Europe

“It’s about time we took this seriously” – RUSI financial crime expert on tackling dirty money

“First of all, it should be said that it’s not an original idea because it was a point that was emphasised by the European Commission President Ursula von der Leyen in her State of the Union address in September.

“In any case, I think that for many years in Europe, when we thought about ‘dirty money’ we thought about criminal money coming from non-state actors, organised crime groups and and terrorists.

“But, of course, in recent months we’ve had very clear indications that money coming into the European Union is not only coming in for the purpose of crime but also to try and undermine our democracy, to sway elections, to buy influence.

“She warned about it, the US State Department warned about it and I think it’s about time we took this seriously.”

You mentioned that the European Commission has already highlighted the issue, but from what you were saying at your lecture in Prague there still seems to be a long way to go. Could you perhaps compare the approach of Brussels and the wider EU to that of the English speaking countries? Is it better, or worse? And where are the relevant gaps?

“Well, after 9/11, the United States, which really took the leadership on this thing, realised that the financial system was vulnerable to abuse by bad actors. At that particular time the really big concern was of course Al-Qaeda.

“What we don’t really have is a system that’s sitting there thinking: ‘How can money, which may seem clean, be used for bad in our countries.’”

“The Americans have, I think, understood for a long time that finance can be used as a tool to do bad things. They and other Western countries use finance to curry favour around the world all the time.

“I think what we’ve had a late wakeup call to this in the EU. The EU has generally always been late on money matters when it comes to security, for a long time.

“For example, for many years in the EU, people thought that money laundering and criminal finance was a problem exclusive to the Anglosphere. You know, that money laundering happened in London and involved banks such as HSBC. That there was nothing like that to see in the EU.

“Then we got scandals such as that involving Danske Bank in Estonia, which had hundreds of billions of euros being laundered from former Soviet states through Estonia into the European financial system.

“Therefore, I think that countries that have a more security minded focus on the way they run themselves, like the UK or the US, are more alive to this issue than perhaps the EU.

“Of course the EU is made up of 27 member states and each country will have its own approach. The Italians, for example, having lived through years and years of the Mafia, are very smart when it comes to thinking about money. Other countries that haven’t faced these challenges perhaps less so.”

And what about countries like the Czech Republic? What is its relevance in this respect?

“The Czech Republic is obviously currently holding the EU presidency. The European Union is clearly a force in the world. It is a massive financial centre and a massive trading partner and Czechia is a part of consensus building within the EU. The Czech Republic has a voice there, as any other country does, so I think that’s important.

“Also, I think that countries which have been through the kind of transition that Czechia or  the Baltic States experienced can act as an example. I am sure that there are lessons that the Czech public has had to learn from when it comes to money laundering and capitalism in recent years. We should learn from these too.

“Places like the UK, France and Germany have kind of been doing things the same way for years and years. In Czechia there have been rapid developments. Laws and legislation had to be developed in order to be able to enter the European Union. It is interesting to see how they have gotten on with implementing them and what asssociated resource challenges they face.

“One of the things to do is to try and incentivise the private sector to look at their business as more than just a profit making entity.”

“Based off the engagements that we’ve had here, I think that there certainly is a lot of really useful thinking that is going on in this country. We had a meeting [last Wednesday] which just blew my mind. You had 10 people around the table with hundreds of ideas. It’s a young and vibrant society and I think that helps create a moment in time when you can get things right. However, it is also the moment when things can go wrong because you are in your teenage years as a democratic society.

“I would therefore encourage those in Czech civil society to go to Brussels, share their experiences and bring in new thinking into an environment which has gotten a bit stale.”

During the Czech EU presidency, have you noticed any proposals or anything coming from the Czech side that was addressed specifically to this issue?

“No. But I haven’t been looking closely.”

Where does the Centre for Financial Crime and Security Studies come into this? What is your role?

“We are a research programme and a defence and security think-tank. We were founded eight years ago.

“What we really look at are the policies that countries have in place to try and ensure the integrity of their financial system. Finance is complex and always developing. Think of new payment methods that you might have on your iPhone for example. We therefore need to make sure that policies stay up to date.

“We don’t do investigations. We enjoy using the investigative work of journalistic organisations. However, we take this information and we argue to policy makers: ‘There are gaps. You need to fill them and this is how we suggest you do it.’”

Could you explain how the international system for combating money laundering and illicit finance works? What are the chief institutions that we have?

“At the heart of it is an organisation that very few people have heard of, but it is incredibly powerful, and that is the Financial Action Task Force (FATF). It is a body made up of 37 member states plus the European Union and the Gulf Cooperation Council. The Czech Republic is a member of a subsidiary organisation of the FATF [see MONEYVAL], but the FATF nevertheless sets these standards around the world.

“It is the reason why when you go to the bank and say: ‘I want to transfer a large amount of money.’ They say: ‘Hang on a minute. Can I see your ID, your proof of address,’ and all that sort of bureaucracy.

“What it has tried to do in the years since it was founded in 1989 is lay down minimum standards that countries should adhere to. So it has built this architecture that a country must for example have a financial intelligence unit which collects information from banks on suspicious transactions.

“But all of this architecture was predicated on identifying criminal finance. The FATF grew out of a desire by the Americans and others to combat money related to narco traffickers from Latin America in the 1980s. What we don’t really have is a system that’s sitting there thinking: ‘How can money, which may seem clean, be used for bad in our countries.’”

As far as I understand, this is an international problem that needs to be approached in a global way because in today’s world it is so easy to transfer money through countries, so this is an issue not just on the level of the EU or the US. Is such a global approach to this problem realistic in our contemporary world, which we hear is becoming more multi-polar? Could the Western world enforce relevant rules in this case?

“We need to be thinking of ways to level the playing field between the corrupt individual or kleptocrat and the state.”

“Well, until the 24th of February [the date of this Russia’s invasion of Ukraine] the FATF was a remarkably collaborative organisation. By this I mean that the system was remarkably collaborative. You had China, Russia, the United States, the UK, the EU, Brazil and Saudi Arabia all sitting at the same table and basically all driving in the same direction, trying to squeeze dirty money out of the financial system.

“The FATF has been challenged since February because Russia is extremely influential within it. The FATF hasn’t thrown Russia out, but it has basically excluded it from decision making. It is therefore interesting that, despite the fragmentation of politics around the world, there is actually a reasonably consistent view of objectives when it comes to fighting financial crime. Since February, apart from Russia being excluded from the FATF, that seems to have held.

“But again, the FATF is looking for criminal money, not money that is being used to influence. So the FATF has, for example, no view on the way in which China may be currying favour around the world by building ports, roads and railways because that’s not a criminal issue. However, it certainly is a matter of geopolitics that we should be concerned about.”

So tell me, if we were to use geopolitical tools, how exactly would it work? For example, in terms of motivating banking institutions to be more active in this regard.

“In regards to solving this or moving us forward, we have been going down a very similar road for the past 30 years and we have made some progress. That said, we certainly need some new ideas, some out of the box thinking to use the cliché.

“One of the things to do is to try and incentivise the private sector to look at their business as more than just a profit making entity. After all, they are the ones that are moving the money. They are the gatekeepers to the financial system.

“I am not suggesting that we should securitise the financial system. It is already the case that banks and others have legal obligations to keep a look out for suspicious activity and if they identify anything suspicious they are required by law to report that to a national financial intelligence unit. However, banks are obviously all-seeing-eyes in many ways.

“You mentioned the importance of working across borders. If you think about a big bank, or most banks in fact, they operate internationally and can really see far further and identify greater patterns than a government which is just looking within its own borders.

“Therefore, one of the things I think that we really need to reinforce to banks is that as part of their governance and as part of them trying to contribute to the good of society, not just as relates to environmental and social issues, they should also have a security and anti-crime element to their strategies.”

Could you give us an idea of some of the specific new tools that are being developed to combat financial crime?

“If we look at the United Kingdom, which has really struggled to get its arms around dirty money in recent years, there is some innovative thinking.

“For example, if somebody owns a huge house, a casino, hotel or mansion in France, whatever it might be, authorities in the UK now have the right to come to them and say: ‘Excuse me, but I don’t think a 27-year-old man could afford to own this property, so could you please prove to me where the money came from?’

“You are thus very crudely placing the burden of proof onto the individual who owns the property. If they can’t prove it to your satisfaction, and of course there still are lots of [related] legal protections, then the state deems that property to have been purchased with illicit wealth and can seize it at the end of the process.

“Now that sounds quite draconian, but I think that we need to be looking at the challenges in front of us. These often include things such as who owns properties. We need to be thinking of ways to level the playing field between the corrupt individual or kleptocrat and the state.”

You have already mentioned Russia’s full-scale invasion of Ukraine earlier this year and the response that came after, including largescale sanctions and the freezing of Russian assets. Public opinion and politicians were in favour of implementing a tough response. Does this also give you more leverage when it comes to pushing through those new tools to combat dirty money? In other words, are we in a situation where things are really going to start changing now?

“I think that in many countries February 24th was a wakeup call. In the think tank world, and I imagine that in the lobbying world as well, you always have policy ideas bubbling on the stove and are waiting for when they will have their moment in the sun.

“Taking the UK but also other countries as an example, I think that everyone has felt for quite some time that the standards applied to combating illicit finance have not been what they should be. However, there has never really been the parliamentary time, nor the time to debate new related laws until it suddenly became clear that dirty money was something that needed to be addressed.

“The war in Ukraine shone a very harsh light on that. You thus saw laws on sanctions and money laundering being updated in many countries in very short order – in March, April and May. All of these things that people had been talking about for ages suddenly happened.

“So yes. There is an opportunity for us to drive forward an agenda on illicit finance as a result, very unfortunately, of the Russian war on Ukraine.”

As a think tanker and someone who probably talks a lot to members of the policy community, do you sense that politicians are now actually really willing to listen and do something?

“It is a cross party issue. I think that is the first thing to say. You very rarely find politicians who object to stronger penalties against criminals or people who are threatening national security.

“There is an opportunity for us to drive forward an agenda on illicit finance as a result…of the Russian war on Ukraine.”

“I think that the challenge in all of this is finding the ‘air time’ to deal with this issue when there are competing challenges like the cost of living crisis for politicians to deal with.

“I think that the critical element in all of this is the movement of citizens, journalists and civil society that basically makes it impossible for politicians to neglect the issue. They know they should deal with it and they are going to deal with the thing that people shout most loudly about.

“Right now, in many countries, people are concerned about cost of living, cost of gas and all of those sorts of things. Therefore, the idea that there are people making money and profiting from crime and corruption is of course abhorrent in the best of times. But, right now, it really does matter.

“You saw through some of the leaks and scandals that have come out of investigative reporting, that it was unacceptable for the population that a prime minister or president has wealth tucked away and nobody knows about it. When the next election comes round, they lose their seats, so I think citizens have a really important role to play in all of this.”

If you had to rank the relevance of your work among all of the other issues that we are facing globally, whether it be the environmental crisis, the possible splitting of the world into competing blocs, etc. Where does the fight against dirty money rank among these challenges?

“I would argue, and it is of course partly my job to do this, that money, or dirty money, is a thread that runs through pretty much any security issue you might consider.

“The reason why we call our programme the ‘Centre for Financial Crime and Security Studies’ is because we wanted to make it clear that what interests us is how dirty money can impact security. It appears everywhere and the challenge in all of this is how do you prioritise it?

“For example, at RUSI we have an organised crime team. The woman who runs it, she cares about the ‘stuff’ – the drugs, the ivory or whatever it might be. Meanwhile, my team cares about the money related to that ‘stuff’. It is two sides of the same coin. It’s more complex to investigate financial crime than it is to investigate someone who has ivory in their car when you’re investigating wildlife trafficking for example.

“That’s why I think that having a focus on the financial dimension is critical because it can help you understand whichever challenge you want to prioritise in your country, or in your part of the world. Understanding the money related to that challenge can actually help you advance your fight against that threat.”

https://english.radio.cz/its-about-time-we-took-seriously-rusi-financial-crime-expert-tackling-dirty-8768339 “It’s about time we took this seriously” – RUSI financial crime expert on tackling dirty money

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