Katrina Gulliver

Britain’s money laundering scandal goes back a long way

Oliver Bullough links it to the Suez crisis – but the magnificent wheeze of non-domiciled tax status was an Edwardian creation

Britain’s money laundering scandal goes back a long way
Dariga Nazarbayeva, the daughter of Kazakhstan’s former president, photographed at Buckingham Palace in 2015. The NCA’s failed case against her may have doomed the UK’s entire anti-money laundering strategy. [Getty Images]
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Butler to the World: How Britain Lost and Empire and Found a Role

Oliver Bullough

Profile, pp. 288, £20

The war in Ukraine has turned a lot of people’s attention to oligarchs in the UK. How did these guys all end up in London, seemingly owning half of Belgravia? In Butler to the World, Oliver Bullough offers an answer.

I read his earlier work Moneyland slack-jawed at the blatant – and mundane – techniques employed to register UK Ltd companies through frontmen and use them to launder money. I thought the middle men would be glamorous and slick, not running a website from an office above a chip shop.

In this work Bullough looks at the bigger picture: the way Britain became the destination of choice for so many who don’t want questions asked about their wealth. He argues that Britain has pursued an attitude of light regulation at the political level, and keen enabling among financial institutions, to allow the world’s oligarchs, despots and mobsters to safely park their cash in London. He traces this situation to Britain’s need to find a new role in the world after the Suez crisis. Becoming banker (or, as he puts it, butler) to the world was a nice consolation prize after half the map ceased to be pink.

Other places, notably Switzerland, had long offered banking secrecy. What they didn’t have was the flexible and easy means to form corporations (and as Bullough describes here, Scottish Limited Partnerships) and use these to shuffle funds and disguise ownership.

It’s not clear that it was a conscious strategy at all levels so much as an absence of mind: the lack of desire to shut down Eurodollar trade or to later close offshore loopholes in British dependencies such as the Caymans and the British Virgin Islands. Partly this is due to the confusing nature of some of these angles: your average legislator’s eyes glaze over when reading about corporate structures (much like the credit-default swaps which led us to the 2008 crash). It’s also hard to write laws against people who probably have smarter lawyers than the government does.

The efforts to enforce even existing laws against money laundering are so feeble –in Bullough’s account – that one would be tempted to see this as deliberate. The National Crime Agency, instituted partly to do the kind of broad investigations that regional forces cannot, was tasked with taking on financial crime through the Unexplained Wealth Order, which does what it says on the tin. Slapped with a UWO, Ivan Oligarch has to show where his money comes from. Sounds great, in theory. In practice, the NCA still depends on knowing who to issue the order against, because most money launderers don’t put assets in their own name. Instead there are shell companies within companies, like Russian dolls, making it impossible to prove the ultimate owner.

The NCA came out of the gates with great ambitions but a tiny budget. When it went after a kleptocrat’s daughter and lost, it had to pay her expenses. As Bullough describes it:

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.

Many of Bullough’s interviewees are remarkably frank about the challenges of investigating financial crime – and the low likelihood of it being successfully prosecuted in the UK. Bullough contrasts this with the US, where the FBI and SEC have the resources to spend years building cases against shady characters.

Where the UK’s institutions do like to show that they are at least trying to do the right thing is with Suspicious Activity Reports. This system allows anyone who deals with a high roller (their lawyers, bankers, art dealers) to flag suspect transactions to the regulators. But there’s no upside for an auctioneer to report someone buying a thoroughbred with a large amount of cash (and a significant potential downside if he thinks there might be reprisals for doing so). Britain offers little protection and no rewards for whistleblowers.

The banks, on the other hand, go at it with a fury, issuing a flood of these reports, more than one per minute. This is a tsunami of red flags to the regulators, who have nowhere near the resources to look at them. Issuing a report is a way for a bank to show any later investigation that they did the right thing. They’re not doing it out of the goodness of their hearts. As Bullough notes:

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.

It means they’re flagging everything, from a multi-million pound wire transfer to buy a house to your $300 payment to secure a tee time at a golf course in Florida. The real cases are lost in this ocean of trivial reports.

Bullough is cynical, and his findings make depressing reading. I would challenge him on one point: Britain started on this path much earlier than the post-war doldrums. The magnificent wheeze that is non-domiciled tax status is an Edwardian creation, and an immigration system open for much of the 20th century to all subjects of the empire was a huge element in today’s situation. In the same way that English banks had branches, or affiliates, across all the dominions, the idea that people should put their capital in London goes back a long way. But he’s right that the whole system is built to facilitate the crooks, and takes the rest of us for mugs.