school fees aml

Money laundering goes back to school

Are Britain’s private schools and colleges being used to launder the proceeds of crime? The National Crime Agency certainly fears so: last year its economic crime unit warned the UK’s independent schools were regarded as easy pickings for those seeking to clean up their dirty cash.

Schools charging fees running into tens of thousands of pounds a year and increasingly targeting foreign students, including the children of families from countries regarded as high-risk by corruption experts, are a money launderer’s dream according to campaigners. They claim schools themselves carry out relatively few checks on where the money used to pay their fees comes from.

One glimpse into this murky world came earlier this year, following one of the biggest ever leaks of information from the banking sector. It revealed no fewer than 50 British education providers had accepted school fees paid by shell companies based in tax havens, often with links to countries that feature highly on the risk radars of anti-money laundering campaigners.

Many of the schools highlighted argue that the payments typically date from five to 10 years ago when awareness of financial crime and money laundering was much lower. They would be far more likely to query fees paid in this way today, they argue, through enhanced due diligence such as source of wealth checks.

Indeed, independent schools say they are alert to the problem. Millfield, for example, one of the UK’s best known (and most expensive) private schools points to the anti-money laundering policy it reviews every year.

Nevertheless, fears remain that the UK’s independent school system is, albeit unwittingly, facilitating money laundering. The government has promised to target the sector with greater scrutiny, particularly where schools fail to report suspicious activity. Moreover, the number of non-British pupils attending independent schools in the UK continues to increase, including pupils with families from countries that crime agencies worry about.

Data from the Independent Schools Council shows there are now more than 55,000 non-British pupils in education at its member schools. The total includes more than 2,500 Russian students, more than 1,400 Nigerians and almost 600 from Central Asia. In most cases, of course, these pupils’ fees are being paid from perfectly legitimate sources of wealth, but campaigners and crime enforcement agencies fear suspicious transactions may be slipping through the net.

One related issue to consider is the sharp increase seen over the past year in the number of wealthy foreigners arriving in the UK on so-called “golden visas”. More formally known as tier-1 investor visas, this paperwork is available to foreign nationals investing at least £2m in the UK – and the high quality of the UK’s independent schools appears to be one of the main attractions for those bringing children with them.

In all, the UK has issued some 11,000 tier-1 visas over the past decade, with Russians and Chinese amongst the most frequent customers. But the Government came close to abandoning the scheme in 2018 following a number of high-profile cases of individuals with such visas being investigated because they could not explain where their wealth had come from. Though the tier-1 visa scheme rules have subsequently been tightened, fears persist that some of those entering the country – and sending their children to independent schools – may be relying on questionable sources of finance.

How, then, to police against the use of school fees for laundering the proceeds of crime? Clearly, schools themselves will need to play their part, reporting their suspicions more regularly and instituting checks to flag up potential problem cases in the first place. The work done by schools such as Millfield in this regard is to be welcomed.

Inevitably, however, schools have fewer resources to police financial crime and lack the sophistication necessary to fully close the loophole that the sector represents. The banking industry will therefore have to play a crucial role if we are to tackle this problem decisively and effectively.

Most obviously, schools’ banks are in an ideal position to help the sector do more to combat bad actors. Their existing anti money laundering processes and customer due diligence practises can help schools flag up suspicious activities and cases for referral. The sector’s banking partners offer the best hope of cracking down on money laundering at scale.

Equally, banks that take know-your-customer rules seriously, apply a risk-based approach to their anti-money laundering work and focus on customer intelligence will be able to root out this problem at source. Their broader responsibility here is to prevent their own customers paying school fees from illegitimate sources.

All of this requires banks to do more. New cloud-based technologies leveraging machine learning and artificial intelligence offer a means with which to counter money laundering systematically and efficiently. Many traditionally manual processes can be automated and accelerated. Now is the time for banks to embrace these technologies – in order to catch out those who see the UK’s independent schools as a soft target, and to improve anti-money laundering across the board. Will they step up to the test?