Oral evidence: Proceeds of crime, HC 771Tuesday 3 May 2016

Oral evidence, 3 May 2016.

Witness

Bill Browder, Founder and Chief Executive, Hermitage Capital Management, gave evidence.

Chair

We resume the hearing with our second witness for today, Mr Bill Browder. Thank you very much for coming in to give evidence to the Committee today. Mr Browder, during our evidence, which we have received from various different sources, agencies and others, we have been told that illicit funds, criminal funds, are at the moment still being put into and taken out of the City of London. Do you think that that is the case?

Bill Browder

Yes, it is very much the case, and thank you for inviting me here to share my thoughts and my testimony. I have a personal story that touches on the heart of the matters that you are looking at today. It is a story of a terrible crime, the proceeds of that terrible crime, the proceeds of that terrible crime coming to London and a total lack of enforcement once it has come to London. If you will allow me, I would like to tell you the story of that crime and how it evolved and came here.

Chair

Only very briefly, because I think we are familiar with it, so in a potted version.

Bill Browder

Sure. The crime comes back to the murder of my lawyer, Sergei Magnitsky, in Russia. He discovered the theft of $230 million of taxes, that we paid, by Russian Government officials and organised criminals. He was arrested after he exposed it, put in jail, tortured for 358 days and killed by a group of people in this criminal organisation. We have been fighting to get justice for Sergei. There was no justice possible in Russia so we looked for where the money went around the world. We have spent six years investigating and we found that the money went to many countries and every time we find it going to a country we file a criminal complaint with the law enforcement authorities of those countries. 11 countries have opened criminal cases, more than $40 million has been seized by the United States, Switzerland, France, Monaco, Luxemburg, Lithuania, and we have recently discovered $30 million from this crime coming here to the UK.

Chair

What has happened once you discovered the money had come into the United Kingdom, presumably through the banking system?

Bill Browder

Let me tell you who the money belongs to. It belongs to a man named Dmitry Klyuev who is head of the Klyuev organised crime group, which is the mastermind of this organisation and he is the money launderer. He has two companies, Altem and Zibar, and both those companies wired money into the UK, and let me give you some examples of things that he—

Chair

But this is through the banking system? You say wired to the UK.

Bill Browder

The money flowed into 12 UK banks. It flowed to Barclays, HSBC, NatWest, Bank of Scotland, JP Morgan Chase, Handelsbanken, RBS, Citibank, Bank of America, Lloyds TSB, Bank of Tokyo and one other one.

Chair

Have you brought these matters to the attention of the British authorities, to the Serious Fraud Office, through the Home Office to the Government? Do they know about what you have just told this Committee?

Bill Browder

Over the course of five years we have filed six complaints. We filed a complaint with the Metropolitan Police in 2010 to investigate the Klyuev organised crime group. Their response to us was that the responsibility to investigate the fraud does not lie within the Metropolitan Police Service. We filed a complaint in 2012 with SOCA. They wrote back to us saying that they are not the appropriate body for the job. We filed a complaint with the Serious Fraud Office in 2012 to investigate this crime. They say matters do not fall within the offences that the Serious Fraud Office is permitted to investigate.

Chair

Basically what you are saying is that when you went to a Government agency about this very serious crime that you say has been committed, each one of them said it was not in their remit. Some may have referred you to other organisations but nobody picked up the baton and tried to do something about it. Is that what you are saying?

Bill Browder

I am saying that every single time we have filed a complaint nobody has responded. They have always found excuses not to investigate.

Chair

Do you think this is deliberate? Do you think someone is telling them not to do so or is it just the fact that they do not believe they have jurisdiction?

Bill Browder

It is very odd, because we have taken this information and shared it. It is not like the information is not good or, I should say, not reliable, because 11 other countries have chosen to investigate. Then the question is what is wrong here.

Chair

What is your view as to why the authorities of the United Kingdom have not pursued this?

Bill Browder

I think that this country is levitating off the flow of dirty money. If that money was stopped certain people would find themselves without businesses and I think those people have some political weight in this country.

Chair

It is a very serious charge that you make today.

Bill Browder

I can’t explain it any other way. I have been to France and I am working very intimately with the French police and the Department of Justice; I am working with the Luxemburg police. Why is it so hard that the British authorities—and I am not talking about one agency and I am not talking about one complaint, I am talking about every different agency in this country.

Chair

You have never received an adequate response from any of them as to why matters have not progressed?

Bill Browder

Let me read you the response I had last year from the National Crime Agency. They say, “A domestic criminal investigation relating to money laundering in the UK in our case is not the most effective way forward”. What is the implication, that not investigating is the most effective way forward?

Chair

What you would like to see is not just an investigation into this particular case. The Committee is also interested in the process in other cases. Would you like to see one body that deals with just money laundering? You have been to quite a few agencies there.

Bill Browder

It is not a question of the bodies that do it. It is a question of the motivation to do it and I think there are couple of problems here. One is that there is a general political feeling that you don’t want to rock the boat. There is also a technical problem.

Chair

Do you think there is a political feeling that you don’t want to rock the boat?

Bill Browder

Yes, I think there is a political feeling.

Chair

Given what the Prime Minister and the Government have said in relation to Russia that sounds very odd, because they seem to be quite hard on the Russian Government and the Russian authorities, do they not?

Bill Browder

No, they are not at all. Again where the rubber meets the road, I have personal experience. In the case of Sergei Magnitsky we have gone to America and had a law passed in his name, called the Magnitsky Act, that imposes visa sanctions and asset freezes on the people who killed him. I am a British citizen and I have lived here for 26 years. I have asked the British Government, the British Parliament has called on the Backbench Committee of the Government to impose a UK Magnitsky Act, and they refuse to do it, no sanctions, allowing the Russian torturers and murderers to come here freely. Up until now the Prime Minister has refused to do that. I do not call that being tough on Russia.

Chair

One of the reasons why we are holding this inquiry is to look at the problems that are in existence. How many people do you think are involved in this activity in Russia and what is the total figure of illicit money that we are talking about entering the United Kingdom, and London in particular? It is an estimate; obviously you don’t have absolute evidence.

Bill Browder

This is not what I study, but I would argue that we are talking about hundreds of billions of dollars, not from this crime specifically. For this crime we have traced $30 million but this crime that—

Chair

Hundreds of billions of dollars of illicit money are entering the United Kingdom, presumably specifically through the City of London?

Bill Browder

Absolutely.

Chair

What do they spend their money on? Is it property, as we have heard earlier?

Bill Browder

I have very specific examples. Let me give you a few, because I think it is quite telling.

Chair

Yes, please.

Bill Browder

This Dmitry Klyuev character who is head of the Klyuev organised crime group, his company has sent 176,000 to Oxygen Aviation for private jet chartering and192,000 to HB Interiors for yacht and home interior design in Chelsea. Here is 20,000 for the tuition at Queen Ethelburga College. Another 41,000 for a couture wedding dress from Phillipa Lepley in Fulham or 295,000 to pay for the bills of the SBS Glamour Card, which is “a card introduced to offer women the most privileged and luxurious service, the likes of which have never existed before”.

Chair

Basically it is being spent on luxury goods.

Bill Browder

There has been an orgy of spending on luxury goods, and this is just one guy in one situation: luxury goods, properties, yacht charter, couture dresses, everything to do with luxury.

Chair

You would like to see us in the United Kingdom introduce a Magnitsky law to follow the United States and do this?

Bill Browder

It is very simple: should we or should we not allow Russian torturers and murderers to come here and spend their money here?

Chair

You have told us the amount of money, hundreds of billions. How many people are we talking about, roughly?

Bill Browder

In my estimation there is probably 1,000 to 2,000 people right around the Putin entourage that are the big beneficiaries, but then below them you have 40,000 or 50,000 people.

Chair

At the moment they are able to travel freely throughout the United Kingdom, enter the United Kingdom, and the Schengen area without any problems?

Bill Browder

Without any problems and we have evidence—

Chair

You said the French had opened an investigation. Are they not blocking Schengen visas?

Bill Browder

At the moment the French have frozen assets, on which we have not even opened an investigation.

Mr David Winnick

Your grandfather, Mr Browder, would no doubt say you should not have been surprised by how capitalism works but be that as it may, that is long gone history. Do you think that in Russia there is an understanding among the mafia—and you were here when I asked questions of the previous witnesses—that to a large extent the United Kingdom is a soft target for bringing their money and assets to this country?

Bill Browder

Yes. This country has the benefit of two things. One is that nobody will be prosecuted and the second is that it appears legitimate. If they open a UK company, for example, and then use it for money laundering at a UK bank, the next destination will say that is money that has come from Britain, which is a legitimate, normal country. This is a perfect cover for laundering money because we don’t investigate it in this country, we don’t prosecute and it appears legitimate.

Mr David Winnick

Since very little goes on in Russia without Putin’s knowledge and approval, he and his gang are aware of all this?

Bill Browder

Yes. They are experts at this. They look around the world and say, “Where are we at risk? Where is our money at risk?” Let me just take one step back. The purpose of the Putin regime is to steal money; that is what they do; that is their main objective. Afterwards they then try to stay in power and afterwards they do the minor things of governing the country, but it is mainly to steal money. Then they say to themselves, “How do we keep that money safe?” and they look around the world and they say, “In which regimes do property rights exist where no one is going to take their money and which regimes exist where the law enforcement agencies are not going to investigate that money?” This is one of their primary regimes.

Mr David Winnick

Do you feel any physical danger arising from what the Russian mafia tends to do?

Bill Browder

Let’s not mix up terms. The Russian mafia is the Russian Government and the answer is I feel at great personal risk. I have been threatened. Dmitry Medvedev, who is the Prime Minister of Russia, said to a number of journalists in Davos, “It’s a shame that Sergei Magnitsky is dead and Bill Browder is still alive”.

Stuart C. McDonald

The last time I recall hearing this issue raised in the House of Commons, the Home Secretary was asked a few times about why this country does not have a Magnitsky Act as well and her defence was that we already have equivalent measures in place. Do you see that the United Kingdom has something similar in place or what are the major differences and deficiencies in the UK system?

Bill Browder

The Magnitsky Act is a very specific piece of legislation that publicly names human rights violators, freezes their assets and bans their visas. The British system has the ability to ban visas if they want, but they refuse to name names and, as far as I am aware, there is no legislation that would freeze assets of human rights violators. What I am suggesting does not have to be just for Russia, it can be for everywhere. In America there is now a global Magnitsky Act going through Congress. What that would do is freeze the assets and ban the visas for human rights violators anywhere. I can’t even imagine why this would be controversial, why we should be welcoming these types of people coming into the country.

Stuart C. McDonald

Have countries other than the United States implemented similar steps?

Bill Browder

The United States is the first country. I would say the closest second country is Canada where we are working actively on this thing, but this should be the first country. This is my home country, this is where Sergei Magnitsky was working for me as a British citizen. This should be the first country where it has happened and we are a long way away from it right now.

Chair

You are telling this Committee that the United Kingdom is the country of choice for money laundering? If there was a brochure of where they should launder their money, Britain would be on the front page?

Bill Browder

It is not the only country of choice.

Chair

Which are the others?

Bill Browder

Cyprus is one of their favourite countries, and Latvia. We are on par with Cyprus and Latvia in terms of money laundering but better because the property rights here are better than Cyprus and Latvia.

Chair

Is it certain parts of London that are affected or is it the whole of London?

Bill Browder

In terms of the spending orgy on luxury goods, that is concentrated around Belgravia, Knightsbridge, South Kensington. In terms of the actual flow of funds, that goes into the banks in the City and, of course, we all know about the major property purchases by these people in the fanciest parts of London.

Chair

Which are the fanciest?

Bill Browder

St John’s Wood, Hampstead, Belgravia, Knightsbridge, Chelsea.

Chair

Well, at the moment, Leicester City supporters are quite grateful to Chelsea, but we will let that pass.

Mr David Burrowes

As far as you are aware, at this stage there is no investigation taking place by any of the authorities at all into the $30 million money laundering allegations?

Bill Browder

We wrote to the National Crime Agency on 21 March about the specific crime that I have just mentioned to you, the Klyuev organised crime group crime, the $30 million from his network. The only response we have had so far is that they are busy with the Panama papers and have not had time to look at it. This is a real crime with a murder that was connected to this crime, blood money, and they have not had time to look at it.

Mr David Burrowes

Do you have that in writing? At the moment we have this reply in December 2015, “At this stage a domestic criminal investigation relating to money laundering in the UK is not the most effective way forward”. You pulled out the piece. Did they say what is the most effective way forward?

Bill Browder

Nothing. They don’t make a suggestion of what the most effective way forward is. I can’t even describe to you the difference in response that I had in France and the United States.

Mr David Burrowes

That is what I was wanting to ask you. What are the ongoing investigations elsewhere?

Bill Browder

When we brought a similar complaint to the United States Department of Justice, it immediately seized the assets and filed a federal forfeiture order against the culprits. There is now a case open in New York and they are prosecuting that case and hopefully it will lead to a full conviction and a seizure of the assets. The French investigative judge Renaud van Ruymbeke, who is one of the top anti-corruption judges in France, has taken over this case. He has frozen $10 million in France, Luxemburg and Monaco and there is a major criminal investigation going on with a large number of resources devoted to it. The Swiss attorney-general has frozen close to $20 million of assets at UBS and Credit Suisse in Switzerland and there is a major criminal case going on there, and on and on and on. It is just a completely different situation here and it perplexes me. Britain is known to have such a well-developed legal system but yet the criminal prosecution system or money laundering prosecution system seems to be at a—

Mr David Burrowes

Where did you get the impression that there is an issue of priorities, that they are focusing on the Panama papers?

Bill Browder

They told us. They wrote that to us in an e-mail.

Mr David Burrowes

That said that it is a priority issue at the moment?

Bill Browder

Yes, more priority than this.

Mr David Burrowes

In terms of the implementation of the Magnitsky Act, I appreciate that a number of names have been banned in other countries, not least in the US, but have assets been frozen as well?

Bill Browder

There have not been any assets frozen under the Magnitsky Act. The assets frozen have been under criminal investigations like the one we are hoping to get opened here.

Mr David Burrowes

Has it also led to asset freezes in any other countries yet?

Bill Browder

At the moment there is just one Magnitsky Act, which is in America. They have not frozen any assets because none of the individuals on the list have any assets in America. However, there is one very important thing to point out. It is not just assets freezing. You get put on what is called the US Treasury OFAC sanctions list, which means that any bank in America that is caught doing business with a person on the sanctions list has to pay a fine. That means that any bank in America, and pretty much any international bank, stops doing business with anybody on the US federal sanctions list, and so that is a very powerful tool.

Mr David Burrowes

The essential difference with us is that we do not publicise the list of banned people, do we?

Bill Browder

I think that is an extremely bad policy decision because the whole point of this exercise is to name and shame people who do terrible things. It also has a highly deterrent effect on other people. Nobody wants to be put on a public naming and shaming list, not just for the effect that it has on their current life. Every bad guy working in every oppressive regime knows that that regime will eventually come to an end and they all know that they have socked away a whole bunch of money and then they will go and live quietly in luxury somewhere else. If their names are put on a public list, when they flee, when the Putin regime falls and they flee at the end the Putin regime, and they come here to London and say, “We want to apply for asylum here because of the new regime not liking us” and someone types in their name and says, “Wait a second, you are on the Magnitsky list for being a human rights violator. We are not going to give you asylum. In fact, we are going to return you to the new provisional Russian Government for trial”, that is the most terrifying, existentially scary thing for these people.

Tim Loughton

Mr Browder, did you say that there are no laws in the UK that enable us to seize or freeze the assets of human rights violators or regimes that violate human rights?

Bill Browder

As far as I am aware, yes.

Tim Loughton

How do we do that against members of the Mugabe government or President Assad’s government or the Iranian regime formerly?

Bill Browder

I think we do that under sanctions not by saying, “They are human violators. We are going to freeze their money”. If they are part of a sanctions regime then their assets can be frozen.

Tim Loughton

What is different?

Bill Browder

At the moment, Russia is not under any sanctions regime that allows us to freeze their money for violating human rights. We have not said they are human rights violators.

Tim Loughton

Are we not part of an EU-wide action, because of what has happened in the Ukraine, against certain members of the Russian Government that will enable us to freeze or seize their assets?

Bill Browder

We are, but we are not doing that for human rights violation. We are doing that for geopolitical condemnation that is good and strong but we are not doing that for human rights violations.

Tim Loughton

In the case of Zimbabwe, Iran and Syria it amounts to the same thing, doesn’t it?

Bill Browder

Yes.

Tim Loughton

So we do have legislation that enables us to achieve what you want to achieve.

Bill Browder

Perhaps. I would argue—

Tim Loughton

That is the point I wanted to clarify. Why is the UK so lax in not clamping down on money that is highly suspicious of being dirty money as opposed to other European countries or America or whatever? What is it that makes us especially disregard dirty money?

Bill Browder

I think there are so many people benefiting from that dirty money here that it is a politically toxic issue to address. If there are lots of businesses that are levitating, that are effectively surviving off the back of this money that would not survive otherwise, and they have friends in high places—and these people are geographically close to this House right here—they are going to say, “Don’t do that”.

Tim Loughton

Geographically being down the road from the Houses of Parliament is irrelevant. Are you saying that there are politicians in positions of responsibility who are directly benefiting from dirty money?

Bill Browder

No, I am not saying that. What I am saying is that there are people who are benefiting from dirty money who have political influence.

Tim Loughton

What is the difference?

Bill Browder

Well, nobody is paying anybody here to vote one way or another.

Tim Loughton

Why would politicians turn a blind eye to dirty money if they are not benefiting from it, which is your implication?

Bill Browder

If their constituents are and they are getting support from their constituents and so on, that is a good reason to do that.

Tim Loughton

What do you mean “if they are getting support from their constituents”?

Bill Browder

If somebody is helping out a politician with their campaign or rallying support or generally being behind them, that is support.

Tim Loughton

What does that mean in practice? It means giving money, doesn’t it?

Bill Browder

It could be.

Tim Loughton

So politicians are directly benefiting from people who are handling, as you call it, dirty money?

Bill Browder

I would say in theory. I don’t have any specific examples I want to share today.

Tim Loughton

Do you have specific examples that you can share with the Committee?

Bill Browder

I am aware of specific examples. I don’t have them at the tip of my tongue.

Tim Loughton

Could you write to the Committee? It is quite an important charge you are making here, Mr Browder. You are saying that people in the Government or people in Parliament who are close to influencing the Government, be it in the same party or not, are deliberately, actively turning a blind eye at best or effectively encouraging people close to them who are benefiting from laundered money, dirty money or whatever, which is a criminal offence. We potentially are accessories under the fact. That is specifically the charge that you have made for which we need to see some specific evidence as to whether that charge stacks up. The fact that we do not have a law that mirrors the Magnitsky law in the States is irrelevant because the Government have the powers to achieve, on the face of it, the very same ends that you think that law was brought in to achieve. What I am trying to find out is why would we want to turn a blind eye if this sort of criminal activity is happening in London. So far you have not given me the evidence as to why we would want to do that, just some speculation and the phrase that you use that the UK is levitating off a flow of dirty money, which is a pretty significant damning charge, but we clearly need to see the evidence for that.

Bill Browder

Okay.

Chair

Thank you. If you could write to us if you have any information. It is covered by privilege because it will be part of the evidence. If it is confidential we will not publish it, but the Committee actually publishes most of what it receives. It is only very rarely when there are security issues that we not do so.

Bill Browder

I would be delighted to.

Chair

Please write to us on this. What you are saying to this Committee is quite shocking, Mr Browder, as Tim Loughton has just said, not only in respect of your last answer to him but in respect of the generality of your testimony before this Committee. What you are saying is there seems to be complicity to some extent, maybe not actively helping those who come in but government agencies are silent when matters are brought to their attention. This is obviously a concern to us because we are worried about the fact that confiscation orders are made but the full amount is not realised, but this goes beyond that. It is people who are not even caught in the system. That is what you are saying to us.

Bill Browder

I am saying that I am a real live example of somebody who has been victimised by a crime of which we have evidence. It is pretty shocking because the information that I am providing has been tested. I am not making wide speculation about a crime. If there are 11 other criminal cases open in other countries, that is like a scientific test to say that this information is viable and should lead to a criminal investigation being opened.

Chair

You would want it opened here because Britain is the biggest market. It is the number one destination of choice, is what you are saying to this Committee.

Bill Browder

What I am saying also is that this is our power to do good in the world, not encouraging these people to come here and spend their dirty money.

Chair

We have received a lot of testimony about house prices going up because of this money coming in. Are there any other services apart from house prices? You have given us examples of luxury goods, wedding dresses and tuition fees and other issues of that kind. Apart from something that we can actually notice, because we do not know about every individual wedding that people go to but we do know when house prices go up, is there anything else that the Committee could look at? We are hearing testimony shortly from those who have experience of the housing market.

Bill Browder

Houses are the asset that people like to keep. It is better than a bank account to put your money into a house in London as far as these people are concerned. We have two examples of houses or payments to real estate in this particular case. This is just a rent payment but they were paying £115,000 to Harrods estates in September 2009. I don’t know what they were paying £115,000 for; it looks like a rental payment. Then there is another one to Lane Fox, which is much less. It looks like a monthly rent demand for £19,500 to Lane Fox Residential. Rent, houses, restaurants, all this stuff, these people are spreading their money, and it is concentrated. They are not spreading their money in your constituency. They are just a mile away from here in Chelsea, Belgravia.

Chair

So they are not going to make the trip up to Leicester even to see a football match.

Bill Browder

Maybe now they will but—

Chair

Mr Browder, thank you very much for coming here today. What you have said has been very important and very powerful. We have your report before us.

Bill Browder

I would like to submit this to your Committee for evidence.

Chair

We will be publishing it in part or maybe in full. We have not made a decision on it but we normally publish everything that we receive.

Bill Browder

Great.

Chair

Of course, it is covered by privilege but we will let you know. We are very grateful and if there are any other matters you want to raise with us, please don’t hesitate to write in while the inquiry is ongoing. Examination of Witnesses

Witnesses

Henry Pryor, Buying Agent and Market Commentator, and Laurence Sacker, Partner, Corporate Finance and Money Laundering Reporting Officer, UHY Hacker Young LLP, gave evidence.

Chair

Mr Sacker and Mr Pryor, thank you very much for coming. I am deeply concerned by what I have just heard in the evidence given by Mr Browder, and indeed other witnesses, that the United Kingdom, and London in particular, is now the destination of choice for those who want to launder dirty money into our country. Do you agree with that assessment, Mr Sacker?

Laurence Sacker

I don’t have any direct information on that from my own experience. Obviously I have read that in newspaper stories and so on, but I don’t think I could add any evidential matters to that.

Chair

No, but you must have heard it. I couldn’t be the first person ever to have said to you that London is a magnet for this kind of money.

Laurence Sacker

I think any major world financial centre would be a magnet for that, yes.

Chair

London being a major financial centre, not number one, number two or number three, then it would attract it?

Laurence Sacker

Yes.

Chair

Do you think the measures that we have at the moment are adequate to deal with money laundering and fraud?

Laurence Sacker

I think there could be some significant improvements made to them.

Chair

What kind of things would you like to see happen? That is what the Committee is interested in.

Laurence Sacker

I know a previous witness talked about unexplained wealth orders. One of the things that we always try to do, when we have a new client, is to identify the source of the money that they tell us they have, whether it is a family business or inherited or whatever the reason would be, to try to get some logical explanation for that. I suspect that unexplained wealth orders would be quite a useful mechanism. Also with the veil of secrecy over Overseas Territories and the Crown Dependencies, it is difficult to find out ownership details.

Chair

I have had a number of constituents who have come and said they have had a letter from the bank saying, “We are going to close your account because we don’t know where your money is going” or “you bought a premium bond and we need to know the source of the premium bonds that you bought”. Those who are not the Mr Bigs and Mrs Bigs of this world seem to be getting an awful lot of letters from the authorities asking them to explain things to them. One of our parliamentary colleagues has raised politically exposed individuals in the House with the Chancellor, who is now amending the law. These seem to be relatively small in proportion to the kinds of people we have heard about from Mr Browder and others. Do you think that there seems to be a concentration on the small fry rather than those who really do have the resources to bring in funds in this way?

Laurence Sacker

I think the more money you have the easier it probably is to find ways to get around the system, so it is the smaller people who would be more likely to get caught by that, yes.

Chair

Is it the fact that the more money you have the more you can afford the very best accountants and lawyers in the country, the Hacker Youngs, the Clifford Chances and the Slaughter and Mays? They would know how to help you because you have all that money and, therefore, you can pay for the very best.

Laurence Sacker

In my experience, it is not something that accountants get involved in.

Chair

You are the reporting officer, aren’t you?

Laurence Sacker

I am the money laundering reporting officer.

Chair

So you must get involved in it somewhere along the line. You can’t not get involved in it.

Laurence Sacker

Just to give you some information, a bit of background on the sort of level of reporting that goes on within my firm, we have a turnover of about £20 million per year. In the last 12 months I had 24 internal reports made to me by partners about frauds or tax issues or whatever that they were concerned about that their clients had been involved in.

Chair

What do you do about that? Help us with the process.

Laurence Sacker

I get an internal report that describes a worrying situation. I would then find out a bit more about it by speaking to the partners or the staff concerned and then I have to make a decision whether or not to file an SAR.

Chair

We will come to that in a minute. We are very interested in the process because you can help us enormously with this. It comes to you as the reporting officer. You have a turnover of £20 million and 24 reports have come to you. What is the total value of those 24 reports? Give me a rough estimate; I don’t need specific figures.

Laurence Sacker

I don’t have a figure for that.

Chair

Would you write to us?

Laurence Sacker

I could have a look back and see. I don’t think every item would have a monetary value.[2]

Chair

Tell us about the last year. In the last year how many reports have you received?

Laurence Sacker

24.

Chair

If you could write to us and tell us the estimated value of that 24, that would help us understand. Is there a level beyond which your partners would automatically say to you that they need you to look into this? You are not interested in £1,000, are you, or are you?

Laurence Sacker

There is no de minimis actually.

Chair

What is your minimis, roughly speaking, where you think, “I think this needs looking into”? Would someone normally come to you as the reporting officer of Hacker Young and says, “I think one of our clients has produced £500 and we don’t really know where it comes from”?

Laurence Sacker

It would be quite unusual for me to get that sort of report.

Chair

£500?

Laurence Sacker

Yes.

Chair

So what sort of figure are we talking about?

Laurence Sacker

It varies more in the circumstances than the amounts.

Chair

Sure, but roughly?

Laurence Sacker

A few thousand, probably.

Chair

A few thousand, so £3,000 or £4,000. Somebody could come to you and say, “One of our clients has £3,000 to £4,000. We are concerned about it. We want you to look into it or report it”?

Laurence Sacker

Yes, but it could be a smaller sum. If it was, for example, bank interest from an overseas account that had not appeared before, it could be a smaller sum and we are suddenly wondering what the money is and where it has come from. So there is really no—

Chair

There is no minimis. We have had evidence in the first session that you report this money laundering to ELMER, a computer system that the National Crime Agency has had for a while. It is supposed to deal with about 22,000 reports a year but I think that the figure we were given was it runs into six figures, 300,000 reports.

Laurence Sacker

350,000 or something, yes.

Chair

How can a system that is supposed to deal with 22,000 cope with 350,000 reports?

Laurence Sacker

I think that they probably only look in detail at the consent SARs that go to them, which is about 15,000 in a year. The others are just recorded somewhere and may get passed on eventually, but I am not sure.

Chair

What is the point then of reporting the other 315,000 if they are never going to get looked into?

Laurence Sacker

I don’t know if they are ever looked into. We obviously don’t get feedback on that, but from the reporting officer’s point of view it puts you in the clear, effectively.

Chair

Sure. So long as you report it you are done.

Laurence Sacker

Pretty much, yes.

Chair

The final question before I ask Mr Pryor some questions: do you think the reporting system at the moment is fit for purpose?

Laurence Sacker

I think it is struggling. The online reporting system is antiquated, very cumbersome to use, and I think that needs some serious modification. The consent regime, if you actually have to do a consent request, takes a lot of time and can cause problems in the relationship with the client because it is not quick enough. We had a tax case recently where there was an investigation going on and we were instructed quite late on to assist with this. We looked at it and it showed up a few red flags. We put a consent request in but there was a meeting with counsel two days after that and to get a response out in less than the seven days that they are allowed is very difficult. We still don’t have that response, so we have to take a view on what we do.

Chair

Mr Pryor, you have heard the evidence given by Laurence Sacker, in your line of work do you do much reporting and who do you write to?

Henry Pryor

In the eyes of the law I am an estate agent, although my day-to-day business is buying properties rather than selling properties, which I have done in the past. I am a one-man band, sole trader, so I am my own money reporting officer and I would report to HMRC and the National Crime Agency by submitting a suspicious activity report.

Chair

How many did you do last year?

Henry Pryor

None.

Chair

Roughly what is the turnover of your business?

Henry Pryor

My modest business.

Chair

Your modest business, compared to Hacker Young.

Henry Pryor

My modest business turns over about £250,000 a year in fee income. That is purely in fee income as opposed to the amount of money. I buy roughly £100 million worth of property per annum.

Chair

£100 million per annum?

Henry Pryor

Correct.

Chair

You have heard the evidence that was given by Bill Browder and others, the concern that the London property market is being used and you have had nobody coming in who you think, “My goodness, where has this money come from?”

Henry Pryor

I have not.

Chair

Is that surprising?

Henry Pryor

It is not surprising but it does highlight, if I might, expand a little—

Chair

Yes, expand, burst forward.

Henry Pryor

In the UK property market, bear in mind that there are 3.75 million registered titles that the Land Registry holds. 100,000 of them are owned by offshore companies, information that has been put into the public domain, interestingly, in March, which has been much remarked and reported upon. Last year in the UK 1.2 million transactions, generated a grand total of 355 suspicious activity reports according to the National Crime Agency. That is 1.2 million sellers who have come into contact with estate agents, that is 1.2 million buyers that have come into contact with estate agents—forgive me, I will leave members of the Committee to do the maths as we go—so that is 2.4 million. Then there are all the sellers that did not successfully sell their homes, let’s just say 1 million, and another 2 million potential buyers who were unsuccessful in purchasing a property who could have given rise to a suspicious activity report. Then you start to add on all the allied businesses, some of which are not yet incorporated under the anti-money laundering legislation, like letting agents for example. You can see there is a huge number of potential transactions that are at the present time generating, as I say, according to the NCA, just 355 suspicious activity reports. My personal opinion, for what little it is worth, is that the regulations and the rules and the penalties for breaking those rules are quite sufficient but it is woefully inadequately policed. Although my industry is at last waking up to it, very much on the back of a Channel 4 exposé last summer, we are still massively behind. I am afraid I would—

Chair

What would you like to see happen, your top three asks?

Henry Pryor

When we see people dropping litter in the street, we tend to turn a blind eye, unfortunately. If we see people emptying the contents of the back of their skip or truck into a gateway in the countryside, we tend just to drive on past. We have this view that it is not our business and the state somehow will pick up these things but unfortunately, without the eyes of the population to point the state in the right direction, the agencies are unable to know where to go and look, what stones to turn over. We need a sea change in the approach to this. We need some examples to be made. The Channel 4 documentary last July clearly identified five incredibly questionable, very embarrassing individuals, five companies. The companies themselves were either regulated or were part of the two recognised industry bodies. Both those industry bodies have failed so far, despite announcing independent inquiries, to have reported.

Chair

The British Bankers’ Association said that the current system is dysfunctional and confusing and that many people involved in the process, as well as external commentators, view the system negatively. Do you agree with that?

Henry Pryor

I do agree with that, if I understand your question correctly.

Chair

Why do you agree with that, bearing in mind you did not make a single report last year?

Henry Pryor

The system is not based on submitting reports of every transaction you are involved in. The clue is in the title, suspicious activity report; if the man in the street, the reasonable man on the Clapham omnibus, has a reason to be suspicious. I would say that if, for example, the buyer of a property was the second son of a world leader in a country in the middle of South America—how does he have £8 million to buy a flat in Mayfair—personally I would be suspicious. But it does not seem that my professional colleagues are as sceptical as I am, which is unfortunate.

Chair

If this money disappeared from London because the system was better regulated, better policed, less dysfunctional—

Henry Pryor

Hooray. It would be wonderful.

Chair

—it would mean your business might go down in value.

Henry Pryor

I am not sure that anybody is making their decisions based on the robust health of the property market or otherwise. What they are trying to do is—

Chair

Do you think the money is in the property market?

Henry Pryor

Without question it is there because you only have to look at the reaction we have seen to the Panama papers, for example. There has not been one even second division law firm who has come out on the record and commented in the press about the implications of this.

Chair

Why do you think that is?

Henry Pryor

I suspect that nobody really wants to draw attention to themselves because everybody has some question mark in their mind, rightly or wrongly, that if they were to forensically look at their business they might find things that they did not find particularly comfortable.

Chair

What Mr Browder is saying is correct, that if the money was coming out of London then London would suffer?

Henry Pryor

I don’t think that London property would suffer. I don’t think London’s reputation would suffer if we cleaned up our act. At the moment we do have the equivalent of a welcome mat out for anybody to come if you want to launder your money. I am afraid that school leavers would know how to do it.

Chair

Really?

Henry Pryor

It is not a complicated process. It is not something that requires an Open University degree to be able to do.

Chair

Don’t tell us how to get round it here because people may be watching, but basically what you are saying is that it is very easy to do it if you want to do it?

Henry Pryor

It is all too easy. We see evidence of the individuals or the professions that are involved. This is not something that an estate agency could clear up even if it were able to and minded to. It requires the participation of conveyancing lawyers, accountants and bankers who are also party to this. Estate agents never touch the money so it is somewhat ironic to expect them to be anything other than a gatekeeper for this.

Chair

On the Russian theme, since Mr Browder talked about all this money coming in from Russia to buy property, do you find it is the case that a lot of Russians are buying property in London? Can you look at a particular—

Henry Pryor

A lot foreign nationals, Russians and others, have bought UK property. UK property happens to be a currency that is in bricks and mortar but it is sterling, that once you have bought and then disposed of it you end up with clean money. It is not a difficult concept for even estate agents to grasp.

Chair

Sure. Mr Sacker, the welcome mat needs to be taken away. Do you agree with that?

Laurence Sacker

Yes, I expect it does. I don’t think the City of London would suffer too greatly. There is enough honest money floating around that the reputation would probably improve considerably.

Mr David Burrowes

The Government have announced their biggest reforms to the money laundering regime in over a decade in the action plan announced by the Home Secretary. How do you think that will affect your business?

Laurence Sacker

From what I have seen of it, I don’t think it would change what we do very much. We don’t handle large sums of client money, first of all, let me say that. In terms of our procedures for taking on new clients, for example, we go through quite a rigorous process of understanding and knowing their business, knowing where their money came from, what they are seeking to do. We look at the commercial logic of what they are doing and if it does not stack up we ask more questions. We make sure we have ID’d them properly. We carry out some extensive searches on external databases to see if there is any adverse publicity or if they are on any sanctions list or PEPs or whatever. We go through quite a rigorous process already.[3]

Mr David Burrowes

For six weeks after it kicked off on 21 April, they are going to big businesses, which I would imagine would be yourselves and other professional service firms and others, to ask your views on fundamental reform of the suspicious activity reports regime, creating new powers in relation to unexplained wealth orders, linked forfeiture powers for use where the answers provided are unsatisfactory, the creation of an illicit enrichment offence and new administrative powers. Surely that may have an impact on your business?

Laurence Sacker

I don’t think it would have an impact on our business. It may have an impact on—

Mr David Burrowes

In terms of your role with compliance, due diligence and the like, will it have any effect at all or will it be business as usual?

Laurence Sacker

As I said, I think we are already fairly rigorous in what we do. Things like unexplained wealth orders would be useful and the lifting of the veil of secrecy, as I have already mentioned, so that we understand beneficial ownership. One of the things we always try to do when we are looking at taking on new clients is we want to understand who the ultimate beneficial owner is of any businesses that they have to make sure that we are dealing with the right people.

Mr David Burrowes

Will you be responding in any way to the Home Secretary in looking to see how these new measures can be effective? You are suggesting that you have good practice in what you are doing and you can ensure that good practice is spread through these new measures.

Laurence Sacker

I don’t think we are the only firm with good practice. I speak regularly, as the money laundering reporting officer, to colleagues in other top 20 accounting firms in the UK and we discuss, under Chatham House rules, the sort of situations that we come across in our work. That is quite a free and open discussion. From that I can see that we are all doing pretty much the same things and some of the things that they do that we were not doing we have now added into our structure, so we all benefit from that. I think that there is a quite rigorous approach to it already. To some extent we go above and beyond what the law requires us to do because we have our own good name to consider as well and we don’t want to get caught by these things. For example, we have been looking at UK PEPs and non-UK PEPs for years now already and we keep a log of all that. There are certain areas where we already do more than is required.

Mr David Burrowes

Is there anything you want to add, Mr Pryor?

Henry Pryor

It seems to me that what the Home Secretary is proposing in the consultation exercise, which I am not, embarrassingly, forensically appraised of, is mucking out the proverbial stable as a result of the door being left wide open. We are cleaning up the mess afterwards. The facts speak for themselves as far as I am concerned: 355 suspicious activity reports—an average estate agent thought that, “It looked a bit dodgy, guvnor”—from potentially 5 million parties who could have been up to no good. We are simply not suspicious enough.

Tim Loughton

Mr Sacker, in my pre-POCA days in the City I think you were called a compliance officer, effectively; you now call yourself a money laundering reporting officer. It is the same though, isn’t it?

Laurence Sacker

Probably yes.

Tim Loughton

In my day the compliance officer was a pain in the backside because he was there to prevent you from doing business, effectively. Things have probably come on since then but everything you described was about your colleagues who are responsible for handling the clients and giving them business plans, investing money and so on. It down to them to come to you to report something, but in my day it was always the compliance officer looking over your shoulder, making sure you, the fund manager or whoever, was going through a rigorous testing exercise. Has that dynamic changed now or where does the responsibility lay?

Laurence Sacker

I think the role is different. I am a working partner within the practice. I have clients and things as well, so the money laundering reporting officer is a subsidiary role. It is not a dedicated function.

Tim Loughton

So you regulate yourself, for your clients?

Laurence Sacker

I have a deputy who I discuss things with if I need to, so there is more than one of us. That works quite well.

Tim Loughton

How many potential clients have you rejected?

Laurence Sacker

Less than a handful in the last 12 months.

Tim Loughton

Out of how many clients that you have taken on in that time, roughly?

Laurence Sacker

I would have to check that number, maybe 400 or 500.

Tim Loughton

What would happen to you if you took on a client, invested their money, and it later turned out that they were the subject of a criminal investigation and that they were guilty of money laundering? The implications for you would be what?

Laurence Sacker

At the end of the day, as the money laundering reporting officer, you can go to jail if you don’t deal with matters correctly, so that would be the ultimate sanction. The firm’s reputation would suffer greatly as well, I believe.

Tim Loughton

How many money laundering reporting officers have gone to jail or been prosecuted or penalised in some way?

Laurence Sacker

I think there might have been one but I don’t think it is more than that.

Tim Loughton

Over what period?

Laurence Sacker

Since the legislation came in in 2002.

Tim Loughton

Do you think over that 14-year period there are probably more cases that should have been prosecuted because the diligence undertaken by the firm was not sufficiently robust?

Laurence Sacker

Some firms do it better than others; some people slip through the net. I am sure there are instances but whether or not this is an area to focus on, because about 80% of SARs are filed by banks. I think accountants last year filed only just under 5,000 SARs, and by and large accountancy firms do not handle the money. Of all the SARs that I have seen over a number of years, the vast majority of them are to do with tax issues.

Tim Loughton

That one compliance officer who has been done in the last 14 years included from banks, accountants, investment firms and everybody else, so across the piece. Effectively, the odds of getting caught, and therefore the onus on you to make sure you are doing a really rigorous and robust job, and the deterrent factor are pretty minimal. Would you agree?

Laurence Sacker

That is the ultimate deterrent, I think, but we get regularly reviewed by our professional bodies to make sure that we are doing the right sort of things and doing them properly. We had a review of our procedures by the Institute of Chartered Accountants in the last 12 months and they came up with a few questions about some of the clients, which we resolved, and that is an ongoing process. They can come back any time they want to and look at that.

Tim Loughton

Who is your regulator, the FCA or—

Laurence Sacker

The Institute of Chartered Accountants for the money laundering.

Tim Loughton

That is your regulator. Do they have the power to fine you?

Laurence Sacker

Yes.

Tim Loughton

Has your firm ever been fined?

Laurence Sacker

For that, no.

Tim Loughton

Mr Pryor, can I ask you, roughly what is the value of the property transactions in London in the last 12 months?

Henry Pryor

I am sorry, I don’t have it off the top of my head. There are roughly 9,000 transactions a month in the capital and the average value of a property in the capital is now estimated at around £500,000.

Tim Loughton

To put that in perspective, since the Proceeds of Crime Act some £180 million worth of UK property in the entire country has been subject to criminal investigation. That could be a couple of large properties in Kensington alone over a 12-year period. This is a tiny drop in the ocean of all the property transactions that are happening in London that actually get investigated let alone end up with a criminal prosecution.

Henry Pryor

I am not aware of any criminal prosecutions of estate agents.

Tim Loughton

Yet you think it is a fair judgment that quite an amount of dirty money is going into property and particularly in London?

Henry Pryor

Correct.

Tim Loughton

Clearly the situation at the moment is not working.

Henry Pryor

I would merely wish to repeat that I don’t think there is any problem with the rules and regulations. It is just that nobody appears to be interested in enforcing them. If you go to most estate agents in London—certainly 12 months ago, still probably today—the majority think that their responsibilities extend only as far as their client, the seller. The money laundering, as I am sure you have already connected, is going to be done by the purchaser who most estate agents do not believe they have a duty of care to or for.

Tim Loughton

To bring it into your industry as an estate agent, if a property was later found to have been purchased through you, or through Savills, Strutt and Parker or whatever, and was purchased with dirty money by somebody against whom criminal action could be taken, what would be the implications for you as the person who has sold that property to them?

Henry Pryor

Far less than my colleague here, far less.

Tim Loughton

How far less?

Henry Pryor

The vast majority of estate agents are selling agents. They would put their hands up and say, “It is nothing to do with us, guv. We are not responsible. We are responsible for ensuring that our client, the seller, was a fine upstanding member of society and was not engaged in money laundering”. It is highly unlikely that the seller at the time was laundering the money. He may have been the owner of the dodgy cash in the first place and had bought a property on that basis, but provided he has jumped through the hoops, as the industry would see it—there is a phenomenal tick-box mentality going on out there. The majority of agents and their money laundering reporting officers are there completing forms so that if for some extraordinary reason they were inspected they would be able to say, “Fine, here is how we go about it, got the manual”.

Tim Loughton

It is a record-keeping exercise?

Henry Pryor

It is a record-keeping exercise, understandably.

Tim Loughton

I am trying to work out what the deterrent factor is for you and your colleagues in the industry.

Henry Pryor

Tiny.

Tim Loughton

I want to define how tiny it is. If you were acting as a selling agent for a Russian oligarch who has turned around a property in six months, because this is money laundering so, therefore, de facto those properties are likely to change hands faster than somebody who is buying it as a family home—

Henry Pryor

I don’t mean to contradict you but over the last few years it has been quite a shrewd investment with your dirty money. You might not have wanted to sell it and liquidate it that quickly.

Tim Loughton

Absolutely, but somebody who is laundering money is likely to be turning over and liquidating that money so they can then use it in whatever capacity they want to use if. If a Russian oligarch who raised suspicions to any reasonable person—however you define that—had sold a property through you and you had raised no questions or had not raised a suspicious activity report, what would the comeback be to you if it later turned out that they were a crook?

Henry Pryor

The inevitable article in The Financial Times would be embarrassing but not fundamentally distressing. There would be no evidence in the public domain as to whether you did or did not submit a suspicious activity report. I would suggest that probably the only evidence that you had fallen over or been asleep on the job would be if you, as the money laundering reporting officer, were hauled up and publicly prosecuted for being asleep at the wheel.

Tim Loughton

Again, that has not really happened? Can you think of anybody that has happened to in your profession as well?

Henry Pryor

No.

Stuart C. McDonald

Mr Sacker, are the staff that you employ who flag up potential problems to you simply applying the reasonable man on a Clapham omnibus test or have they undergone training and do they have guides that they refer to when they are making their decisions? How do they know that something should be flagged up to you?

Laurence Sacker

All professional staff and admin staff have training in anti-money laundering procedures and Bribery Act regulations as well. They do that annually and that is monitored. We do regular reviews of existing clients as well, but for new clients, which is where the majority of anti-money laundering checks would be taking place, these would all be taken on by partners who are obviously senior people in the firm. They would have to fill out the new client take-on forms, which includes all the anti-money laundering procedures, some of which I have described.

Stuart C. McDonald

Do you do any auditing of files on new clients that are not flagged up to you? Do you ever go back and say, “I am going to take a sample of clients or transactions that have not been flagged up” just to make sure that people are doing their job properly?

Laurence Sacker

Yes. We have a database that gives us exception reports of things that are not up to scratch, and we also do compliance reviews during the year to make sure on a sample of files, a sample of new clients and a sample of existing clients, that the procedures have been followed.

Stuart C. McDonald

On top of that, does the Institute of Chartered Accountants also comment or audit some of your files and the decisions you have made?

Laurence Sacker

They can come in when they choose to. They do not choose to do that every year and they do not choose to look at AML stuff every year, but they have the right to.

Stuart C. McDonald

Mr Pryor described the equivalent with the estate agents as a tick-box exercise. Is it something similar with accountants? How rigorous are these tests?

Laurence Sacker

I can only speak for my firm. We sell time; that is what we sell. If you do not record the time you cannot charge for it. You cannot get a client number to start recording the time without having completed the client take-on procedures, including the money laundering procedures, and issued an engagement letter. That is the theory. Obviously there are always some blips in the system and things may slip through, but it will get caught up later on. So they cannot start selling the time without having gone through the procedures.

Stuart C. McDonald

How often are you inspected by the Institute of Chartered Accountants? How many of these cases and transactions will they have a look at? A tiny fraction?

Laurence Sacker

I think last time they looked at a sample of about 20 or 30 transactions.

Mr David Burrowes

You said that there were a handful of clients that you had rejected. Did any of those lead to suspicious activity reports?

Laurence Sacker

Yes.

Mr David Burrowes

How many?

Laurence Sacker

One or two.

Mr David Burrowes

One or two, and that is out of several hundred clients?

Laurence Sacker

No. We have something like 6,000 active clients at the moment. In any year we may have 200, 300, 400 or 500 new clients within that 6,000. I am not sure. I do not have those numbers.

Mr David Burrowes

For the numbers that have had the SARs, what has been the difference between those that have initiated those reports and the others that have just been rejected? Where is the threshold?

Laurence Sacker

The SARs can crop up after you have taken them on as a client. I think the ones that we rejected we did not take on as clients because of other things we discovered at the outset going through the know your client business procedures that we took a dislike to, I suppose.

Mr David Burrowes

The SARs came from existing clients, rather than rejected ones; is that right?

Laurence Sacker

I think we did one or two SARs on people we did not take on as clients.

Mr David Burrowes

Does this have any impact on competitors taking on those rejected—

Laurence Sacker

They would never know about the SARs that we had filed, obviously, and there would be no question.

Mr David Burrowes

There is no conversation or no relationship with competitors in relation to those people?

Laurence Sacker

No.

Tim Loughton

Is there no database of that? There used to be something called the Mutual Reference Society at the Stock Exchange whereby if one had any qualms about a client, or a client had left the firm under a cloud of not paying a bill or something like that, there was a central database, so before anybody took on a new client they could check that they were not effectively blacklisted. Is there nothing like that anymore?

Laurence Sacker

If you are taking on a client from another firm of accountants you do a letter, a professional courtesy letter, often to ask if there is any reason why you should not take on that client. If somebody wrote to us in that regard and we had done an SAR we would not be disclosing about the SAR in our response to that, because that would be tipping off, which we cannot do.

Chair

You mentioned overseas territories. We are told by Transparency International that almost one in 10 of properties in the London Borough of Kensington and Chelsea, 10%, is owned through a secrecy jurisdiction such as the British Virgin Islands, Jersey or the Isle of Man. When one of your clients comes to you, or one of your partners, or in Mr Pryor’s case himself, since he is a lone trader, and they say, “The money is coming from an overseas jurisdiction” does that immediately ring alarm bells or do you just accept it and have a look at the bank statement and carry on regardless? Do we need to tighten up these jurisdictions, basically? The Prime Minister is trying very hard to do this.

Laurence Sacker

It is obviously very difficult to find out who owns a BVI company, for example. Just because it is a BVI company does not mean it is dirty money. We look at the commercial logic for why it is being done in that way, and understand that as part of our know your business, know the client processes. So we would try to establish if there was a sensible commercial reason for that process.