This book reveals how global efforts to tackle money laundering have headed down an expensive blind alley. We reveal that after a sure start thirty years ago, regional, and national efforts quickly went off the rails, and stayed there. We explain how the simple problem of criminals making money from crime has been met with sophisticated and increasingly technical responses relating to the finance system, not crime. Huge resources have been poured into trying to prevent dirty money entering the financial system, but increasingly regular leaks and scandals have shown that it is awash with it. By challenging traditional approaches, highlighting fundamental misconceptions and contradictions, we suggest that resources are gratuitously wasted in some areas and stretched beyond breaking point in others. We cut through incomprehensible jargon, a maze of agencies, a blizzard of typologies to suggest a positive path that matches resources to problems, laws to crimes and keeps it simple.

One problem, two architects

Wherever you are in the world, The War on Dirty Money should make you angry. Few other sinews of modern globalism have woven such a powerful and effective network of cooperation as illicit financial flows, connecting every corner of the world. Dirty money leaves an impact everywhere – from poor, underdeveloped countries that are losing gargantuan amounts of public funds which should be contributing to the improvement of the lives of their people, to the streets of London, New York and many other cities in the developed world which witness the effects of the inrush of such funds in the form of block upon block of plush, newly built – and for the most part unoccupied – apartment buildings, all snapped up as convenient parking lots for foreign money, both inflating the area’s housing prices and driving large numbers of local people out of the city in order to find affordable accommodation.

Those who want to move their dirty money need the willing assistance of others in the destination location to complete the movement safely. This has fashioned a huge conspiracy of silence and deliberate ignorance: between criminal perpetrators, on the one hand, generating the illicit funds, and, on the other, accommodating bankers, lawyers, accountants and estate agents who are disposed to not ask too difficult questions, to look the other way and not voice concerns. The unholy alliance is no better symbolised than by the classic triptych – the unseeing, the unhearing and the unspeaking.

One problem, two fates

Two images are seared into my mind when, as an official working in the UK government department responsible for development aid, I started out on our efforts to combat the corruption that blights the developing world. The first snapshot shows two children knee-deep in a muddy drainage culvert surrounded by an assortment of battered but brightly coloured plastic buckets and containers. Hands on hips, looking like wizened old labourers, they stare with tired resignation into the camera. They can be no more than seven or eight years old.

They are collecting the family’s daily water supply, from what appears to be a ditch. They had probably walked many miles that morning to reach this spot – instead of going to school – and faced the same trudge back to their home, bearing their now heavy loads. They did the very same journey yesterday. They will do it again tomorrow, and the day after, and the day after that, long into the future. They probably did it this morning, as you started to read this book.

The other image, by contrast, shows an evidently self-satisfied young man posing proudly for his picture, poolside and in front of a salmon pink mansion which fills the background. A faux classical life-sized statue stands behind him and the drinks seem to be ready on the umbrella-shaded table on the expansive patio in the distance.

This is Teodoro Obiang, son of the President of Equatorial Guinea, and he is here enjoying his US$35 million ocean retreat in Malibu Beach, California. The estate behind him occupies 19 acres (7.7 hectares) of prime real estate. The mansion itself is 15,000 square feet (1,400 square metres) in dimension and, along with the pool, boasts a tennis court and even its own four-hole golf course.

As he was enjoying his largesse, most of his country folk were surviving on less than US$1 a day. They still do. The two youngsters we encountered above could just as likely be scratching out their lives in Obiang’s Equatorial Guinea as in any other place in Africa.

These two very different images epitomise the consequences of dirty money and money laundering. The abject poverty, ingrained injustice and lost life chances on the one hand; unparalleled illicit wealth, privilege and impunity on the other. All this is made possible by money laundering.

One problem, so much damage

Understanding the exact scale of the haemorrhaging of resources from any country is difficult, not least because, by their nature, ‘illicit’ finances are secretive. Elected politicians occupying positions of public trust rarely advertise their hollowing out of their countries’ wealth (although the impunity with which many go about their business suggests that few feel fear of facing any consequences).

What we can have absolute confidence about from a global development perspective, to give one example of the dire impact, is that the flows of dirty money, whether it be from corruption, organised crime or commercial tax evasion practices, dwarf the inflow of development funds going in the opposite direction. The UN Office on Drugs and Crime (UNODC) has estimated illicit financial flows to be in the region of 2–5% of the global economy annually – that is currently between US$1.7 and US$4.25 trillion.1 Even allowing for a substantial margin of error on this estimate, compare it to the level of global development aid of around US$160 billion annually2 and it is easy to see the size of the problem.

The holes in the bottom of the bucket are far larger in many, perhaps most, places around the world than the stream of foreign aid entering it. The development aid community is losing the game, and losing it big time. Developing countries and their people are losing big time.

Poverty and inequality are being perpetuated, public services are being drained of resources, the standards of public administration that most of the world’s poor look to, and need to rely on, are being constantly corroded, all by dirty money. Not for nothing has it been observed that Africa is ‘a rich continent full of poor people’.

This is just one illustration of the real effects of illicit financial flows. The War on Dirty Money will reveal many more. It is why we need to understand the problem of dirty money far more clearly than we have done up until now.

One problem, so few obstacles

That corrupt elites and organised criminal gangs can accumulate riches on such a scale, hide the proceeds of their activities and transform their gains into ‘clean’ money to spend as they wish is down to the practice termed ‘money laundering’ – the transforming of dirty money into seemingly clean, legitimately acquired, wealth.

One of the most striking absurdities about money laundering is the apparent ease with which perpetrators are able to get away with it. The proportion of illicit finance actually intercepted and seized by anti-money laundering agencies is universally acknowledged to be woefully low. A commonly accepted figure, drawn from UNODC research, is that just 0.2% of laundered criminal funds is seized annually by law enforcement.3 Put another way, anyone contemplating money laundering has a 99.8% chance of success. What other gamble in life offers such a promising rate of return?

If this was occurring in an environment that was a vacuum of attention, effort or control measures, it would still be an outrage but at least an understandable one. The shocking and dispiriting story of global anti-money laundering is that this occurs despite the enormous human effort and resource that has been devoted over the past three decades to building up the system that exists supposedly to combat this phenomenon. This system costs in excess of US$200 billion a year and absorbs the working lives of tens, if not hundreds, of thousands of operatives in the public and private sectors around the world.

As The War on Dirty Money reveals, there are oceans of data that are routinely (and laboriously) collected, mountains of analysis that are compiled (and diligently published) and legions (armed with their credentials-boosting certificates of proficiency in the discipline) deployed to run highly sophisticated networks of anti-money laundering specialists that now cover the globe. But all of these together, and working for decades, have had virtually zero effect on the problem. It is not getting anywhere near.

With any difficult law enforcement battle, for example with ‘ordinary’ forms of crime such as car theft or street muggings, drugs or firearms, it is expected to be an uphill struggle. No one thinks crimes like these will be eradicated completely, or that there will be rapid results, but one looks for, and expects to see, a measurable bearing down on incidents. Some return on the effort is usually visible. But with anti-money laundering, it seems that we are not even managing to scratch its surface. Despite all the forces and brain power applied, we are leaving almost no imprint at all on the problem. Not even a shadow.

How can we have set up a system at such expense and with such intense technical, intellectual and operational inputs to so little effect? That question is what this book seeks to explore. It is the unacknowledged scandal of our times. The failure of anti-money laundering is leaving large swathes of the world awash with criminality, decrepit governance, abject poverty and social dysfunction. But it does not have to be like this. It is time for a radical reset.

One problem, so many absurdities

The War on Dirty Money argues that the battle against money laundering has been made more difficult than it needs to be. Mostly through accident, it has been the consequence of both a narrowness of vision and the incremental effects of carrying on down tramlines that were originally badly set and now trap us all in keeping going in the wrong direction (although it is unwise to discount the possibility that some interests have actually found it extraordinarily beneficial, and profitable, to see this overcomplication arise, such as the providers of training courses and expensive IT solutions).

Once embarked on a course dictated by bad initial premises, we see the evolution of the anti-money laundering community’s response go increasingly awry as each attempted ‘fix’ to the system only makes things worse, more convoluted, less effective. The inability to escape from the rigidities of the initial framing has doomed the collective effort.

That the initial mistakes were made is unfortunate (but it could reasonably be argued that it was a new field and we knew so little back then). That we have not in the interim been willing to take a step back and reconsider the fundamentals is unforgivable. The War on Dirty Money is an attempt to look again at those fundamentals and propose what a reset would look like.

We will encounter many absurdities. Take, for example, Suspicious Activity Reports (SARs), the filings that banks and other financial service providers are required by law in every single country on the planet to make to a central Financial Intelligence Unit (FIU) in their country when they suspect that a transaction they are being asked to make may involve money of illicit origins. This is the backbone of the anti-money laundering defence. In the UK, for example, it has led to hundreds of thousands of reports piling up in our national repository. The reasons for this are not clear. Is it that our banks believe that there are an awful lot of suspicious transactions going on? Could it have something to do with the fact that by sending in the SAR the banks, by the simple virtue of having reported, immediately secure immunity from prosecution, however ill-founded the report turns out to be.

This creates a huge incentive to throw any questionable transaction over to the FIU. This conveniently passes the problem of digging deeper to discover the truth behind a SAR to an overstretched and poorly equipped law enforcement. The statistics show the remarkable upsurge of SARs over the past 20 years – from 14,500 in 19994 to more than 742,000 by 2020–21.5 The War on Dirty Money explores the implications of this phenomenon. To some minds it represents a tsunami of undigested information that submerges law enforcement and incapacitates the system. But could it be a golden opportunity if the right resources were in the right place?

Or take the global scrutiny mechanism – the Financial Action Task Force (FATF) – that has been set up to ensure that every country and jurisdiction abides by the same set of rules that should, if applied, create the necessary barriers and prevent dirty money slipping through the financial systems of the world. A formidable industry of reviewing national systems of all 190-odd countries (plus non-sovereign jurisdictions such as the UK’s overseas territories, many of which are substantial offshore financial centres) has grown up. The applied brain power devoted to detailed assessment of legal provisions, institutional operations and policy making is truly awe-inspiring. The resulting reports are incredibly rich in technical commentary and insight, frequently run to many hundreds of pages, and are all fully transparent, every one being published.

Yet none of this seems to change anything in the real world. Governments rarely seem to be concerned about the actual effects of dirty money on their economies or their societies. What they do worry about, immensely, is making sure that they get a good report from the FATF. Not to do so risks being placed on a watchlist of jurisdictions that are deemed not to be fully cooperating on applying the rules – the global naughty step. A consequence of being listed is that other countries might start to curtail their financial dealings with you. The vast majority of energy that is devoted to anti-money laundering has now turned to trying to pass the FATF ‘exam’, rather than to addressing the perilous effects of money laundering in the real world.

Once a review has finished – they happen every ten years or so, such is the burden of getting round to everyone who has to be reviewed – and assuming a country gets a reasonable mark, everything mostly returns to how it was, spared of further trouble from the global invigilator for another decade.

For some governments, this can be the lifeline for going back to doing just the things you were doing before. To external observers, it can prompt real questions about what world the FATF lives in. Perhaps the most egregious example in recent years is the UK’s glowing review by the FATF in 2018.6 So good was the assessment – it concluded that the UK had a stronger anti-money laundering regime than any of the 60 countries so far assessed in the current review phase – it enabled the UK Treasury to purr that ‘UK takes top spot in fight against dirty money’.7 This, the UK that in the real world had become a by-word to most anti-corruption and anti-money laundering campaigners as one of the most openly accommodating hubs for hosting dirty money from all over the globe.

The War on Dirty Money reveals many more absurdities like these that have now encrusted the anti-money laundering industry. It should make you angry. Very angry. Angry that so much effort is having so little impact; angry that few appear to be able to see this; angry, especially, because it is not hard to chart the changes that are needed to transform this mire, and they are not difficult changes to make.

Money laundering can be made to look complex, calling for sophisticated (and expensive) solutions. It has been made to appear difficult. What follows is intended to show that it does not need to be. It is a call for change, a call to action.

Not to make the attempt to change will consign many more youngsters across the world to continuing that daily journey to fetch water from a muddy ditch, and allow the Obiang Jnrs to continue to siphon off the wealth of their countries and relocate it for their personal enjoyment. I hope what follows shows that it is not impossible to stop all this.

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