Draft Proceeds of Crime (Money Laundering) (Threshold Amount) Order 2022
(1 year, 5 months ago)
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The Minister for Security (Tom Tugendhat)
I beg to move,
That the Committee has considered the draft Proceeds of Crime (Money Laundering) (Threshold Amount) Order 2022.
It is very nice to serve under your chairmanship for the first time, Mrs Murray. The amendment is a relatively simple one, and I hope it will be relatively uncontentious: it allows the declaration for defence against money laundering suspicious activity reports, known as DAMLs, to be raised from £250 to £1,000. Doing so makes eminent sense, partly because of the increasing cost of everyday items, but also because of the need for us to have a system that is able to check the genuine threats to our money laundering regime, rather than simply keeping an eye on absolutely everything that might happen to be going on.
Every DAML is submitted to the National Crime Agency by a person proposing to deal with suspected criminal property that may make them liable for money laundering under the Proceeds of Crime Act 2002; that DAML would make sure that that person is avoiding liability. Clearly, if someone is paying their rent or taking part in an ordinary transaction, we are not trying to criminalise every transaction, but to make sure that we have a proper awareness of what is going on and what could pose a threat. That is why I believe that we must raise the threshold to £1,000, because the vast majority of DAMLs do not provide law enforcement with asset seizure opportunities—opportunities to take money away from criminals. Instead, they place a regulatory burden on businesses such as banks to submit, place a burden on law enforcement to review, and create a delay for customers, who must often wait seven days for their transactions to process. I think there is general agreement with that.
Holly Lynch (Halifax) (Lab)
It is a pleasure to serve under you as Chair this afternoon, Mrs Murray, and I thank the Minister for his opening contribution. As he has said, the regulations will increase the threshold amount specified in section 339A of the Proceeds of Crime Act 2002 from £250 to £1,000. In practice, this will increase the value of transactions that a bank or similar firm can carry out in operating an account for a customer without committing one of the main money laundering offences laid out in POCA. By doing so, the Government seek to reduce the number of ineffective defence against money laundering suspicious activity reports, while also improving the effectiveness of the anti-money laundering system and enabling law enforcement to focus on—as the explanatory memorandum says—
“opportunities that lead to asset seizure”.
We are keen to support these measures, which seek to enhance the quality of suspicious activity reports coming from the private sector and hasten their utilisation by law enforcement. However, I am keen to probe whether we are satisfied that that is what the regulations will do in practice. We appreciate that increasing the threshold will hopefully lessen the burden on the NCA’s UK Financial Intelligence Unit, but is the Minister not concerned that these measures will inadvertently increase the prevalence of so-called smurfing among criminals, a potential problem raised with us by the Royal United Services Institute? Through that practice, money laundering payments are broken down into smaller amounts under the threshold, specifically to evade law enforcement.
Moreover, reducing the reporting burden on businesses for low-value money laundering will not necessarily mean that businesses are somehow mandated to redirect their resources towards detecting or reporting on high-value suspicious and criminal activity. The main argument for the change seems to be an attempt to prevent the Financial Intelligence Unit from being overwhelmed, rather than there being no intelligence or criminality below that threshold. I understand that in recent years, there has been an exponential increase in the number of reports that the UKFIU has had to deal with. It now receives over 400,000 reports per annum, which we can appreciate is a massive challenge for a unit with only 200 members of staff.
In its 2020 report, the UKFIU recorded a 20% increase in the total number of SARs, and an 80% increase in defence against money laundering SARs from the previous year. The explanatory memorandum states that only 2% were refused consent in 2019-20,
“of which only 1,062 progressed towards asset denial.”
Of that 2%, how many of those would have no longer been captured under the changes?
In its May 2022 follow-up report into the UK’s mutual evaluation report, the Financial Action Task Force noted continued concerns about the under-resourcing and IT constraints of the financial intelligence unit, including its failures to meet the target of 200 staff that the task force recommended more than 15 years ago.
Our noble friends in the other place have already considered these regulations, and Lord Sharpe of Epsom told Members, who asked him about resourcing of law enforcement on this crime type, that 75 additional officers were being recruited to the UKFIU, which we welcome. He told the Committee that 45 of those officers were already in post, and the milestone for recruiting the remaining 30 is at the end of this financial year, 2022-23. That was on 24 November, so can the Minister update us on whether any further progress has been made?
I will make the point again that we recognise these changes will tighten up the information being provided to the FIU, but we are not entirely convinced that the changes amount to an overall enhancement of the money laundering framework that we must have in place if we are to drive this out of our economy.
John McDonnell (Hayes and Harlington) (Lab)
I just want to place on the record my reservations about this measure. I think lifting the threshold to £1,000 is untoward when we know the scale of fraud that is taking place. I am concerned that minimising the multiple transactions is a way of getting round this. In addition, I am anxious about the flow of intelligence that comes from some of the lower-level frauds that are detected. That could flow into tracing higher-level frauds.
Tom Tugendhat
A quick note on the staffing: 45 officers are already in post, and no doubt the others will come onstream very soon, because that milestone is extremely important for making sure that we have properly recruited for 2022-23. So I can update clearly on that.
There will of course be a constant review of the number of officers we keep in post in order to make sure that we have proper staffing for the requirements. As the hon. Member for Halifax can see, we are increasing numbers because the demands are great. I understand the point made by the right hon. Member for Hayes and Harlington about staffing, and I completely agree—
Tom Tugendhat
Please pass on my thanks to the right hon. Member for Hayes and Harlington for his kind note, Mrs Murray. He wants to speak in the debate in the Chamber, so I completely understand why he is not here. His points, which I was going to address before we were interrupted, are entirely valid. He asked about the change from £250 to £1,000. The reality is that we are overloading the system. It is true that we can constantly hire more people, but we need to use them to analyse the data, not overload the system with smaller transactions. That is why the request to raise the threshold has been put before Parliament today.
I think this is an important, sensible adjustment, and we will keep it under review. As the right hon. Gentleman said, there is a broken windows theory that goes along with this: smaller crimes can lead to larger ones. The UKFIU is keeping an eye on the build-up of transactions, and not just the absolute numbers, so in different areas it will be aware of how these elements are going. I appreciate Members’ comments—I understand the spirit in which they are raised—and I entirely respect their positions. However, in order to achieve the aims that we are all seeking, this is a sensible amendment to the existing regulations, and no doubt it will be kept under review should the situation change.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Proceeds of Crime (Money Laundering) (Threshold Amount) Order 2022.