Brexit "could give the EU the opportunity to add the UK to the list" of countries that are deemed "high risk" when it comes to money laundering. This is the fear of Mr Avinash Persaud, chairman of Elara Capital Limited and emeritus professor of the Gresham College of London.
He explained his thinking in two columns: the first one published in "Economic and political weekly" on April 15th, the second one titled "London: the money laundering capital of the world" published in "Prospect magazine" on April 27th.
Experiment on shell companies
The experiment "Global Shell Games" supports his thesis.
It is explained in a study published in 2012 by three academics: Michael Findley, Assistant Professor at the University of Texas, Daniel Nielson, Associate Professor at Brigham Young University, and Jason Sharman, Professor at the Griffith University, Australia.
They tried to verify how difficult or easy it is to obtain an untraceable shell company in several countries, sending test emails to Corporate Service Providers (CSP) and classifying their answers. They concluded that it is more than three times harder to obtain a shell company in tax havens than in some developed countries, including the UK.
The case of the British Aerospace Systems
It's not hard to believe. As quoted in the study, the British arms firm BAE (British Aerospace) Systems pleaded guilty in 2010 in the case which saw it pass secret funds through a series of middle-men and shell companies incorporated in Britain and the British Virgin Islands to key Saudi officials responsible for approving massive arms purchase from BAE.
The key to avoiding money laundering would be to know the beneficial owner of the shell companies, guessed the academics. It would be established in three ways: through strong law enforcement powers, through company registries or finally through CSP. The last one seems to be the best one, according to the study, but only licensing and regulating providers, imposing on them to collect proof of identification: many countries don't do it.
EU policies
However, if it's true that the experiment showed the UK is one of the easiest countries to establish a shell company, other European countries, such as Poland and Lithuania, are easier than the UK to do it, according to the study.
Furthermore, European Union has some problems to classify the non-cooperative countries.
In January, the EU Commission draw up a blacklist of state risk of money laundering: there were eleven countries, but it was rejected by the European Parliament, requesting to be expanded and pretending EU to be more ambitious than simply copy-pasting the list of the Financial Action Task Force. Instead, there are thirty countries in the European offshore blacklist (comprehending European mini-countries Guernsey, Andorra and Monaco), but financially discreet countries were missing, such as Switzerland, the US and the UK.
Moreover, last February EU member states sent a letter to 92 countries informing them that they will be "screened" with a view to inclusion in a future blacklist of tax havens. The US seems to be among the addresses, too; not, of course, the UK which is still formally part of the EU. Something could change, above all during the difficult negotiation for the Brexit.
