Case Studies

Economic crime levy

by Mark Rowe

Something you may have missed in the Budget 2020 in March, as the Chancellor Rishi Sunak delivered it ‘against the backdrop of the global outbreak of Covid-19’, as the Treasury put it. The UK Government proposed an economic crime levy.

According to the Treasury, the levy would ‘safeguard the UK’s global reputation as a safe and transparent place to conduct business’. A consultation on what the levy would look like – who would have to pay what – duly ran from July to October. The aim; to raise £100m a year from companies regulated for anti-money laundering (AML) purposes. In the HM Treasury consultation document, economic crime was defined as ‘fraud, money laundering, terrorist financing and bribery and corruption’. How much of such crime is in the UK is unknown, but an estimate of ‘serious and organised’ crime is £37 billion a year.

As for the official view, in a letter to the Treasury Committee – echoing other Government statements about the covid-19 track and trace regime and other British institutions as ‘world-leading’ – Home Office minister James Brokenshire described the UK as ‘a global leader in tackling economic crime, with some of the toughest regulations in the world’; and any changes are explained in terms of doing ‘yet more’.

The levy consultation admitted the need for a ‘public-private partnership’: “The private sector is the first line of defence and spends substantial sums to prevent economic crime.” The private sector – notably the banks – holds the data ‘that enables law enforcement to pursue economic crime’. All is not well; for example in the Suspicious Activity Reports (SARs) regime, sent by banks, typically, to the authorities. At the London Fraud Forum conference in mid-October, the Government’s anti-corruption champion, the Conservative MP John Penrose, admitted the need for fewer reports coming out of banks; but as for such professionals as estate agents, lawyers and accountants, ‘we are not getting nearly enough from them’. In other words, banks – to comply with AML regulations – swamp the authorities with reports, while professions that may enable criminals to launder ‘dirty’ money into property and high-value goods are not co-operating, whether out of ignorance or because they turn a blind eye. The AML rules also cover casinos, the art market, and ‘crypto asset providers’.

(For an example of a cyber-crime money laundering case, visit the NCA website.)

Penrose, and the consultation document, separately also mentioned ‘Companies House reform’. Penrose spoke of better disclosure, so that suppliers checking the register at Companies House can see who is ‘the ultimate controlling mind’ behind a company – ‘somebody with a pulse’ as he vividly put it, rather than hiding behind shell companies. As that implied, however, and as the consultation about Companies House in 2019 implied, there is a need for better exchange of intelligence between Companies House and the police; and to better prevent misuse of the data, for example protecting personal information on the register, and more legal powers to check the data.

The principle of businesses paying more is already there; the levy consultation noted that six big firms volunteered £6.5m towards ‘SARs reform’ last year; that compares with some 90,000 businesses in what the consultation called ‘the AML-regulated sector’. If the levy comes in, it would start in 2022. And it would be for keeps; whereas income tax famously was supposed to be temporary (to pay for wars against Napoleon), this levy is described as ‘enduring and long-term’.

What would the money go towards? It would ‘tackle money laundering’; and significantly the consultation feels the need to state that the money ‘will not be diverted’. What if there’s an under-spend one year? The Government ‘is of the view that funds should be spent on government action tackling money laundering which is not necessarily new’; which might mean for example advertising campaigns. An ‘uplift’, to use the popular jargon, for example more financial investigators; ‘more efficient and flexible IT portals’ for reporting of ‘suspicious activity’; and more for the National Economic Crime Centre, part of the National Crime Agency, formed in 2017 at the same time as John Penrose was named anti-corruption champion. As all this implies, work against fraud is not only about collaring culprits but about, to quote the consultation, the ‘latest data science to process and exploit data, identifying patterns and links’.

How should the levy fall on a business? According to the number of employees, revenue, profit, a flat charge, or number of SARs submitted (which might however give firms an incentive not to report)? There’s no ideal way, the document admits (‘no metric can satisfy all the levy principles’). That said, the consultation document proposes revenue from UK business as the basis for the levy calculation. That’s admittedly not ideal; for example a company’s revenue is not the same as its money laundering risk; and part of the reason for the levy is that those firms ‘that bring economic crime risk into the UK’s financial system’, in other words that suffer most from fraud and stand to gain most, ought to pay more. As that implies, part of the work against fraud is to measure it; except that the document admits the data isn’t ‘granular enough’. The document proposes that smaller businesses are exempt (the threshold, too, to be set).

As a further sign of how complicated such a levy will be to collect, and of how widespread the fraud risk is, the Financial Conduct Authority (FCA), HM Revenue and Customs, and the Gambling Commission, and regulatory bodies for lawyers, accountants and so on could play a part. Also, as the consultation admits, this might be merely a ‘zero sum game’; that banks pay the levy only to cut what they spend on countering fraud already. As a sign of the authorities’ ignorance of the fraud landscape, the document admits ‘we are keen to understand the existing baseline’ of what the private sector spends on counter-fraud. However, co-operating with the authorities could be costly, as the document speaks of ‘what additional financial support sectors could offer’.

The Treasury Committee of MPs meanwhile has launched a new inquiry, covering anti-money laundering systems and the sanctions regime; frauds emerging as a result of coronavirus; and Authorised Push Payment Fraud. Mel Stride MP, Chair of the Committee, said: “The previous Committee made a series of recommendations on the UK’s effort to combat money laundering and what can be done to prevent consumers from being victims of economic crime. The current Committee will now examine what progress supervisors, law enforcement and the Government has made in these areas.

“It’s important that the relevant bodies are held to account and scrutinised effectively to ensure that the UK is a clean place to do business and that consumers are protected from economic crime.”

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