More than a trillion dollars are looted each year from poor countries, then stashed in rich ones—and Britain is at the heart of it. So how did an ancient office of the Archbishop of Canterbury end up on the frontline in the battle against money laundering?by Oliver Bullough / May 6, 2019 / Leave a comment
If you take Westminster Abbey’s Victoria Street exit and walk past the gift shop, you’ll find a golden-yellow, Gothic Revival block, with a steeply pitched roof rising from a row of battlements. This architectural confection is No 1 the Sanctuary, and a plaque by the door announces its tenant: The Faculty Office of the Archbishop of Canterbury, which is the kind of curious appendix to the British constitution that might have amused Charles Dickens.
In 1533, when King Henry VIII broke with the Vatican because it refused to grant him a divorce, parliament gave the faculty office responsibility for the pope’s non-ecclesiastical duties, and it has retained them over the intervening centuries through bureaucratic inertia. The office is in charge of many things, including dishing out special licences allowing couples to marry in a church where they do not meet the normal requirements, but it is also responsible for the regulation of “notaries public,” an ancient and rather withered branch of the legal profession that specialises in authenticating documents.
“They don’t have a big market share,” conceded Neil Turpin, the faculty office’s open-faced and talkative chief clerk. There are now fewer than 800 notaries in England and Wales (compared to almost 150,000 practising solicitors) but, since they handle money, they must be supervised for anti-money laundering purposes. That is Turpin’s job, and it’s an important one.
Britain is home to a world-class financial services industry, but also—and not coincidentally—to a vast money laundering machine. The City of London is a key hub in the rampant kleptocracy, financial crime and tax evasion that is afflicting the world.
Every year, more than US$1 trillion is stolen from the world’s poorest countries and stashed in the richest ones, according to research by Global Financial Integrity (GFI), a think tank in Washington DC. This money should be paying for healthcare, security and infrastructure, but is instead being spent on mansions, superyachts and bling, with disastrous consequences for the world’s most vulnerable people, not to mention the affordability of housing in western capitals.
The sums earned each year from fraud, the drugs trade and grand corruption are so large as to be barely comprehensible. In July, Mark Thompson, then the interim director of the Serious Fraud Office (SFO), was asked by parliament’s treasury select committee how big the problem of financial crime is, and whether he could quantify it. “The short answers would be ‘big’ and ‘no,’” Thompson replied. “My view after 20-odd years in this field is that I am pretty sceptical of most attempts to quantify economic crime… If you are asking me whether fraud in the UK is worth £90bn, £150bn or £200bn, I would not be able to say any of those with particular confidence.”
Whichever of those figures for the amount of dirty money that the UK sees each year is accurate, it’s equivalent to somewhere between four and nearly 10 per cent of our overall national income.
Every time money is moved—between bank accounts, between countries, between companies—its origins become obscured, and thus harder to recover. The United Nations estimates that only 0.2 per cent of laundered money is ever identified by law enforcement and recovered, which makes engaging in fraud a virtual one-way bet for criminals.
They cannot wash the blood out of cash without help, however, which is why anyone who handles large sums of money—lawyers, accountants, estate agents, bankers, bookmakers and notaries public—is regulated by organisations like the Faculty Office. Turpin’s regulatory role involves checking to ensure that his notaries are not helping to conceal the proceeds of crime, and that they report any suspicions they have to the authorities. If he’s doing his job right, criminals who try to move their cash will be caught, and anyone who tries to help them will be too.
In this he is not alone. There is a dizzying array of some 25 different organisations in Britain that act as anti-money laundering regulators, with all but three of them in turn regulated by a “regulator of regulators,” thus making 26. These 26 different regulators are tasked with making sure professionals are not handling dirty money, and they are—perhaps predictably—inconsistent in how they set about it.
Some 14 of the supervisors are tasked with regulating accountants alone, and they have differing capabilities and roles in relation to this. All but two of these accountancy supervisors also double-up as trade bodies, which work to promote their members in what looks like a clear conflict of interests.
Even if the structures were all in order, this is a hard trade to keep a grip on because the term “accountant”—unlike “solicitor” or “barrister”—does not have legal protection, and anyone can declare themselves to be one, without undergoing any particular training, or submitting to any particular regulator.
Even describing, never mind finding your way round, such a system is quite a challenge. And unsurprisingly, despite the best efforts of Turpin and his many counterparts, this bewildering web of -regulators is failing at its job: dirty money is moving unchecked through our financial system.
“The UK is one of the most attractive destinations for laundering the proceeds of grand corruption,” the government stated with remarkable candour in its 2017 anti-corruption strategy. “Corruption threatens our national security and prosperity, both at home and overseas.” That makes it sound like we are taking the problem seriously.
However, the fact that we have tasked a Tudor anachronism like the Archbishop of Canterbury’s Faculty Office with tackling a great modern evil is one clear sign that we are not taking it as seriously as we should. Indeed, the very British blend of open arms towards footloose, shape-shifting and border-straddling 21st century capital and creaking governance—some of it with a 16th century pedigree—could just be exactly what makes the UK such an “attractive destination” for the world’s most unattractive riches.
The vicar’s husband vs the money launderers
Married to a vicar, Turpin is an experienced lawyer specialising in conveyancing, who used to be a church warden. He stumbled into his job after seeing an advert in the Church Times (as he remembers, the advert said: “successful candidate will have a knowledge of the workings of the Church of England; a legal background would be helpful but not essential”).
His duties extend beyond manning his small stretch of Britain’s financial ramparts, and include approving the appointment of notaries in Commonwealth countries as far afield as Papua New Guinea, and issuing special marriage licenses. “I genuinely love my job, it is utterly unique,” he said, with unfeigned enthusiasm.
His money laundering duties involve sending two senior notaries out to inspect their peers, to check up on each notary’s records. Between them, they get through about 20 inspections a year, meaning the whole notary population gets inspected roughly every 35 years, or—at the individual level—roughly once in the course of a career. It’s not hard to see how a notary could get away with breaking the law.
Turpin was staunch in defending the work his office does, but recognised its role in money laundering regulation is not ideal. “If you were starting with a blank page of paper, then clearly you wouldn’t end up with what we’ve got,” he admitted, with cheerful understatement. “But we’re not. We are where we are.”
As helpful as it might be to throw more resources and less anachronistic enforcement at the problem, the challenge of tackling money laundering goes much deeper. The rewards of this crime accrue—at every stage—to those who keep quiet about it. It is an unusual crime, since both parties involved in it—the owner of the money, and the person cleansing it of any criminal taint—are happy about the transaction. This makes it difficult to investigate, all the more so because launderers are often highly educated people with a strong position in society, like lawyers, bankers, accountants or, perhaps, notaries public.
So in practice what happens is that the professionals themselves are relied on to act as the eyes and ears of the anti-laundering system. Under the various laws that punish those involved in terrorism or handling the proceeds of crime, professionals have a duty to report any transaction that they suspect is criminal to the National Crime Agency’s (NCA) Financial Intelligence Unit (FIU). This process generates so-called Suspicious Activity Reports (SARs), which are intended to alert law enforcement officers to transactions so they can block dirty money flows.
But there is a problem here: the reporting of a transaction can lead to it being blocked, and that costs the professionals their fees. For this reason, employees of some sectors—most notably estate agents, company formation agents and dealers in high value products like fine art—have long been extremely reluctant to make any reports, which deprives the FIU of the intelligence it needs to police those sectors. The system relies on people to be suspicious, when it is in their interests to be credulous.
As Mark Hayward, chief executive of NAEA PropertyMark, a membership body for estate agents, bluntly asked when giving evidence in front of the treasury committee, estate agents are “paid on results. Would it be in their interest to submit a report if there is a particularly large fee at the end of it?”
If it is a dearth of SARs that is the problem in one corner of the laundering jungle, in others it is that there are too many. Post-financial crisis, bankers have grown so concerned about the consequences of making a mistake in the era of multi-billion-dollar fines from the US Department of Justice, that they have taken to automatically reporting almost anything that could conceivably be judged suspicious. More than 400,000 SARs pour into the FIU database every year, the vast majority of them from the financial sector. It is impossible for the Unit’s 80-or-so officers to read such a vast number, let alone check them.
Officers’ time is now spent overwhelmingly with a sub-category of more serious SARs—called DAMLs, or “Defence Against Money Laundering”—which make up about 4 per cent of all reports. These reports are designed to have bite: filing a DAML gives an institution protection against future prosecution if the money turns out to be tainted, and officers have seven days to check it.
But the number of DAMLs is rising by almost a quarter each year, so just getting them all examined is a full-time job: every single FIU employee needs to be clearing one DAML every working day just for the team to keep on top of the new ones coming in. That means there is no time for anything but cursory checks on the hundreds of thousands of other reports filed.
Banks as a whole now spend some £5bn a year on complying with this system, and yet—at least in the view of parliament’s home affairs select committee a few years ago—it simply isn’t working. They called SARs “a futile and impotent weapon in the global fight against money laundering and corruption.”
That was in 2016, and there is absolutely no sign of any dent being made in the volume of dirty money that flows through the City since. Banks like HSBC agree: “The current regime cannot meet the challenges posed by the volume and complexity of cross-border and domestic transaction,” it says.
The crooks are winning
The government is aware of our ramshackle regulatory system being out-manoeuvred by crooks and thieves, but for a long time it was more concerned with penny-pinching on its outlays than anything else. For example, the NCA was created in 2013, when the Home Office merged half a dozen agencies, but it received only half of their previous combined budget. Until recently, NCA officers also earned markedly smaller salaries than their counterparts in territorial police departments.
The purse strings have recently been loosened very slightly—annual expenditure on the FIU, for example, has increased around 3 per cent over the last couple of years to £3.5m. But that is still very small, for example, compared to the US counterpart, Fincen, on which 25 times as much is spent.
It is not only investigation but also enforcement that is done on a shoestring: around £53m for the SFO, then around £10m for the NCA’s economic crime section, and another £6m for the new National Economic Crime Centre. Put all that together and public policy is trying to take on a problem that is plausibly measured in the hundreds of billions with outlays worth little more than a pound per person per year, or just tuppence each a week.
With today’s banks spending orders of magnitudes more on compliance than the public authorities do on investigation or compliance, it is possible for trained anti-money laundering officers to double their salaries by moving into the City. One anti-fraud detective that I met recently told me that a colleague had left the service in search of a better living as a tube driver.
An even deeper problem than a lack of resources, is a lack of clarity—in this bizarre 26 regulator space—about what to do with them. It purportedly “targets” all money earned criminally anywhere. But to target everything is, of course, to target nothing. Britain is currently bundling three different kinds of financial flows into the one laundering concept: domestic criminal money earned in the UK, foreign criminal money passing through the UK, and foreign criminal money being spent in the UK.
All three of these are massive problems, which could overwhelm a law enforcement agency on their own. Taken together they are almost impossible to tackle, not least because each distinct problem requires a distinct approach.
Tackling the money originating in domestic crime is a standard policing problem; even though tracking it can be formidably difficult, it is something which—in principle—our officers should be capable of handling if given the right tools. Dirty money arriving in the country—or in transit through it—requires more of the skill of a diplomatic or intelligence service: how do the authorities find out about it?
Tackling foreign money being spent here is particularly hard when the people spending it are high-ranking officials in their own countries, where there is no prospect of them facing justice. If someone hasn’t been convicted of a crime, then are the proceeds of that crime even criminal? Different eyes and ears will be required to spot warning signs for each of the three; police powers will be different, and so will be the ultimate range of remedies available to courts and regulators.
And so there it is. Scarce resources are spent duplicating systems in multiple agencies, in order to combat a problem that is hazily defined. A badly-designed system is tasked with tackling an imprecisely-stated problem, without any clarity on what powers it might or might not have in very different individual cases.
An undeserved gold star
It would, perhaps, be sensible to scale back our ambitions, so we could succeed in cleaning up part of the financial system, rather than fail at cleaning up all of it. But even this modest proposal is impossible thanks to yet another supervisor which lurks in the system, this time an international one.
Three decades ago, the G7 created the Financial Action Task Force to co-ordinate rich nations’ attempts to prevent money laundering. The FATF now contains all the world’s largest and most developed economies, from China to Luxembourg. It inspects its members’ efforts every five years, and tells them how those efforts match up against the commitments they have made.
So far, so sensible. But here’s the problem. There is no more clarity about objectives on the international than the national stage. The FATF’s focus has widened and its scope expanded over the years. Initially it looked at the drugs trade then, after the attacks of 9/11, it included terrorism financing; and now its members are increasingly concerned by the likes of Vladimir Putin exploiting the openness of western societies to undermine them from within.
Each evolution may have made sense, but cumulatively they create ambiguity about exactly what this body needs to check up on. And in the face of that ambiguity, the bureaucratic temptation is—as always—to tick boxes, rather than ask searching questions. And because the UK has got so many banks and others filling in so many forms, from the box-ticking perspective it looks excellent.
Last December, the FATF gave Britain’s efforts in tackling money laundering a glowing assessment. “The UK routinely and aggressively identifies, pursues and prioritises money laundering investigations and prosecutions,” the report said, as it awarded western Europe’s laundering capital impressive marks. Anti-money laundering activists were astonished: Global Witness said the FATF’s positive assessment “made a mockery of the whole process.”
The problem here is not just that the UK was handed an undeserved gold star. It was that in order to attain that accolade, London focused its attention on doing things that would tick FATF boxes, rather than doing what was actually needed to tackle money laundering.
It is high time to get serious about protecting the world’s poorest people from crimes whose proceeds continue to roll into London. That would involve Britain forgetting about winning plaudits for something it is abjectly failing to do, and moving to serious reform. The process would start with an honest discussion of what is achievable, and then focusing efforts on that.
It would mean ceasing to entrust the protection of its financial sector to disparate and underfunded offices, and instead moving in a coherent and rational manner towards the streamlined regulation and modern law enforcement that might work in the real world. It shouldn’t be impossible—and yet it isn’t happening.
Instead, dirty money will continue to flow between the many gaps between the many ramparts in this ramshackle system. And Turpin, the committed, upbeat yet hopelessly under-resourced chief clerk in the Archbishop of Canterbury’s Faculty Office, will continue with his unlikely role of supervising the contents of our wallets, rather than the content of our souls.
Oliver Bullough is the author of “Moneyland: Why Thieves And Crooks Now Rule The World And How To Take It Back” (Profile)