In this submitted article by Mike Ward, pictured above, Executive Chairman of Armalytix, he asks: “will a new UK government bring global action on global money laundering?”
With reports that Labour is on track for a landslide victory in the UK election on the fourth of July, there’s hope that a new government will open doors for closer global coordination in the fight against money laundering, an issue with significant international dimensions.
While successive governments have made strides towards stamping out illicit funds, it’s still a glaring issue, with nearly 40% of the world’s dirty money flowing through London, UK overseas territories and its dependencies. Anti-corruption group Transparency International describes the UK as a “laundromat for suspicious money”.
Compliance should be at the heart of the regulatory agenda. Until recently, it could be argued that the UK has been rolling out the red carpet for kleptocrats and criminals. The next government must review every area of compliance, including financial services regulation, closer alignment with EU and global regulations and more. We need stronger cross-border cooperation and global ties to establish more robust regulatory and enforcement frameworks, along with advanced technology to track illicit funds. Here’s why:
Money laundering is a global business
Money laundering is a global titan, and has been described as the world’s third-largest business. Annually, an estimated €715 billion to €1.87 trillion of GDP is tainted by money laundering activities. That represents 2%-5% of the total global Gross Domestic Product. Laundering money helps criminals cash in on their crimes, whether it be tax evasion, drug trafficking, migrant smuggling or more. These illegal activities impact global economic stability and trust in governments and institutions and threaten human rights. As a result, we see legitimate businesses squeezed out and asset bubbles in markets such as property – a hotbed for money laundering.
A national-only approach falls short
In our interconnected world, a national-only approach to money laundering won’t go far enough. There are loopholes in and between different jurisdictions that criminals exploit, meaning some countries are particularly attractive for dirty money. Rampant money laundering impacts societies and economies. These countries don’t have as many opportunities, inequality is high and resources are misused. This makes an international AML approach even more important.
In the UK, we’ve seen improvements in the information gathered and checks undertaken before financial activities like opening a bank account. Regulations have also been enhanced. For example, the Economic Crime and Corporate Transparency Act 2023 makes businesses liable if they fail to prevent staff or a connected third party from committing an economic crime. In addition, the 2023 to 2026 Economic Crime Plan laid out 48 actions designed to reduce money laundering, combat kleptocracy and counter fraud.
Changes have been made, but there are still challenges. For instance, while the property conveyancing sector has implemented stringent rules for verifying the source of funds, mortgage lenders do not apply the same level of scrutiny to lump-sum mortgage repayments.
A global problem demands a global solution
Global AML regulations are complicated and constantly changing. Cross-border regulations often include more thorough customer due diligence, stricter reporting obligations and harder fines for non-compliance. But there are still gaps. As technology becomes more sophisticated, so too does money laundering. Criminals are finding new ways to evade detection by using new technologies or exploiting regulatory weak points. Inconsistent AML regulations and enforcement practices across countries provide opportunities for criminals to exploit. To eliminate these loopholes, we need better-coordinated global AML laws and standards across both nations and industries.
What are Labour promising?
In response to money laundering, Labour – the likely winner of the July election – has announced plans to host an international summit of “allies” to coordinate global action, along with a live-streamed global data exchange. Additionally, they propose a new whistleblower reward scheme, a tougher stance on sanctions, and leveraging the UK’s diplomatic influence to support a new international court for prosecuting serious international corruption cases, among other initiatives.
If these plans are implemented and enforced, we can bolster international cooperation, enhance transparency, and create a unified front to dismantle these criminal networks effectively. Many large financial centres have similar regulations but with their own nuances, so it’s vital we can work together. We need to understand data from a range of sources to better trace the flow of illicit funds and shady individuals.
Harnessing technology to combat financial crime
Criminals are using advanced technology to help them launder money in digital financial systems, cryptocurrencies and more. Technology is a double-edged sword, both facilitating and being a means to fight dirty money. The financial industry has been over-reliant on manual processes for too long. Banks and institutions often consider checks a back-office compliance issue and don’t put enough emphasis or resources on conducting them effectively. Additionally, many firms don’t have the specialist knowledge required for navigating the ever-changing regulatory world. Given concerns that additional checks may hinder customer acquisition, businesses need a solution that ensures compliance without losing revenue or potential clients.
The answer to global money laundering appears simple but that doesn’t mean it’s easy. If Labour come into power, they need to embrace a holistic approach that integrates stringent regulations, international cooperation, and cutting-edge technology. In doing so, AML efforts can span national borders, ensuring every financial transaction can be scrutinised. Implementing these measures will not only protect the UK’s financial system but also contribute to a fairer and more stable global economy.
Article by Mike Ward, Executive Chairman of Armalytix,
