Byrne: I agree with that. So folks should take a look at the article. It's in the most recent edition of the economy. 

Elliot Berman: Right. So we have one of our monthly webinars coming. It's on May 26th. That live stream at one o'clock Eastern time. And it's going to be a great conversation on sanctions. Not just the mechanics but also some of the implications of foreign policy and international relations.

So I'd encourage people to register for that. You can do that on our website and at www.amlrightsource.com. John, anything to pitch?

John Byrne: This week? No, but just a warning to folks, if you wanted to use Elliot sneezing for your ringtone, you'll have to pay him at least a buck every time you do that. So think about that before you

listen to the recording. So I just wanted to make that point.

Elliot Berman: Well, thank you. Now that you've said that, I won't have it edited out.

John Byrne: No, you can't have it without it proving that we do this live, so it's true. That's the beauty of having conversations. We have a couple of podcast interviews scheduled in the next week or so, so we will talk more about that after they're complete. Several folks are already in the government. Some have gone to the private sector that have expertise in a number of areas. So more to come in the next couple of weeks.

Elliot Berman: All right, sounds good. Have a good rest of the weekend. We'll talk next week.

John Byrne: All right, take care. 

Elliot Berman: Bye-bye.