London's dirty secret

Crooks can launder money through trusts and companies

Almost every economic crime involves misuse of corporate entities, according to the Organisation for Economic Co-operation and Development. And shell companies and trusts are ideal for spiriting away the proceeds of crime, because they can conceal the identity of those who own the assets. A report from Transparency International (UK) says that failure to regulate operators of companies and trusts has made London a haven for money-launderers.

The report emphasises that most companies and trusts are used for legitimate purposes. But London is attractive to those who wish to conceal ill-gotten gains, because trust law was an English invention and company directors can be other companies. Legal and accountancy expertise developed over the years in operating such entities can be used to help money-launderers retain control of assets while preserving their anonymity.

The risk has been recognised by the government, which has brought company and trust service providers within the scope of the money-laundering regulations. But it has gone further with UK Crown dependencies such as the Channel Islands and Isle of Man and British Overseas Territories in the Caribbean. These offshore financial centres have been forced to regulate operators by licensing them, imposing standards and enforcing rules.

However, there are no plans for similar regulation onshore in Britain. Some operators are regulated by professional bodies such as the Law Society which have other more pressing demands on their resources; others are unsupervised. In either case, operators that facilitate money-laundering are likely to be detected only if an investigation uncovers their activities.

Attempts to curb money-laundering have gathered pace internationally in recent years, spurred on by campaigns to cut off funding for terrorism. Yet the International Monetary Fund estimates that more than $500bn is laundered through the global financial system every year. Official estimates put the UK share at ₤25bn ($46bn) a year.

Much has been done in Britain to tighten up on dirty money, often imposing excessive bureaucracy on financial transactions. Yet the failure to regulate company and trust service operators leaves a huge gap that has attracted money-launderers to London.

And the suspicion remains that the British authorities are less willing to crack down on money-launderers than other financial centres. No one, for example, has been named or prosecuted for handling the $1.3bn laundered through 23 London banks during the 1990s by the family and friends of General Sani Abacha, the former Nigerian dictator.

The government has imposed tough regulation of company and trust service operators on smaller offshore centres while neglecting to apply the same standards at home. It should now remedy that neglect by bringing such operators under the regulatory scrutiny of the Financial Services Authority.