Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2022
(Limited Text - Ministerial Extracts only)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2022 (S.I. 2022, No. 393).
It is a pleasure to serve under your chairship this afternoon, Mr Hosie.
The Government 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 are taking significant action to combat economic crime through the economic crime levy and the Economic Crime (Transparency and Enforcement) Act 2022, and by progressing the Government’s landmark economic crime plan. We are also working closely with the private sector and our international partners to improve the investigation of economic crime, strengthen international 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 illicit financial flows. Under the regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries, which are countries identified as having strategic deficiencies in their anti-money laundering and counter-terrorism financing regimes that 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 to mirror lists published by the Financial Action Task Force, the global standard-setter for anti-money laundering and counter-terrorism financing. The UK’s high-risk third countries list will now include the United Arab Emirates, and will no longer include Zimbabwe. In March 2022, the UAE was listed by the FATF, and Zimbabwe was removed, having completed its FATF action plan to address the key deficiencies in its anti-money laundering and terrorist financing regimes.
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 UK businesses and the financial system from money launderers and terrorist financers. I therefore hope that colleagues will join me in supporting this legislation.
John Glen
I will endeavour to address the points made by the hon. Member for Hampstead and Kilburn, but I will turn first to the two points made by my right hon. Friend the Member for Scarborough and Whitby, the first of which was on the nature of the regulator’s engagement with small entities—he cited his own in North Yorkshire. The new chief executive of the Financial Conduct Authority, who was appointed in October 2020, is undertaking a transformation programme at the FCA that is designed to interrogate risks more effectively and to target compliance activity more proportionately. A lot of progress has been made, but clearly there is more to be done. I will be happy to take up any individual examples that my right hon. Friend raises formally.
My right hon. Friend also raised the issue of PEPs—politically exposed persons—and the frustrations that occur when colleagues are prevented from accessing financial services products, as well as the consequences of not resolving that issue. There is a framework for light-touch, proportionate and appropriate interrogation of such risks, although sometimes those processes are not always executed properly. I have taken that up on two occasions over the last few years, and there has been an incremental step change each time, although the situation is not yet perfect. Again, I will be happy to take that up that issue.
The hon. Member for Hampstead and Kilburn raised three points—on the UAE, Zimbabwe and Russia—which I will take in turn. On the listing of the UAE, she recognises the history. At the March 2022 FATF plenary, the FATF concluded that the UAE should be added to the list of jurisdictions with significant weaknesses in its counter-illicit finance regimes, but recognised that the UAE had made significant progress. A lot of FATF assessments are not black and white, as many of the countries are on a journey, but in my experience the FATF is pretty rigorous in its assessments and pretty unashamed in intervening, regardless of any lobbying. I am clear that the process is rigorous and thorough.
The UAE expressed its high-level political commitment to making further reforms in a number of areas in order to exit the FATF list. The UK is working closely with the UAE to address those weaknesses in the UK-UAE partnership in order to tackle illicit finance. By aligning the UK’s approach to that of the FATF, the UK is in line with international standards. The identification of countries is underpinned by the FATF’s consistent technical methodology and robust assessment processes. On occasion, other countries’ representatives have challenged those processes, asking me, “Would the UK intervene?”; we do not. As a key, leading member of the FATF—one of its 39 countries—we stand by its methodology.
The hon. Member for Hampstead and Kilburn asked a number of questions about the history of the relationship with the UAE, and cited Spotlight on Corruption and other organisations, such as Transparency International. We look carefully at what they have to say. I cannot answer her questions about the specifics of the UAE-UK relationship historically, but I will write to her if I can find any more information.
The hon. Lady made a number of assertions about the FATF and where the UK is. I recognise the politics of the matter, and the movements that the Government have made in this Session and hope to make in future. I draw her attention to the mutual evaluation report of the UK’s system in December 2018, which cited the progress needed on the register of overseas beneficial ownership and Companies House reform. A large amount of money—£63 million—was allocated to work on Companies House reform at the last spending review, and the legislation is coming to make good on that. I do not accept all that the hon. Lady said, but I welcome the steps that have been taken in these difficult times, and that will continue to be taken to accelerate and to meet the conditions set out in that report. Overall, that FATF analysis of the UK was extremely complementary—one of the best reports it has ever done—and we should be proud of our progress.
On Zimbabwe, I acknowledge and am grateful for the hon. Lady’s assent to what I am proposing today. Clearly, there is an ongoing piece of work with every country. Countries move through the journey, from being a cause for concern to not a cause for concern; this measure is the consequence of that. She asked why Russia has not been added to the high-risk third countries list. The UK’s HRTC list mirrors those identified by the FATF in its public documents as having poor anti-money laundering and counter-terrorist financing controls. I certainly grasp the optics of where Russia is—that it is not on the list—but by aligning our approach FATF we remain in line with international standards. The identification of high-risk countries is underpinned by that consistent, objective methodology and robust assessment process.
It is important not to look at the UK’s list of high-risk jurisdictions in isolation. The money laundering regulations require enhanced scrutiny in a range of situations that present a high risk of money laundering, and Russia will be included in that. Regardless of listing, firms have to make nuanced risk assessments of business relationships and transactions. The UK’s national risk assessment on money laundering and terrorist financing publicly identified Russia as high risk. We will continue to work with our allies, including the FATF, the EU and the US on these matters, ensuring the continuation of a co-ordinated and targeted response to Russia’s invasion of Ukraine that protects the international financial system as a consequence.
I have addressed the three countries that the hon. Lady mentioned. It is the Government’s view that this amendment will ensure that UK legislation remains up to date and continues to protect the financial system from the threats posed by jurisdictions with inadequate money laundering and terrorist financing systems. The amendment enables the UK to remain in line with international standards on anti-money laundering and terrorist financing, allowing it to continue to play its full part in the fight against economic crime. I hope the Committee has found my observations somewhat illuminating, and supports the regulations.
Question put and agreed to.