Money Laundering and Terrorist Financing (Amendment) (No. 3) (High-Risk Countries) Regulations 2021

Motion to Approve

Moved by

That the Regulations laid before the House on 1 November be approved.

My Lords, this Government recognise the threat that economic crime poses to the UK 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 and 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 are taking significant action to combat economic crime, from introducing the economic crime levy to progressing the Government’s landmark economic crime plan. We are working closely with the private sector and our international partners to improve the investigation of economic crime, strengthen national standards on corporate transparency and crack down on illicit financial flows.

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 hostile actors. Under these regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. These are countries that have strategic deficiencies in their anti-money laundering and counterterrorism financing regimes, and 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. This is to mirror lists published by the Financial Action Task Force, the global standard-setter on anti-money laundering and counterterrorist financing. As the Financial Action Task Force carries out its periodic reviews and regularly updates its public lists of jurisdictions with strategic deficiencies, we also need to update our own. Updating our list shows that we are responsive to the latest economic crime threats and ensures that the UK remains at the forefront of global standards on anti-money laundering and terrorist financing.

This amendment 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 our national security and the UK’s international reputation, while securing businesses and the financial system from money launderers and terrorist financiers. Therefore, I beg to move.

My Lords, we support this measure and, as the Minister outlined, while this is an uncontroversial measure with regard to Mali, Turkey, Botswana and Mauritius, it is one element of a much wider agenda on which the UK has an opportunity to lead—and in many areas it is, working very closely with our key allies. The timing is, probably by accident, relevant. It is between the debate on the Statement, when we discussed human trafficking and the linked crime of smuggling, and change to the proscription of a terrorist organisation, so it is linked.

The noble Baroness, Lady Williams, mentioned organised crime offences in the Balkans. When I served on the Select Committee on International Relations and Defence, we carried out an inquiry into the Balkans, and I visited. We identified that one of the biggest interests of the UK in the region is organised crime and the finance connected with it. When I visited the Sahel and looked at some of the smuggling routes, I was told by British officials that this industry equates to £10 billion-worth of organised crime. It is on an awful, industrial scale.

We have debated Afghanistan and will again next week. Some 95% of the heroin on the streets of this country is from Afghanistan. More people die every year than died in Afghanistan as tragic British military casualties of that conflict. All of them are connected with a considerable amount of money. None of those awful activities, which lead to tragic victims and innocent deaths, can be separated from those who are party to this and who launder some of the proceeds and facilitate some of this activity.

Therefore, we support the work of the Financial Action Task Force, our security services, the Treasury, the Bank of England and all the agencies who have to work forensically to tackle this awful use of what are often very technical, legal, financial and bureaucratic mechanisms to hide criminal activity.

My Lords, on the face of it, the regulations before us are very straightforward. The Financial Action Task Force has updated its list of high-risk countries, and we are mirroring those changes in our legislation. We have supported such instruments in the past and will continue to do so.

Paragraph 3.3 of the Explanatory Memorandum outlines the usual justifications for this instrument being laid under the “made affirmative” procedure. We accept the arguments, but it is a pity that the urgency in laying these SIs is not always matched when it comes to the Government’s wider efforts to crack down on money laundering. Although it is true that the task force has given the UK a good rating in general terms, we know that concerns have long been expressed about the UK’s supervisory regime. As my colleague Pat McFadden said in the Commons, the Treasury itself has conceded that FATF sees our systems as “only moderately effective” and that the international body also believes that there are

“significant weaknesses in the risk-based approach to supervision”

in the UK.

The UK is understandably a target for illicit funds, given the size and global status of our financial services sector. The Magnitsky case is a well-known example of funds being funnelled through UK institutions, but we know it is not the only one: that much has been seen with the recent publication of the Pandora papers. The Financial Conduct Authority is reportedly running several active investigations in this area. We wish it well with those probes and hope that any wrongful behaviour is punished in an appropriate way.

The Minister said yesterday that, despite the lack of criminal convictions secured through FCA action, the body is nevertheless taking robust action. He pointed to the imposition of a number of major fines in recent years, such as those against Standard Chartered. However, it is not clear that these punishments are changing behaviour or preventing the recurrence of bad practice. On Monday, Minister Whately outlined some of the limited examples of government action. We welcome the allocation of funds to this fight, but it is hard to take seriously her claim that everything possible is being done to make the UK

I thank noble Lords for their contributions and I will try to answer the queries raised.

I turn first to the noble Lord, Lord Purvis, and the register of overseas entities’ beneficial ownership. The Government remain absolutely committed to these reforms. When implemented, this register will be an important new tool in our wider efforts to tackle economic crime and will be complemented by the broader powers we are now proposing for Companies House. Once implemented, the register will be one of the first of its kind in the world. That is good news for the UK, maintaining our global leadership role on corporate transparency and enhancing our already strong reputation as an honest and trusted place to do business. The Bill will reflect the pre-legislative committee’s recommendations to ensure that the legislation is as effective as possible in tackling the use of UK property for the purposes of money laundering. I cannot give the noble Lord a precise date, but I am the counter-fraud Minister and I am pressing hard to get that commitment, because I share his concern on this important additional weapon in our arsenal.

I turn to the number of important points raised by the noble Lord, Lord Tunnicliffe, and will try to address as many of them as possible. In terms of the views of FATF, the UK has achieved the best ratings of any country assessed so far in this round of its evaluations, outperforming other states who are at the forefront of tackling money laundering and terrorist financing. I must stress that we are not complacent, and I take the noble Lord’s challenges and criticisms very seriously. The Government will continue to enhance our response to illicit finance as new risks and methodologies emerge.

The UK continues to be guided by FATF standards in our domestic response to money laundering and terrorism financing. Our strategy for combating these crimes is set out in the Economic Crime Plan. This plan contains 52 actions, and its comprehensive agenda will ensure that the UK maintains its global leadership. Key actions include the reform of the suspicious activity reporting regime and improving the supervision of anti-money laundering compliance in the regulated sector. We have made progress in delivering on the Economic Crime Plan, with 24 of the actions complete and a further 10 implemented and being undertaken as an ongoing activity.

The Government’s proposed reforms to Companies House will maintain our position as a world leader in corporate transparency. Once the register of overseas entities is implemented, it will be one of the first of its kind. This is good news for the UK, enhancing our reputation.

I hope that I have addressed the questions in a useful way and that noble Lords will join me in supporting the regulations. I commend them to the House.

Motion agreed.