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UK must strengthen economic crime laws, MPs say


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UK must strengthen economic crime laws, MPs say

The U.K. should strengthen its legal system to help fight economic crime, according to an influential group of politicians.

The Treasury Select Committee said in a report on economic crime that money laundering impacting the U.K. each year could be in the hundreds of billions of pounds.

Chaired by MP Nicky Morgan, the committee backed calls by the Serious Fraud Office to introduce changes to make it easier to hold corporations such as banks to account.

It recommended that the government set out a timetable for implementing legislation "to improve the enforcement of corporate liability for economic crime."

Companies' 'directing mind'

Under existing English law, a company can be held criminally responsible if a person who was "the directing mind and will" of the company carried out criminal acts.

But establishing which executives constituted the "directing will" of a company is often hard to accomplish, especially in large, multinational firms where day-to-day management is delegated to managers or subsidiary companies, according to the SFO. This makes it difficult to prosecute criminal behavior even if companies are the main beneficiaries of wrongdoing.

Giving evidence before the committee, Naomi Hirst, a senior campaigner at non-governmental organization Global Witness, said the system incentivized poor corporate governance that shielded a board from knowing what was going on beneath them. The Solicitor General, Robert Buckland, agreed that companies with an "exotic" management structure could avoid being held to account.

Mark Thompson, then-interim director of the SFO, told the committee that the U.K. could learn from the U.S. approach to financial crime.

"Their system relies on vicarious liability," he said.

"If an employee of a bank is involved in money laundering, the bank is pretty much liable. We do not have that here, which makes it more difficult for British regulators and prosecutors to take the same action that our American colleagues take."

The SFO said the identification doctrine should be replaced with a new principle designed to hold corporations criminally liable.

A new law would make companies guilty of an offense if a person associated with the company commits that offense intending to financially benefit the company. Furthermore, a new offense of failing to prevent economic crime should be introduced.

A similar law of failing to prevent tax evasion had proved effective, the SFO said.

However, the Solicitor General cautioned that the British public may be concerned about an approach that focuses on the corporation rather than the individual.

The role of banks

The SFO's Thompson said there were deficiencies in the way banks' anti-money laundering systems work.

"I will leave you to fill in the blanks, but it is possible that senior figures in the banks avoid being involved in some of the compliance decisions," he said. Global Witness' Hirst said bank fines for money laundering had been "too infrequent to really deter behavior."

But HSBC Holdings PLC Group Head of Financial Crime Risk Colin Bell said his bank had invested heavily in countering money laundering, spending more than $1 billion since 2015, and had been through a "transformative" process over the last five years.

MPs also warned that, after the U.K. leaves the European Union, it is likely to increase the amount of trade it does with non-EU countries, which will in turn increase opportunities for trade-based money laundering.

They also said the government must urgently consider reforms to Companies House to make it harder for criminals to set up shell companies that can be used for money laundering.

The biggest such scandal of the past two years, involving $234 billion funneled through Danske Bank A/S's Estonian branch over the seven years to 2015, saw much of the money ending up in shell companies registered in the U.K. at Companies House.

"There must be no weak areas in the U.K.'s systems for preventing economic crime," the Committee said.

"At present, Companies House presents such a weakness. The U.K. cannot extol the virtue of a public register of beneficial ownership and yet not carry out the necessary rigorous checks of the information on that register."