In March 2018 I filed into an upstairs corridor in the Houses of Parliament, on my way to give evidence about this British tendency to accept money from anyone that has it. The poisoning of the Russian defector Sergei Skripal in Salisbury by Kremlin agents a few weeks before and the almost simultaneous screening of the television show McMafia, which vividly depicted the consequences of corruption via the life of a privileged Russian family, had suddenly awakened politicians’ concerns that the national butlering business might not be such a good thing, at least with regard to Russians. This was quite a handbrake turn. Ever since the 1990s British politicians had welcomed Russian money. They had celebrated when oligarchs bought football clubs, cheered when they listed their companies on the Stock Exchange and partied on their yachts. They had gladly accepted political donations and patronized oligarchs’ charitable foundations without worrying too much about where the money came from. The question the Foreign Affairs Select Committee wanted to ask was: could this money corrupt our politicians, as it had corrupted politicians in Moscow? Were we selling Putin the rope with which he would hang us?
The poisoning was still fresh in everyone’s memory, and public interest in the committee hearing ran higher than it might otherwise have done. The room was grand, lined with linenfold paneling and commanding a view over the River Thames, but it was not large. All the seats along the back wall were occupied, while other attendees stood in any space they could find, and it became stuffy quickly. I was seated with three other witnesses along a table facing the parliamentarians who would be asking the questions. I had decided to wear my suit, which is somber (I bought it for my grandmother’s funeral), having calculated that—in combination with a sober tie—it would give my words more weight than if I wore jeans. Looking back at the video of the session now, however, I’m not sure that was wise. Thanks to a failure to brush my hair or iron my shirt, the outfit made me look more like a defendant in a trial than the sober businessman effect that I was aiming for. Still, the politicians didn’t seem to mind, and the first question was directed at me: “Can you give the committee a sense of the scale of the so-called dirty money being laundered through London?”
The question threw me, but I should not have been surprised. Every time—and it happens surprisingly frequently—MPs convene a committee to examine the wisdom of butlering, one of them is certain to ask how much money Britain’s clients bring into the country. Presumably, they’re interested either in ascertaining if it’s a big enough problem to care about or whether it’s so profitable they should leave it undisturbed. Either way, it’s a nuisance, partly because the question is impossible to answer but mainly because attempting to answer it is a distraction from more important points. Witnesses with more experience than me have become accustomed to throwing out numbers—£36 billion, £90 billion, £100 billion, hundreds of billions of pounds—just to move the discussion on, but I was unprepared for it. “Blimey, that is a tough one,” I spluttered, before waffling about private schools, mansions, luxury goods and the errors and omissions line in the UK’s national balance of payments data. It wasn’t my most coherent few minutes.
What I should have done, I now realize, was to copy Mark Thompson of the Serious Fraud Office, when a different committee asked him how big the problem was, and whether it could be quantified. “The short answers would be ‘Big’ and ‘No,’” he replied curtly. “My view after twenty-odd years in this field is that I am pretty skeptical of most attempts to quantify economic crime.”
This is logical. Britain is a butler, the best one there is, and a good butler disguises his client’s misdeeds on the principle that, if you can’t see the crime, you won’t find the criminal. Britain’s commitment to disguising capital flows—to cleansing money of any taint left by how its owner acquired it—has been so complete, and has continued for so long, that even knowing how to begin estimating how much cash its clients have hidden over the years is all but impossible. I wish now that, instead of attempting to answer the question, I had pointed out to Priti Patel, the MP who asked it, that thanks to decades of dedicated butlering Britain has made it unanswerable. She is now home secretary and in charge of the UK’s law enforcement apparatus, and thus has the power to change things. Perhaps my words would have lodged in her brain and influenced her to act. Or conversely, perhaps she would have ignored them, thus following the example of her predecessors, who have consistently left Butler Britain’s clients in peace. The story of Dmitry Firtash may look extraordinary, but it is only exceptional in that we know it; men in possession of questionable fortunes almost invariably integrate into London society without anyone being any the wiser.
But this raises large questions of its own: how is this not common knowledge? And why is Britain not ostracized from the community of civilized nations as a result? The answer is that there is a large and largely unrecognized gulf between what British politicians say and what British institutions actually do. A few days before I spoke at that committee hearing about Russian oligarchs and their wealth, Prime Minister Theresa May had stood up in Parliament and thundered, “There is no place for these people, or their money, in our country.” The MPs behind her rumbled their agreement, but the claim was transparently untrue. There very much is a place for both these people and their money in our country, as I could easily have shown her. The son of one of Putin’s oldest friends owns a house within a few minutes’ walk of Parliament; his former deputy prime minister owns a duplex apartment a short walk along the Embankment in the other direction. If she’d been prepared to hop into a taxi, I could have shown her a whole fleet of mansions belonging to many of Russia’s richest and best-connected men. It takes more than a few words in the House of Commons to wean Britain off its money-laundering habit.
The concept of money laundering—the process by which criminal money is made to look legitimate—dates back to the 1920s, when American law enforcement officers became concerned about the ease with which Mafia gangs were hiding their earnings. But the phenomenon vastly expanded in scope and significance as the financial system globalized in the 1950s and 60s, thanks to the offshore facilities offered first by the City of London, then by its offshoots and finally by its competitors. For decades this money flowed undisturbed, but the increasing prevalence of heroin and crack cocaine and the wealth flowing to the drug cartels finally shocked governments into action. In 1989 the G7 group of wealthy Western countries created the Financial Action Task Force (FATF) to draw up a common approach to tackling drug money and to assess each other’s efforts. Over the years the FATF has expanded its focus from drug money to terrorists’ money, to kleptocratic money, and now aims to combat money laundering of any kind.
“Why does money laundering matter?” asked Alison Barker of Britain’s Financial Conduct Authority in 2019. “It pays for human trafficking. It facilitates drugs. It cheats society of a legitimate economy. Money laundering deprives our schools, hospitals and roads. It causes violence and intimidation—it makes our communities unsafe.”
The logic underpinning the FATF’s principles is sound, and runs as follows. Criminals commit crimes to earn money, so if we can take away the money, they won’t commit the crimes. It’s like any job: if you stop paying someone, they won’t turn up to work. That sounds simple, but the simplicity is deceptive. Money laundering is not an easy crime to fight, because everyone involved is happy to keep it quiet. The criminal who earns the money and the launderer who passes that money into the financial system are both complicit, while the victim is somewhere else entirely, trying to work out where their money has gone. This means that the normal mechanisms for tackling crime—reports from victims, interviews, looking for clues, etc.—do not work for money laundering. As a result, the countries in the FATF realized quickly that they had to effectively deputize the financial system to help. And this did not just mean bankers, but also lawyers, accountants and any other professional who can move money around. All these gatekeepers have to act as adjuncts to the law enforcement system, not only behaving impeccably themselves but also reporting any suspicions they have about others.
In the three decades since the FATF started out, British politicians have incorporated its principles into law in far-reaching ways—so much so, in fact, that in the last FATF assessment, published in 2018, Britain gained a near-perfect score: “stronger than any country assessed to date,” as the government’s press release crowed at the time. This was a dispiriting outcome for those of us who were hoping that the FATF would put a bit more pressure on the government to do better, because the system the UK has created is paper-thin. It has all the appearance of tackling financial crime but none of the substance. By the most conservative estimate, hundreds of billions of pounds of criminal money flow through the City of London every year, most of it stolen from vulnerable people in some of the world’s poorest countries. The annual cost of organized crime to people in Britain itself is estimated at £37 billion, with fraud costing another £193 billion—that’s almost £4,000 for every adult in the country. All this money is laundered, and only a fraction of it is ever recovered. Giving a top score to Britain’s efforts is like assessing a hospital solely on how many operations its surgeons perform without asking how many of the patients recover, how many of those patients were ill in the first place, why rates of disease are getting higher and whether doctors are complicit in spreading the diseases they’re supposed to be curing. Butler Britain has built an elaborate, expensive and extravagant anti-money-laundering machine, but it is incoherent, ineffective and incompetent. This may look illogical, but actually it makes perfect sense, as doing otherwise would have obliged Britain to turn away clients.
In order to prevent financial professionals laundering money, FATF principles require them to be regulated to ensure they are abiding by the rules that restrict the handling of dirty money. Some countries have a single regulator to do this job, while others separate out the regulation of the legal system, the financial system and accountancy. Britain, however, has chosen a unique path: there are twenty-two different organizations empowered with regulating professionals, plus the Gambling Commission (for casinos), the Financial Conduct Authority (for banks) and Her Majesty’s Revenue and Customs (for anyone not otherwise regulated), which makes a total of twenty-five. A couple of years ago the government was concerned about the resulting incoherence and created a super-regulator to regulate most but not all of the other regulators, thus bringing the total to twenty-six. Despite the supposed rationalization brought by the super-regulator, which was successful in the same way that bolting an extra wheel to a car makes it go faster, the system remains baffling. Lawyers have different regulators depending on whether they’re barristers, advocates or solicitors, and on whether they’re in England and Wales, Scotland or Northern Ireland. Accountants have fourteen different regulators—the Association of Account Technicians, the Association of Chartered Certified Accountants, the Association of International Accountants, the Association of Taxation Technicians, etc., etc., etc., which they can choose between more or less at will, although they don’t have to be regulated by any of them if they don’t want to be, since anyone can call him- or herself an accountant if they wish.
Britain has essentially outsourced responsibility for stopping money laundering to the money launderers, and is failing to stop dirty money as a result. Much of the time the same bodies tasked with regulating professionals’ financial transactions are also charged with lobbying government on their behalf, while also relying on those same professionals’ membership fees to keep solvent. “The vast majority of sectors are performing very badly in terms of identifying and reporting money laundering,” a Transparency International report from five years ago said. And not much has changed in the years since. According to analysis from the FCA from 2019, almost a quarter of these regulators were doing no supervision at all, almost a fifth had not identified who they needed to supervise and fully 90 percent had not collected the information they needed in order to identify the riskiest companies on their lists. “We were told, particularly in the accountancy sector, that professional bodies believed their members would leave if they took robust enforcement action,” the FCA said. Imagine trying to stage a game of football if, when the referee blew his whistle, the players could leave to join a different game, and the referee would lose his job. Expecting sophisticated financial professionals to submit to voluntary law enforcement is clearly a bad way to fight crime.
This is not yet, however, the most surprising aspect of Britain’s anti-money-laundering regime. To me, the single weirdest element of this odd state of affairs is the role it provides to the Church of England. Before I start on this, I’d like to make clear I have nothing against the Church of England, and I recognize that Christianity has had sound views on the regulation of the financial sector ever since Jesus drove the money changers out of the Temple. I have two good friends who are vicars, and they do tireless work helping right the wrongs of society, including trying to help disadvantaged parishioners access the banking system. They would, however, be the first to admit that the financial sector has become significantly more complex since the first century AD, and their own expertise does not extend to exposing the misdeeds of sophisticated money launderers.
And yet, buried at tenth place in the long list of money-laundering supervisors empowered with ensuring the cleanliness of Britain’s financial system is the Faculty Office of the Archbishop of Canterbury, an anomalous outgrowth of the Anglican Church housed in a honey-gold Gothic Revival building adjacent to Westminster Abbey, which assumed various regulatory roles when Henry VIII broke with the pope in 1533 and which has clung on to them ever since. Specifically, it’s in charge of notaries, members of an ancient and rather withered branch of the legal profession who play a role in some property transactions. It is a tiny regulator—there are fewer than a thousand notaries in England and Wales, compared to 150,000 solicitors—but it is nevertheless tasked with helping to defend the twenty-first-century financial system against criminals. Finding out that the Archbishop of Canterbury’s Faculty Office oversees part of the financial system thanks to a deal cooked up by Thomas Cromwell five centuries ago to help the king get a divorce is a little like discovering that the Worshipful Society of Apothecaries is in charge of vaccinations, or that the Cinque Ports of Essex, Kent and Sussex are responsible for patrolling coastal waters. It’s the kind of anachronism that suggests that the people overseeing the system care more about appearance than results.
“If you were starting from a blank piece of paper, then clearly I suspect you wouldn’t end up with what we’ve got now,” said Neil Turpin, chief clerk of the Faculty Office and the man ultimately responsible for ensuring notaries stick to the rules. “But we’re not. We are where we are.”
His inspectors, who are senior notaries, check up on around twenty notarial practices a year, but there are 700 such practices, so each one will only be inspected every three and a half decades, or just once in the average notary’s professional life, which is clearly not much of a deterrent to bad behavior and means the integrity of the profession is dependent not on the inspectors finding bad behavior but on notaries reporting it themselves. Like other financial professionals, if they see something suspicious, they are obliged to file a Suspicious Activity Report (SAR) to alert the authorities. “We do collect data on how many SARs are issued by notaries each year. There’s normally about a dozen. There are some who are clearly concerned and make reports,” Turpin said.
Turpin is enthusiastic and friendly, and loves his job; he is a lawyer married to a priest, and a former church warden, so the job is a pretty perfect fit. He stumbled into it after seeing an advert in the Church Times: “successful candidate will have a knowledge of the workings of the Church of England; a legal background would be helpful but not essential.” The problem with this system is implicit in that last comment.
As he explained, if financial professionals are concerned, they make reports, and that is as it should be. But what about financial professionals who are not concerned because they are complicit in laundering money? They keep quiet, which means law enforcement has no idea what they’re up to. The system is a little like relying on the church confessional to fight organized crime: you’ll hear a lot of people grumbling about their neighbors, but very little about mafia hitmen. And for the same reason, as Mark Hayward, of the estate agents’ professional body Propertymark, explained, “Some people are afraid that if they make a SAR, three years later, at nine o’clock on a Saturday night, there will be a knock on the door and someone will be there with a shotgun wanting to know why.”
Britain’s entire system for regulating money laundering is therefore reliant on money launderers blowing the whistle on criminals, with no prospect of any personal benefit from doing so, and in full knowledge of the fact they’ll face retribution if the criminals find out. Unsurprisingly, therefore, not many whistles get blown. In 2019–20 lawyers filed 3,006 Suspicious Activity Reports, which was a slight increase on the previous year’s total, but not very many if you consider how many billions of pounds of dirty money is moving through the financial system each year. Accountants filed a few more—just over 5,000—while estate agents and “high value dealers” (auctioneers, for example) filed around 1,000 between them. As one senior law enforcement source, who is long past being shocked by this, put it when we were chatting over a beer, “We rely on people being diligently suspicious, but there’s not much money in being diligently suspicious, so…” He shrugged.
Actually, it’s worse than that, because he was talking about lawyers, and they are only part of the problem. While lawyers and estate agents are under-reporting their suspicions (“They are paid on results, and would it be in their interests to submit a report if there is a particularly large fee at the end of it?” asked one estate agent rhetorically in evidence to a parliamentary committee), bankers are doing the opposite. They are sending in so many SARs that the system is swamped. In 2019–20 financial institutions filed 546,976 reports, which is more than one a minute, for every minute of the year, and the vast majority of these come from banks. The reason for this is simple. Banks operate internationally, which means they use dollars and are desperately worried about getting into trouble with the US Department of Justice, which likes to impose fines with nine zeros at the end.
After the DoJ fined HSBC $1.9 billion for laundering Mexican drug money in 2012, it totally overhauled its compliance apparatus, spending a billion dollars on a system that is able to monitor more than half a billion transactions a month and automatically alerts bank employees to anything that could be considered dodgy. That generates alerts on about 450,000 transactions, which are checked by staff members who then pass on anything that could conceivably be deemed suspicious to the authorities. Every other London-based bank does the same at a total cost to the financial sector of about £5 billion a year, which creates a vast surge of spam, which piles into the UK National Crime Agency’s Financial Intelligence Unit and is increasing by around 20 percent each year. This is an expensive exercise for the banks, but it’s like paying an insurance premium to avoid the risk of catastrophe. Banks after all are in the business of offloading risk, and if any of them gets hauled up by the DoJ, they can point out—entirely correctly—how compliant they have been. This doesn’t mean they like it. On the contrary, they get extremely frustrated by the waste of time and money.
“The current system diverts too much resource toward low value compliance activity that does little to detect criminals or protect customers,” said a report by UK Finance, which lobbies on behalf of the financial sector, in a submission to Parliament. “There are increasing compliance and reporting obligations which are not matched by an uplift in economic crime prevention.”
A 2017 report from the European Police Agency—Europol—totted up how many SARs had been sent in for each EU member state between 2006 and 2014. The UK’s finance sector is bigger than those in other European countries, but it’s still remarkable that Britain was responsible for 2.3 million SARs over that period, which is more than the total for Germany, France, Italy, Spain, Luxembourg, Ireland and twenty other member states all added together. The only country that came close to Britain’s total was the Netherlands, and that was solely due to an anomalous Dutch policy that obliged money transfer businesses to report a transaction to the authorities if it was worth more than €2,000.
When the Law Commission looked at the system, it concluded that it was driven by financial professionals covering themselves against prosecution rather than trying to fight financial crime. “We must have a regime in place that allows law enforcement agencies to investigate and disrupt money laundering at an early stage,” said David Ormerod, a senior barrister who looked at the SARs regime for the commission. “But the reporting scheme isn’t working as well as it should. Enforcement agencies are struggling with a significant number of low-quality reports and criminals could be slipping through the net.”
The commission had some recommendations for the government, but the problem is the whole system. Everyone involved wants to minimize the risk of being prosecuted. For big institutions with US operations, that means reporting everything; for professionals without any prospect of being targeted by the Americans, that means keeping quiet. Very occasionally something unexpected comes along to upset this calculation, and exposes how far removed it is from any efforts to actually stop suspicious money, but they are extremely rare.
Such an unexpected event was the media storm in April 2016 that journalists called the Panama Papers. Sourced from a leak of millions of emails to and from the Panamanian law firm Mossack Fonseca (the outfit that did so much to bring business to the BVI back in the 1980s), the documents revealed how wealthy and powerful people had hidden illicit financial activities deep in the system for years. One of the many revelations was how a London law firm had helped the daughters of Azerbaijan’s president create offshore structures to invest in UK property. Azerbaijan’s current president took over the presidency from his father, and the whole first family has done very well out of its decades at the top of the ex-Soviet oil-rich republic. Like many rich people they have enjoyed spending time in London, where they bought luxury houses. Selling them properties was all in a day’s work for Butler Britain, but under money-laundering laws they count as “politically exposed persons,” whose wealth should be given extra scrutiny to ensure it does not derive from corruption. And that did not happen, as the Guardian revealed.
The solicitor concerned, Khalid Mohammed Sharif of Child & Child, did not even do cursory checks on the two women before agreeing to act on their behalf. It was just one of many scandals exposed by the Panama Papers but it provoked a rare thing: a disciplinary hearing against a British professional in the UK, and not just any British professional, but a member of the elite.
Child & Child is a top-end law firm, with offices a couple of hundred meters from Buckingham Palace. It is very much not the kind of fraud-mill that might be expected to launder cash, but it was remarkably blasé about accepting potentially criminal money. The Solicitors Regulation Authority’s ruling in Sharif’s case revealed that he only filed a SAR on the transaction a month after the Guardian had told the world about it, so the report was clearly a response to the article rather than to any actual suspicions. In his evidence to the tribunal Sharif admitted that not only had he failed to conduct even an internet search on his clients to ascertain whether there were any corruption allegations leveled against them or their family (which there are), but he failed to have any direct communication with them at all.
“Warning signs disclosed an objective risk that money laundering was taking place. In particular, the size of the payments, the source of the funds being Azerbaijan, and the use of offshore companies presented a significant risk,” the ruling stated.
Sharif’s defense was that he was just doing what everyone else did. “His office was surrounded by multi-million-pound properties and he dealt with some of the most expensive property in London … from the respondent’s perspective, there was nothing unusual about the transaction. The high value and use of offshore companies were commonplace.” In mitigation he claimed there was nothing about the names of his clients to suggest they were politically exposed, an unconvincing excuse given they shared a surname with the president of Azerbaijan.
The SRA fined him £45,000, which is better than nothing, but the ruling revealed that its primary concern was whether Sharif had damaged the reputation of his profession and made no mention at all of the damage that money laundering does to the victims of corruption in Azerbaijan. It took comfort from the fact that “no client had suffered loss as a result” of Sharif’s conduct, which is particularly perverse because the whole point of filing a suspicious activity report is to allow the authorities to confiscate criminal wealth. Clients are supposed to suffer loss. The SRA did not even block Sharif from working as a solicitor, so he was free to return to his desk and do more deals, and there was no separate criminal prosecution. If the whole episode has a motto, it was “Don’t get caught.”
It’s hard to know if this is typical of the UK’s approach to regulation, since there have been so few cases, but what fines there have been show Britain is remarkably lenient in comparison with the US, where HSBC was stung for almost $2 billion. A London money-transfer company was fined £7.9 million in 2019, but that was an outlier, since few other fines have breached six figures. Countrywide estate agency was forced to pay £215,000 for its failings in 2018, which sounds like a lot until you realize it has annual revenues of more than £600 million. A year later, the estate agents Purplebricks was fined £266,793, which again won’t have put much of a dent in that year’s income of almost £50 million.
“The average annual level of anti-money-laundering monetary penalty in the banking sector—the industry identified by the UK government as having the highest money-laundering risk—has been approximately £8 million. Compared to the overall scale of expected money laundering in the UK and the profits made by the financial services firms from this money, it remains questionable whether the level of fines levied currently has a sufficient deterrent effect,” concluded Transparency International with careful understatement.
Ministers responsible for law enforcement find Britain’s failure to stop criminal money extremely frustrating, but suffer from the fact that it is very difficult to measure how much wealth is being laundered, since it is so well hidden. As a result, they focus on what they can measure—the number of SARs being generated—and fixate on the need for ever more of them, as if all it will take to stop the torrent is just one more report. “They all need to do much more. It isn’t rocket science to make out SAR’s!” tweeted Ben Wallace, the minister responsible for economic crime, in 2019 in a classic example of how focusing on process rather than outcomes can have perverse consequences. The authorities are swamped by the volume of submissions they receive, and lawyers and accountants grumble that they get no feedback or gratitude for the unpaid work they do to help law enforcement, which is understandable but also unsurprising. The authorities can hardly be expected to write more than half a million personalized thank-you letters every year.
“The UK Anti-money-laundering regime appears to be suffering from an identity crisis at present,” said the Institute of Chartered Accountants in England and Wales (one of the many regulators of accountants) in 2018. “The purpose of the regime is no longer clear. Is it designed to address all instances of financial crime (e.g. omitting £50 from a tax return), or the most serious (billions of drug money entering the London financial system)?”
I don’t think it’s intended to do either of those things; I think it’s intended to give the impression of extreme activity while doing nothing to stop the butler from helping his clients get away with money laundering. If that wasn’t the case, Britain would have upgraded its system for handling SARs years ago. The software system that receives suspicious activity reports, which is rather endearingly called ELMER, was designed for about 20,000 documents a year and yet is now expected to handle twenty-five times that many. That is clearly far too many for actual people to read, so to try to bring order to this flood the Financial Intelligence Unit (FIU) asks that the most important alerts be coded differently—they are called defense against money laundering (DAML) SARs, and filing one protects you from being prosecuted for money laundering—but there are now more than 60,000 even of these in a year. Officers have a week to respond to a DAML SAR, once it’s in, and the FIU has fewer than 200 employees. If they were doing nothing but checking these reports, every member of staff would need to be processing one every working day of the year, which is clearly impossible, considering that they deal with complex transactions.
“I am trying to work out what the deterrent factor is for you and your colleagues in the industry,” asked an MP of Henry Pryor, an estate agent and regular media commentator on property matters.
“Tiny,” Pryor replied.
In the government’s defense, it is not just measuring money laundering that is hard; prosecuting it is difficult too. Before you can show that money has been laundered, you need to prove that it derives from criminal activity. To do that, you need evidence that can stand up in a British court, which is difficult to obtain from many foreign jurisdictions where the courts are politically controlled. If foreign jurisdictions do provide evidence then defense lawyers can, quite justifiably, point out that the evidence is proof more of their client being out of political favor than being a criminal—the Kremlin, for example, does not prosecute its friends. On top of that, offshore shell companies such as those registered in the British Virgin Islands or in even more opaque tax havens like Nevis or Nevada disguise the ownership of assets so effectively that it is often all but impossible to see who owns something. Britain may be the best butler in the world, but it is not the only one, and wealthy clients will employ several to make sure they have the best service available when it comes to hiding their wealth.
Thanks to the work of Transparency International and Global Witness, as well as the publicity generated by our London Kleptocracy Tours, which began in 2016, many MPs have become increasingly concerned about Britain’s failure to do anything about the dirty money flowing through its system. It was to answer their concerns and to cut through the problems created by criminals hiding their wealth in multiple jurisdictions that the government brought in a new tool, the unexplained wealth order (UWO), which came into effect in early 2018. Since UWOs passed into law just before the screening of the McMafia television show, they inevitably came to be dubbed the McMafia law, and were widely hyped in the press. Ministers revelled in the unaccustomed praise and their new image as sheriffs riding into London Town to drive out the bad guys.
“This government is determined not to let organized criminals—like the McMafia mob—act with impunity,” wrote Wallace, the minister for economic crime, in the Sun. “Theresa May is to launch a major crackdown on the ‘dirty money’ that Vladimir Putin’s McMafia-style cronies have sheltered in London,” declared the Daily Mail.
UWOs are a good idea, and at the time I found myself in the unexpected position of being non-cynical about a British government initiative. UWOs had the potential to finally turn the country away from butlering. They are designed to work by allowing the authorities to cut through all the offshore defenses and political obfuscation that can be built around criminal wealth to stop the authorities from confiscating it. If served with a UWO, the owner of wealth has to explain where it came from, whereas normally prosecutors have to show that it’s criminal. In its assessment at the time the Home Office estimated that, once the law had bedded in, about twenty UWOs would be issued each year, at a relatively low cost to law enforcement of no more than £1.5 million over the next decade, set against the recovery of at least £6 million of criminal wealth. That meant the government would even make a profit from the law.
National Crime Agency officers were excited about these new powers and privately canvassed many of Britain’s leading anti-corruption activists about which oligarchs they should be targeting first, since they were determined to win their first cases. Early victories would not only establish relevant precedents but also make clear that London was no longer a safe space for dodgy money. But 2018’s first UWO was a bit of a disappointment, being targeted at property owned by the wife of an Azeri banker who had already been jailed in Baku. In Azerbaijan he had been prosecuted for embezzlement, but since it is a place dominated by a small clique of oligarchs, his real crime is more likely to have involved falling out with the ruling family. He wasn’t exactly the kind of whale that the government had said it was going after; UWOs were supposed to target bigger cetaceans than that.
Fortunately, however, 2019 brought better news, with the announcement of an unexplained wealth order against properties linked to the ruling family of Kazakhstan, a post-Soviet kleptocracy that had been dominated by former president Nursultan Nazarbayev since independence in 1991. Back in 2015 Global Witness had published an extensive report into London properties that appeared to be owned either by the president’s grandson or by Rakhat Aliyev, who had divorced the president’s daughter Dariga Nazarbayeva in 2007 but then, shortly before the report came out, killed himself in an Austrian prison cell while awaiting trial for murder. It was true that Aliyev had fallen out with his ex-father-in-law and been driven out of the first family, which meant that targeting him wasn’t quite like going after a top-ranking kleptocrat, but he had been notorious for using his position as head of Kazakhstan’s security service to extort wealth and steal businesses, so his was precisely the kind of “McMafia money” London should not be sheltering. At last there was the kind of action that the government had promised when UWOs were introduced. If dirty money, even if it belonged to a sundered offshoot of the ruling family of an oil-rich kleptocratic state, could be driven out of London, it would be an unmistakable signal that Britain was getting out of the butlering business.
By this stage of the book, you will probably not be too surprised to discover all did not go as the optimists wished.
Ownership of the properties involved—two houses and two apartments—was disguised behind two Panamanian foundations, a foundation registered on the Dutch island of Curaçao and a shell company registered on the obscure British island of Anguilla. The UWOs, therefore, were directed at these shell structures plus the solicitor who appeared to run the foundations rather than at any named tycoon, but the NCA’s supporting documents made clear its investigators suspected the properties had been bought with Aliyev’s cash. Shortly after a court agreed to issue the UWOs, however, the NCA received a 268-page letter from the famously potent London law firm Mishcon de Reya (tagline: “It’s business. But it’s personal.”) informing them that the properties had not been owned by Rakhat Aliyev at all. Instead, both of the apartments and one of the houses belonged to his ex-wife Dariga Nazarbayeva, while the other house belonged to their son Nurali. They had purchased the properties after she and Aliyev’s divorce had been finalized, the letter said, so the source of the money could not have been Aliyev.
Mishcon de Reya contested everything that the NCA was trying to do, bringing in an expert to demolish its understanding of the structure of Panamanian foundations and providing Kazakh court documents to prove that its clients’ wealth was entirely independent of Aliyev’s. Reading the final judgment is like reading the report of a match between Manchester City and Hereford FC: the embattled non-league side did its best, but its players were swept aside by superior skills, fitness, knowledge and resources.
“The NCA case presented at the ex parte hearing was flawed by inadequate investigation into some obvious lines of inquiry,” the judge concluded in April 2020 in an extremely critical assessment. “Furthermore, I consider that the NCA failed to carry out a fair-minded evaluation of the new information provided.” She discharged the UWOs, and thus ended any bid by the NCA to confiscate the properties. The agency said it would contest the decision, but an appeal court judge refused it permission to do so on the grounds that “the appeal has no real prospect of success and there is no other compelling reason why an appeal should be heard.”
It was a total defeat, a humiliation, the kind of huge scoreline that makes you wonder if the teams were playing football or rugby, made all the worse by the fact there were so many open goals presented to the NCA, which its investigators apparently failed to notice. Even if the properties did not belong to Aliyev but to his ex-wife, it surely would have been at least worth asking how the daughter of the head of a country where the average person earns £600 a month had managed to amass enough wealth to buy a London property empire valued by some newspapers at £80 million. That certainly looks to me like wealth that needs explanation. And if she was going to rely on Kazakh court documents to show that she had no involvement in any of Aliyev’s crimes, then wasn’t it at least worth questioning the legitimacy of those courts’ judgments, given that they came from a judicial system ultimately controlled by her dad? These are just two of many points in the judgment where I scribbled exclamation marks in the margin, but which the NCA did not seem to feel warranted further investigation.
Dariga Nazarbayeva and her son presented evidence to show they were successful self-made entrepreneurs, and the court agreed with them. It is striking how different the agency’s submissions were to the responses of the FBI every time Firtash’s legal team tried to have the Chicago court case dismissed: the NCA made no effort to analyze the nature of Kazakhstan’s politics or economy and was almost embarrassingly reliant on the Global Witness report for information.
There is only one use of “kleptocracy” in the document the NCA laid before the court, and just two uses of “corruption.” In the final judgment, “president” features more than fifty times in the context of the organizational structuring of the Panama and Curaçao foundations that owned the properties, but only once in the context of Dariga Nazarbayeva’s dad. It is perhaps indicative of how little thought the NCA obliged the judge to put into this that in this single reference she spelled President Nazarbayev’s name wrong.
I know one academic expert on corruption who was so bewildered by the NCA’s capitulation that he speculated—not entirely in jest—that it must have been ordered from on high: perhaps senior officers received a call from Britain’s embassy in Kazakhstan asking them to present a deliberately weak case? I am sure that did not happen, but the real reason for the agency’s failure is even more troubling. The NCA may or may not have had a strong case against the origins of this wealth, but they had no prospect of making it. It simply doesn’t have the resources to go up against a law firm like Mishcon de Reya, and neither do any of Britain’s law enforcement agencies. They have been starved for so long that they are demoralized by defeat and hollowed out by the steady departure of their officers to higher-paid positions elsewhere.
In its report into Russian interference in the UK published in July 2020, a month after the NCA’s request to appeal the Nazarbayeva decision was rejected, parliament’s Intelligence and Security Committee quoted NCA Director General Lynne Owens as conceding that her officers might not be able to use UWOs against oligarchs at all anymore. “We are, bluntly, concerned about the impact on our budget, because these are wealthy people with access to the best lawyers,” she said. “I’ve got a very good legal team based within the National Crime Agency but had a lot of resource dedicated out of my relatively small resource envelope on that work.” Translation: Britain, a G7 country with an economy worth nearly $3 trillion, is not prepared to pay its law enforcement agencies enough to investigate dirty money. Contrast this with the FBI’s approach to Dmitry Firtash, whom they investigated for five years before indicting him, and whom they have kept battling despite his retaining a ferocious US legal team that has fought every step they have taken, and you see how feeble the British agency is.
But this is not surprising, considering how little money it has. The NCA’s International Corruption Unit has an annual budget of just over £4.3 million. A judge ordered it to pay half a million pounds immediately to cover the legal costs incurred by Dariga Nazarbayeva and Nurali, and it is expected to have to pay a million more before it is done. Even before paying its own costs, therefore, this case alone will cost the International Corruption Unit more than a third of its entire annual budget. The UWO is a powerful weapon, but if enforcement agencies lack the resources they need to deploy it, it will sit on a shelf gathering dust. It’s like giving a hospital a powerful new scanner but not enough money to employ technicians, or like giving the navy a pair of aircraft carriers but not enough money to buy any planes. From the government’s perspective, UWOs were a triumph, garnering article after article about their tough stance against kleptocrats and their kleptobrats. From Butler Britain’s perspective, they were a triumph too: rich clients and their children can continue to enjoy their wealth without worrying about being disturbed. From a law enforcement perspective, however, they were a dud.
One law enforcement source told me he was so fed up he was tempted to “move to a bank and add a zero” to his pay packet. Experienced police detectives can double their salaries by crossing over into the private sector. And the National Crime Agency, which was set up in 2013 supposedly as Britain’s answer to the Federal Bureau of Investigation, is in even worse shape. Its officers work alongside those from regular police forces, but their supposedly elite status is rewarded with salaries 14 percent lower than that of colleagues in local forces. In a report on staffing published in 2019 the NCA revealed that about a tenth of its workforce leaves every year, which inevitably lessens its effectiveness, and the departures largely arise because of dissatisfaction over pay.
The phenomenon is even more concentrated in the agency’s Command and Control Center, which is in charge of coordinating the response to Britain’s most serious crimes but which loses its entire workforce on average every three years, with many of its agents poached by banks. The NCA has effectively become a training ground for private sector compliance officers, who can instantly earn salaries 20 to 30 percent higher than in the supposedly elite crime-fighting force. “People are leaving in droves; there’s just not the money or motivation to stay,” one source told me.
After the collapse of the Dariga Nazarbayeva case, one NCA financial investigator told the Mail on Sunday it was a waste of time trying to take on oligarchs if they employ top-flight law firms, an admission that will ensure that—if there are any more UWOs like this one—that that is precisely what the oligarchs will do. But it looks unlikely that the NCA will try to take on such a wealthy adversary again. The NCA planned to bring 200 UWOs over a decade and predicted a total cost of around £1.5 million but blew more than that on this single case, which ended in a defeat that may have doomed the UK’s entire anti-money-laundering strategy. Depressingly, this possibility was predicted in 2017 when Parliament debated the UWOs. An amendment tabled by Nigel Mills MP would have capped the costs that respondents could incur so they could not outgun the NCA by engaging expensive lawyers, all ultimately to be paid by the taxpayer. The government, however, rejected this idea, arguing that the prospect of being forced to pay the respondent’s costs in the event of an unsuccessful UWO would be an important check on the state abusing its new powers. And so it has turned out. In fact, the prospect will stop the state using the new powers at all.
Alarmingly, this is not even the first time this has happened. In the early 2000s the British government—seeking to emulate successes overseas, particularly in Ireland and South Africa—created the Assets Recovery Agency, which would act as a single body tasked with confiscating ill-gotten gains. Launched on a wave of hype about how much it could achieve and how little it would cost, in much the same way as UWOs, it singularly failed to deliver. In 2008, after just five years in which it failed to meet punishingly unrealistic targets, the agency was abolished and its powers split between the various agencies that are failing to do much with them now. According to a paper published by the think tank RUSI in 2019, the Crown Prosecution Service—one of these agencies—used the powers it inherited just once in the eleven years that had elapsed since the collapse of the last time that Butler Britain set its enforcement agencies up to fail.
What is particularly disastrous about the continued failure to treat financial crime as seriously as it deserves is that, even when standing still, the authorities keep falling behind. The job of private sector compliance officers is to send SARs to the National Crime Agency’s Financial Intelligence Unit. However, as a result of the poaching of its officers, the NCA lacks experienced employees able to investigate the crimes being reported. This could have been predicted, since it’s a logical result of the demands placed on private companies to report ever more SARs and on ministers’ failure to pay NCA officers a salary sufficient to keep them in their posts. This is what happens if you underpay your investigators. And it’s not a secret. Parliamentary reports have been exposing this reality for at least a decade, and yet the government has done almost nothing to improve the situation.
Criminal wealth is reinvested, which makes criminals richer and more potent adversaries, while companies in the City poach law enforcement officers to work in their compliance departments. It’s like expecting the army to fight a war against an adversary that gets stronger all the time, while its service men and women are continually lured away to work as private security contractors or, worse still, as mercenaries for their former adversaries. You don’t have to be a conspiracy theorist to start wondering if there isn’t something going on, because this is a system that is not working at all.
Back in 2013 the National Audit Office calculated that of every hundred pounds earned by criminals just twenty-six pence is ever confiscated. And if anything that understates the failure, because it doesn’t take into account the far larger volume of illicit wealth that is stolen overseas and either imported to the UK or laundered through the British financial system on its way elsewhere. “The relatively low level of fines, and the low likelihood of being caught, means that fines for breaching anti-money-laundering rules can be seen as the cost of doing business, rather than being dissuasive,” said Global Witness in a report in 2018.
The government has been promising to replace ELMER, the IT system that receives all the SARs filed, with a more modern system since at least 2015, but has so far failed to do so, perhaps because such a system would cost, according to some estimates, half a billion pounds. And there already isn’t enough money to keep trained staff working in law enforcement agencies. With banks expected to spend ever more money on compliance, they need ever more compliance officers, and the best place to find them is in law enforcement agencies. “I have a theoretical headcount of forty, I have only thirty people in post. I cannot recruit and keep the right people,” said the Serious Fraud Office’s Mark Thompson in 2016. “It is very difficult. If we were able to deal with that I would have the capacity to be slightly more proactive than reactive in the way we operate.”
A butler’s job is to help his clients get away with their misdeeds, not help their victims achieve justice. But this causes a problem: what happens if one of Butler Britain’s clients is defrauded, and the perpetrator exploits the country’s refusal to adequately investigate or prosecute financial crime to get away with it? In other words, what if one of Britain’s clients uses its services against another?
Fortunately, Butler Britain has a solution to this problem. Of course it does.