Reuters logo
Brexit could derail UK's anti-corruption push
January 6, 2017 / 11:02 AM / 9 months ago

Brexit could derail UK's anti-corruption push

A city worker walks through the City of London with St. Andrew Undershaft church surrounded by business skyscrapers, December 16, 2014. REUTERS/Toby Melville

LONDON (Reuters Breakingviews) - Britain’s war on graft is in danger of falling at the first hurdle. At last May’s landmark anti-corruption summit in London, the government headed by then-Prime Minister David Cameron said it would present an anti-corruption strategy by the end of the year. But it didn‘t. The missed deadline potentially says something unsettling about Britain’s post-Brexit priorities.

The idea that Britain has a graft problem may come as a surprise. In the global Corruption Perceptions Index compiled by Transparency International, the UK came a creditable tenth out of 160-plus in 2015 in terms of perceived cleanliness. Britain’s judiciary and civil service are the envy of the world, and its 2010 Bribery Act acts as a check on its companies paying bungs for business abroad.

Yet this ignores London’s status as a magnet for money laundering. According to the National Crime Agency, 90 billion pounds of illicit financial flows could slosh through the UK system every year. The classic ruse is to use this kind of money to buy London property via anonymous shell companies based in overseas dependencies historically linked to the UK, like the British Virgin Islands. According to Transparency International, overseas companies own 44,022 London land titles, and 91 percent of those companies are registered in these so-called “secrecy jurisdictions”. Over half of these own real estate in Kensington & Chelsea, Westminster and Camden - the capital’s most exclusive postcodes.

The cynical approach is for Britons to shrug. In the context of London’s overall financial flows, the illicit bit is a tiny slice. Britain’s services sector, which includes real estate, wealth management and fees from setting up overseas shell companies, helps offset the country’s large trade deficit in goods, and its banks and professional services firms paid 66 billion pounds in taxes in 2015. Between the third quarter of 2008 and the first quarter of 2015, the British government granted 3,002 so-called “golden visas” - enabling eventual permanent residency if the migrant paid over 2 million pounds.

It’s hard to argue that has been in Britain’s long-term interest. Three-fifths of the golden visas went to nationals from Russia and China, both states with high corruption risks. Aside from the moral problem with welcoming individuals who might have defrauded their own states, the influx pushed up already sky-high property prices. That feeds into the inequality that is one of the perceived causes of the British vote to leave the European Union.

Under Cameron the UK started to do something about it. When rules requiring greater oversight on new migrants by obliging them to open a UK bank account were introduced in April 2015, golden visa applications dropped sharply, according to Transparency International.  Talk at last May’s summit was of introducing a public register for overseas territories so potentially corrupt owners of UK property could be identified, and joining together the patchwork of anti-money laundering supervisors into a single monitor.

Brexit could throw a spanner in the works. Were the UK government to rebrand the country as the cleanest hub for global business activity, it could actually drive business to London. But the need for the civil service to focus on how to strike a decent deal with the rest of the EU will probably mean that attention and resources are diverted away from making Britain cleaner. The resignation on Jan. 3 of Ivan Rogers, the UK’s ambassador to the EU, exacerbates a growing sense that Britain lacks sufficient expertise in the negotiating skills that will be needed to secure a workable EU exit.

Benign neglect of the fight against corruption may not even be the biggest risk. If Britain’s quixotic attempt to strike a beneficial trade deal with the 27 other member states gets off to a shaky start, the need to make new friends and forge new trade links is liable to trump everything else. Political leaders may then feel like they did in 2008, and focus on where the money is, rather than what kind of odour it gives off.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below