London or Londongrad?

For years, the United Kingdom (UK), specifically London, has continued to be a haven for economic offenders from other nations. Russian oligarchs have kept their money parked in the country in the form of property and other assets. It has earned the city an unenviable nickname, 'Londongrad'.

Others like Indian businessmen, like Nirav Modi and Vijay Mallya, declared as fugitive economic offenders (FEOs) by the Indian government, have been living in the UK, seeking asylum.

The ongoing war in Ukraine has brought the topic back to the discussion. In March 2022, the British Parliament passed the economic crime act to ease the process of conducting trials of people with international corruption cases against them. A report by The Economist said that the country has a money-laundering problem amounting to $125 billion per annum.

Source: https://en.wikipedia.org

Various reports have discussed why London is the 'Laundromat' of global 'dirty' money. The first reason cited is the weak enforcement of laws. According to a report by Financial Times, the money can be transferred to a UK company from foreign bank accounts without much trouble. Although the laws require the company's details to be recorded with the government, these laws are not implemented strictly. The money is usually transferred to the shell companies in the UK and then moved across various bank accounts to 'clean' it.

Apart from implementation, the report also said that a nexus of accountants, lawyers and oligarchs have been formed in the country. Lawyers and accountants help oligarchs evade the tax laws. Oligarchs, in return, pay them hefty fees.

There are four steps in which the whole process takes place, according to FT. The first step is "placement". The money is brought into the country through foreign bank accounts and parked in shell companies' bank accounts.

Second, the transactions are "layered". Here, several complicated financial transactions are conducted with the money. This makes it difficult for the agencies to keep track of the origin of such funds. Several banks, too, are a part of the process. FT identified 86 such banks in its report. Then, the money is "integrated" into the system. Costly assets like houses, watches, cars, and jewellery are bought with the money to integrate the money into the system.

In the UK, offshore companies are allowed to buy a property without revealing the details of the person who is ultimately buying it. Around 84,000 houses have unknown owners in the country.

Lastly, if any cases are filed against the launderers, they are "defended" by the nexus of accountants and lawyers. According to a report by Transparency International, 86 banks, 81 law firms and 177 educational institutes have accepted dirty money.

After the war in Ukraine broke out, the UK House of Commons passed the Economic Crime Act, which makes it mandatory to register overseas entities and their beneficiaries with the government. It also aims to intensify sanctions enforcement in the country. Since the passage of the bill, Britain has sanctioned over 1,600 individuals and businesses, including 100 Russian oligarchs, according to a report by The Economist.

London is a known haven for “dirty” money. In fact, some of the connected elite in many developing countries like Nigeria or Malaysia transfer funds for “safe-keeping” to London. Many also buy landed assets with these funds. Some have suggested Malaysia has “lost” over RM1 trillion over last 10 years. Maybe MACC or the PM’s office could recover it, then we will have enough for development expenditure.

Reference:

London or Londongrad? What makes the UK a hub for global “dirty money”, BS Web Team, www.business-standard.com, August 8, 2022