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Ukraine: Conflict triggers accelerated approach to tackling ‘dirty’ Russian money

Ruth Green, IBA Multimedia JournalistMonday 21 March 2022

The Ukraine crisis has attracted a sharp focus on the extent to which ‘dirty’ Russian money pervades the world’s financial centres. Now, after many years of delaying, countries are rushing to boost transparency mechanisms that will help crack down on this illicit wealth.

The UK rapidly re-introduced its shelved Economic Crime Bill in response to Russia’s invasion of Ukraine. The legislation, which received royal assent on 14 March, will establish a new register listing the ultimate owners of property or land in the UK that have been purchased by overseas entities.

Given how much UK property is linked to Russian corruption – Transparency International estimates around £1.5bn has been spent in the UK by Russians with alleged connections to the Kremlin since 2016 – the register has been welcomed as a step-change in the UK’s approach to tackling illicit financial flows (IFFs) from Russia and elsewhere.

The legislation also seeks to strengthen both the enforcement of Unexplained Wealth Orders and sanctions against corrupt individuals. A draft of the bill permitted the government to exempt individuals from registering their details if it was in ‘the interests of the economic wellbeing of the United Kingdom’.

However, this loophole was robustly contested by members of the opposition and was dropped before it was fast-tracked through parliament.

‘We've struggled with political will in the past to really get these measures through,’ says Rachel Davies Teka, Head of Advocacy at Transparency International UK. ‘What's happened has hammered home the link between dirty money and national security and that includes the UK's national security. That’s why it’s so important that we end the role of the UK as a safe haven for dirty money from around the world.’

What's happened has hammered home the link between dirty money and national security and that includes the UK's national security

Rachel Davies Teka
Head of Advocacy, Transparency International UK

The UK government also pledged to introduce further legislation, which includes new powers to seize crypto assets and empower businesses to report suspected money laundering offences. There will also be reforms to protect both limited partnerships and Companies House – the UK’s official corporate register – from being exploited for economic crimes.

Davies Teka says future measures must tackle outstanding gaps in the UK’s anti-money laundering (AML) regime. ‘We just hope the government will make the most of the opportunity,’ she says, ‘not only to reform Companies House, but to tackle the enablers problem and make sure we have effective supervision.’

Lawyers, accountants and estate agents are among those criticised for being so-called ‘enablers’ of money laundering. Bill Browder, CEO of Hermitage Capital Management and a long-time proponent of stronger sanctions against Russia, says global powers must place legal obligations on such individuals to disclose details of their clients and transactions. ‘This is a really crucial detail, which could be a game-changer in terms of how effective the oligarch sanctions programme is,’ he says.

For Browder, the Ukraine conflict is a ‘reaction to 20 years of inaction’ and the failure by Western nations – particularly the UK – to tackle the scourge of Russian ‘dirty’ money. ‘Now, all of a sudden, everybody in the world is seeing the price of this lax attitude, which has emboldened and financed Putin to do terrible, terrible things,’ he says.

EU countries have strong economic ties with Ukraine and Russia and outrage over the conflict has reignited calls for the EU to take action on beneficial ownership. All EU member states were required to establish registers by January 2020, but some have still not made them publicly accessible.

On 4 March, the Financial Action Task Force (FATF) – the global money laundering and terrorist financing watchdog – announced it would require all governments to establish beneficial ownership registries ‘to prevent the misuse of legal persons for money laundering or terrorist financing’.

In a statement, the Paris-based organisation said the revised requirements followed a two-year review designed to ‘strengthen the international standards on beneficial ownership’. FATF said it was reviewing Russia’s role as a member and expressed ‘grave concern’ about the ongoing impact of the conflict.

Nicola Bonucci is the former Director for Legal Affairs for the Organisation for Economic Co-operation and Development (OECD), a member of the IBA Anti-Corruption Committee Advisory Board and a litigation partner at Paul Hastings in Paris. He agrees the situation in Ukraine could provide the push that many countries need to stop dragging their feet on beneficial ownership.

However, Bonucci stresses that registers alone will not be sufficient to tackle the scale of the challenge worldwide. ‘This will be one part of the puzzle and if you do not tackle the overall issue of financial flows from dubious origin you will not address the roots of the problem,’ he says. ‘Beneficial ownership public registries and increased accountability of gatekeepers are fine measures if they are part of a global resolve to really fight against IFFs, including asset return and compensation of the victims.’

FATF has 37 member countries and two regional organisations – the European Commission and the Gulf Cooperation Council. Some member jurisdictions, like Australia, have historically resisted calls to commit significant resources to tackle money laundering or introduce ultimate beneficial ownership. ‘Australia has been poor in this regard for many years, with suspicious money flowing into the real estate sector with little regard for AML issues,’ says Rob Wyld, a consultant at Johnson, Winter & Slattery in Sydney, and member of the IBA Anti-Corruption Committee Advisory Board.

Despite this latest push by FATF and response by other governments to Russia’s aggression in Ukraine, Wyld doubts much will change in Australia, particularly ahead of the federal election in May. ‘They may be pushed on UBO registers, but I cannot see it happening any time soon,’ he says. ‘I am not convinced any UBO register will be popular or on the political radar of any politician.’

Image: Protest banner reading 'Stop the Corrupt Money' held by a protester outside Downing Street in support of more sanctions to help Ukraine. Westminster, London UK 26 February 2022. AmaniA/Shutterstock.com

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