UK needs single anti-money laundering regulator, says Transparency International

Transparency International (TI) UK, the UK branch of the global anti-corruption campaigning organisation, said that the UK's current system was "woefully inadequate and structurally unsound". Altogether, 22 different regulators and organisations share responsibility for oversight and enforcement; but only the Financial Conduct Authority (FCA) has "above a low or unreported level of enforcement of the rules", according to its report.

Rachel Davies of TI-UK said that the UK government's own risk assessment, published in October, showed that "billions of pounds of corrupt funds" entered the UK every year. However, only a small proportion of this was detected and investigated by law enforcement authorities, while average fines were far too low to act as a deterrent, she said.

"The average house price in central London is more than the total amount of fines dished out to those who laundered money through property last year," she said.

"If the UK wants to permanently shut the door on dirty money, there must be a serious change in this flawed system. We are proposing that the patchwork of different supervisors by replaced by one single organisation, with enough resources to start the process of a consistent and effective approach to AML in the UK," she said.

In its report, TI reviewed the AML regulatory framework for companies and individuals operating across financial services, accountancy, legal services, luxury goods, property and trust and company service providers. It found a total of 22 supervisory bodies with some responsibility for AML oversight, the majority of which were "private sector institutions", it said. There were 14 different bodies, including HM Revenue and Customs (HMRC), with some regulatory responsibility in the accountancy sector alone; which TI said resulted in "widespread variation and inconsistency in enforcement".

Out of these 22 supervisors, 20 failed to meet the 'Macrory' standards of effective regulation, according to TI. These standards, set out in a report commissioned by the government in 2006, require regulators to conduct enforcement activities in a transparent manner, including transparency in relation to the way in which they set and apply penalties. The report found that HMRC in particular was "hampered by an institutional tendency towards secrecy", noting that it only disclosed the total value of fines issued rather than breaking them down by sector or firm.

Private sector regulators, including the various accountancy trade bodies, were criticised by TI for "inconsistent and opaque enforcement", and for "serious conflicts of interest" between their enforcement activities and their lobbying and promotional activities for the businesses they represent. Only seven of the 22 supervisors reviewed by TI had procedures in place to manage institutional conflicts of interest affecting their supervisory responsibilities, according to its report.

In its report, TI recommended "radical overhaul" of the UK's AML system as part of the 'anti-money laundering plan' due to be published by the government "in the next few months". AML supervision should be consolidated, ideally into a single 'super' supervisor; and enforcement made "consistent and an adequate deterrent", it said. It also called for increased transparency over who really owns and controls companies, due to come into force next year, to be extended to companies registered in the British Overseas Territories and Crown Dependencies.

"The true value of monies which pass through the UK which are the proceeds of crime or relate to corrupt activities will likely never be identified, as if it could be identified one would assume it could be prevented," said financial enforcement expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com.

"Many firms continue to seek to address the various legislative and regulatory requirements but it is clear that this area will continue to be a focus for prosecutors, regulators and politicians alike for some time to come. More encouragement for such firms would no doubt come from law enforcement agencies being seen to act upon the various reports they receive and a clearer structure as to who is responsible for such enforcement," he said.