3 May 2018

To tackle fraud, the UK must attack professional enablers

By Edoardo Fiora

The old Latin saying corruptio optimi pessima (“the corruption of the best is the worst”) may no longer apply to ancient Rome, but is quite apposite for modern London.

The capital is currently home to over £122bn worth of offshore-owned property. In the territories the UK oversees, more than £90bn worth of capital is laundered annually, £193bn is lost to fraud and 400,000 suspicious transactions are filed. As of March last year, just five people had been convicted under money-laundering laws passed in 2007.

Is a developed modern economy like the UK really at the whim of financial criminals?

Over the years, Britain’s focus on “offshore” fraud has constrained its control over “inshore” fraud. The former has been extensively regulated by both the National Crime Agency (NCA) and the Financial Conduct Authority (FCA), the latter has not.

As recently as 2014, the NCA said it had “no comprehensive response” to high-end money laundering, which was treated as a mere “subordinate part of their investigations into predicate offences”, such as bribery or fraud. In the same year, the NCA also conceded that there was still “no agency with overall responsibility for leading the strategic response” to high-end financial crime.

This has resulted in the establishment of a community of UK-based professional enablers. Their circle, comprising of both individuals and businesses, facilitates fraud in the most intricate ways.
Often, its members act as middlemen and counsels, providing access to and advice on services relevant to evasion. Other times, instead, these criminals offer admin and managerial assistance, setting up and providing trustee services on companies and vehicles to conduct fraud and evasion.

But enablers need not even be legal or financial experts to facilitate fraud. In fact, the mere failure to comply with reporting and regulatory obligations is perhaps the most common of enabling practices, of which are a drag on the British economy.

Foreign, professional enablers direct flows of illicit funds and assets into London on a daily basis. These “facilitators” of financial misconduct regularly launder funds through the UK’s financial sector, staining one of the world’s most transparent economies. Their criminal actions weaken Britain’s financial stability and security, and smear the UK’s reputation for upholding the rule of law.

Italian organised crime groups (OGCs), in particular, have proven to be frequent users of UK-based enabling services.

To Nicola Gratteri, one of Italy’s toughest anti-Mafia magistrates, “the United Kingdom and London in particular have become a sort of safe haven for Mafia capital investments,” whose presence and impact have become easy to spot.

One such example is that of “Magnolia Fundaction UK,” a company registered to an address in Broadwick Street, Soho. Its Companies House records cited as director a man called “Il Ladro di Galline,” which is Italian for “The Chicken Thief.” The same records listed his occupation as “truffatore,” which translates to “fraudster.”

Magnolia was co-directed by a nominee company, the “Banda Bassotti,” the Italian equivalent of the Beagle Boys mob in the Donald Duck cartoons. On its documents, the latter’s address, also in Italian, translated to “0, Street of the 40 Thieves,” in the fictitious city of “Ali Baba”, Italy.

Companies like Magnolia ease the infiltration of Mafia capital into the British economy. In 2014, the Anti-Mafia Prosecution Office at the Court of Naples investigated the illicit activities of Italian OGCs in the UK and found the notorious “Contini” Camorra clan to be involved in London-based money-laundering operations.

Unsurprisingly, the Contini clan was found guilty of delegating its UK-based activities to a professional enabler, Alessandro Della Chiesa, who appeared to be registered as the administrator and/or secretary of at least 31 different firms registered at Companies House.

So far the “UK anti-corruption strategy 2017 to 2022” has failed to grapple with this issue. A 72-page government report uses the word “professional enabler” only once. The strategy has been widely criticised for saying “almost nothing” about extending corporate criminal liability beyond tax evasion, and for failing to update measures to confront offshore financial crime.

The Conservative election manifesto did attempt to address such concerns, pledging to incorporate the Serious Fraud Office (SFO) into the NCA, but this commitment appears to have been dropped after the last general election. More recently, the government has agreed to calls for measures to improve transparency in offshore tax havens, but has failed to extend such calls to Britain’s crown dependencies, Jersey, Guernsey, and the Isle of Man – all of which are known to be enabling ports for inshore fraud.

That said, all is not lost, yet. With this year’s operationalisation of OPBAS, the Office for Professional Body Anti-Money Laundering Supervision, Britain may have embarked on a newer, more resolute anti-enabling course. The OPBAS mission statement is to “bring the UK’s anti-money laundering regime into line with the latest international standards”, and to signal that financial crime “should not and will not be tolerated”.

It comes amid wider scrutiny on the part of the Cabinet Office, which is in the process of undertaking an audit of all bodies that counter financial fraud, including the NCA, the FCA, the SFO, and HMRC. For the government to be successful, its anti-enabling stance must be both strict and easy to enforce. Certainly OPBAS will need to counter early criticism accusing it of being “very light on detail” and “unable to add value to the existing anti-money laundering supervisory regime”.

Perhaps, a firmer message would be sent if prosecutors brought criminal charges against enablers, as is already the case in other jurisdictions. Megan Butler, head of supervision at the FCA, has recently insisted on the importance of “sharing intelligence” among British authorities to prompt “concerted, hard-hitting action.”

If professional enablers are to be stopped, this should be made the government’s priority.

Edoardo Fiora is a graduate student in security studies at University College London