Money Laundering and Terrorist Financing (Amendment) Regulations 2022
Baroness Penn
That the Grand Committee do consider the Money Laundering and Terrorist Financing (Amendment) Regulations 2022.
Baroness Penn (Con)
My Lords, illicit finance not only risks damaging our reputation as a fair and open economy, it threatens our national security by undermining the integrity and stability of our financial markets and institutions. Illicit finance also causes significant social and economic costs through its links to serious and organised crime, and it can reduce opportunities for legitimate business in the UK. That is why the Government are focused on making the UK an inhospitable place for illicit finance. The Government recognise the threat that economic crime poses to the UK and are committed to tackling money laundering and terrorist financing. We have taken significant action to combat money laundering and terrorist financing and to strengthen the response of the whole financial system to economic crime.
Central to these efforts are the money-laundering regulations. They are a key part of our legislative framework and set out a number of requirements that businesses and trusts must comply with to make the UK an inhospitable place for money laundering and terrorist financing. These measures include the requirement for trusts to register with HMRC’s trust registration service. Trusts are an integral feature of the UK’s legal system and are used for a wide range of legitimate purposes. However, they can also be used to conceal the true beneficial ownership of assets and therefore impede law enforcement as it investigates money laundering and terrorist financing. The trust registration service addresses this risk by providing law enforcement with a key source of up-to-date information on the beneficial ownership of assets held in trust.
As a result of the changes introduced in 2020, the trust registration service has been expanded so that most types of UK express trusts are now required to register. In addition, overseas trusts with certain connections to the UK, including the acquisition of land or property in the UK, are now for the first time required to register.
Lord Tunnicliffe (Lab)
My Lords, I am grateful to the Minister for introducing this measure. It is good to have her back covering Treasury business again, albeit in somewhat intimate surroundings.
This SI has come at an interesting time, with ever-increasing interest in these matters. Its scope is relatively narrow, but that will not stop us from raising wider issues. The Explanatory Memorandum states that crime enabled by money laundering costs the UK at least £37 billion per year. I fear that the real cost is likely to be far higher. Costs for the financial services sector are also significant. Research published last summer put the annual cost of anti-money laundering compliance at almost £30 billion. That is generally money well spent, yet we still see examples of high-profile financial institutions failing to uphold their duties. The Financial Conduct Authority has acted in some cases, but funnelling dirty money into the UK still appears to be too easy.
It was interesting to see that the Explanatory Memorandum asserts that the UK is
“a leading member of the FATF”—
the Financial Action Task Force. We are, of course, a global financial centre but we are not immune from criticism, and the FATF has outlined a range of reforms that in its opinion need to be enacted. Is the Minister in a position to provide a progress report?
One of the concerns raised by the FATF—an organisation included in the OECD—relates to the potential for trusts to be used as a disguise for foreign or illicit ownership of assets. We welcome the requirements to register with HMRC’s trust registration service, the TRS, from 1 September this year, although we regret that it has been delayed due to IT complications. Can the Minister say a little more about this?
The regulations propose an extension of the 30-day deadline for submitting updates to information to the TRS to 90 days. While that makes some sense at first glance, we have some concerns. The change is justified on the grounds that some changes may arise from life events, such as bereavement, which involve processes that take far longer than 30 days. Of course, people should be afforded more time in certain situations, but the Government’s own 2020 consultation concluded that 30 days was ample time in the majority of cases. Can the Minister outline what percentage of cases are likely to require more than 30 days? Why did the Treasury not choose to retain that limit while introducing a degree of flexibility in certain defined cases?
Another concern returns us to the issue debated in your Lordships’ House only yesterday—that is, the extent to which information on the beneficial ownership of firms operating in freeports areas should be publicly available. In theory, information contained within this register is accessible to some members of the public. If that is genuinely the case, it is an improvement over the Treasury’s usual approach. However, concerns have been raised by a range of civil society organisations that the barriers to accessing the register are far too high, potentially freezing out some of the country’s leading independent experts. Can the Minister set out in detail the criteria for access to the register? Furthermore, I would be grateful if she could provide examples of the types of people who can access the register, and exactly how they would demonstrate their worthiness. We do not want to see frivolous requests but, surely, we should facilitate appropriate non-governmental investigations of illicit financial activity.
We shall not oppose the SI today; as the noble Baroness knows, I am rarely in the mood for causing constitutional crises. However, these regulations seem to be a half-baked response to a very serious problem. The register is late, it is not fully transparent, and the Government have ignored some of the outcomes of their own consultations. Following the resignation of the noble Lord, Lord Agnew, the Government said that they treated tackling economic crime as an urgent priority. I hope that urgency will be more apparent in future.
Baroness Penn (Con)
My Lords, I thank the noble Lord for his welcome to my return to Treasury matters—it is good to be back. I also thank him for the constructive approach that he takes in these debates. As such, I shall do my best to answer the questions that he posed to me on this statutory instrument.
The noble Lord asked about the progress that we had made on reforms outlined by the FATF. The recommendations in the Financial Action Task Force mutual evaluation have been taken forward through the landmark economic crime plan, which ran from 2019 to this year. We have strengthened our fight against economic crime through the publication of that plan in 2019, which brought together government, law enforcement and the private sector in close co-operation to deliver a response to economic crime. Significant progress has been made, with 24 out of the 52 actions now complete—and I understand that a higher number than that are on course to be complete within their aimed-for timetable.
The noble Lord asked for more detail on the IT complications and the reasons for the delay in the expansion of the register. We recognise that they IT service went live six months later than originally planned. The service needed significant development work to implement the required changes at a time when there was extraordinary pressure on public services and, in particular, on HMRC’s IT development resources. Between March and September, checks and tests by external users were completed to ensure that the service could be open to all users from September.
The noble Lord also asked about the extension of the period in which to notify changes to trusts from 30 days, and why we should not retain that limit and introduce some other form of flexibility. The expansion of the register of beneficial owners of trusts has brought a significant number of additional trusts into the scope of this work. We recognise that a very large number of trustees are private individuals with no professional expertise in managing trusts and, as the noble Lord recognised, many changes will be triggered by life events such as bereavement, where it is not necessarily realistic to expect individuals to update the register within 30 days. Continuing with this requirement would likely mean that a large number of individuals would find themselves in breach of the regulations without realising that fact. This change ensures that those who wish to comply will have sufficient time to do so. We do not have specific figures to estimate how many changes may be triggered by life events such as bereavement but, due to the way that trusts are used in the UK, this will be a common trigger for changes that need to be reported to the TRS.
On the question of retaining the 30-day limit but with an element of flexibility, I fear that this would still place affected individuals in a difficult and stressful position, as they would have to apply to HMRC for such flexibility with no guarantee that such a request would be accepted.
The noble Lord also asked, importantly, about the criteria for access to the register. We believe that placing the information held on the trust register in the public domain would infringe the privacy rights of individual beneficial owners, the vast majority of whom are not involved in money laundering activities. However, we recognise that, for the register to be an effective anti-money laundering tool, the information must be made available to those who are at the forefront of anti-money laundering investigations.
To that end, the information held on the register is available on request to law enforcement agencies. From 1 September 2022, it will also be available to any third party who can demonstrate a legitimate interest in the information held on the register. The regulations set out the criteria that HMRC must assess to determine whether a requester has a legitimate interest in the information held on the register. These include: whether the requester is involved in anti-money laundering; whether the request is being made for the purpose of furthering such an investigation; and whether the requester has reasonable suspicion that the information being sought relates to a trust being used for money laundering.
The Government will set out the detail of how those criteria will be applied in due course, but each request will be considered on its merits, and there is no desire on the part of the Government to prevent access to the information held on the register by those who are genuinely involved in anti-money laundering investigations.
Lord Tunnicliffe (Lab)
Will the noble Baroness commit to sending me a copy of those regulations as they emerge?
Baroness Penn (Con)
Absolutely: that is a very reasonable request. I shall write to the noble Lord when the information is available, and also ensure that a copy is placed in the Library, if that is the appropriate place.
I hope that, in answering some of those questions, I have given the noble Lord a little more reassurance on the thought that has gone into this work so far. In summary, as I said, it is the Government’s view that the amendments contained within the regulations will assist in ensuring that the money laundering regulations operate as effectively as possible and continue to protect the financial system from the threat posed by money laundering and terrorist financing. They will also allow the UK to continue to play its part in the fight against economic crime, which, as the noble Lord noted, has been in the spotlight in recent weeks, and on which the Government have an ambitious agenda.
I hope that my responses have been informative and I commend the regulations to the Committee.