Axel von Schubert: Honest business is hounded out of Britain by compliance watchdogs
Try to withdraw or deposit a five-figure amount in cash or attempt a perfectly legitimate wire transfer in or out of your bank account. Sounds easy.
Not these days.
If the size or nature of that particular transaction does not meet the secretive parameters and risk limits set by some over-zealous compliance team, you may find yourself with a blocked account and plenty of explaining to do.
But if you are a wealthy oligarch dropping by for the day on your private jet and want to take out £5 million in cash, then few questions are asked.
And if you are an Eastern European politician and want to buy a £25 million London property over the telephone, sight unseen, based on a £50,000 annual salary, the estate agent or banker barely raises an eyebrow.
This “politician” transfers his funds from an obscure bank in his homeland into a solicitor’s escrow account in London, takes title in the name of a Caribbean offshore trust and then sells it 12 months later at a tidy profit that is wired into a newly established offshore account in Geneva.
“Most banks will rather refuse a new client than face the risk of a fine for having failed to tick the correct compliance box.”
This is the order of the day for many banks and professionals, with few questions asked.
But the hard-working businessman or investor is being swallowed up in a quicksand of excessive bureaucracy and compliance.
This rampant red tape is actually missing its target, imposing excessively onerous disclosure burdens on small clients — from retirees wanting to shelter their savings to small business owners.
At the same time, the regulators are allowing real corporate criminals to launder money by using countless ingenious and insidious methods with the assistance of bankers and lawyers.
Today, most banks will rather refuse a new client than face the risk of a fine for having failed to tick the correct compliance box.
I know of a bank refusing to open a new account because of a missed Apostille (legal verification) for a utility bill being 10 days out of date.
Then there was the multi-million-pound float on AIM being dangerously delayed because their lawyers refused to sign off on a vital opinion thanks to a missing address on the electricity bill of one of the company’s directors.
Over-regulation has become prohibitive to the point where it either strangles businesses or pushes them to migrate to more favourable jurisdictions.
Today it is easier, quicker and cheaper to float a company on most Asian exchanges in a more commercially conducive atmosphere than it is in London.
These days the average company or individual seeking to open a simple bank account is confronted with a bewildering and asphyxiating list of regulatory demands.
First, the process can take up to two or three months. Then there are the 50-plus page application and account-opening forms coupled with countless due-diligence documents and declarations of source of funds — in one case, the question of how a great-grandfather made his fortune during the Second World War.
This exhausting procedure only achieves one thing: it discourages average law-abiding citizens and creates disproportionate entry barriers to new entrepreneurs.
Meanwhile, we all know that the next billion-pound money-laundering scandal is lurking just around the corner.
An estimated £57 billion is laundered through the UK every year, according to the Financial Conduct Authority.
For the big banks, oligarchs, arms dealers and tycoons — usually operating in the Alice in Wonderland offshore world — the same compliance rules are not being enforced and know-your-client tests are not being imposed.
This was demonstrated when the UK division of South Africa’s Standard Bank was fined £7.6 million by the FCA for failings relating to its anti money- laundering procedures concerning some corporate clients.
Havern: the Cayman Islands
Scandals and frauds have been on the rise, and not just by HSBC which was lambasted by the US Senate banking committee for allowing Mexican drug lords such as Joaquin Guzman to buy planes with money laundered through Cayman Island accounts.
But the compliance police have been hounding the wrong targets — relatively medium-sized enterprises and the individual investor.
Compliance in finance is not only necessary but also a most useful mechanism efficiently to control a market that by its nature is prone to abuse and manipulation. But the smothering western compliance system is taking its toll.
Compliance is now the priority and fulfilling onerous, often senseless rules by compliance officers is reducing growth and prompting a shift to more flexible regulatory environments.
Compliance is no longer conducted on a level playing field. The balance needs to be tackled.
Axel von Schubert is a director of ECMS Euro-Caribbean Management Services and chief executive of JP Capital Investments