21st Mar 2018


Europe's money-laundering machine: still spinning

  • Dirty money in Europe racks up on spreadsheets in billions (Photo: BLPerk)

When the first flames of the Arab Spring began to burn, a Tunisia suffering from decades of mismanagement, inequality and abuse broke free from under the long reign of Zine Al-Abidine Ben Ali.

As the government fell and the turmoil in the country spread across the region, the sheer scale of the corruption behind Ben Ali’s kleptocratic regime began to emerge.

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According to the World Bank, Ben Ali siphoned off $2.6 billion of public funds to pay for artwork, a yacht, luxury properties and bank accounts, much of it in the EU. The corrupt cannot operate alone. Ben Ali was helped by networks and financial structures in Europe.

Impunity exists for the most corrupt only because others allow and assist that corruption.

You cannot stash large sums under a mattress or in a shoebox. Ill-gotten assets can’t be hidden without some pretty sophisticated schemes involving offshore accounts, shell companies, nominee directors, and other tricks and tools of this nefarious trade.

This in turn requires the help, witting or unwitting, of many finance and legal professionals. It is these private sector actors - banks, lawyers, estate agents and of course accountants - who should be in the front lines of the fight against money laundering.

Dirty money floods into the UK

As Transparency International UK have shown in their recent report on money laundering in the UK, poor oversight, a lack of transparency and conflicts of interest makes the very system that’s supposed to prevent money laundering unfit for purpose.

From Rakhat Aliyev, the former secret police chief of Kazakhstan, buying Sherlock Holmes’ flat to the two Nigerian governors who laundered at least £2.7 million through UK banks, Britain has become the go-to destination for corrupt cash.

You cannot hope to tackle corruption on this scale without an effective anti-money laundering regime. Which means sound legislation, thorough implementation, and effective supervision and enforcement. All of which is deficient in the UK.

Looking at supervision alone, the UK has 22 different bodies that have some degree of responsibility for enforcing anti-money laundering regulations, but 20 of these fail to meet basic transparency standards.

Fifteen of the supervisors of these bodies have serious conflicts of interest between their private-sector lobbying roles and their enforcement responsibilities.

When it comes to sanctions, the average fine for breaking anti-money laundering rules is only £1,134 (€1,600). Which is about the cost of refuelling a yacht, like the one belonging to Ben Ali that was impounded in Italy.

But it’s not just the UK. As the aftermath of the Ukrainian revolution and the Arab Spring has revealed so vividly, money meant for public services in transition economies and the developing world often ends up in accounts and assets the length and breadth of the EU.

In boats and beach houses, in flashy cars and expensive watches.

To give some sense of the scale of all this, in 2011 alone the developing world lost $946.7 billion in illicit outflows from crime, corruption and tax evasion. That's almost a trillion dollars. That's almost enough to buy a million million-dollar homes. Or 10 million homes that cost $100,000 dolars each.

EU-wide approach needed

We need an EU-wide approach to tackling money laundering that is strong, effective, and helps bring the corrupt to justice.

The EU’s fourth anti-money laundering directive is a good starting point, but it is not enough.

The directive requires EU member states to have registers of corporate ownership that should help make anonymous shell companies a thing of the past.

Opening up these registers to the public would improve the data quality and increase the possibilities of detection. There is a narrow window of opportunity in the next 12 months for EU governments to do just that, as they go about implementing the revisions to the EU directive.

Secondly, the European Commission should be much more vocal about the poor implementation of and supervision over the directive by member states.

This undermines this legislation, and in a single market for financial services it has consequences for the whole EU. The chain is only as strong as its weakest link, after all. In a "supranational" risk assessment that it will publish by the end of 2017, the EU will have a chance to strengthen this chain.

When the next political upheaval or unrest hits our increasingly fractious world, it must not just result in the revelation that billions of euros are flowing through Europe, enriching the corrupt few.

The EU needs to take a strong stance against corruption by taking a tough approach to enforcing anti-money laundering rules at home and looking at how it can improve existing legislation.

Be it Ben Ali, Yanukovych or Aliyev, the corrupt must not be allowed to get away with it.

That’s why across the globe Transparency International is running a campaign to Unmask the Corrupt, designed to bring about justice and expose the crimes of corruption. This will be no small feat. But shutting down the trickery and the tools that allow the corrupt to hide stolen assets is a big part of this battle.

And here in Europe, that battle starts with the money.

Carl Dolan is director of the Transparency International's liaison office to the European Union

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