My Lords, the Financial Conduct Authority is the designated anti-money laundering supervisor for banks in the UK. The FCA uses data-led supervision programmes to assess its target firms. It issues guidance so that supervised entities understand the AML risks they are exposed to. The Treasury’s 2019-20 supervision report found that 86% of the 177 financial institutions subject to FCA active supervision were compliant. In instances of non-compliance, the FCA takes robust action to deter future breaches of the regulations.
My Lords, the FCA has secured only one criminal conviction of a bank for money laundering, which was actually volunteered. Numerous leaks, such as the Pandora papers and the Paradise papers, show that UK banks are involved in illicit financial flows, yet the FCA is missing in action. What prevents the Minister commissioning an independent inquiry into the involvement of banks in illicit financial flows?
My Lords, the noble Lord tells only part of the story. A number of major fines have been imposed on financial institutions in the last few years: Deutsche Bank, £160 million in 2017; Standard Chartered, over £102 million in 2019; Commerce Bank, £37 million in 2020; and Goldman Sachs, £48 million in 2020. We have rigorous oversight and we continue to review it the whole time.
My Lords, earlier this year we held a debate on the Church Action for Tax Justice report Tax for the Common Good. When we discussed British Overseas Territories, we looked at the whole issue of tax havens and were assured that this was being addressed, yet the latest Pandora papers reveal that they are still used by shell companies to hide property sales and to avoid tax. Would the Minister agree that, since we are responsible for the defence of these territories, they have a duty to stop siphoning this money off from the UK?
My Lords, the right reverend Prelate is right to raise the issues in the Pandora papers and the jurisdictions he refers to, but we are making steady progress in closing the tax gap. Indeed, we have closed it by nearly a third in the last 15 years. In 2005-06 it was estimated at 7.5% and in the last year, 2019-20, it was down to 5.3%. In the last 10 years we have collected some £250 billion that would have been lost if these measures were not in place.
My Lords, I declare my technology interests as set out in the register. Does my noble friend the Minister agree that it is time we got real about AML and KYC? Does he agree that we need a digital ID, not just for individuals but for corporate and other entities, and to further increase work on digital currencies, not least a potential Britcoin? If we did this, it would go at least some way towards “laundering out, safety and security in”, and “laundering out, social and economic growth enabled”.
My noble friend is right to be concerned about the vigilance we need to deploy in this area, because it is a fast-moving target. We are always reviewing the situation. In July this year we published a call for evidence, which closed only a few weeks ago, in October. We will respond by June next year, looking at the issues my noble friend raised.
In a recent speech on money laundering, the FCA’s executive director of enforcement highlighted the emerging risk to consumers of online offers from unauthorised companies, investment scams and other too-good-to-be-true propositions. The FCA warning list of such firms has doubled in just over a year. Can the Minister assure the House that there are no plans for regulatory easing of money laundering post Brexit? Will the Government increase the resources of the Serious Fraud Office and the National Crime Agency so that they can enforce legislation effectively and protect the high number of consumers now at risk?
My Lords, as the noble Baroness will probably be aware, in 2018 we created a helpfully named quango oversight group called OPBAS, the professional body supervision group. It produces an annual report, which is always hard hitting on any failures—as indeed its most recent one was. This illustrates that we are entirely self-critical, to ensure that we are watching these developments carefully.
My Lords, in assisting the World Alliance of International Financial Centers, I have found that while we may not think that the UK, as a non-EU financial centre, is a money laundering hub, apparently the rest of the world does. Might inconsistent definitions globally between regulators, legal jurisdictions and international law about who or what is a money launderer be a major part of the problem? As a financial centre, we should ensure the same levels of compliance for all industries, including the property sector, to dispel the notion that money launderers’ illicit money or investments can be under cover here.
My Lords, it is a harsh judgment to say that we are a honeypot for international money launderers. We are one of the largest financial centres in the world, so the volume of money passing through our system is colossal. We have been judged by the FATF as one of the most effective regulators of this area in the world. We have the second- highest level of fines so far. As I mentioned in response to earlier questions, we continue to review the situation carefully. For example, at the moment we are looking at Companies House legislation to make sure that registrations there are more carefully vetted.
My Lords, 10 December 2021 will be the fourth anniversary of the Government’s United Kingdom Anti-Corruption Strategy, which in 2017 committed to bringing forward a draft Bill in that Session of Parliament
“for the establishment of a public register of beneficial ownership of overseas legal entities.”
Are Her Majesty’s Government still committed to such a Bill? If so, when will we see it?
My Lords, we are certainly committed to that. I am afraid I cannot give a date yet. As the noble Lord will know, we are trying to put a huge amount of legislation through both Houses, but we recognise that it is a priority. In February this year the economic crime plan was set out. It listed seven priorities, and dealing with the issues he referred to is included there.
My Lords, any money launderer worth his or her salt is no longer going through the banks. They are basically engaged in Web3 and using decentralised finance, known as DeFi for short. Does the Minister understand that this makes even more critical the kind of register the noble Lord, Lord Tunnicliffe, just described, but also a register of the beneficial owners of property in the UK, which is frequently the way in which criminals, dictators and others choose to wash out their money?
My Lords, in 2018 the National Economic Crime Centre was launched to tackle fraud and money laundering. Has it brought a single prosecution? We read reports of banks having potentially forged customers’ signatures on court documents to repossess homes and businesses. Have the NECC or the FCA brought a single investigation? Is the Minister content with this state of affairs?
My Lords, the National Economic Crime Centre leads and co-ordinates the UK’s response to economic crime. Prosecutions for economic crime are pursued by the National Crime Agency and other enforcement partners. Annually, some 7,900 investigations, 2,000 prosecutions and 1,400 convictions take place in connection with money laundering-related activities.
My Lords, I take the prevention of money laundering as an important imperative. However, I am not sure the banks are dealing with it sensibly. I have had calls from banks asking about my monetary transfers. One bank, which I will not identify, could not contact me as I was away, so it wrote to me in what I regard as a threatening manner, saying, “If we have not received this information about transfers by” a particular date, then three days hence, “we will have to restrict access to your accounts. This will mean you will not be able to withdraw money or make mortgage payments or other standing orders and direct debits.” I am aware of business customers placed in dire financial straits without fault because their accounts have been frozen for so-called security reasons. Does the Minister agree that disrupting normal business commerce just to increase numbers of checks is unacceptable and that the banks need to get the balance right?
My Lords, it is extremely difficult to get the balance right, because the banks are damned if they do and damned if they do not. I am sorry the noble Lord had personal difficulties in that situation, but if it had been a fraudulent transaction with large sums lost, I think he would have been even more upset. We have to err on the side of caution. The banks need to improve their ways of intervening and use artificial intelligence to be more effective and not go after false alarms.