27 September, 2024
Left Foot Forward
Accountants, lawyers and financial services experts are central to the flow of dirty money.
The UK regulatory system is an expensive farce. There is a plethora of regulatory bodies, supposedly regulating relationships between citizens and powerful economic interests and protecting people from abusive practices. Sadly, that is not the case. All too often regulators lack independence and a backbone. Conflicts of interests are endemic.
This happens with the tacit approval of the state which is primarily concerned about the welfare of big business. So much so that regulators have a secondary objective to promote growth and competitiveness of the industry that they regulate, effectively diluting the remit to protect people from harmful practices. The result is social squalor which neither promotes confidence in business nor in the institutions of government.
Examples of failures are splattered across daily newspapers. In 2017, the Grenfell fire tragedy claimed 72 lives because regulators knowingly permitted the use of flammable insulation in housebuilding. It was cheap and increased profits. There was little concern about the human consequences.
The 2024 Grenfell report noted that “there were repeated occasions on which NHBC [National House Building Council] failed to demonstrate sufficient independence and showed itself willing to accommodate the wishes of Kingspan [company that made cladding and insulation products] for commercial reasons. It also showed itself unwilling to upset its own customers and the wider construction industry by revealing the scale of the problem caused by the use of combustible insulation”.
In respect of The Building Research Establishment, the report said that much of its work was “marred by unprofessional conduct, inadequate practices, a lack of effective oversight, poor reporting and a lack of scientific rigour”. The report adds that there was a complete failure on the part of the Local Authority Building Control to ensure that the safety certificates that issued were “technically accurate”. All regulators failed and some seven years after the Grenfell tragedy almost nothing has changed.
Some 2%-5% of the world’s GDP, or around $800bn – $2trn is laundered through the banking system. The proceeds relate to crime, tax dodging, narcotics, human smuggling, terrorism, sanctions busting and more. Despite a plethora of laws, almost 40% of the world’s dirty money is laundered through the City of London and its satellites in UK Crown Dependencies. UK governments and regulators collude to cover-up criminal activities by banks. The Financial Conduct Authority (FCA) is the lead regulator but underneath that there are at least 41 other regulators.
Accountants, lawyers and financial services experts are central to the flow of dirty money. They are regulated by 25 accountancy and law trade associations, including the Faculty Office of the Archbishop of Canterbury. All 25 are outside the scope of the freedom of information laws. They are supervised by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) housed within the FCA. Its 2018 report noted that accountancy and law trade associations are very adept at turning a Nelsonian eye. The OPBAS director said: “The accountancy sector and many smaller professional bodies focus more on representing their members rather than robustly supervising standards. Partly because they don’t believe – or don’t want to believe – that there is any money laundering in their sector. Partly because they believe that their memberships will walk if they come under scrutiny”. Little has changed since. The 2024 report said: “OPBAS has not seen any material improvement in PBSs’ [professional body supervisors] effectiveness in the core areas of supervision, risk-based approach, enforcement, and information and intelligence sharing”. Yet the charade of regulation continues.
The market of insolvency is reserved for accountants and lawyers belonging to a few select trade associations. 1,257 active insolvency practitioners (IPs) handle all UK personal and corporate bankruptcies. They are regulated by the Insolvency Service and four trade associations, which are outside the scope of the freedom of information laws. The IPs have a licence to print money and their fees run into millions of pounds. BHS liquidation started in 2016 and is yet to be finalised. Carillion began in 2018 and is yet to be finalised. The liquidation of Bank of Credit and Commerce International (BCCI) began in 1991 and was finalised in 2012. Israel-British Bank’s liquidation lasted from 1974 to 2009, and magically ended when there were no more fees to extract from the carcass of the entity. The longer the duration of an insolvency, bigger the fees for IPs and smaller the chance of any recovery for unsecured creditors, which includes employee pension schemes. As of December 2023, some 20,822 corporate insolvencies were running for more than 15 years.
Time Period (years) Number of Companies in Liquidation
0 – 5 56,363
5 – 10 10,042
10 – 15 8,189
15 + 20,822
No regulator examines the reasons for the prolonged delay and its impact on stakeholders. Fines levied on IPs are pocketed by the trade associations.
Ofcom permits mobile phone and internet companies to hike bills every year, even in mid-contract, by inflation + 3.9%. The claim is that this enables companies to build the new 5G infrastructure but the problem is that most customers do not receive 5G and many areas have poor signal reception. In effect, companies are raising capital from customers rather than shareholders, whilst shareholders benefit from the resulting assets and income stream. When asked to intervene, the Competition and Markets Authority said that providers must tell customers about any mid-contract price rises at the point of sale. So, exploitation continues.
Ofgem lets energy companies profiteer. British Gas increased its profits ten-fold. BP and Shell have more than doubled their profits in recent years. Since the pandemic electricity generation companies have increased their profit margins by 198%. Electricity and Gas supply companies increased their profit margins by 363%. The failure to check profiteering takes its toll on people. Around 6m people live in fuel poverty. Some 2.3m households already owe over £1,200 on average and total energy debt is over £3bn.
The failures of Ofwat and the Environment Agency have made headlines for 35 years. Last year, water companies dumped raw sewage in rivers, lakes and seas for 3.6m hours to cause new health hazards. Over a trillion litres of water is lost each year from leaky pipes and companies have failed to make the required investment. Since privatisation Water companies have paid dividends of £85bn and funded them by borrowing nearly £70bn. Regulators do little to check abuses as revolving doors facilitate cognitive capture. 27 former Ofwat directors, managers and consultants work in the industry they helped to regulate, with about half in senior posts. Ofwat and water company directors secretly meet to develop strategies for quelling public anger. Unsurprisingly, Ofwat’s pricing formula, codenamed PR24; guarantees water companies real returns each year.
The UK has a labyrinth of regulators as successive governments appease sectional interests by letting them act as regulators. Most are ineffective. There are about 90 main regulators, but that does not include government departments and public bodies. The government puts their number at 607. A 2005 study put the number of regulators at 674, and that does not include accountancy, law and other trade associations (see above). The total is likely to be in excess of 700.
A multitude of regulatory bodies results in duplication, inconsistency, and obfuscation. In the interests of coherence and efficiency the numbers of regulators need to be consolidated. In any regulatory system there is a concern that regulators will be captured by the regulated. That is the starting point in regulation by trade associations. No trade association should be permitted to act as a public regulator.
All regulators use the rhetoric of ‘serving the public interest’ but none let the public anywhere near their operations. Regulators like the FCA use handpicked consumer panels to give impression of public involvement. None of that ever checked the sale of fraudulent financial products, money laundering or tax dodges. This needs to be replaced by stakeholders who won’t be bullied, discarded or bought and are accountable to the public.
At water, gas, electricity, rail, banks, insurance and many other sectors regular customers are known with certainty, and they should elect at least 50% of the unitary board of the regulatory body and the regulated entity. Alternatively, there can be a two-tier board (i.e. an Executive Board for day-to-day running, and a Supervisory Board) with the Supervisory Board entirely elected by stakeholders with statutory responsibility to invigilate the executive board. Customers should also vote on remuneration pay of executives of regulatory bodies and regulated entities. This gives stakeholders a power base from which to hold regulators and entities to account.
All regulatory bodies shall meet in the open. Their agenda papers, board minutes and working papers shall be available to all. At the commencement of each board meeting, each director shall state whether since the last meeting s/he has had any meeting with any regulated individual and/or entity and shall provide complete details.
The above is not a panacea but provides the first necessary first steps for strengthening regulation and democratic accountability.
Left Foot Forward
Accountants, lawyers and financial services experts are central to the flow of dirty money.
The UK regulatory system is an expensive farce. There is a plethora of regulatory bodies, supposedly regulating relationships between citizens and powerful economic interests and protecting people from abusive practices. Sadly, that is not the case. All too often regulators lack independence and a backbone. Conflicts of interests are endemic.
This happens with the tacit approval of the state which is primarily concerned about the welfare of big business. So much so that regulators have a secondary objective to promote growth and competitiveness of the industry that they regulate, effectively diluting the remit to protect people from harmful practices. The result is social squalor which neither promotes confidence in business nor in the institutions of government.
Examples of failures are splattered across daily newspapers. In 2017, the Grenfell fire tragedy claimed 72 lives because regulators knowingly permitted the use of flammable insulation in housebuilding. It was cheap and increased profits. There was little concern about the human consequences.
The 2024 Grenfell report noted that “there were repeated occasions on which NHBC [National House Building Council] failed to demonstrate sufficient independence and showed itself willing to accommodate the wishes of Kingspan [company that made cladding and insulation products] for commercial reasons. It also showed itself unwilling to upset its own customers and the wider construction industry by revealing the scale of the problem caused by the use of combustible insulation”.
In respect of The Building Research Establishment, the report said that much of its work was “marred by unprofessional conduct, inadequate practices, a lack of effective oversight, poor reporting and a lack of scientific rigour”. The report adds that there was a complete failure on the part of the Local Authority Building Control to ensure that the safety certificates that issued were “technically accurate”. All regulators failed and some seven years after the Grenfell tragedy almost nothing has changed.
Some 2%-5% of the world’s GDP, or around $800bn – $2trn is laundered through the banking system. The proceeds relate to crime, tax dodging, narcotics, human smuggling, terrorism, sanctions busting and more. Despite a plethora of laws, almost 40% of the world’s dirty money is laundered through the City of London and its satellites in UK Crown Dependencies. UK governments and regulators collude to cover-up criminal activities by banks. The Financial Conduct Authority (FCA) is the lead regulator but underneath that there are at least 41 other regulators.
Accountants, lawyers and financial services experts are central to the flow of dirty money. They are regulated by 25 accountancy and law trade associations, including the Faculty Office of the Archbishop of Canterbury. All 25 are outside the scope of the freedom of information laws. They are supervised by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) housed within the FCA. Its 2018 report noted that accountancy and law trade associations are very adept at turning a Nelsonian eye. The OPBAS director said: “The accountancy sector and many smaller professional bodies focus more on representing their members rather than robustly supervising standards. Partly because they don’t believe – or don’t want to believe – that there is any money laundering in their sector. Partly because they believe that their memberships will walk if they come under scrutiny”. Little has changed since. The 2024 report said: “OPBAS has not seen any material improvement in PBSs’ [professional body supervisors] effectiveness in the core areas of supervision, risk-based approach, enforcement, and information and intelligence sharing”. Yet the charade of regulation continues.
The market of insolvency is reserved for accountants and lawyers belonging to a few select trade associations. 1,257 active insolvency practitioners (IPs) handle all UK personal and corporate bankruptcies. They are regulated by the Insolvency Service and four trade associations, which are outside the scope of the freedom of information laws. The IPs have a licence to print money and their fees run into millions of pounds. BHS liquidation started in 2016 and is yet to be finalised. Carillion began in 2018 and is yet to be finalised. The liquidation of Bank of Credit and Commerce International (BCCI) began in 1991 and was finalised in 2012. Israel-British Bank’s liquidation lasted from 1974 to 2009, and magically ended when there were no more fees to extract from the carcass of the entity. The longer the duration of an insolvency, bigger the fees for IPs and smaller the chance of any recovery for unsecured creditors, which includes employee pension schemes. As of December 2023, some 20,822 corporate insolvencies were running for more than 15 years.
Time Period (years) Number of Companies in Liquidation
0 – 5 56,363
5 – 10 10,042
10 – 15 8,189
15 + 20,822
No regulator examines the reasons for the prolonged delay and its impact on stakeholders. Fines levied on IPs are pocketed by the trade associations.
Ofcom permits mobile phone and internet companies to hike bills every year, even in mid-contract, by inflation + 3.9%. The claim is that this enables companies to build the new 5G infrastructure but the problem is that most customers do not receive 5G and many areas have poor signal reception. In effect, companies are raising capital from customers rather than shareholders, whilst shareholders benefit from the resulting assets and income stream. When asked to intervene, the Competition and Markets Authority said that providers must tell customers about any mid-contract price rises at the point of sale. So, exploitation continues.
Ofgem lets energy companies profiteer. British Gas increased its profits ten-fold. BP and Shell have more than doubled their profits in recent years. Since the pandemic electricity generation companies have increased their profit margins by 198%. Electricity and Gas supply companies increased their profit margins by 363%. The failure to check profiteering takes its toll on people. Around 6m people live in fuel poverty. Some 2.3m households already owe over £1,200 on average and total energy debt is over £3bn.
The failures of Ofwat and the Environment Agency have made headlines for 35 years. Last year, water companies dumped raw sewage in rivers, lakes and seas for 3.6m hours to cause new health hazards. Over a trillion litres of water is lost each year from leaky pipes and companies have failed to make the required investment. Since privatisation Water companies have paid dividends of £85bn and funded them by borrowing nearly £70bn. Regulators do little to check abuses as revolving doors facilitate cognitive capture. 27 former Ofwat directors, managers and consultants work in the industry they helped to regulate, with about half in senior posts. Ofwat and water company directors secretly meet to develop strategies for quelling public anger. Unsurprisingly, Ofwat’s pricing formula, codenamed PR24; guarantees water companies real returns each year.
The UK has a labyrinth of regulators as successive governments appease sectional interests by letting them act as regulators. Most are ineffective. There are about 90 main regulators, but that does not include government departments and public bodies. The government puts their number at 607. A 2005 study put the number of regulators at 674, and that does not include accountancy, law and other trade associations (see above). The total is likely to be in excess of 700.
A multitude of regulatory bodies results in duplication, inconsistency, and obfuscation. In the interests of coherence and efficiency the numbers of regulators need to be consolidated. In any regulatory system there is a concern that regulators will be captured by the regulated. That is the starting point in regulation by trade associations. No trade association should be permitted to act as a public regulator.
All regulators use the rhetoric of ‘serving the public interest’ but none let the public anywhere near their operations. Regulators like the FCA use handpicked consumer panels to give impression of public involvement. None of that ever checked the sale of fraudulent financial products, money laundering or tax dodges. This needs to be replaced by stakeholders who won’t be bullied, discarded or bought and are accountable to the public.
At water, gas, electricity, rail, banks, insurance and many other sectors regular customers are known with certainty, and they should elect at least 50% of the unitary board of the regulatory body and the regulated entity. Alternatively, there can be a two-tier board (i.e. an Executive Board for day-to-day running, and a Supervisory Board) with the Supervisory Board entirely elected by stakeholders with statutory responsibility to invigilate the executive board. Customers should also vote on remuneration pay of executives of regulatory bodies and regulated entities. This gives stakeholders a power base from which to hold regulators and entities to account.
All regulatory bodies shall meet in the open. Their agenda papers, board minutes and working papers shall be available to all. At the commencement of each board meeting, each director shall state whether since the last meeting s/he has had any meeting with any regulated individual and/or entity and shall provide complete details.
The above is not a panacea but provides the first necessary first steps for strengthening regulation and democratic accountability.
Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.
Interview with Joe Powell MP: How can we clamp down on dirty money flooding through the UK?
26 September, 2024
Transparency International has identified at least £1.5bn of UK property owned by Russians accused of financial crime or with links to the Kremlin.
Labour MP Joe Powell has long been a campaigner against corrupt wealth and dirty money flowing through the UK. Elected in July, the MP for Kensington and Bayswater, also founded the Kensington Against Dirty Money campaign that has pushed national and local governments to take action on inequality by reducing corrupt wealth in the borough, going after empty homes, and investing more in social housing.
Around £350bn a year comes through Britain which is dirty money, according to former chair of the Public Accounts Committee Baroness Margaret Hodge, while anti-corruption organisation Transparency International has identified at least £1.5bn of UK property owned by Russians accused of financial crime or with links to the Kremlin.
Such sums have often led to London being described as the ‘dirty money capital of the world’, a destination of choice for economic crime and dirty money.
What can be done about it and how seriously is the government taking the issue? LFF spoke to Joe Powell at Labour conference to find out some of the answers.
Almost 52,000 properties in the UK are still owned anonymously despite a new transparency law designed to reveal their true owners, research from Transparency International UK has found.
Analysis of the Register of Overseas Entities (ROE), a new database of the real owners of offshore firms that hold UK property, shows almost half of the companies required to declare their ownership have failed to do so.
Powell believes the first step any government should undertake is to push for greater transparency so that those engaged in illicit financial flows have nowhere to hide.
He says: “The previous government allowed trust owned properties to still be anonymous, so among the first steps to take would be to include trusts in the property register. In Kensington and Bayswater 40% of foreign owned property is in trusts.”
Powell also believes that there needs to be strategy that runs across government departments focused on tackling illicit financial flows.
“There needs to be greater action to clamp down on some of the loopholes”, says Powell.
“If you own a property through a trust in the British Virgin Islands, for example, you are not required to disclose who the owner of that trust is, that is one major loophole which should be closed.”
He also called for greater support for the National Crime Agency to ensure it has the staff and resources to use the information uncovered to carry out effective enforcement action.
LFF has previously reported on how Kremlin linked Russian donors have made donations to the Tory party. One such donor is Lubov Chernukhin, the wife of a former Putin minister, the largest female donor in British political history, having donated £2 million to the Conservatives from 2012 to 2020.
Does Powell worry about Russian oligarchs using their money to influence UK democracy? “There’s clearly a strategy among some oligarchs who have interests in the UK to get involved in politics using money and influence, for me my focus is political judgement, I wouldn’t take it.”
On the topic of Kremlin linked oligarchs, what about the case of Roman Abramovich? £2.5bn from Roman Abramovich’s sale of Chelsea FC, was supposed to be used for the benefit of victims of the war in Ukraine. Currently the funds are sitting frozen in a bank account.
“There is a lack of transparency over the agreement with Abramovich”, says Powell. “We don’t know exact terms of the sale, but I’m confident Stephen Doughty (Minister for Europe, North America and Overseas Territories) understands the strength of feeling and I’m sure he will do all he can to speed things up.”
The support of the financial services sector is seen as crucial in tackling dirty money, yet is Powell worried that the sector has a culture which could resist the change needed?
“The vast majority of people working in the city do not want to handle dirty money but there are some bad actors and I think lots of times it’s too easy to turn a blind eye so one of the things that we were campaigning for was a failure to prevent money laundering offence.
“So you would put liability onto the companies to ensure they were carrying out due diligence-that would be one of the ways you could do it.”
When corrupt elites from other countries launder and stash their money in the UK, developing and poorer nations suffer most.
Powell says: “I’ve written a letter to NCA about the property empire of a former Bangladeshi minister. These people are taking money out of countries which desperately need it and this is one of the reasons having a transparent property register is so important.
He continued: “If you have foreign government ministers with official salaries in tens of thousands of dollars buying properties worth hundreds of millions of pounds then we need to be able to ask the question about how they’ve been able to do that.
“It’s bad for democracy and development for the country where the money is coming from and its bad for democracy in the UK.”
Basit Mahmood is editor of Left Foot Forward
