Closing the UK’s economic crime enforcement gap: Proposals for boosting resources for UK law enforcement to fight economic crime.

Author: Daniel Beizsley and Susan Hawley

Read the full report here

Read the Executive Summary here

Economic crime – which includes corruption, bribery, money laundering and fraud – poses a major risk to the UK’s national security, corrupts financial institutions and markets, reduces economic performance and undermines the integrity and reputation of the UK and its economy as a safe place to do business.

Despite high-level commitments from ministers to deliver a step change in tackling economic crime and increase the number of assets recovered from criminals, the UK is currently losing the fight against economic crime. UK law enforcement capacity – an essential component of this fight – is under-resourced, over-stretched, and out-gunned.

This has serious and wide-ranging consequences. The NCA estimates that fraud alone causes losses to UK consumers, businesses and the public sector worth around £190 billion every year, and that money laundering costs the UK more than £100 billion a year. Combined together, these figures are equivalent to 14.5 % of the UK’s two trillion annual GDP.

An already critical situation is being worsened by the fraud epidemic arising out of public support measures during the COVID pandemic. The UK’s National Audit Office has found that the target for recovering funds lost to fraud in the Covid small business Bounce Back Loan scheme is just £6 million against potential losses of £5 billion. The Treasury has said it has written off £4.3 billion of £5.8 billion paid out in fraud and error under Covid support schemes including Eat Out to Help Out.

Meanwhile, a spate of investigations arising from data leaks, ranging from the Panama Papers in 2017, to the FinCen files in 2020 and most recently the Pandora Papers in 2021, have shown that the UK’s financial and property sectors continue to be major magnets for money laundering, with UK-registered companies a vehicle of choice for money launderers around the world. These leaks highlight the serious consequences for the UK’s reputation with the UK being categorised by the US Treasury as a “higher-risk jurisdiction” according to the FinCen leaks. Despite overwhelming evidence of high money-laundering risks in the UK, criminal investigations into, and prosecutions for, money laundering in the UK have been falling rather than rising.

In light of the risks posed by economic crime, and given repeated concerns raised in Parliament and the press that law enforcement is under-resourced to tackle the scale of the problem and provide real deterrent, Spotlight on Corruption has done an extensive review of law enforcement resourcing for the fight against economic crime over the past five years.

This review is timely as the UK government looks at renewing its Economic Crime Plan and Anti-Corruption Strategy in 2022, and as it works with partners such as the US through the Summit for Democracy’s year of action. The US itself has committed to “increasing law enforcement resources and bolstering information sharing between the intelligence community and law enforcement” as part of its new flagship Anti-Corruption Strategy launched at the Summit.

Our report finds that despite bringing in considerable revenue for the Exchequer, law enforcement budgets at core agencies tasked with fighting economic crime continue to suffer from real-term cuts and short-term budget allocations rather than sustained investment.  Aid cuts have impacted the ambition with which new dirty money tools such as Unexplained Wealth Orders can be used, while recruitment and retention of essential staff such as financial investigators remain elusive. Law enforcement agency performance on tackling economic crime is stalling across the board despite the welcome high-profile prosecution of NatWest bank and an increased used of some dirty money tools such as Account Freezing Orders. The current mechanism for reinvesting assets into law enforcement, the Asset Recovery Incentivsiation Scheme (ARIS) is broken.

Our report concludes that existing government proposals for funding law enforcement are not sufficient to drive the transformational change needed to keep pace with what the government recognises as a severe and growing threat. If the UK is to tackle economic crime effectively, far greater ambition about the scale of public investment needed is required.