The Unfulfilled Promise of the UK’s Anticorruption Innovations

When it comes to the fight against global corruption, the United Kingdom presents a paradox. On the one hand, the UK has long enjoyed a reputation as relatively “clean.” The country gets good marks on Transparency International’s Corruption Perception Index, and the Financial Action Task Force considers the UK a world leader in preventing money laundering. Yet, at the same time, the UK—and London in particular—is well-known as a popular laundromat for dirty money and a haven for kleptocrats.

It would be tempting to say that the UK cares about suppressing corruption at home but is indifferent (or worse) to how its nationals and its policies affect corruption abroad. But that is too simple, because in some respects the UK has been an innovator in the fight against transnational bribery and illicit wealth, and has often taken the lead in enacting new and more powerful anticorruption and anti-money laundering tools. Over the past dozen years, three such innovations are especially notable: the 2010 UK Bribery Act (UKBA), the 2016 legislation mandating a public registry of the beneficial owners of all private companies registered in the UK, and the 2017 Criminal Finances Act authorizing unexplained wealth orders (UWOs)—court orders that require the owners of UK assets to prove that the funds used to purchase those assets came from legitimate sources, with the assets frozen and eventually seized if the owner is unable to do so.

Yet the paradox continues: While the UK received well-deserved praise for enacting these measures, in practice all three have been far less effective than proponents hoped. The reasons for these failures are different, but they share common threads.

  • The UKBA: On paper, the UKBA is one of the world’s strongest anti-bribery laws. It outlaws public and private bribery anywhere in the world by any company or individual that does business in the UK, with no exceptions for “grease” payments. The UKBA makes it a criminal offense not only for a company to engage in bribery, but also to “fail to prevent” its employees or agents from engaging in bribery, unless the company can prove that it had in place “adequate procedures” to prevent bribery. Yet despite the UKBA’s sweeping scope, enforcement of the act has been limited and relatively disappointing. While ramping up enforcement of a new anticorruption law often takes time, UKBA cases have been falling, not rising. One of the most significant obstacles to effective enforcement of the UKBA is the chronic underfunding of the agencies responsible for enforcing it. The UK’s National Crime Agency (NCA) has a budget of approximately one-sixteenth of the US Federal Bureau of Investigation, through the UK’s population is about one-fifth of the US population. And the UK’s Serious Fraud Office (SFO), which investigates and prosecutes high-end corruption, is outspent 10 to 1 by its targets.
  • Beneficial Ownership Transparency: In 2016, when the UK became the first OECD country to enact legislation creating a public database of the beneficial owners of every private company registered in the UK, many anticorruption advocates hoped that this public registry would make it substantially harder to hide dirty money or use shell companies to facilitate other illegal activity. Unfortunately, the UK’s beneficial ownership registry, kept by Companies House, has many loopholes that allow companies to avoid reporting the natural persons who ultimately own them or benefit from them economically. Companies can declare that they lack persons of significant control, disclose an ineligible foreign company as the beneficial owner, create circular ownership structures, or declare themselves owned by anonymous offshore trust. Even worse, the information that companies submit is often grossly inaccurate, and at present Companies House “does not verify the accuracy of the information filed.” These weaknesses reflect the UK government’s failure to provide Companies House with sufficient resources to verify beneficial ownership information and to toughen the sanctions for submitting false information.
  • Unexplained Wealth Orders: In 2017, when the UK enacted the Criminal Finances Act, which authorized the NCA and SFO to apply to courts for UWOs, some commentators optimistically predicted that law enforcement would use this new mechanism to seize “hundreds” of properties from kleptocrats and other criminals. But in practice, the UWOs have fallen far short of these lofty expectations. UK law enforcement agencies have only sought UWOs in four investigations. UWO targets have resisted through protracted and expensive litigation, which has also likely contributed to investigators’ reluctance to request them. For example, when the NCA requested an order against three properties worth $100 million owned by Nurali Aliyev, grandson of former Kazakh president Nursultan Nazarbayev, the judge found the NCA had failed to adequately investigate whether Aliyev had an independent source of income and ordered the NCA to pay 1.5 million pounds in court costs. Although the NCA should have conducted a better investigation, it’s debatable whether the court was right to conclude that Aliyev’s LinkedIn profile demonstrated that he was “sufficiently independent of his parents” to purchase a $70 million London estate. And whatever the merits of the court’s decision, the Aliyev UWO shows how the high costs of investigation and failure have prevented UWOs from living up to their promise of forcing foreign political elites to reveal the sources of their wealth. 

If the above diagnoses are correct, then the solutions are relatively straightforward. The UK government should substantially increase funding for the NCA and SFO, and those agencies should allocate that increased funding to their anticorruption divisions. Parliament should pass measures to increase the penalties for submitting false or incomplete beneficial ownership information, provide Companies House with the resources it needs to validate the information it collects, and pursue those who seek to obscure company ownership. And in light of the Court of Appeal’s endorsement of the Aliyev court’s legal conclusion that UWOs’ objectives should be met through “less intrusive means” whenever possible, Parliament should encourage courts to take a more critical eye to wealth linked to corrupt regimes by relaxing the income suspicion requirement—thus allowing UWOs in cases where a property’s beneficial owner’s income “may” (rather than “would”) not have been sufficient to purchase the property. Such a change would build on the government’s pending reforms to limit law enforcement’s court costs in the event of an unsuccessful UBO application and allow for orders in cases where properties are held by complex ownership structures. 

But simply identifying the policy fixes doesn’t get at the deeper problem—or resolve the paradox of the UK’s aggressive anticorruption measures and underwhelming implementation of those measures. While each of the promising initiatives discussed here has fallen short for distinct reasons, their collective failure can be traced back to the tensions inherent in the UK’s response to globalization. The country’s leaders have long expressed a strong sense that a commitment to fair play and the rule of a law is a core value that is not only a source of the UK’s identity but its competitive edge. Such sentiments give anticorruption advocates, who derive strength from the country’s strong civil society and vocal press, a powerful tool for pushing politicians and businesses to adopt innovative anticorruption measures.

Yet the truth is that preventing corruption—whatever its benefits for the economy in the aggregate—imposes significant costs on businesses and the government. Political leaders have felt these costs acutely during a prolonged period of austerity, and Brexit has made encouraging trade and investment outside of the EU a higher priority. Combined with the broader sense that what is good for UK business is good for the economy, UK governments have not only been reluctant to spend on anticorruption enforcement measures like validating beneficial owner information and prosecuting corporate bribery, but they have also shown themselves unwilling to impose significant costs on sectors viewed as economically vital. Indeed, business elites, especially those in the oil and mining industries, have long pushed to water down anticorruption legislation. These pressures have only increased as illicit overseas cash has enriched a variety of sectors, including—but hardly limited to—financial services, law, and luxury goods. With a large and growing portion of the UK economy benefiting from dirty money and the burdens of anticorruption increasing, the government is, unsurprisingly, unwilling to expend financial and political capital to make enforcement a priority.

Ending the UK’s role as one of the chief enablers of global corruption will require convincing UK political leaders that the costs of abetting corruption—both for their political careers and their country’s economy—are far greater than the costs of anticorruption. Russia’s invasion of Ukraine, though indisputably horrific, has at least had the positive effect of drawing more attention to the UK’s role as an abettor of kleptocracy and placed enormous pressure on both business elites and the government. Indeed, Prime Minister Boris Johnson announced a crackdown on dirty money that includes bringing forward a long-delayed Economic Crime Bill that purports to address weaknesses in the identification of overseas beneficial owners. Whether this is the beginning of a more serious effort to enforce the UK’s ambitious anticorruption laws or yet another in a series of unfulfilled promises will depend on whether the public holds political leaders accountable for their country’s role in enabling corruption.

4 thoughts on “The Unfulfilled Promise of the UK’s Anticorruption Innovations

  1. I really enjoyed this piece, Justin! It smartly underscores how anti-corruption measures can be a tough ask for governments to implement precisely because of how the costs and benefits of such measures are perceived. I agree that a real commitment to anti-corruption law enforcement will depend on the public holding leaders accountable. I wonder, however, what else could trigger the UK to take these measures seriously. Do you think it could take corruption getting too out of hand? As it stands now, the corrupt practices occurring in the UK—though arguably already egregious—are just not perceived as being egregious enough for leaders to intervene seriously.

    • Sandy,

      I think that public perception has shifted in the UK since Russia invaded Ukraine. Many in the press and the governing Conservative party have expressed concerns that dirty money has undermined the integrity of UK institutions like the courts, universities, and the Conservative Party. YIn particular, there’s been a renewed push to reform libel law, which corrupt oligarchs have used to go after journalists, and many politicians are now foreswearing Russian money and connections. That said, getting to the point where democratic institutions have become so entwined with foreign corruption that there’s a public backlash is a dangerous place to be.

    • I completely agree with Sandy’s points. I think another possible barrier is the fact that many of the problems Justin articulates stem from insufficient funding. Perhaps British politicians are finding it difficult to justify to their electorates increasing funding to anticorruption efforts that have thus proven to not be successful? Perhaps the British public will see such budgetary increases as throwing money into a fire.

  2. Pingback: OTHER THINGS YOU MAY HAVE MISSED – APRIL 23 – raytodd.blog

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