Money laundering - Why the UK does not prosecute it - TruePublica
A study by the CCP Research Foundation – which analyses banks’ so-called ‘conduct costs’ – revealed that the biggest 20 banks worldwide, including the biggest four in Britain, had paid or set aside £264 billion for fines in the five years to 2017. Britain’s biggest banks have paid out £71 billion for misconduct in the decade since the financial crisis. Much of these fines have related to money laundering but they were not prosecuted in the UK.
Lloyds is the bank that has suffered the heaviest penalties with at least £23.4 billion in conduct-related costs and write-offs since 2008. RBS is second on the list. Its conduct and litigation costs since 2008, including amounts it has earmarked but not yet used, add up to £20.6 billion. The bailed-out bank also agreed to pay £3.6 billion to settle an investigation by the US Department of Justice (DoJ) for misselling mortgage-backed securities – the bonds at the heart of the 2008 crisis in America.
RBS and Lloyds were bailed out when the financial crisis broke out to the tune of £45.5 billion and £20.3 billion respectively.
Barclays avoided a UK state bailout – but only by taking £12 billion what looks like illegal emergency funding from the state of Qatar. The Serious Fraud Office is involved.
HSBC has forked out nearly £10 billion in fines and other costs for its conduct since 2008.
In the last few weeks – Standard Chartered, the British bank has been ordered to pay $1.1bn (£842m) by US and UK authorities to settle allegations for breaching sanctions against countries including Iran.
But it doesn’t end there does it – it just keeps on going.
In 2019 alone, leaving aside Standard Chartered, the Financial Conduct Authority has dished out fines to the financial services sector at the rate of more than one a month. In total, to the 9th April, they have fined the industry or people in it collectively to the tune of £272,487,887.
What is interesting here is the missing link. British banks are world leaders in shovelling trillions into tax havens, most of it to evade taxation but a very good chunk of it is pure money laundering. Tyrants, despots, mass murderers, terrorists, traffickers – they are just as good a customer as any as far as the banks are concerned. Here, the British government and its toothless Financial Conduct Authority fail in every sense of the word. Money laundering through British tax haven islands and crown dependencies is something the state approves of – hence the lack of fines or punishment dished out for it.
Donald Toon, director at the National Crime Agency, admitted that money laundering in the UK was “a very big problem” and estimated that the amount of money laundered here each year has now risen to a staggering £150 billion. I would think that is on the light side.
Susan Hawley is Policy Director of Corruption Watch. She worked for six years at the Corner House on corruption issues, having previously worked in the policy team at Christian Aid on ethics and corruption issues. Here is her take, (originally published a year ago), on money laundering by British banks.
The UK doesn’t prosecute money laundering (and that should change)
Despite the UK’s rhetoric about wanting a “world-leading reputation for integrity” as a financial centre, it has never prosecuted a single company or bank for money laundering.
Given the scale of money laundered through the UK, this is pretty extraordinary.
The National Crime Agency (NCA) estimates that “many hundreds of billions of pounds” are laundered through UK banks and their subsidiaries every year. The NCA’s 2017 risk assessment for the UK found that high-end and cash-based money laundering remain “the greatest areas of money laundering risk to the UK,” with retail and wholesale banking and private wealth management providing a “crucial gateway” for criminals to launder their funds. The UK’s wealth management industry manages $800 billion of global wealth at particular risk of laundering.
London has long had a reputation as the Laundromat of choice for corrupt actors globally. Corruption Watch estimates that UK banks (whether banks headquartered in the UK or UK branches of banks headquartered elsewhere) have been publicly implicated in the laundering of at least £5.6 billion ($7.8 billion) worth of funds linked to corruption scandals alone since 2008. It is likely that the figure is far higher. In 2015, Deutsche Bank found “strong evidence” that the UK had received $93 billion in hidden inflows between 2006-2015 with a significant portion coming from Russia.
Light touch regulation – the UK’s forte. Despite official acknowledgement of the problem, recent figures show that the UK’s regulator for the financial sector, the Financial Conduct Authority (FCA), which has primary responsibility for prosecuting money laundering, only opened 24 investigations into companies for breaches of the UK’s Money Laundering Regulations (MLR) since 2007 and has brought zero prosecutions.
In the past five years, the FCA imposed regulatory fines on just seven banks for money laundering failures, totalling £263.7 million (about $370 million). The highest of these was the £163 million (about $228 million) fine imposed on Deutsche Bank by the FCA in 2017 for breaching the FCA’s own money laundering control rules by laundering $10 billion out of Russia in the “mirror trade” case.
The next highest fine was Barclays Bank in 2015 at £72 million (about $101 million) for deliberately breaching money laundering rules in relation to a transaction involving politically exposed persons. All the other fines have been less than £10 million (about $14 million). Startlingly absent is any fine against UK headquartered banks, HSBC and Standard Chartered which have both faced multiple fines for money laundering in the United States and elsewhere and have been implicated in numerous money laundering scandals.
The total lack of prosecutions and the low rate of even regulatory fines is surprising in light of the shocking inadequacies the FCA found in 2011 in banks’ anti-money laundering controls — a third of banks accepted “very high levels of money-laundering risk” and three quarters were found to be failing to take adequate measures to establish the legitimacy of wealth they were handling. The acting head of financial crime at the FSA at the time, Tracey McDermott, who now works for Standard Chartered Bank, said at the time: “The banks are just not taking the rules seriously enough.”
One would have thought that some prosecutions, both of banks and of senior executives, would have helped ensure the rules were taken seriously. Yet, despite stating in April 2017 that it may start prosecuting companies and individuals for poor money laundering controls where there are serious or repeated failings, the FCA has yet to open a single criminal investigation under the new Money Laundering Regulations (MLR 2017) which came into effect on June 26, 2017.
The FCA is not alone in its zero prosecution strategy. The HMRC which supervises some of the very high risk sectors for money laundering, including company service providers, high value dealers, money service businesses and estate agents, and has the ability to prosecute, has likewise launched zero prosecutions against any company either under the 2007 or 2017 Money Laundering Regulations. In 2017, it imposedregulatory fines on 886 companies totalling £1.1 million (about $1.5 million) or effectively £1,290 (about $1,800) per company, but refuses to name those it has fined.
The HMRC’s lack of transparency about who it has fined and the very low fines it imposes clearly undermines the deterrent value of sanctioning companies for breaches of the Money Laundering regulations (though it has said it is currently reconsidering its non-disclosure policy).
UK lags other jurisdictions. The government points to the fines imposed on Deutsche Bank as an example of sufficient regulatory fines for money laundering. Yet Deutsche Bank’s fine of £163 million ($228 million) — the highest ever imposed in the UK — is less than half of that imposed by the NYDFS (New York Department of Financial Services) which finedthe bank $425 million despite the fact that it was the London branch that provided the primary route for the laundering out of Russia. Deutsche Bank still faces criminal investigation in the United States for the same conduct.
Compared to the FCA’s total of £263.7 million ($369 million) in fines in the past five years, between 2009 and 2015, U.S. authorities imposed$5.2 billion worth of penalties ($3.6 billion of which were criminal) for breaches of anti-money laundering (AML) requirements. In the first three months of 2018 alone, U.S. regulators imposed combined penalties of $982 million (comprised of both civil and criminal penalties) on two banks for wilfully running defective anti-money laundering program.
Kleptocrats and high risk political exposed persons are “potentially profitable customers” for UK banks and businesses. Ensuring that the regulatory environment makes sure that banks think twice about taking on this business is crucial. The FCA claims that significant progress has been made by financial institutions, but in 2017 it still found ongoing “weaknesses in governance, and longstanding and significant underinvestment in resourcing” for control systems among the regulated sector and a mismatch between policies and practice in relation to money laundering.
What next? So what should the FATF reviewers be asking the UK? First and foremost, they should be probing what is behind the lack of prosecutions for money laundering in the UK. There is no doubt that the UK legal system is itself at fault – the UK’s corporate liability regime has been recognised by the Law Commission as inadequate for holding large global corporations to account. The UK has introduced new laws to tackle tax evasion and bribery to meet this gap, but is so far refusing to take steps to do so for money laundering and other economic crimes.
But there are also questions to be asked about political will of the regulators themselves to get serious about imposing serious penalties on a regular basis for money laundering and about who is the right body to prosecute money laundering.
In a report in 2015, Transparency International UK found that 73 percent of the UK’s 27 supervisory bodies for AML at that time had institutional conflicts of interest, acting as both lobbyists for their industries and supervisors. While the FCA was not one those included in this category, the FCA is funded by fees paid by the bodies that it regulates.
The UK Parliament’s Treasury Committee, meanwhile, has long questioned whether it is appropriate for the FCA to act as both a supervisor and an enforcer. The fact that the Chancellor can fire a FCA chief in circumstances where financial institutions are complaining that the regulator is being too tough, suggests that the FCA is not as independent as it needs to be.
Ultimately if the FCA and the HMRC are not prepared to prosecute, then that job needs to be given to another body which has the will to do so, and it needs to be given the resources to get on with it. The UK’s zero prosecution strategy is no longer a credible response to the constant money laundering scandals implicating its financial institutions.
Susan Hawley is Policy Director of Corruption Watch. She worked for six years at the Corner House on corruption issues, having previously worked in the policy team at Christian Aid on ethics and corruption issues. She was behind the successful judicial review by the Corner House of the Export Credit Guarantee Department (ECGD) for weakening new anti-bribery rules following secret lobbying by defense and aerospace companies.
Figures on UK banks involved in laundering compiled by Rahul Rose, Senior Researcher for Corruption Watch.
https://truepublica.org.uk/united-kingd ... secute-it/
How major banks turned a blind eye to the theft of billions of pounds of public money
Major banks enabled fraudsters to steal billions of pounds of public money through VAT scams, allege documents obtained by the Bureau. A decade later, tax authorities are still chasing the money through the courts.
Traders in London facilitated the so-called carousel fraud by organised crime gangs in 2009, which involved the trading of carbon credits, permits which allow a country or organisation to emit greenhouse gases.
The gangs imported millions of carbon credits from outside the UK without paying VAT on them. They sold them on to traders adding 20% to the bill as if they had paid VAT. What made these frauds different was that the last link in the chain would be a respectable financial institution such as Deutsche Bank, Royal Bank of Scotland or Citibank and these institutions bought the credits at a discount and then claimed the VAT (which had never been paid) back from the Revenue.
In just eight weeks in 2009 they claimed back £300 million before the Revenue stopped paying up and HMRC is still pursuing that money though the courts.
The fraudsters moved their operations from one country to another as different administrations shut the frauds down which has made it difficult to trace the full picture. It is estimated the fraudsters stole €5bn across Europe but many of the key players have never faced justice.
Now the German non-profit media organisation CORRECTIV has coordinated 35 newsrooms across Europe to put the jigsaw together. The Bureau and the other teams of investigative journalists have scoured thousands of newly obtained documents and tracked down some of the participants in the fraud as part of a project called Grand Theft Europe.
The documents reveal in great detail the allegations made against Deutsche Bank, Royal Bank of Scotland (RBS) and Citibank and the broker companies who sold them the carbon credits. It is alleged the banks and brokers did not do enough to ensure the credits they traded were not connected to fraud.
The current civil cases involve RBS - now called NatWest Markets Plc - which is being sued for £71m and Citibank which is being sued for £14m by liquidators of a string of companies involved in the fraud. The companies that absconded with the VAT have gone into liquidation. Accountancy firm Grant Thornton is acting on behalf of the companies in an attempt to recover the money.
Deutsche Bank settled with Grant Thornton in the UK in May last year, without admitting liability. It has refused to tell the Bureau how big the settlement was.
Citibank said it considers the claim to be “fundamentally misconceived and entirely without merit" and that it is “vigorously defending against the allegations.”
NatWest Markets said it “denies the allegations and defended them in court in 2018. This is a long-running claim and we are expecting judgment to be handed down shortly.”
Raids at Germany's biggest bank
In April 2010 EU police and tax investigators raided hundreds of offices and homes across Germany, including those of Deutsche Bank in Frankfurt. The bank was ordered to repay €145m (£124m) of lost VAT on trades between August 2009 until the raids in April 2010 that were connected to fraud. Deutsche Bank told the Bureau it “exited carbon emissions trading in 2010 and reimbursed the German state.”
Court documents reveal allegations that the fraud uncovered in Germany had its seeds in the UK in the months before the raids. Grant Thornton's lawyers also alleged that an employee at the London branch of Deutsche Bank, Hector Freitas, who was trading carbon credits in the UK in June and July 2009, was then “instrumental” in setting up trades in Germany after HMRC clamped down on the fraud. He is about to be charged for his alleged part in the fraud in Germany, according to German press reports.
Seven Deutsche Bank employees in Germany have been prosecuted to date. In 2016 Helmut Hohnholz, formerly the regional sales manager in its global markets division in Frankfurt, was jailed for three years for what the judge said was a particularly "severe case of tax evasion”. Five former bankers received suspended jail sentences for abetting this, though one case was overturned on appeal. A seventh former employee was cautioned with a fine.
None of the traders in Deutsche Bank’s London office have faced criminal charges.
The documents piece together how the carbon credit carousel fraud began in France, moved to the Netherlands and the UK, before migrating to Germany and Italy. In total VAT carousel frauds have cost EU governments tens of billions of euros.
By early June 2009 a series of scandals meant it was widely known across Europe that the market for carbon credits was teeming with frauds. The Paris-based BlueNext Exchange, the main trading exchange for carbon emissions, closed for two days on June 8 and 9 as the French tax administration opted to charge a zero rate of VAT on carbon credits to prevent carousel fraud. A few days later the Paris prosecutor’s office admitted it was investigating a multi-million euro VAT fraud in the French carbon emissions market. Within a week, the Netherlands had also introduced a mechanism to combat the fraud.
This pushed the fraud to the UK - where VAT was still charged on sales of carbon credits - and HMRC had been given only a day’s notice about the changes in France. An internal RBS email sent in early July said “It seems the UK’s carbon emissions market is rotten” and “ is being targeted by carousel trading fraudsters”. RBS said this email reflects that individual’s opinion and not the wider team’s.
A summer spree
Shortly after the BlueNext Exchange reopened on June 9, 2009, court documents show an associate at Deutsche Bank London’s carbon trading desk, messaged a broker about the closure: “The whole carousel/VAT scam is a bit troubling,” she wrote, “maybe it really is a scam, and clearly illegal and clearly troubling”. In any case, she predicted a “summer slowdown” on trades “as we all take holiday”. But in reality, over the next seven weeks trading suddenly exploded as fraudsters cashed in on the UK carbon credit market.
In mid-June Deutsche Bank was approached by SVS Securities, a broker with whom Deutsche Bank hadn’t dealt before. It had carbon credits to trade and expected to grow its business.
SVS was soon providing Deutsche Bank with many more carbon credits than expected. On July 2, SVS sold 842,000 credits to the bank, three times the amount it had initially estimated it could supply. In its defence SVS said this was because the initial volume was calculated by an intern. It said the sudden increase can only be said to “appear illegitimate with the benefit of hindsight.”
The bank asked SVS for a reason behind the spike in carbon credits. SVS brokers met Deutsche Bank traders at a Corney & Barrow wine bar, and gave a plausible explanation for the uptick in business, according to Deutsche Bank. SVS said another broker, Tradition Financial Services (TFS), had approached it with an influx of clients from Eastern Europe wanting to sell carbon credits, and that SVS and TFS introduced them to Deutsche Bank and split the commission.
SVS denies it ever gave the bank this explanation and said the meeting was simply a social occasion.
SVS and TFS’s clients were not in fact genuine Eastern European suppliers. They were the ‘missing traders’ who disappeared with the VAT once Deutsche Bank sent in a claims form to HMRC, according to a witness statement given by Rod Stone, a fraud investigator at HMRC, during the German authorities’ investigation.
After the meeting trading resumed and over the next 23 days Deutsche Bank bought more than 24m credits from SVS.
The documents reveal that during this summer spree traders at SVS and TFS were raising their own concerns about the carbon credits they were selling on to the banks.
Phone calls between Simon Fox, a trader at SVS, and Luca Bertali from TFS reveal they had never met anyone from one of the companies they were trading with and Bertali said one of them “could be an axe murderer”. Fox also questioned whether the company could “do a runner.”
After hearing of a presentation by Barclays bank about how to detect VAT fraud, Bertali phoned Fox and asked: “What are we going to do?... I hope to God they’re not all dodgy, I can’t imagine every single one of these people being fucking dodgy.”
The documents also show one of Bertali’s colleagues at TFS raised concerns with a senior employee of Deutsche Bank that he “didn’t want anything to do with it”. He added: “I don’t want to make accusations but VAT, VAT, VAT fraud comes to mind”.
In another phone call between two unidentified SVS and TFS employees, the two agreed “the shit” will eventually come down on carbon credit trading.
The Bureau spoke to Bertali, who left TFS in 2014 and now owns a yoga studio in Shoreditch, east London. He said he believed the market for carbon credits was genuine, and that clients came to brokers like TFS who took less of a cut of profits than a bank. “It’s very easy to say with hindsight. We were just doing what we thought was the right thing,” he said. “We weren’t the ones stealing the VAT.”
A member of the emission trading desk at Deutsche Bank in London claims to have raised concerns about SVS’s trading, though it is unknown exactly when. The trader said she had queried the high volumes of carbon credits coming from SVS.
During the civil case in the UK the lawyers acting on behalf of SVS and TFS’ creditors, Grant Thornton, alleged Deutsche Bank should have questioned SVS’s purported business model as it “made no commercial sense”. No other financial institution experienced such a spike in trading.
Deutsche Bank London bought increasing numbers of credits from SVS at favourable prices while knowingly failing to investigate SVS’s business properly as it was not in its financial interest to do so, the lawyers allege.
They were “wilfully shutting their eyes to the obvious, which was that there was no legitimate explanation for the trades such that there was a significant and unexplored risk that they were connected with criminal activity and in particular VAT fraud,” the claimants allege.
While Deutsche Bank settled, Grant Thornton lawyers are still seeking £50m from SVS, two of its former employees and TFS. The case will be heard in March 2020.
In its defence SVS said it denies being a knowing party in the fraud and denies that its traders “deliberately closed their minds or failed to ask questions”. They are “not culpable” for any fraud against companies or HMRC, it added.
TFS also denies assisting alleged VAT fraud but that if it did assist “it did so unwittingly and not dishonestly”.
Suspicions about Deutsche Bank’s trading were later raised at HMRC when in September 2009 the bank submitted a VAT refund claim for £48m, while prior to January 2009, the London branch would normally have paid VAT to HMRC. On investigators’ instructions, HMRC withheld the claim.
By this time, carbon credits were no longer charged VAT, putting an end to the fraud in the UK. RBS and Citibank stopped trading with SVS in July 2009 over concerns of fraud. Despite this, Deutsche Bank London carried on trading: it stopped buying carbon credits from SVS and started selling to them instead. These credits were coming from the bank’s Frankfurt branch and fraudsters were now stealing from German tax authorities, where VAT was still being charged.
Hector Freitas, who travelled between the London and Frankfurt offices was “instrumental” in this switch in trading, HMRC’s lawyers allege. Deutsche Bank declined to comment further.
Almost a decade after the first suspicions of fraud emerged at HMRC, it has still been unable to recoup the full amount stolen from British taxpayers with major banks as intermediaries. Even if it wins in court, it is likely HMRC will only get back around half of the £300m owed.
For Grand Theft Europe The Bureau of Investigative Journalism teamed up with a network of 35 European media partners from every European country, coordinated by the German non-profit newsroom CORRECTIV, to investigate VAT fraud, the biggest ongoing tax fraud in the EU. Read more here: http://www.grand-theft-europe.com
https://www.thebureauinvestigates.com/s ... blic-money