Will the new Labour government take global action against money laundering?

With the recent landslide victory of the Labour Party in the UK elections, there is hope that a new government will pave the way for closer global coordination in the fight against money laundering, a problem with significant international dimensions, says Mike Ward, Executive Chairman of Armalytix.

Although successive governments have made progress in stamping out illicit funds, the problem remains glaring: nearly 40% of the world’s dirty money passes through London, British overseas territories and its dependencies. The anti-corruption organisation Transparency International describes the UK as a “laundromat for suspicious money”.

Compliance must be at the heart of the regulatory agenda. Until recently, it could be argued that the UK was rolling out the red carpet for kleptocrats and criminals. The new Labour government must review all areas of compliance, including financial services regulation, closer alignment with European and global regulations, etc. We need stronger cross-border cooperation and global linkages to build stronger regulatory and enforcement frameworks, as well as advanced technologies to track illicit funds. Here’s why:

Money laundering is a global activity

Money laundering is a global giant, and it is described as the third largest business in the world. Every year, it is estimated that €715 billion to €1,870 billion of GDP is tainted by money laundering activities. This represents 2 to 5% of the global gross domestic product.

Money laundering helps criminals profit from their crimes, whether it is tax evasion, drug trafficking, migrant smuggling or other.

These illegal activities impact global economic stability and trust in governments and institutions, and threaten human rights. As a result, legitimate businesses are being squeezed out and financial bubbles are forming in markets such as real estate, a hotbed of money laundering.

An exclusively national approach is not enough

In our interconnected world, a national approach to money laundering will not be enough. There are gaps within and between jurisdictions that criminals exploit, meaning some countries are particularly attractive to dirty money. Endemic money laundering impacts societies and economies. These countries do not have as many opportunities, inequality is high and resources are misused. This is why an international approach to combating money laundering is all the more important.

In the UK, we have seen improvements in the collection of information and checks carried out before financial activities such as opening a bank account. Regulation has also been strengthened. For example, the Economic Crime and Corporate Transparency Act 2023 makes companies liable if they fail to prevent their staff or a connected third party from committing an economic crime. In addition, the Economic Crime Plan 2023-2026 has set out 48 measures to reduce money laundering, tackle kleptocracy and combat fraud.
Changes have been made, but challenges remain.

For example, while the conveyancing industry has strict rules in place to verify the source of funds, mortgage lenders do not apply the same level of scrutiny to lump sum mortgage repayments.

A global problem requires a global solution

Global anti-money laundering regulations are complex and constantly evolving. Cross-border regulations often include more stringent customer checks, stricter reporting requirements, and higher fines for non-compliance. But there are still gaps. As technology becomes more sophisticated, so does money laundering.

Criminals are finding new ways to evade detection by using new technologies or exploiting regulatory weaknesses. Inconsistent anti-money laundering regulations and enforcement practices across countries provide opportunities for criminals to exploit. To close these gaps, we need better coordinated global anti-money laundering laws and standards across countries and sectors.

What does the Labour Party promise?

In response to money laundering, the Labour Party, which won the July election, announced plans to hold an international summit of “allies” to coordinate global action, as well as a live global data exchange. In addition, they are proposing a new reward system for whistleblowers, a tougher stance on sanctions and leveraging the UK’s diplomatic influence to support a new international tribunal to prosecute serious cases of international corruption, among other initiatives.

If these plans are implemented and enforced, we can strengthen international cooperation, improve transparency, and create a united front to effectively dismantle these criminal networks. Many major financial centers have similar regulations, but with their own nuances. It is therefore essential that we can work together. We need to understand data from various sources to better track illicit fund flows and shady individuals.

Harnessing technology to combat financial crime

Criminals are using advanced technologies to launder money into digital financial systems, cryptocurrencies, and more. Technology is a double-edged sword, both an enabler and a means to combat dirty money. The financial sector has relied on manual processes for too long. Banks and institutions often view controls as a back-office compliance issue and do not place enough emphasis or resources on implementing them effectively.

Additionally, many businesses lack the specialized knowledge needed to navigate a changing regulatory environment. With concerns that additional controls could hamper new customer acquisition, businesses need a solution that ensures compliance without losing revenue or leads.

The response to global money laundering sounds simple, but it is not easy. Now that Labour is in power, it must adopt a global approach that incorporates strong regulations, international cooperation and cutting-edge technology. In doing so, anti-money laundering efforts can extend beyond national borders, ensuring that every financial transaction can be scrutinised. Implementing these measures will not only protect the UK financial system, but also contribute to a fairer and more stable global economy.

By Mike Ward, Executive Chairman of Armalytix