For years, the United Kingdom (UK), especially London, continued to be a haven for economic offenders from other countries. The Russian oligarchs kept their money parked in the country in the form of property and other assets. It earned the city an unenviable nickname, “Londongrad”.
Even Indian businessmen, like Nirav Modi and Vijay Mallya, who have been declared Economic Fugitives (FEOs) by the Indian government, are living in the UK and seeking asylum.
The ongoing war in Ukraine has brought the subject back into the debate. In March, the British Parliament passed the Economic Crimes Act to facilitate the trial process for those accused of international corruption.
A report of The Economist said the country had a $125 billion a year money laundering problem.
But what makes London a hotspot for money laundering?
Various reports have explained why London is the ‘laundry’ of global ‘dirty’ money. The first reason given is weak law enforcement.
According to a report by FinancialTimes, money can be transferred to a UK company from overseas bank accounts without too much trouble. Although laws require company details to be registered with the government, these laws are not strictly enforced.
The money is usually transferred to the shell companies in the UK and then transferred to various bank accounts to ‘clean’ it up.
Apart from the implementation, the report also says that a network of accountants, lawyers and oligarchs has formed in the country. Lawyers and accountants help oligarchs evade tax laws. The oligarchs, in return, pay them high fees.
How does money laundering work in London?
The whole process takes place in four stages, depending on FT.
The first step is “placement”. The money is brought into the country through foreign bank accounts and deposited in the bank accounts of shell companies.
Second, transactions are “layered”. Here, several complex financial transactions are carried out with the money. It is therefore difficult for agencies to track the origin of these funds. Several banks are also part of the process. FT identified 86 such banks in its report.
Then the money is “integrated” into the system. Expensive assets like houses, watches, cars and jewelry are bought with the money to bring the money into the system.
In the UK, offshore companies are allowed to buy property without revealing the details of the person ultimately buying it. About 84,000 houses have unknown owners in the country.
Finally, if legal action is taken against the money launderers, they are “defended” by the network of accountants and lawyers. According to a report by Transparency International, 86 banks, 81 law firms and 177 educational institutions accepted dirty money.
What is the UK doing to combat it?
After the outbreak of war in Ukraine, the UK House of Commons passed the Economic Crimes Act, which mandates the registration of foreign entities and their beneficiaries with the government. It also aims to intensify the application of sanctions in the country.
Since the bill was passed, Britain has sanctioned more than 1,600 individuals and companies, including 100 Russian oligarchs, according to a report by The Economist.
An Economic Crimes 2.0 law could also be introduced by the government in the coming months, FT added. This could give authorities the power to seize crypto assets and exchange money laundering information to speed up the investigation.