Global Witness and leading anti-corruption MP Margaret Hodge have recently called on the UK’s Financial Conduct Authority to take action over the role of RBS and Standard Chartered in handling more than US$2 billion of embezzled funds in a major international corruption scandal. The call comes as Global Witness publishes a new analysis of the role of the bankers, auditors and lawyers in enabling Malaysia’s 1MDB corruption scandal that is likely to have robbed the Malaysian people of an estimated US$4.5 billion.
According to the US Department of Justice the billions embezzled from 1Malaysia Development Berhad (1MDB), a government owned-company, by a variety of people were spent on luxury properties, high-end art and lavish lifestyles, as well as payments to the Malaysian Prime Minister Najib Razak. Most famously, money taken from 1MDB allegedly funded the Leonardo DiCaprio film the Wolf of Wall Street.
Global Witness and Margaret Hodge have written to the Financial Conduct Authority (FCA) calling for it to investigate the role of two UK-based banks, RBS and Standard Chartered, for their oversight of their Swiss and Singapore branches’ money laundering controls. Regulators in Singapore and Switzerland have fined the two banks’ foreign branches a total of $12 million for breaches of anti-money laundering regulations in relation to the scandal. Those investigations were completed over a year ago, with Swiss regulators passing their findings to the FCA at that time. However, there has been no sign of any action from the UK authorities.
In response to Global Witness’ findings, prominent Labour MP Margaret Hodge said: “It is time for the FCA to take firm action to hold banks that handle dirty money to account. The FCA must also explain its apparent inaction over this case, when other countries completed their investigations over a year ago.”
The role of the two banks feature in Global Witness’ new analysis of how a range of banks, lawyers and auditors either turned a blind eye, signed off on suspicious transactions or were simply not obliged by the rules to question origin of funding.
“Our analysis shows that the international anti-money laundering system is not working,” said Global Witness Senior Campaigner Murray Worthy. “The 1MDB scandal would simply not have been possible if the system worked; the financial professionals involved would have spotted this dirty cash and prevented the money from being ever being taken.”
The report concludes that for the banks involved in the 1MDB scandal, this was not a problem of inadequate regulations but a failure of bankers to follow those rules. The banks were either simply not conducting the checks that they were required to do, or they were willing to ignore the risks they saw.
Murray Worthy continued: “The UK should not allow banks based here to handle the proceeds of crime or corruption, wherever they operate in the world. The people of Malaysia are now facing a bill greater than the country’s annual healthcare budget as a result of this scandal – and these banks enabled this scandal to happen.”
(Source: Global Witness)
There’s nothing so gratifying about the way democracies are run as when national politics influences public policy because of an outburst of public anger. Here Julian Dixon, CEO of Fortytwo Data, expresses his thoughts on the challenges of confronting issues of clarity in the reporting of events such as the Paradise Papers leak.
So it is a little unnerving to find such a muted response to the Paradise Papers data dump.
When the scandal’s predecessor - the story of the Panama Papers - broke with disgusted headlines around the globe, people actually took to the streets.
There has been no such outpouring of rage this time around. And that’s because people just don’t get it. But, it’s got less to do with the current revelations and more to do with what happened after Panama.
People take their cue from other public mishaps. They remember similar headlines during the MPs’ expenses scandal. And then they remember the (ex) MPs going to jail.
It was a public hanging of Westminster’s dirty washing, the likes of which we had never seen. Then, in the wake of the Panama Papers, the public also expected justice and change.
They didn’t get it, although the similarities are obvious. The amount of information disclosed in the cases of the Panama and Paradise Papers was similarly grand. It touched on many public figures. And in the reporting, the significance of the leaks was billed as equally earth-shattering.
So where are the prosecutions?
Yes, some politicians lost their jobs within days of the Panama Papers story breaking but that was politics. They weren’t departures that resulted from the considered response of prosecutors.
“The difference between illegal tax evasion and legal tax avoidance is as clear as mud”
Having been promised blood and justice for all, it all appeared to fizzle out.
This is how tax avoidance is a story without an ending. People are destined to relive the public-spirited angst that makes each data dump newsworthy, without the satisfaction of seeing real change. And there is one reason for this - bad laws.
To the average person on the street, the difference between illegal tax evasion and legal tax avoidance is as clear as mud. The public feel unable to ask for change because they cannot clearly see what is broken. And this confusion bleeds into the authorities’ response.
Google media reports of ‘Britons being charged with criminal offences in light of the Panama Papers’ and you find nothing.
Misleadingly, many of the reports carrying headlines cite appalling tax avoidance.
Even relatively sophisticated journalists don’t know where ‘avoidance’ ends and ‘evasion’ begins.
If people are to have faith in the system, then they need to see the authorities acting on tip offs and bringing prosecutions that live up to the hype.
My suspicion is that much mean-spirited behaviour is not criminal - but it should be. However, as the law stands now, the difference needs to be explained clearly to those not wealthy enough to need offshore accounts.
It is no small irony that just like fast cars and expensive watches, if you need to ask how much tax avoidance costs, you can’t afford it. It shouldn’t be this way.
While this confusion reigns, the country is doomed to a vicious cycle that results only in growing public disquiet. People know they should be angry about something, they just can’t quite put their finger on it.
Hysterical reporting of offshore banking becomes a distraction. Politicians relax when it turns out what people are doing is legal. Instead, they should be asking the question ‘shouldn’t it be illegal?’
Accusing people of wrongdoing just because they bank offshore is unhelpful. There are many legitimate reasons why people do it and it’s not all about avoiding tax.
But there are just too many ways offshore tax rules can be legally exploited by people who just want to avoid paying their fair share.
You must be wondering by now why a guy like me who helps banks and others hunt down money launderers is that bothered about the tax affairs of a financial elite.
In our business, you can have the smartest computer in the world capable of identifying money laundering in vastly complex webs of transactions. But if you have millions of dollars being moved by thousands of transactions into dozens of offshore locations, that hide behind complex legal frameworks, it’s worthless.
As these transactions happen offshore - and, we as a species, are naturally hostile to the opaque nature of overseas financial centres and tax havens - it would be better if they were reduced and made more transparent.
If most forms of tax avoidance (not evasion) are wrong - as everyone seems to agree they are - I see the criminalisation of much tax avoidance as our best hope of being able to properly enforce the law in sheltered jurisdictions.
Clarity and a proper public, political debate that doesn’t just act as a smokescreen seems to be all that stands in our way.
The EU-Romania Business Society welcomes the firm stance taken by Brussels opposing the Romanian government's emergency decree reducing penalties for corruption. The European Commission President Jean-Claude Juncker and the First Vice-President Frans Timmermans stated: "The fight against corruption needs to be advanced, not undone. We are following the latest developments in Romania with great concern."
The statement today from President Juncker and First Vice-President Timmermans went on to say: "The Commission warns against backtracking and will look thoroughly at the emergency ordinance on the Criminal Code and the Law on Pardons in this light. The irreversibility of the progress achieved in the fight against corruption is essential for the Commission to assess whether at some point monitoring under the Cooperation and Verification Mechanism (CVM) could be phased out."
The EU-Romania Business Society welcomes the robust position taken by the European Commission. Romania's enormous potential can only be fulfilled under circumstances where the rule of law is clear and fully respected.
Speaking in Brussels after the Commission's statement, Mr James Wilson, founder and director of the EU-Romania Business Society said: "Just these past days we have seen negative business reports about Romania from Transparency International and the Commission's anti-corruption monitoring group about continued failings in Bucharest in 2016 to strengthen rules and laws protecting business capital and property rights. It sends entirely the wrong message for the Government to propose legislation that would exacerbate the situation."
"Our particular interest is to promote a positive investment climate for businesses, where much-needed foreign investors can have faith that the rule of law will be respected in Romania. 2016 saw a low point in relations between the Government and international businesses. We remain optimistic that the new Government can use their mandate to improve conditions for foreign capital."
(Source: EU-Romania Business Society)
