Poor supervision and enforcement in the London property investment market are making a haven for laundering the proceeds of crime, claims the Home Affairs Committee of MPs. It calls for much stronger supervision of agents, buyers and sellers. It also says that the key tool for detecting suspicious financial activity across the financial services sector and connected industries, such as real estate, is overloaded to the point of being “completely ineffective”.
The MPs called for the creation of a specialist ‘confiscation court’ to combat the current lack of interest and expertise in confiscation orders among prosecutors and judges. The Government should set up a dedicated, specialist court to hear complex cases featuring cross-border financial transactions, use of corporate vehicles or very high value proceeds. The committee heard from police, lawyers and others in the field such as Robert Barrington, Executive Director, Transparency International UK, and Mark Thompson, Head of Proceeds of Crime Unit, Serious Fraud Office.
In 2013 the National Audit Office (NAO) concluded that the amount of proceeds of crime actually confiscated is “paltry”, at 26 pence of every £100. As at September 2015, the total debt outstanding from confiscation orders was calculated at £1.61 billion, although this figure is problematic. Nearly a third of it represents interest and penalties for non-payment, and because of the complexities of the cases involved, confiscation orders may be made for assets that never actually existed.
Given the organised nature of many of the criminals subject to large confiscation orders, it is likely that the majority of the assets that do exist are beyond the reach of the authorities, the MPs said. There are very few incentives for criminals to either engage with the courts or to pay the money back, with many choosing to extend their prison sentences to avoid paying.
The committee called for:
– assets to be frozen simultaneously with the criminal becoming aware of the investigation for the first time – often at the time of arrest. Waiting for a conviction is far too late.
– the Asset Recovery Incentivisation Scheme (ARIS) – which it agrees with the NAO is not fit for purpose – to be overhauled
– a new formula for allocation of recovered assets which ensures that at least 10pc are returned or donated to the communities which have suffered at the hands of criminals
– collection rates to be set in the context of ‘collectable’ and ‘uncollectable’ debts: not to in any way to “wipe the slate clean”, but to allow the authorities to concentrate on debts which can be collected
– the National Crime Agency (NCA) to be made the lead agency for the recovery of criminal assets, co-ordinating and overseeing the various efforts and agencies operating at local levels. Once the NCA is established as the lead agency and is accountable as such, it is only fair that it be given the necessary resources and tools to influence performance.
– ARIS to be put under the control of the NCA to be used as a tool to resource and incentivise effective collection of criminal assets.
– Government to confiscate the passport of any criminal subject to a confiscation order, until it is paid
– non-payment of a confiscation order to be made a separate criminal offence. To enforce this no criminal should be allowed to leave prison without satisfying their confiscation order
– an immediate, radical overhaul of the systems used to track seized assets
– various databases holding information on seized assets to be merged into a single “asset recovery database” accessible to all the agencies concerned.
Chair’s comments
The Leicester Labour MP Keith Vaz, Chair of the Committee, said: “At least a hundred billion pounds, equivalent to the GDP of Ukraine, is being laundered through the UK every year. The Proceeds of Crime legislation has failed to achieve its purpose. London is a centre for money laundering, and its standing as a global financial centre is dependent on proactively and effectively tackling money laundering. Investment in London properties is a major route which tarnishes the image of the capital. Supervision of the property market is totally inadequate, and poor enforcement has laid out a welcome mat for launderers and organised criminals. The main method of reporting suspicious transactions, the ELMER system, is not fit for purpose. Designed to identify money laundering or terrorist financing, it is desperately overloaded to the point where it is now completely ineffective. Capable of managing 20,000 reports a year, it is currently burdened with 381,882. This has rendered the whole system a futile and impotent weapon in the global fight against criminal financing, with no indication from the Home Office as to when a new state of the art system will be purchased.
“The overall enforcement rate for confiscation orders is 45 per cent, but this varies enormously with the size of the confiscation order: 96pc of orders up to £1,000 but only 22pc of orders above £1m. Non-payment of a confiscation order should be a criminal offence to ensure offenders do not just see out a prison sentence to keep their ill-gotten gains, and these orders should be set by dedicated ‘confiscation courts’. There are too many agencies involved in this process, and the route from intelligence gathering to conviction should be seamless. The National Crime Agency should be given full responsibility to investigate and enforce in this area as it was originally established to do.”
