The Organisation for Economic Co-operation and Development (OECD) has warned that Brexit could damage the UK´s fight against corruption and urged the country to continue backing its Serious Fraud Office (SFO).
It came as part of the OECD´s latest report, Implementing the OECD anti-bribery convention, phase 4 report: United Kingdom, the first such report in five years.
In its report, the Paris-based organisation highlighted concerns that UK companies could use the threat of relocating to the EU due to Brexit as a bargaining tool should they face allegations of bribery and corruption.
Independent fraud policing
Against the backdrop of Brexit uncertainty, the authors of the latest OECD report also used the opportunity to encourage the UK government to maintain the SFO´s independence and bolster its funding.
A decade ago, the OECD was especially critical after the UK government led by the then Prime Minister Tony Blair called an end to an SFO inquiry into alleged bribery in Saudi Arabia involving defence company BAE Systems
High profile breakthrough
However, this time around, the OECD did have some praise for the UK. It applauded the success of recent probes, such as the long-running investigation of aero-engine maker Rolls Royce that resulted in the company paying penalties totalling £671m.
The company is said to have paid sweeteners to secure deals in Indonesia, Russia, China, Nigeria and Thailand. Rolls Royce was alleged to have paid intermediaries as much as $36m to clinch deals with Thai Airways to supply aero engines.
These days such investigations are taking on a decidedly international aspect. The Rolls Royce breakthrough was the culmination of five years of painstaking work by investigators in the UK, US and Brazil.
The UK´s SFO has labelled the Rolls Royce case as the single biggest investigation it has ever undertaken.
The OECD report comes as the UK authorities conduct a review into the future of the SFO. The OECD wants the SFO to maintain its political independence; it sees this as imperative particularly as the UK navigates the uncertainty of Brexit and the accompanying large scale corporate lobbying of ministers.
Many companies operating in the UK have threatened to relocate to other countries within the EU. For its part, the UK government appears desperate to avoid as many high-profile departures as possible.
In the aftermath of the Brexit vote, the government conducted secret talks with car manufacturer Nissan, appearing to offer the carmaker assurances so that it would maintain its European base in the UK.
Russian shell companies
The review of the SFO´s role and status also comes as the UK authorities consider whether to launch an investigation into recent allegations that Russian shell companies used UK banks for widespread money laundering.
At the same time, the latest OECD report also urged the UK to enhance anti-money laundering measures in order to improve detection of foreign bribery.
Outsized finance sector
While noting the UK´s progress in investigations such as the Rolls Royce case, the OECD pointedly underlined how the number of such cases was relatively low relative to the UK´s huge significance as a financial services centre.
The UK accounts for 17% of the total global value of international bank lending and 41% of global foreign exchange trading.
“The attractiveness of its financial sector, combined with close links to offshore centres, expose the UK to significant risks of corruption and foreign bribery-related money laundering, as recognised by both government and law enforcement agencies,” said the OECD report.
The authors noted how the UK had already designated money laundering and corruption as high priority areas.
The UK government is in the process of creating a new anti-money laundering watchdog to clamp down on the proceeds of crime and corruption.
The UK Treasury has announced that the new Office for Professional Body Anti-Money Laundering Supervision, or OPBAS, is to reside within the walls of the UK´s current financial regulator, the Financial Conduct Authority (FCA).
Corporate vehicles misuse
The OECD authors also highlighted the risks presented by the misuse of corporate vehicles, trusts and foundations registered in the UK´s Crown Dependencies (CDs) and Overseas Territories (OTs).
Such jurisdictions have varying rules and regulations versus the UK, and are typically perceived to take a more relaxed approach compared with the UK itself.
“UK law enforcement agencies have acknowledged that the opacity of current beneficial ownership arrangements of these vehicles is a significant barrier to tackling money laundering, corruption and successfully recovering stolen assets,” said the OECD.
At the same time, the report also drew attention to more relaxed arrangements in Scotland versus England and Wales.
It states that controversial Scottish Limited Partnership status, or so-called “shell” companies, would appear to be susceptible to misuse in money laundering and corruption schemes.
Tighter rules in Bermuda
One British Overseas Territory, Bermuda, has begun the process of tightening its rules on bribery and corruption to bring them more in line with the UK. At present, the offence of bribery is not even explicitly recognised in Bermuda law, though all this will soon change.
The territory is setting up its own National Anti-Corruption and Bribery Committee, while a number of new offences will soon come into effect in Bermuda law, including a corporate offence of failure to prevent bribery.
It means that other UK territories are likely to come under increasing pressure to ensure their own rules on bribery and corruption are also more in line with the UK´s. Bermuda´s new anti-bribery laws are in the main modelled on the UK's Bribery Act 2010.
OECD Anti-Bribery Convention
The latest OECD report on the UK comes as part of the organisation´s monitoring efforts on the operation of its Anti-Bribery Convention (officially known as the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions).
The convention, which came into force in 1999, aims to reduce corruption and bribery. Including the UK, well over 40 separate countries have signed up or acceded to the convention.
The country signatories themselves take responsibility for implementing laws and regulations that underpin the convention, as well as any underlying enforcement actions.
Many countries across the world appear to have been toughening their stance on bribery and corruption.
Arguably, this has been in large part driven by the more difficult economic environment that many countries have faced following the global financial crisis and subsequent slump in commodity prices.
- In Brazil, we´ve seen the impeachment of a president following one of the country´s worst economic downturns in history
- In China, the government has sought to clamp down on bribery and corruption in a campaign that has led to the prosecution of hundreds of officials
- South Korea recently impeached and put its former president on trial over corruption
- Spain has made a point of prosecuting numerous high-profile public officials in the aftermath of a financial crisis and property slump that left the country badly bruised
Overall, Brexit appears unlikely to derail the UK´s own resolve to tackle bribery and corruption, along with the associated problem of money laundering. While the UK is under increased pressure to be more competitive and appease the corporate world, global sentiment against such illegitimate practices has undoubtedly hardened.
Given the UK´s status as a significant financial centre, the world´s policymakers will be keeping a particularly watchful eye.