Britain’s high streets are being laundered clean – one candy store at a time

Our High Streets have changed a lot over the past decade and one of the primary motivating forces driving that change is financial crime.

It’s what’s behind a lot of the mini-marts, vape shops and barbers that have become ubiquitous in towns and cities across the UK.

So it came as no surprise when, this week, there was a series of targeted raids on businesses like these, with over a 1000 arrests.

Home Office security minister Dan Jarvis said: "Criminals are using these dodgy shops as fronts for serious organised crime, money laundering and illegal working’

But if everyone seems to know what’s going on behind these very literal ‘shop fronts’, then why has the UK been allowed to become a global hub for money laundering and why hasn’t more been done to stop it?

The story of the current situation starts with the long-term decline of the high street. It begins before the pandemic, but the lockdown supercharged it: driving shoppers online and causing big names and small businesses alike to flee from brick and mortar.

The building owners who then don’t want to pay business rates on the empty shops, hire agents to fill them, making the businesses that move in responsible for the tax.

Over the past eight years, this demand for empty high street shops has been ruthlessly exploited by criminals: Moving in, selling counterfeit or stolen goods, laundering money, undertaking other illegal activities and then, through shell companies and the exploiting of loopholes, avoid paying business rates.

This cycle not only means millions in lost tax revenue for the government and legitimate entrepreneurs are denied a place to do business, it also supports vast criminal empires.

All criminal enterprise, from human trafficking to drug dealing, requires a way to clean ill-gotten gains. It’s no coincidence that the rise of ‘shop fronts’ has coincided with an explosion of visible crimes like phone theft.

So that’s the damage, but how has it been allowed to happen? How have regulators failed so profoundly to tackle the issue?

One answer is that for years, figures like Santa Claus and the Tooth Fairy have been exploiting Companies House.

Let me explain. Companies House has for some years been one of the most exploitable corporate registers in the world, with lax rules allowing fake directors (named after fictional characters like Santa, Darth Vader and Adolf Tooth Fairy Hitler) setting up ersatz companies using phony addresses.

Whenever a company is facing enforcement action or has to pay business rates, the owners of the establishment shut up shop and new owners take over. One scam involves paying foreign students to sign legal paperwork on behalf of the real owners before going back overseas when it comes to time to pay tax.

The irony is that Companies House’s lax approach has been pursued to make the UK business-friendly but the result is that small businesses suffer the most as a result.

Fixing Companies House is the first step to reforming this system. And thankfully the government is taking the first steps towards that. From the 18th, it will finally be required for people registering companies to verify their identities.

The invasion of Ukraine also catalysed a flurry of other anti-money laundering measures including changes to the unexplained wealth order system and a new register to tackle anonymity among foreign UK property owners

But the solution lies in bringing our regulatory system into the 21st century. Attempting to increase transparency and enforcement are great steps, but until we’re connecting up all of that information and flagging up suspicious entities, those entities will keep finding ways to slip the net. The technology and information is available. What is missing is coordination.

Crucially, we must also stop seeing anti-money laundering as a back-office compliance task. It’s frontline national security. The same financial networks that launder drug money today may fund terrorism or sanctions evasion tomorrow.

If we get this right people will see the results on their doorsteps; shops that actually serve a consumer need; small businesses allowed to thrive; a sense of community.

The fight against money laundering isn’t just about winning back tax revenue it’s about reclaiming a thriving high street.

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Marit Rødevand is a financial crime expert and founder and CEO of anti-money laundering company Strise:

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