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Financial Services

Volume 693: debated on Monday 26 April 2021

I beg to move,

That the Money Laundering and Terrorist Financing (Amendment) (High-Risk Countries) Regulations 2021 (S.I., 2021, No. 392), dated 24 March 2021, a copy of which was laid before this House on 25 March, be approved.

This Government are committed to combating money laundering and terrorist financing and recognise the threat of economic crime to our financial system. Illicit finance risks damaging not only our national security, but our reputation as a global financial centre by undermining the integrity and stability of our markets and institutions.

While it is right that we stamp out the scourge of illicit finance for the benefit of the United Kingdom, it is also right that we do so because of our responsibilities to the wider world. When illicit finance flourishes, so does serious and organised crime, such as people and drug trafficking and terrorism. These are acts that have huge social and economic costs and, of course, cause unimaginable suffering. That is why the Government are focused on making the UK a hostile environment for illicit finance. As part of this work, we have taken significant action to tackle money laundering while strengthening the response of the whole financial system to economic crime.

The bedrock of these efforts is the money laundering regulations. This is the legislative framework that sets out a number of requirements that businesses falling under its scope must take to combat money laundering and the financing of terrorism. These requirements include the need for firms to implement measures to identify and verify the people and organisations with whom they have a business relationship or for whom they facilitate transactions.

In addition, the regulations require financial institutions and other regulated sector businesses to carry out greater scrutiny or enhanced due diligence in respect of business relationships and transactions involving so-called high-risk third countries. These are nations that have been identified as having strategic deficiencies in their anti-money laundering and counter-terrorism financing regimes, and that pose a significant threat to the UK’s financial system. The statutory instrument under discussion this evening amends the definition of a high-risk third country in the money laundering regulations.

Allow me to explain the background to some of these changes. At present, the definition of a “high-risk third country” in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 is linked to retained EU law and references the list of countries identified by the European Commission as high risk. This list was previously operated via EU law, which no longer has an effect in the UK. If our legislation is not amended, the list will become outdated and could leave the United Kingdom at risk from those operating in nations with poor money laundering and terrorist financing controls.

Furthermore, the United Kingdom will risk falling behind international standards set by the Financial Action Task Force or FATF. This instrument will therefore amend the money laundering regulations to remove references to the EU’s high-risk third countries list and insert a new list of countries identified in schedule 3ZA. This will be the UK’s new autonomous high-risk third countries list. It will mirror exactly the list of countries identified by the Financial Action Task Force as having strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes, and it will keep the UK in line with international standards.

The change that I have outlined will allow us to continue to protect businesses and the financial system from those who pose a significant threat, while ensuring that the United Kingdom remains at the forefront of global standards in combating money laundering and terrorist financing. I thank Members for their examination of this important piece of legislation, and hope that colleagues will join me in supporting it this evening.

As we pass the midnight hour, we turn to the subject of money laundering. I am grateful to the Minister for his remarks and note that, alongside this statutory instrument, we had the statement earlier—I was going to say today, but it is now yesterday—by the Foreign Secretary, announcing sanctions against a number of named individuals. In that statement, the Foreign Secretary said that

“Our status as a global financial centre”

had made us both an attraction for investment and also a

“a honey pot—a lightning rod—for corrupt actors who seek to launder their…money through British banks or…businesses.”

It is precisely because we are a global financial centre that there is a special responsibility on the United Kingdom to ensure that each part of that sector always operates to the highest standards. We cannot build a future as a laundromat for dirty money, we cannot turn the other way when wrongdoing takes place and we cannot take part in the denigration of institutions. Of course, we also need the highest possible standards in our own public life if we are going to talk to other countries about corruption. That means allegations being properly investigated; it means a duty of propriety with public money; it means procurement based on open criteria, not on inside connections; and it means that those at the very top of our Government should tell the truth.

We support this instrument, which updates the list of third countries where extra due diligence is required in relation to money laundering and terrorist financing. We understand that these matters lie at the heart of national security and financial security, and we want systems as robust as possible in place to guard against money laundering and terrorist financing. Our defences against money laundering are not just a matter of law and regulation, vital though those things are; they are also a matter of enforcement, so I have a couple of questions for the Minister. Why does he think that in the recent FinCEN reports the UK was considered to be a higher-risk jurisdiction? Why does he think that so many shell companies are based in the UK? What are the authorities doing about that?

Both the Royal United Services Institute and Spotlight on Corruption have identified Companies House reform as an urgent issue in the tackling of corruption and money laundering. What are the Government doing to drive this? Where are we with the draft Register of Overseas Entities Bill? There was nothing about it in the most recent Queen’s Speech. Will there be anything about it in the next Queen’s Speech? A foreign property register was supposed to be established this year. Will the Government meet that deadline? Finally, where are the Government on implementing the findings of the Intelligence and Security Committee’s Russia report, which used the phrase “the London laundromat” in the first place?

Effective action against money laundering, terrorism and fraud is about a lot more than maintaining a list of countries; it requires action on all fronts if we are to fight these problems effectively. That is what we need to see.

I endorse a lot of the comments made by the Labour Front-Bench spokesperson, the right hon. Member for Wolverhampton South East (Mr McFadden); I found myself agreeing with a great deal of what he was saying.

The Scottish National party welcomes the measures in the regulations, but I certainly cannot share the Minister’s glowing endorsement of the Government’s record on money laundering or, indeed, the even more glowing self-praise that we heard from the Foreign Secretary earlier—or yesterday, as it is now. This is a Government who legislate against money laundering, or in favour of transparency in the world of big business only when the eruption of yet another scandal makes it politically too hot for them to continue to pretend that everything is fine. The Government are packed with hard-line Brexiteers—supporters of Brexit, the timing of which we now know was critical to those who had reason to want to keep British-regulated businesses clear of a tightening of European Union regulation.

The Government showed no hint of embarrassment when the first person to be hit with one of their much-trumpeted unexplained wealth orders turned out to be an east European multimillionaire whose immigration and UK citizenship applications had been fast-tracked purely because of the amount of money they owned—money the source of which was as unexplained and dodgy when they were allowed into the country as it was when the National Crime Agency finally caught up with them. Of course, even now the Government are mired in scandal over who really put up the cash for the spiffing up of the Prime Minister’s flat. Over the weekend, there were persistent claims, which went noticeably unanswered, that the money might originally have come from an unauthorised donor and that, in effect, the money might have been laundered.

There is no indication of what, if anything, the Government are doing to address the fact that seven of the 21 countries on the high-risk list are members of the Commonwealth, and another is trying to join. How can anyone have confidence in the super influence that global Britain is supposed to have if it cannot even fix corruption in its own Commonwealth? It gets worse, because another name on that list is that of the Cayman Islands, a British overseas territory. The Government have at their disposal the constitutional tools to put an end to the Cayman Islands’ grim reputation, but they choose not to use them. In fact, recent events have suggested that the Government would rather use their muscle to prevent the Scottish Government from giving children the full protection of a United Nations convention than use it to free one of their few remaining colonies from dodgy business practices that—who knows?—may well have been learned from former colonial masters in the first place.

There may well be legitimate and honourable reasons why a company that never does any business in the Cayman Islands would choose to have its brass nameplate on a door there, rather than in the United Kingdom, North America or wherever the business is genuinely based, but we are talking about 100,000 company registrations in a place the population of which is lower than that of my constituency. As well as answering the questions from the right hon. Member for Wolverhampton South East, will the Minister tell us what he thinks attracts so many British companies to create wholly artificial structures to link them to Cayman Islands? If it is not tax dodging or money laundering, or to evade legitimate laws on business ethics and transparency, what on earth does he think they do it for? If he cannot think of a reason, perhaps he should ask some of his colleagues why they choose to register companies there. If you have the Companies House register and the Register of Members’ Financial Interests open side by side on a computer screen, it does not take very many clicks of a mouse to find some very senior Tories who do exactly that.

As well as welcoming the regulations, the SNP will continue to keep up the pressure on the UK Government to bring in the further measures needed to clean up the entire financial services sector. The SNP can already claim a number of significant successes in forcing the Government to match their rhetoric with action and, for as long as there are MPs from Scotland in this place, we will continue to keep up that pressure.

I thank the right hon. Member for Wolverhampton South East (Mr McFadden) and the hon. Member for Glenrothes (Peter Grant) for the points they raised. I shall try to address some of them. As I outlined earlier, the Money Laundering and Terrorist Financing (Amendment) (High-Risk Countries) Regulations introduce a new autonomous high-risk third countries list, which will ensure that UK legislation to protect the financial system from money laundering and terrorist financing remains up to date.

The right hon. Gentleman raised a number of points. He first mentioned the FinCEN files, which are largely historic, but I will write to him about anything further I can on that. I met Spotlight on Corruption recently to be challenged on a number of aspects. He mentioned Companies House reform, on which work is ongoing, and there will be further announcements in due course.

The regulations represent the UK’s new approach to high-risk third countries. It will allow the UK to take its own view on which countries are high risk without referencing EU legislation and to remain in line with international standards in the fight against money laundering and terrorist financing. The UK is internationally recognised as having some of the strongest controls worldwide for tackling money laundering and terrorist financing.

Who will be responsible for maintaining the list? Will it be Her Majesty’s Treasury? What will be the procedure to review it so that countries may come on to it and existing countries may come off it if they no longer meet the criteria?

I thank my hon. Friend for his reasonable question about the updating of the list. The Financial Action Task Force meets three times a year to determine the countries identified on its public lists. As such, the UK’s new autonomous high-risk third countries list could be updated up to three times a year to mirror the decisions made by FATF. We will look at that carefully. FATF monitors the UK—indeed, it did a mutual evaluation of the UK in December 2018 and gave us one of the highest ever rankings—and constantly updates countries who are high risk around the world.

I will make a few points in response to the right hon. Member for Wolverhampton South East. In recent years, the Government have taken a number of actions to combat economic crime, including creating a new National Economic Crime Centre to co-ordinate the law enforcement response to economic crime, and passing the Criminal Finances Act 2017, which introduced new powers, including unexplained wealth orders and account freezing orders, and established the Office for Professional Body Anti-Money Laundering Supervision to improve the oversight of anti-money laundering compliance in the legal and accountancy sectors. In 2019, the Government and the private sector jointly published a landmark economic crime plan that outlines a comprehensive national response to economic crime such as fraud and money laundering, as mentioned by the right hon. Gentleman. It provides a collective articulation of 52 actions being taken in both the public and private sectors in the next three years to ensure that UK cannot be abused for economic crime.

The hon. Member for Glenrothes mentioned the Cayman Islands. As of the FATF plenary in February 2021, FATF collectively agreed to include the Cayman Islands in its list of jurisdictions under increased monitoring. As that is one of the FATF public lists that the UK autonomous list mirrors, the Cayman Islands will be included in the UK’s list of high-risk third countries. The outstanding issues that the Cayman Islands must address are outlined in FATF’s publicly available statement.

I hope that the House has found the debate informative and will join me in supporting this important step to ensure that we have an up-to-date framework to protect the financial system from money laundering and terrorist financing.

Question put and agreed to.

Business of the House (Today)


That, at this day’s sitting, the Speaker shall put the Question on the Motion in the name of Keir Starmer relating to the Health Protection (Coronavirus, International Travel) (England) (Amendment) (No.7) Regulations (SI, 2021, No. 150) not later than 90 minutes after the commencement of proceedings on the motion for this Order; the business on that Motion may be proceeded with at any hour, though opposed; and Standing Order No. 41A (Deferred divisions) shall not apply.—(David Duguid.)

Sitting suspended.