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Banks: Money-laundering

Volume 741: debated on Tuesday 18 December 2012


Asked By

To ask Her Majesty’s Government whether they are satisfied that sufficient steps have been taken to prevent money-laundering by United Kingdom banks.

My Lords, the UK is internationally recognised as having one of the most robust anti-money-laundering regimes in the world. However, no Government should ever be satisfied that sufficient steps have been taken to prevent money-laundering by those who handle money in the UK. It is an ongoing multi-billion pound threat to the financial system. However, the Financial Services Authority is taking an increasingly robust approach to supervision, demonstrated by recent enforcement actions against banks and their staff.

I thank the Minister for that reply but last year alone the amount of fines paid to the United States regulatory authority from British banks alone came to no less than £6.4 billion, in comparison to the amount paid to the Financial Services Authority from the same banks, which came to £140 million. The discrepancy is clear.

These were not minor crimes. They included not only money-laundering but fixing the LIBOR rate, breaking the sanctions regimes against Iran and other countries and, not least, money-laundering that included drugs cartels in Mexico and Colombia. Does the noble Lord therefore agree with Andrew Bailey, the CEO of the prudential authority that is shortly to be established, that it is impossible to prosecute major banks on grounds of confidence? Does he take that view or the view that I hold, which is that unless we prosecute major banks that commit crimes of this kind, we will find ourselves with a City that no longer has its traditional reputation for integrity and fair dealing, which is absolutely crucial to its future and which many of us recognise must be re-established, if necessary with radical measures?

My Lords, I agree with the numbers that my noble friend shared with us. However, the traditional approaches in the UK and US towards fines have been very different. I believe that my noble friend’s numbers go wider than the narrow question of money-laundering. As I said, the FSA has levied much larger fines in recent years. Prosecutions are, of course, possible and should be pursued where appropriate, whether against bank staff or potentially against the banks. However, Mr Bailey is also correct that there are circumstances in which the prosecution of a bank could have the consequence of putting the future of that bank in jeopardy. Therefore, considerations may arise in extreme cases regarding the stability of the system if a major bank was closed down. Those considerations have to be taken into account.

My Lords, does the Minister accept that the present British regime causes unintended consequences for legitimate people opening bank accounts, for example, for perfectly bona fide reasons?

My Lords, I certainly accept that there is unfinished business to be done around the whole “know your customer” and opening bank accounts regime. Many of us know what difficulty that causes, whether on our own account or on that of our children. This is something that we discussed during the passage of the Financial Services Bill. It is interesting that some banks require less detail and paperwork than others. I wish they would all make this process as easy as possible for their customers, consistent with the regulations that apply.

My Lords, on that topic, I wonder whether the noble Lord and other noble Lords bank with HSBC. I have done so for the past 30 years. Last week I was rather surprised to be asked by bank staff to show them my passport and a utility bill. I am not sure whether noble Lords realise but we are all politically exposed persons in regulator-speak; some of us may be more so than others. But, honestly, is this not mindless box-ticking? Do they really need to check our passports to know the difference between a British baron and a Mexican drugs baron? Is not the reality that these monster banks such as HSBC and RBS are, as the Minister touched on, frankly, not just too big to fail but too big to regulate and too big for any single board to control?

My Lords, on the first of my noble friend’s points, I certainly agree that the banks need to get much more intelligent about this matter. I have met in the Treasury senior bankers on the retail or wealth management side of these banks to make precisely my noble friend’s point: namely, that they need to be intelligent about this matter. This must not be a box-ticking exercise. I have made the same point to the chairman of the FSA. My noble friend raises a very important point.

My Lords, I believe that this is the last time the noble Lord will appear at the Dispatch Box in his current position. I am sure that the whole House wishes him well in his future endeavours.

Turning to the Question, the FSA rulebook states that the chief executive function is the function of,

“having the responsibility … for the conduct of the whole of the business”.

Indeed, the notion of chief executive responsibility is at the heart of the FSA’s regulatory philosophy. While I understand the concept of the independence of the FSA, given that it has been established that HSBC has committed very serious money-laundering offences, would the noble Lord expect the FSA to implement its own rulebook and would he therefore expect it to take enforcement action against the relevant chief executive of HSBC?

My Lords, I am grateful to the noble Lord, Lord Eatwell, for his kind words, but I regret to say that the House may have me at the Dispatch Box again for the Topical Question tomorrow, unless I can persuade a colleague to take it from me. As for HSBC, the FSA will do what it should as the independent regulator in this area. However, it is important that the FSA has agreed a series of additional measures with the HSBC board, including establishing a committee of the main board of the bank with a mandate to oversee matters relating to anti-money-laundering, reviewing relevant group policies, appointing a group level money-laundering reporting officer and having an independent monitor in place to look at the bank’s compliance across the group with UK anti-money-laundering regimes. The FSA has agreed a tough series of measures with HSBC right across the group.