Brexit and the fight on financial crime – Part 1 – Policy

Brexit and the fight on financial crime - Policy

With the date for Brexit due on the 29th March, 2019 (at 11 pm U.K. time) and still no deal, getting a clear view of the likely impact of Brexit on the fight against financial crime, is important. An exit, particularly with no deal, looks to put the UK in a much worse position, but even with a deal the prospects at least in the short term don’t look good. What is at stake and what are the risks and opportunities? In this Part 1, the focus is more on the Policy aspects of fighting financial crime with a few practical potential consequences. Part 2 focuses on the effects on Policing and Part 3 the opportunity that the U.K must take. 

BrexitOne of the main reasons given behind support for Brexit, at and since the U.K. referendum, by so called Brexiteer’s has been the ability to “take back control” and for the U.K. to make its own laws, without being a law taker from Brussels. Here are some thoughts on policy aspects of each of AML, Sanctions and combatting terrorism, pre and post Brexit:

  • anti-money Laundering: As a member of the EU, the UK was required and has adopted all 4 EU Money Laundering Directive’s (MLD’s). The proposed 5th EU MLD is also expected to be implemented by the UK. As Brussels lawmaking in this area reflects decisions taken by the Paris based Financial Action Task Force, which is made up of 38 members, which includes 13 current EU Countries (including the U.K.) and the EU Commission. It seems improbable therefore, that the UK would seek to deviate in its AML approach following its departure from the EU. At the practical level though, concerns have been raised for example by Transparency International who claim that, “After Brexit, businesses from the UK are going to be doing relatively more business from countries where there’s a heightened risk of corruption.” This concern was also raised by the NCA stating that, “as the UK moves towards exiting the EU in March 2019, UK-based businesses may look to increase the amount of trade they have with non-EU countries,” and “we judge this will increase the likelihood that UK businesses will come into contact with corrupt markets, particularly in the developing world, raising the risk they will be drawn into corrupt practices.” The NCA also stated that, “criminals would take advantage of a redesigned customs setup when the UK leaves the EU, as well as any gaps in intelligence-sharing between countries, which could lead to international fugitives evading capture.”
  • Sanctions: much of the current policy surrounding sanctions emanates from the UN Security Council (UNSC), and as the UK, is a member, with a veto, once approved it would be bound by all UNSC’s resolutions. Beyond this, the UK has been instrumental in encouraging many in the EU to levy and maintain sanctions against Russia in response to its illegal annexation of Crimea and policies in eastern Ukraine. Once the U.K. is no longer at the EU table, there is the chance that the EU may revert to a more passive stance, favoured by many of the member states. Once the UK leaves the EU, it will be free to determine the conditions of its own sanctions and export controls. For example, the UK could decide to introduce specific conditions which may be more restrictive than those previously agreed jointly with the EU, leading to additional constraints on those conducting business in the UK. With differences in approaches to sanctions more likely, especially between large interconnected trading blocks, and or between large international financial centers, sanctions compliance becomes harder, Where economic power is all important, the ability to effectively use sanctions is likely to diminish, with targets creating divisions where possible.
  • terrorism: as with sanctions, much of the policy approach to terrorism, especially so called Islamic terror is determined at the UN Security Council so there is likely little change in approach in terms of policy, as a result of Brexit. At the more practical level, concerns on future co operation between intelligence agencies in the EU and with the U.K. are a concern. According to men who have served at the very top of the British defence and security establishment: Sir John Sawers, the former head of MI6, Lord David Richards, the former Chief of the Defence Staff, and Lord Peter Ricketts, the former National Security Adviser, believe that Britain’s national security will be severely weakened if the UK leaves the EU without a deal and it could take “years and years” to rebuild according to Lord Ricketts. “Any form of Brexit makes our security  more difficult to manage… the harder the Brexit, the greater the damage,” according to Sir John Sawers.
As with any change, there are risks. The fight against financial crime will go on after Brexit, but there are likely to be some real consequences that negatively impact the fight and no more than for U.K. policing, which is the subject of Part 2.
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