Universities are leaving themselves open to money laundering by accepting cash – Martyn McLaughlin

It is a sign of how narrowly we perceive the threat posed by money laundering that the problem is too often framed around taxi companies, car washes, and less than reputable property developers.

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Universities have accepted cash payments worth more than £50m over the past five years.Universities have accepted cash payments worth more than £50m over the past five years.
Universities have accepted cash payments worth more than £50m over the past five years.

But in reality, the conduits for this global scourge are increasingly complex, and we should not pretend that our lauded education system is somehow immune.

A startling investigation by the Times newspaper found that at least 49 universities across the UK have accepted more £50 million in cash payments over the past five years for tuition, accommodation, and other course fees.

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Those who received the banknote payments include prestigious Russell Group universities, such as Manchester University, which received more than £5m.

The University of Strathclyde, one of Scotland’s leading universities, took in around £700,000 in cash payments. It said that students were told before they arrived that cash was not accepted for tuition fee payments, but that vulnerable students unable to pay by electronic means would be able to use banknotes.

The investigation found that China was by far the single biggest source of cash payments across all the universities, with students from Nigeria, Russia, Kazakhstan, India, and Pakistan also making payments using banknotes.

It is important to say at the outset that none of this activity is incontrovertible evidence of money laundering. Equally, however, it would be naive not to look at such patterns of payments with a degree of suspicion, particularly given the significant sums involved. At best, the slew of cash payments shows up a glaring loophole which leaves universities uniquely vulnerable to organised crime groups seeking to clean dirty money.

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Nurseries have been subject to money laundering investigations in recent years, as have private schools. Indeed, in the money laundering scheme known as the Azerbaijani Laundromat, funds are reported to have passed through several companies before being used to pay for school fees in the UK.

The reason the education sector is at risk of exposure to corruption is simple enough: they are not subject to the same kind of rules and oversight seen elsewhere. The likes of banks, law firms, and accountants work under strict regulations designed to ensure they form the first line of defence against suspicious money. No such framework exists in education. This results in a problematic lack of awareness of the issue, and leaves those providing unregulated services exposed.

Whenever the question is asked of why corrupt individuals choose the UK to launder their dirty money, the answer invariably focuses on its property market and its connection to offshore finance centres in overseas territories. These are attractive reasons, but so is the world-class education system. It allows individuals and their families to integrate themselves into society, gaining legitimacy and respectability along the way. It is not just cash that is being cleaned, but reputations too.

The fact that so many universities continue to accept such large sums in cash payments is all the more frustrating given there is clear evidence from anti-corruption organisations and enforcement agencies fighting serious and organised crime that overseas students have been the target of money launderers.

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A recent Transparency International report identified money laundering ties to no less than 177 schools and other educational institutions across the UK. In total, they had received 492 payments worth more than £4.1m, with the money coming from shell companies with bank accounts at institutions that have since closed due to mismanagement and money laundering failings.

While independent schools accounted for the lion’s share of the payments, more than half a million pounds went on university fees. Those institutions highlighted in the report include the University of St Andrews. There is no allegation of wrongdoing on its part or others, but as Transparency International pointed out, these payments highlight the exposure of educational establishments to suspicious wealth.

Only two years ago, meanwhile, freezing orders were placed on 95 UK bank accounts, mainly held by international students, which contained around £3.6m. The National Crime Agency (NCA) said that the money was suspected to be either the proceeds of crime, or that it was intended to be used for criminal purposes.

Many of the accounts in question were built up via small and frequent cash deposits paid from various locations so as to avoid the scrutiny of the banks, a technique known as ‘smurfing’. The NCA also identified cash deposited in the accounts being used to buy goods which were exported to China, without any connection between the party ordering them and the source of the funds.

One probe, known as Operation Shaniko, identified three Santander Bank branches being used for multiple third-party cash deposits, with at least £57m paid across more than 600 compromised bank accounts, almost all of which belonged to Chinese students.

Such reports received scant attention at the time, and it seems that little has been done since to try and root out such problems. There is no time like the present to address the issue with the urgency it deserves and put in place sector-wide standards of due diligence.

It has been estimated that the 11,500 or so Chinese students who have chosen Scottish universities contribute around £200m a year in academic fees, and the post-Brexit landscape means that higher education institutions are now more dependent than ever on income from international students.

The vast majority of that revenue may be legitimate, but unless universities are prepared to put in place robust and resilient protocols to flag up the minority which comes from suspect sources, they are putting their hard-earned reputations at risk.

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