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Money Laundering

Volume 688: debated on Monday 22 January 2007

My honourable friend the Economic Secretary to the Treasury (Mr Ed Balls) has made the following Written Statement.

The Government are today publishing draft Money Laundering Regulations 2007 for consultation. The regulations implement the third EU money laundering directive, which was agreed in October 2005 during the UK's presidency of the European Union. The regulations have been developed in line with the three key principles of the Government's anti-money laundering and counterterrorist finance strategy—effectiveness, proportionality and engagement both domestically and with international partners. Implementing these regulations will further strengthen the UK's defences against money laundering and terrorist finance, and ensure a targeted response to specific threats.

Effectiveness means setting and implementing national and international standards that tackle the global threat of money laundering and terrorist financing. Proportionality means taking a risk-based approach to controls—being tough on new risks that emerge, while reducing burdens where the threat lowers. Engagement within the UK means working closely with business, regulators and law enforcement agencies to ensure that the system works. Internationally it requires co-operation with other Governments inside and outside the EU, including through the Financial Action Task Force, the international standard setter.

The regulations will introduce tough and targeted new measures to further strengthen our ability to tackle money laundering. In particular:

All sectors regulated for money laundering will be supervised for compliance: many firms that are subject to the Money Laundering Regulations are already monitored to ensure that they meet the requirements, including firms regulated by the Financial Services Authority (FSA), casinos, lawyers and some accountants. We will now extend this approach so that all sectors under the regulations are supervised. This will include, for the first time, trust and company service providers, estate agents and consumer credit providers, as well as certain other accountants and financial services providers.

Supervision of money service businesses will be strengthened to ensure that persons running these businesses are fit and proper. New sectoral supervision of trust and company service providers will mean that those involved in the running of such firms will also need to pass a strict test to this effect.

There will be a new requirement for regulated firms to conduct enhanced due diligence in respect of customers and situations that pose a higher risk of money laundering and terrorist financing. This universalises the risk-based approach to customer due diligence that many already apply by requiring all firms to take extra checks at the high end of the risk spectrum.

The regulations make operational the Government's view that, where possible, casinos should identify their customers when they reach a threshold of €2,000 of chips exchanged or gambled—an approach recommended as international best practice by the Financial Action Task Force, but with a level stricter than the international requirement. In the view of law enforcement, money laundering in casinos below the sum of €2,000 is not a material risk provided proper checks are in place to ensure that this threshold is not exceeded without appropriate due diligence taking place. Those casinos that are able to demonstrate to the regulator that they have the systems in place for tracking and identifying higher risk individuals and for ensuring that criminals are not able to circumvent the threshold by gradually exchanging or gambling chips should therefore follow a threshold approach. Those unable to do so should continue, as they do now, to identify all their customers on entry.

In addition to taking tough action where the risks require it, we are reducing regulatory burdens where possible. For example:

Firms will be able to apply simplified due diligence in situations that the regulations classify as low risk. This means that fewer checks will need to be applied for certain products including the child trust fund and pension products where contributions are made solely by an employer.

Firms will have greater scope to rely on the customer identification checks conducted by others. In particular, specific provision for regulated firms to rely on the due diligence conducted by FSA-regulated firms and certain professionals will be introduced in the regulations. Going forward, the Government hope to widen the scope of this measure to include other sectors, subject to those sectors being able to demonstrate a high level of compliance with the Money Laundering Regulations. This is a deregulatory measure in line with the recommendation of the Better Regulation Task Force report on regulatory creep. It should improve the experience both of the firm and of the customer by removing duplication of identity checks.

Firms will have more flexibility in deciding which records to keep. Previously there was a preference in the law for firms to keep copies of documents as opposed to references such as passport numbers. The new regulations will place reference numbers on the same footing as copies for the purposes of record-keeping, reducing business costs and increasing flexibility.

The draft Money Laundering Regulations have been developed through an extensive process of consultation with all interested parties, including representatives of law enforcement, regulators and the industry itself. In July 2006 the Government published a consultation document setting out proposals for implementing the EU third money laundering directive. This consultation closed in October 2006 and the responses received have informed the draft regulations being published today. The Government will continue to work closely with all stakeholders as the regulations are implemented.

The Government will set out in greater detail how they will apply the principles of effectiveness, proportionality and domestic and international engagement more widely to the continuing challenge of detecting, deterring and disrupting money laundering and terrorist financing in the coming weeks. Copies of the consultation document published today are available in the Libraries of the House.