Education and dark money: Why independent schools need anti-money laundering (Simon Luke)

Following the events of the last year, there has been a significant focus on the dirty money that is circulating in the UK. Institutions of all kinds – including prestigious law firms and high profile banks – have all been issued warnings, if not penalties,
for not being vigilant about the risk of money laundering.

The attention doesn’t stop there. Independent schools are next. Alongside property and other high value assets, bad actors have turned to private schools as a lucrative vehicle for hiding their money.

The gravity of this situation is not something that can be overlooked. The UK is one of the largest facilitators of money laundering in the world, with a total estimate of
£88 billion cleaned every single year. It is common knowledge that shell companies in countries with looser jurisdictions offer a direct route into the UK economy. As a result, bad actors and sanctioned individuals can use countries (such as the British
Virgin Islands and the Cayman Islands) to store and then flow through their dirty money.

Dirty money in the education system

Dirty money has been a part of the UK education system for a long time. A 2019 report by
Transparency International highlighted that suspicious funds were used for tuition fees at 178 different educational institutions, including some of the most well-respected schools in the country.

Unfortunately, the knowledge that illicit funds have been in the education system is not new. This being said, Russia’s conflict with Ukraine has acted as a catalyst for increased scrutiny on money laundering and pressure is now coming from several different
angles including media, policymakers, and the public.

The National Crime Agency has issued a warning to schools stating they can no longer accept money without question. They must be aware of where, and who, their money is coming from.

The Times and
The Telegraph have also published pieces targeting schools who have either been a victim to, or simply turned a blind eye towards, accepting money for school fees without doing their due diligence. 

Schools can no longer afford to accept the reputational risk that comes with being associated with embezzerlers and sanctioned individuals. No school wants to be known as the haven for the oligarchs. 

What’s the law for schools and anti money laundering?

Schools do not have to adhere to the same money laundering regulations that apply to other institutions like law firms and real estate providers. However, they are still subject to the Proceeds of Crimes Act 2002. This means if a school is aware that they
are dealing with someone using illicit funds, they may still be prosecuted if they don’t report that suspicion to someone who can do something about it. 

Preventing money laundering

So, what can school bursars – those in charge of processing the school fees – be doing to mitigate the money laundering risk? In reality, it comes down to completing the necessary due diligence, having the correct processes in place, and asking the right
questions. 

School bursars likely want to do the right thing and uphold their school’s reputation. However, some 25,000 pupils in the latest Independent Schools census have parents who do not live in this country – this is a daunting figure when considering the time
it can take to complete appropriate due diligence,  such as source of wealth information on individuals.

Manual processes can be exploited, as well as being time consuming. In order for schools to improve how they tackle money laundering, they need to consider how technology can help. Effective compliance technology can flag risk for schools and give them an
easy way to assess whether their money is coming from reputable sources.

The bottom line 

Given the level of public scrutiny now being aimed at sanctioned individuals and the people who enable them, the reputational risk for schools has never been greater. More than that, whether the money is coming through a trust, corporate entities or parents,
schools have a moral obligation, and now the technology, to do the right thing with less effort.