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Criminals and sanctioned officials can "easily breach" anti-fincrime laws, according to new studies

According to a recent study, international financial restrictions intended to combat "dirty money" can be "easily breached" by criminals, tax evaders, and individuals who have been sanctioned.

The UK and other countries do not adhere to international anti-corruption standards with regard to banks and other financial organizations, according to a report from The University of Cambridge and The University of Texas at Austin issued on Thursday.


Researchers tested compliance with laws that prohibit money laundering, terrorist financing, tax evasion, and penalties on Russian officials under the Magnitsky Act in 2020–2021 by sending emails to 5,000 banks and 7,000 other financial intermediaries in 273 countries and territories.


According to the study, one in 30 banks did not adhere to international rules; if those that did not reply to the researchers' emails are excluded, the number rises to one in ten.


One in 20 businesses failed the Magnitsky sanctions test, and if non-responders are taken into account, that number rises to one in six.

In nations with modest corruption risks, such the United Kingdom (UK) and the United States (US), as well as in high-risk regions, like Papua New Guinea and Pakistan, researchers established 12 shell firms.


In order to avoid accountability, pay less in taxes, and retain their privacy, shell firms were set up in the names of a number of Russians on the Magnitsky sanctions list.


The study found that those who were listed on the Magnitsky lists were able to access the financial system almost as easily as low-risk people, indicating that the sanctions were ineffective.


"It will take you one day to break these sanctions. You don’t have to break a sweat too much to send out 20 emails. And this is without hiding your identity as a high-risk individual," according to Jason Sharman, a Cambridge professor of international relations.


Some of the responses to the researchers' emails revealed a willingness to work with high-risk clients to break the laws by hiding the client's name, in addition to a disrespect for the rules.


In one instance, a firm representative described how establishing a "shelf company" would enable a customer to evade Magnitsky sanctions.


The researchers concluded that the failure of banks and intermediary corporate service providers to discriminate between extremely high-risk and low-risk consumers rendered Magnitsky sanctions and anti-money laundering regulations ineffective.


Researchers conducted their trials again after Russia invaded Ukraine and discovered that names on sanctions lists were far less likely to elicit a response using names on sanctions lists.


Additionally, there was little difference in compliance between firms in countries with Magnitsky Act and those without it.


The analysis came to the conclusion that these sanctions' effectiveness is "a product of war rather than law."


According to Mr. Sharman, "Until the war starts, these incredibly high-risk people get treated exactly the same as Joe Bloggs, they are not getting scrutiny."


The Magnitsky Act was pushed for in the US by anti-corruption activist Bill Browder, who stated: "The reason why these company formation agents are so confident in flouting the rules is because they know that nothing will happen to them."

By fLEXI tEAM



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