End London’s role as a clearing-house for dirty money

November 20, 2016


London, that great cesspool into which all the loungers and idlers of the Empire are irresistibly drained” was what Sherlock Holmes’s companion, Dr Watson, thought of the capital. Well, this week a cross-party coalition of MPs will be trying to drain the mire of its dirtiest elements.

Rocketing house prices in wealthier parts of London such as Kensington have been blamed on foreign laundered money. Photograph: Andrew Michael/Alamy

The government’s criminal finances bill, with its crackdown on unexplained foreign wealth, secretive shell companies and high-level tax evasion, is a smart attempt to end London’s culture of money-laundering. But if we are really going to stop the capital’s property being used as a reserve currency by global kleptocrats, we have to go further. For London’s historic place at the heart of the empire has endowed it with the networks and skills, from the Square Mile to Caribbean tax havens, to become one of the world’s leading hubs for the dispersal and camouflaging of dubious funds.

In the late 19th century, as the scramble for Africa extended the British empire, London’s banks and accountancy firms funnelled cash around the colonies. Joseph Chamberlain called the City “the clearing-house of the world”, financing mining in New South Wales and tea plantations in India. In EM Forster’s Howards End, Henry Wilcox is said to have the “colonial spirit” as he successfully enriches himself at the Imperial and West Africa Rubber Company. With the capital flowed the ships and steamers out of the Thames, sitting on board one of which was Joseph Conrad’s traumatised Marlow, with his Congo tales of venturing “into the heart of an immense darkness”.

The National Crime Agency says up to £90bn is laundered through the UK each year, while an estimated £120bn worth of UK property is owned by offshore shell companies. Some 75% of properties whose owners are under investigation for corruption made use of offshore corporate secrecy to hide their identities. And according to the director of the National Crime Agency, “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.”

Those assets are far too often being extracted from developing nations desperately in need of tax revenues. A century on from Heart of Darkness, the Democratic Republic of the Congo still ranks near the bottom of the UN Human Development Index, with one in seven children dead before the age of five. And, as in Conrad’s time, London’s imperial connections are helping to facilitate the exploitation of this asset-rich nation. Diamond and mineral wealth is being extracted by political elites, funnelled via London to old remnants of empire in the overseas territories, then repatriated via Kensington townhouses back to the UK. Our financial, accountancy and property agents are the beneficiaries, the people of the DRC and househunters of London the losers.

A century on from Heart of Darkness, one in seven children is still dying in the Democratic Republic of the Congo before the age of five, says the UN. Photograph: Eduardo Soteras/AFP/Getty Images

When the Panama Papers revealed the extent of global tax haven exploitation, the government responded with the criminal finances bill. It introduces unexplained wealth orders to unearth the sources of suspect assets, gives crime agencies more time to investigate complex networks behind shell companies and goes after companies that assist with criminally facilitating tax evasion. I want to do more, with amendments that urge the publication of a list of UK property held by foreign companies so we can find out the real owners. We need companies convicted of a failure to prevent tax evasion to be excluded from public procurement. And I am supporting an annual parliamentary report on unexplained wealth orders so we create a culture change at the top of government.

We are told that much of London’s success is because of its unimpeachable legal system and absence of corruption. But that is no good if, under the banner of the rule of law, we are also aiding and abetting exploitation.

In Surrey mansions and Mayfair sit the lost wealth, the never-built hospitals and unopened schools of too many developing nations. London still houses the loungers and idlers of empire, growing rich from the spoils of exploitation. It is time today’s Sherlocks had the tools they need to straighten out the City’s finances.

https://www.theguardian.com/commentisfree/2016/nov/20/london-property-dirty-money-clearing-house-property-market