US-UK Money Laundering

Jun 09, 2013 Editorial

The local political tussle over legislation demanded by the Financial Action Task Force (FATF) highlighted the huge volumes of funds that are laundered by financial institutions from the ill-gotten gains of corruption, crime, drugs and the funding of terrorism. It is not because of the meeting in Nicaragua, where our compliance was mediated through our local Caribbean affiliate of FATF, the impression was created that non-compliance with the FALF regulations was confined to Third World jurisdictions like ours.
This is far from the case, and the entire initiative suggests that as usual in international affairs, there may be “different strokes for different folks”.
The sad truth is that most of the money laundering is done through banks in the developed countries, especially the US and UK, and the much publicised “off-shore” centres such as Cyprus and the Caribbean are simply cogs in a very large wheel that has its axle in the former countries. The bulk of the profits to launder an estimated US$.5 trillion end up in those countries.
This fact was illustrated very vividly in the report, “Grave Secrecy” which was published in June 2012 by the very credible NGO Global Witness. The report provided irrefutable evidence that “numerous UK companies” had been involved in a major money laundering scandal involving a Kyrgyzstan bank. It recommended that “urgent action is needed to address the current ease with which the UK and other major economies are used to launder the proceeds of corruption, tax evasion and other crimes.”
Specifically, it showed that “three UK companies had US$1.2 billion running through their accounts despite not being involved in any real business that Global Witness could ascertain….the suspicious transactions went through many banks around the world, with the largest amounts passing through Citibank in New York, the UK’s Standard Chartered and Austria’s Raiffeisen Zentralbank. These banks continued their relationship, though one bank, UBS, was sufficiently concerned about their relationship with the Kyrgyz bank that it broke off relations.”
The laundering in the developed countries is facilitated by so-called “shell companies” which are easily established in the UK and the US. Also called “brass-plate” companies, they simply provide a legal “existence” in a country where it has no real physical presence or trading structure. The registered address is typically that of a lawyer, accountant or professional company formation agent in a developed country. There they are unregulated, unlike banks.
But it is the western regulated banks that almost all the illegal money end up in. Last December, British bank HSBC, the largest in the world with assets of $2.693 trillion, worked out a Deferred Prosecution Agreement (DPA) with US authorities for money laundering for drugs cartels, terrorists and pariah states.
It agreed to pay a fine of US $1.9 billion which sounds like a lot but when viewed against the grim statistic that 35,000 people were brutally slain in Mexico at the hands of drug traffickers while the bank took at least $880M of drug money, it is shocking that the current system of penalties does not include senior executives being held personally responsible for the actions of their institutions.
The major problem is that the UK and the US do not insist in providing the “beneficial owners” of its registered companies.
The beneficial owners are the individuals that receive the actual proceeds of the companies – not the front operators. The beneficial owners play the three-card monte game with illegal funds through the willing banks knowing that they are not personally at risk.
Corporations were invented to encourage individuals to invest and not lose their personal funds. But it should not be used now to hide criminal activity and wealth.
We are of the firm opinion that the recommendations of FALF are a very positive development and that Guyana must become compliant. However we also believe just as strongly that the larger countries that make most of the profits from illegal transactions must be brought to heel if real progress is to be made in this area.

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US-UK Money Laundering

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US-UK Money Laundering

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