In the aftermath of the 2008 financial crisis, income inequality became a key talking point for politicians who vowed to crack down on the financial fraud and international corruption that was feeding it. Since 2008, income inequality has grown amidst underfunded regulatory bodies and the release of Panama Papers, Paradise Papers, FinCEN Files (among others) revealed that corruption continues to thrive and be profitable with impunity, as long as you can afford it.
(photo source: Flickr)
In reaction to the explicit evidence showing high-profile corruption flourishing in secret offshore accounts, the UK government again decided to make a high profile gesture to the public by introducing the Unexplained Wealth Order (UWO) in 2017 which was meant to be a powerful and far-reaching tool to punish the billions of pounds which is laundered into the UK via secretive offshore accounts, often from some of the poorest countries in the world and/or the proceeds of illegal activities.
Since 2017, there has been one successful prosecution using the UWO in 2020, arguably a low hanging fruit – Mansoor Mahmood Hussain – who could have likely been prosecuted for other criminal charges, making the UWO more of a symbolic gesture in fulfilling its self-proclaimed role of prosecuting ‘politically exposed persons’.
This single successful prosecution is especially surprising given findings from Transparency International in 2019 who found hundreds of cases of “corrupt foreign officials” investing embezzled funds in lucrative London properties. In the only other attempt to make use of the UWO for it’s intended purpose, the high-profile prosecution of Zamira Hajiyeva had it’s hard won conviction overturned on appeal in London’s High court, where the presiding Justice Lang concluded that:
“The use of complex offshore corporate structures or trusts is not, without more, a ground for believing that they have been set up, or are being used, for wrongful purposes, such as money laundering. There are lawful reasons – privacy, security, tax mitigation – why very wealthy people invest their capital in complex offshore corporate structures or trusts. Of course, such structures may also be used to disguise money laundering, but there must be some additional evidential basis for such a belief, going beyond the complex structures used.”
In short, the court’s decision was, as long as you do a good job of hiding your illegal proceeds in highly secretive tax havens, you can get away with it. Moreover, offshore accounts were justified by the court on the grounds that some very wealthy people need to have secret offshore accounts to ensure their ‘privacy’ and to ‘mitigate’ tax. In laymen’s terms, this may otherwise be interpreted as accounts being necessary to allow wealthy individuals top hide money and to avoid paying taxes (something that people of all income classes may also need?). The challenge here comes with interpretation – some reasonable people might regard Justice Lang’s justification for overturning the conviction as the reason why offshore accounts should, at least, be persuaded to become fully transparent about control of their registered companies so that successful prosecution is possible where it is warranted and justified. The current UWO system is akin to telling a homicide investigator to solve a murder but the crime scene is off limits.
This brings us to the 2020 Luanda Leeks which revealed how Isabel Dos Santos managed to accumulate $3.5 billion in wealth in a “textbook case of how to loot a country” (Forbes, 2021). As the daughter of Angola’s long-time kleptokratic leader, Dos Santos accumulated her fortune on the backs of one of the most poverty-stricken countries in the world, moving that wealth into secret offshore companies which eventually ‘invested’ it in luxury London properties, private island, yachts and equity in financial sector entities across the globe. That this incredible wealth was stolen was implicitly known throughout Angola and beyond for many years but was made explicitly clear with the release of the Luanda Leeks in early 2020. In the aftermath, Dos Santos has had assets frozen in the Netherlands (another renowned tax haven), Portugal and Angola. Fortunately, London and Dubai have been more welcoming, where she freely travels between her multimillion pound mansion and private island.
At the heart of all of this is a highly perceptible divergence between what the public learns from detailed investigations from nonprofit institutions like ICIJ, Transparency International, Finance Uncovered, and OCCRP, among others) and what the government actually accomplishes when it comes to successfully prosecuting and deterring this behaviour in a country that prizes itself on leadership and standing up for values. This is especially discouraging given the long list of convincing investigations carried out by these organizations suggesting that London remains one of the most attractive places for corrupt money stolen from some of the world poorest countries. So far, the government has talked alot and accomplished little, despite the hard work of talented and dedicated government auditors, lawyers, and regulators who work with a tiny fraction of the resources available to high wealth individuals they are up against.
The evidence from these investigations suggests that the case of Isabel Dos Santos is a drop in the ocean but is also an important test of the effectiveness of initiatives like the UWO to show the public that the government is doing something meaningful that generates real results in the eye of voters who do not wish to be a complacent host country for international criminals. It is equally important that UWO type instrument do not become political or media driven witch hunts but, in order to distinguish between fraudulent and legitimate wealth using due process, regulators must, at a minimum, have the power to clearly trace wealth back to its sources. This requires co-operations from offshore firms who continue to enjoy impressive levels of leniency when it comes to keeping big secrets.
Solving the problem of international fraud and corruption is not an easy task but nor is it rocket science. The technological advances and fast paced innovations that have accompanied to Covid pandemic have demonstrated that important problems can produce relatively fast and meaningful solutions when there is sufficient political incentive to do so (in under a year, a vaccine was discovered, tested and manufactured). Moreover, the UK Government has been able to quickly and effectively pass and enforce new laws forcing residents to stay at home, most recently handing out nearly 13,000 pound in fines to teenagers attending a party (800 pounds each). Meanwhile, offshore accounts held in the Ilse of Man have been given a generous deadline of 2023 to make the small gesture of revealing who controls companies registered there.
The question we need to ask our political representative then becomes ‘how can government be so effective at enforcing logistically complicated lockdowns for a country of 67 million people but be so ineffective when it comes to making small inroads in the fight against international corruption being facilitated by a Crown dependency of 85 thousand people?’. While it will require additional resources along with more pressure and cooperation, the magic bullet here is political will. At the moment, the evidence seems to suggest that the executive, legislature, and judiciary have yet to find that magic bullet and show the rest of the world that this is a country that stands up for it’s values in actions as much as it does in it’s words.
Dr. Mike Seiferling 