Excluding small businesses from anti-fraud legislation is asking for trouble

Down the years we’ve grown used to – make that tired of – politicians talking tough on crime and doing nothing about it.

Nevertheless, even by their low standards, this FT headline suggests they are plunging to new depths; even giving up completely: “Small UK companies set to be excluded from anti-fraud legislation.”

It’s not 1 April, it’s not a joke. It’s true. Ministers are planning to exclude small UK businesses from anti-fraud legislation by narrowing the scope of a criminal offence targeting companies that fail to prevent economic crimes. Only larger companies are to be covered, said one Home Office official, “to avoid burdening smaller businesses”.

There’s more. They’re considering restricting the new offence of “failure to prevent” to fraud, and excluding money laundering and false accounting.

You wonder, do ministers and their advisers exist in the same world as you and me? Do they, for instance, watch the TV that we watch? The reason I ask that last question is that right now, the BBC series The Gold, covering the aftermath of the Brink’s Mat bullion robbery, has shown in gripping detail how the proceeds of crime can be cleansed and re-enter the financial system.

Guess what? None of the firms that the robbers and their associates used were large; their preference was for a dodgy lawyer or bent jeweller or crooked builder, one-man operators they knew and could trust. They would not go near a major outfit for fear of too many eyes and ears, and internal controls and processes.

It was the same with the Krays. Years ago, myself and a journalist colleague spent several months trying to trace the cash the East End gangsters had salted away. Time and again, it was the same small businesses that kept turning up. In the end, our attention was diverted elsewhere and the piece never appeared – a pity because it was fascinating following the money.

Scottish National Party MP, Alison Thewliss, who is taking a keen interest in the progress of the new economic crime bill, said: “Any exemptions or carve-outs to this important legislation will simply allow criminals to continue their lucrative trade.” She is stating the obvious but then, someone has to make the point.

Susan Hawley, executive director at campaign group Spotlight on Corruption, said the move would “send entirely the wrong message” that fraud was not a problem for small and medium enterprises.

Again, her next point is logical. “It would be much more sensible for the government to provide strong guidance for SMEs on what these proceedings should be than exempting from the legislation.” You would think so, but that’s not where they’re heading. It’s bonkers.

Nonsensical too is the dropping of money laundering and false accounting. As it happens, research from The Ferret, the investigative journalism platform in Scotland, puts a spotlight on economic crime in Scotland. It found that of 631 new Scottish Limited Partnerships or SLPs created last year, only three were formed by residents of Scotland.

Most SLPs are above board but they’ve also been a favourite of people from overseas looking to launder cash – more preferable than their English equivalent because under Scots law, the SLP can hold an asset directly whereas the English variety must provide the name of an individual partner. The Scottish type is that bit more opaque and therefore more appealing to criminals.

In its study, The Ferret found that nearly 80 per cent of the new SLPs were registered to just three addresses in Edinburgh. One of the addresses has featured in a sanctions case and another in lawsuits alleging embezzlement.

None of the three, of course, are the homes of large law or accountancy practices. They’re small businesses, of the sort that ministers wish to exclude from the economic crime bill.

Alison Thewliss crops up again in The Ferret report. She’s campaigned against SLPs and describes them as “the vehicle of choice for money launderers and those who wish to conceal their identity for other reasons”.

She accuses the UK government of not going far enough. “The fact that firms with links to international money laundering are operating in plain sight in Scotland’s capital city should be a source of embarrassment for the UK government.”

The idea that the government would be embarrassed smacks of wishful thinking. Asked about the exclusion of small businesses and money laundering and false accounting, the Home Office declined to comment on the specifics but said it was committed to introducing a “failure to prevent” amendment to strengthen the UK’s already “robust” economic crime legislation.

But that “failure to prevent” will not apply to small businesses or to money laundering and false accounting. The notion that Britain already possesses “robust” economic crime laws would only provoke loud laughter in parts of the world, notably the US, where they take the subject far more seriously. The Americans, for instance, have long complained that we’re more lax in this area and that our prosecution rates lag behind theirs.

Memo to crooks worried about the new economic crime bill: don’t be, make sure you choose a small business, the one run by your pal, and you’ll be fine.

Chris Blackhurst is the author of ‘Too Big to Jail: Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century’ (Macmillan)