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Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2022

Volume 824: debated on Tuesday 11 October 2022

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2022.

Relevant documents: 11th Report from the Secondary Legislation Scrutiny Committee

My Lords, due to the sad death of Her Majesty Queen Elizabeth II, the debate on this statutory instrument has been delayed, but I am pleased to be taking it forward now. This SI is largely administrative and makes only minor updates to provisions under the money laundering regulations.

This Government continue to recognise the threat that economic crime poses to the UK and our international partners and are committed to combating money laundering and terrorist financing. Illicit finance causes significant social and economic costs through its links to serious and organised crime. It is a threat to our national security and risks damaging our international reputation as a fair, open, rules-based economy. It also undermines the integrity and stability of our financial sector and can reduce opportunities for legitimate business in the UK.

That is why we have taken significant action to combat economic crime, including legislating for the Economic Crime (Anti-Money Laundering) Levy and the Economic Crime (Transparency and Enforcement) Act. We are going further by developing a second iteration of the landmark economic crime plan, and by introducing the Economic Crime and Corporate Transparency Bill, which has had its First Reading in the House of Commons. This Bill will include significant reforms to strengthen the role of Companies House. We are also working closely with the private sector and our international partners to improve the investigation of economic crime, strengthen international standards on beneficial ownership transparency and crack down on illicit financial flows. These efforts are making a difference. Over the last five years we have confiscated over £1 billion in criminal assets, and over the last year we have increased money laundering proceedings by 9%.

The money laundering regulations support our overall efforts. As the UK’s core legislative framework for tackling money laundering and terrorist financing, they set out various measures that businesses must take to protect the UK from illicit financial flows. Under these regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. These are countries identified as having strategic deficiencies in their anti-money laundering and counterterrorist financing regimes which could pose a significant threat to the UK’s financial system. This statutory instrument amends the money laundering regulations to update the UK’s list of high-risk third countries by adding Gibraltar and removing Malta from the list. This is to mirror lists published by the Financial Action Task Force, the global standard-setter for anti-money laundering and counterterrorist financing set up by the G7.

For the purposes of the high-risk third countries list, countries include territories and jurisdictions. Therefore Gibraltar, as a UK overseas territory, is treated as a country in the high-risk third countries list. Gibraltar has been added to the Financial Action Task Force’s list as it has not completed the action plan set by the Financial Action Task Force. Improvements are still needed in Gibraltar’s use of effective sanctions to address anti-money laundering and counterterrorist financing breaches and Gibraltar’s actions to recover and confiscate criminal assets. The UK has offered support to Gibraltar throughout the Financial Action Task Force process and will continue to do so.

Malta has been removed from the Financial Action Task Force list after addressing the remaining commitments in its Financial Action Task Force action plan. This includes improvements in the detection of inaccurate company ownership information and the pursuit of tax-based money laundering cases, among other areas.

This is the fourth time we have updated the UK list to respond to the evolving risks from third countries. This update ensures that the UK remains at the forefront of global standards on anti-money laundering and counterterrorist financing. In 2018, the Financial Action Task Force assessed that the UK has one of the toughest anti-money laundering regimes in the world. The UK was a founding member of this international body and we continue to work closely and align with international partners such as the G7 to drive improvements in anti-money laundering and counterterrorist financing systems globally.

Lastly, this high-risk third-country list is one of many mechanisms that the Government have to clamp down on illicit financial flows from overseas threats. We will continue to use other mechanisms available to respond to other country threats, including applying financial sanctions as necessary.

This statutory instrument will enable the money laundering regulations to continue to work as effectively as possible to protect the UK financial system. It is crucial for protecting UK businesses and the financial system from money launderers and terrorist financiers. Therefore, I hope colleagues—or a colleague—will join me in supporting the legislation. I beg to move.

After the Summer Recess, it is good to be back in this crowded Room. I am grateful to the Minister for introducing these regulations. As he outlined, they contain the latest updates to the Financial Action Task Force list of high-risk countries. We are supportive of FATF’s work and these regulations, though I hope the Minister will be able to answer some questions for me.

In yesterday’s economy debate, I raised the new Administration’s apparent dislike of what they call economic orthodoxy. We saw the role of certain economic and financial institutions questioned during the Conservative Party leadership campaign. The occupants of Downing Street have doubled down on some of their criticisms in the intervening weeks. There have long been concerns that the Government have not taken money laundering seriously. That concern has related mostly to Russian money, with feet dragged in relation to a register of overseas entities. Can the Minister confirm today whether and to what extent the UK Government remain committed to FATF and its output? We were not always convinced of the previous Administration’s commitment to implementing FATF’s country-specific recommendations. Are we likely to see those timescales slip further still under the new Chancellor?

While this question does not relate directly to this SI, the noble Lord, Lord Callanan, chose not to answer it last night, so I am tempted to have another go. Do the Government remain committed to bringing forward the second economic crime Bill? If so, when will we see it?

Turning to the detail of the regulations, could the Minister comment on the Government’s view regarding the addition of Gibraltar? He will know that the Secondary Legislation Scrutiny Committee wrote to the Treasury regarding Gibraltar’s appearance on the list, asking what assistance, if any, the Government were prepared to offer. Does the position outlined by the former Economic Secretary to the Treasury that Gibraltar does not require any bilateral assistance to implement various actions remain current? Can the Minister confirm whether the newly appointed Treasury Ministers have had any contact with their Gibraltarian counterparts on these issues?

Finally, I thank officials at the Treasury for taking the time to discuss this statutory instrument and its Explanatory Memorandum with me before the summer break. We debate these instruments perhaps three times a year yet, despite our general familiarity with the subject, the Explanatory Notes are often unclear and inconsistent. No matter how technical the matters we consider may be, it should be possible for Explanatory Memoranda to make the subject accessible to a wider audience. Indeed, that is the aim of the Cabinet Office guidance. I hope the Minister will take that on board, as we are likely to have a high volume of Treasury regulations coming forward in the months ahead.

With that, the Opposition are pleased to support these regulations. I look forward to the Minister’s response to my broader questions about the Government’s efforts to combat money laundering, and I would be happy for him to write with any detail that may not be available to him this afternoon.

My Lords, I thank the noble Lord, Lord Tunnicliffe, for his remarks, and I shall endeavour to answer as many of his questions as possible. I too take note of the fact that this is rather an empty Committee. That is rather a shame. I certainly hoped that there might have been more people contributing to a debate on this important subject.

I reiterate what I said in my opening remarks very briefly: the Government are taking proactive action to ensure that these high-risk third-country changes are made, and that similar anti-money laundering controls are put in place and are making a difference. I will focus on sanctions for a moment: just last year, the Financial Conduct Authority secured a fine of around £265 million against a large bank for breaches of the money laundering regulations, so these regulations have to have some bite. I hope that what we are bringing in will provide some bite.

Turning to the noble Lord’s questions, I can confirm first that the Government remain entirely committed to FATF and its international standards on anti-money laundering and counterterrorist financing. As he knows, in 2019 the UK was assessed as having one of the strongest regimes for combating illicit finance, but I reassure him that we are not complacent. We are committed to addressing the remaining gaps in the UK’s system as soon as possible, and ahead of the UK’s next FATF evaluation.

Just a few weeks ago, we introduced the economic crime Bill before Parliament. This Bill, once agreed, will introduce the largest reforms to Companies House in over 170 years, making it harder for criminals to misuse companies to launder their dirty money. It will also improve law enforcement’s ability to seize and confiscate criminal assets held in crypto assets. We have Second Reading of the Bill on Thursday and are entirely committed to taking it forward. A draft of the Bill is now available on the Parliament website, should the noble Lord wish to access it.

The Government are also currently working with industry on the second economic crime plan, which I hope will provide some reassurance. The plan will be published in due course and will set out the steps the Government are taking with industry to tackle economic crime over the next three years.

On Gibraltar itself, bearing in mind the questions that the noble Lord raised, we stand by the technical decision of the Financial Action Task Force, of which the UK is an active member. In June, the FATF recognised that Gibraltar had made considerable progress since its FATF evaluation, but that it still needed to make improvements in key areas to complete its action plan. In particular, improvements are still needed to strengthen confiscation of criminal proceeds and increase supervisory outreach to non-financial sectors, such as lawyers. But throughout the FATF process, the UK has been working closely with Gibraltar. We have kept in close contact, and indeed have offered our support. Both Gibraltar and the UK are confident that it will be able to make the necessary reforms to be removed from the list within a short timeframe. By aligning the UK’s approach to the FATF, the UK is in line with international standards, and the identification of countries is underpinned by the FATF’s consistent and technical methodology.

Nearly lastly, let me turn to the noble Lord’s comments on Russia, which he touched on. We are absolutely taking a firm stance against Russia; we are working with our allies, and have introduced the widest possible financial sanctions to cripple Putin and his kleptocrats. Since the invasion of Ukraine, the UK has introduced sanctions to over 1,000 individuals and 100 entities. We are also restricting Russian access to finance, with asset freezes of 18 of Russia’s major banks, with global assets worth £940 billion.

Just to complete my response to the noble Lord—and I thank him again for his questions—I make a very brief comment about his concerns about how the Government view “certain economic and financial institutions”, to quote him. I reassure him that the Government remain fully respectful of such institutions. No names of institutions were mentioned by him, so I think that I shall not mention any either. It is just for the record to say that. As the papers have been saying, and as we know, the Chancellor meets the governor regularly to discuss current issues, while respecting that the Bank of England, for example, remains thoroughly independent.

I hope that the Committee has found today’s sitting informative and that it will join me in supporting these regulations, which I commend to the Committee.

Motion agreed.