Breakingviews - Review: London is global corruption’s top offender
LONDON (Reuters Breakingviews) - In May 2016, David Cameron raised an uncomfortable topic. At an anti-corruption summit in London, the former British prime minister sat alongside Nigeriaâs president and other dignitaries and declared that money laundering was âthe cancer at the heart of so many problems we need to tackle in our worldâ. The setting was telling, as the British capital had become the location of choice for oligarchs and corporate crooks to sanitise their ill-gotten gains.
Cameronâs tough talk did little to eradicate the problem.Â In âKleptopia: How Dirty Money Is Conquering the Worldâ, Tom Burgis catalogues the shady dollars that have flowed through Swiss banks, Mayfair mansions and even the London Stock Exchange. The stranger-than-fiction tale carries the reader to Zurich, New York, China and Zimbabwe. But the main takeaway is that, without London, global financial crime would not be possible on this scale.
Burgis reckons the cityâs relationship with questionable cash traces to the fall of Britainâs empire. In its imperial heyday, London facilitated trade with the colonies. But after global power ebbed, some of the smaller outpostsÂ developed other activities. Instead of producing tobacco or tea, islands like the Bahamas provided shelter for banks and tax avoiders. The French economist Gabriel Zucman estimates $7.6 trillion ended up offshore.Â Once these hubs were up and running, a London location gave bankers close access to the money movers â and to the property market.
Awareness of the scale of the problem picked up after the 2008 financial crisis. The year that Lehman Brothers collapsed, just half of Britainâs commercial properties were registered to a named person. The houses on a North London road known as âBillionairesâ Rowâ belonged to oligarchs and a front company for former Kazakhstan President Nursultan Nazarbayev.
Other recent books like Oliver Bulloughâs âMoneylandâ have catalogued the scale of the kleptocracy. Burgis, an investigative reporter at the Financial Times, adds to the narrative by showing the human toll of stashing money in London property. When Grenfell Tower in west London went up in flames in 2017, killing 71 and leaving 250 people homeless, the local council said it did not have enough housing. Yet the district includes 2,000 homes which are mostly empty.
âKleptopiaâ also shows the at-times violent origins of the questionable cash. In 2011, oil workers in Kazakhstan went on strike when they realised their employers were only paying them half what they declared to the countryâs treasury. Police used live ammunition on the protesters, while others suffered torture. The international outrage raised uncomfortable questions for Kazakhstanâs then leader, Nazarbayev. To smooth things over before an upcoming trip to Cambridge University, former UK Prime Minister Tony Blair offered him tips on how to downplay the incident.Â
Amid the parade of villains, âKleptopiaâ features some do-gooders. Nigel Wilkins, a compliance officer at Swiss bank BSI, makes an entertaining and admirable hero. But principled individuals cannot fix the porous regulatory system that is supposed to police crooked money.
This becomes evident when Wilkins joins Britainâs Financial Conduct Authority. The watchdog is supposed to be a fiercer institution than its predecessor, which was found wanting by the financial crisis. But when Wilkins tries to show its officers how fraud happens using thousands of documents he hoarded from his time at BSI, they dismiss him.
Londonâs role in facilitating corporate crime could prove the capitalâs undoing. The financial centre has benefitted from a robust legal system, stable markets and transparent regulations. But unchecked inflows of corrupt money are undermining the institutionsÂ that made London attractive. A parliamentary committeeâs report on Russian influence in British politics, released in July, is a timely reminder of how oligarchs have converted questionable cash into political clout.
Burgis is short on practical solutions. Only the very last page of âKleptopiaâ offers suggestions for weeding out financial crime. His plea to resist âlies and bullshitâ is a start, but seems unlikely to stop warlords and oligarchs from robbing their compatriots and buying mansions in Chelsea.
London has made some progress in deterring money laundering. Authorities can use so-called unexplained wealth orders to confiscate suspect assets. Britainâs crown dependencies must now reveal the ownership of firms registered in their jurisdictions. But âKleptopiaâ is an urgent reminder that there is a lot more to do to clean up London.
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