Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2023
(4 months, 1 week ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2023 (S.I., 2023, No. 1306).
It is a pleasure to serve under your chairmanship, Ms Fovargue. The Government recognise the threat that economic crime poses to the UK and to our international partners, and we are committed to combating money laundering and terrorist financing, which undermine the integrity and stability of our financial sector and reduce opportunities for economic growth and legitimate business in our great country. This Government are bearing down on kleptocrats, criminals and terrorists who abuse our leading financial and services sectors. The Economic Crime and Corporate Transparency Act 2023 built on the Economic Crime (Transparency and Enforcement) Act 2022, to ensure that the UK has robust, effective defences against illicit finance. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which from now on I shall refer to as 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—countries that are identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes. These checks help to protect the UK financial system from the threat of overseas illicit financial flows.
The statutory instrument before the Committee amends the money laundering regulations to update the UK’s list of high-risk third countries. It removes Albania, the Cayman Islands, Jordan and Panama from the list and adds Bulgaria, Cameroon, Croatia, Nigeria, South Africa and Vietnam. Thus, the UK high-risk third countries list will be aligned with the decisions of the Financial Action Task Force—the global standard setter for anti-money laundering and counter-terrorist financing. The UK plays a leading part in the Financial Action Task Force, with an excellent team of officials in the Treasury including people such as Karishma Navsaria. The FATF methodology ensures that countries around the world are subject to expert, robust evaluations of their anti-money laundering and counter-terrorist financing regimes. Where countries are found to have strategic deficiencies, the task force members can agree to add them to one of two lists: jurisdictions under increased monitoring and jurisdictions subject to a call to action. By aligning our own high-risk third countries list under our own legislation with the FATF’s, we ensure that the UK remains at the forefront of global standards on anti-money laundering and counter-terrorist financing.
The Cayman Islands are a very good example of the progress that can be made by engaging with the FATF. The Cayman Islands was listed in February 2021; since then it has made significant progress to reform its regime and strengthen its anti-money laundering defences and competent authorities. It is now one of a very small number of countries around the world to be compliant or largely compliant with all 40 of the task force’s recommendations. I am delighted that it is being removed from the UK’s high-risk countries list as a result of that progress.
This is the eighth SI amending the UK’s list of high-risk third countries in response to evolving risks from third countries. In June last year, schedule 3ZA to the money laundering regulations was amended to remove Cambodia and Morocco after they were delisted, but otherwise updates to the list have been paused since November 2022.
Nigel Mills (Amber Valley) (Con)
May I ask the Minister a couple of questions? He started by saying that the UK is committed to tackling kleptocrats, so I am a bit surprised that Russia and Belarus are not on the list of countries for which we expect some higher precautions to be taken. Secondly, will he comment on why we have had to add two EU countries—Bulgaria and Croatia—to the list? That is a bit surprising, because I thought the EU had quite a robust anti-money laundering regime. Are we saying that they are not complying with their own laws? I think they are the first two such countries to appear on the list.
Bim Afolami
I will take my hon. Friend’s questions in turn. Russia has been suspended from the Financial Action Task Force; it has not attended meetings or played a part in deliberations since the war in Ukraine began. As my hon. Friend and the House know, we are taking a series of measures to counter certain actions of the Russian regime. In relation to the EU countries that he mentioned, I cannot comment on the EU’s decision making in relation to its own rules. The task force has, I believe, about 40 countries in it, so it is a global body, and broader than the EU. This is the collective decision of those countries. It is up to the EU to conduct its own deliberations in relation to its member states.
As I said, this is the eighth SI amending schedule 3ZA. I am aware that many noble Lords have expressed frustration at parliamentary time being taken up in the other place by such relatively routine matters to keep our high-risk third countries list aligned to the task force’s. That is the other place, but it is worth mentioning in this Committee. However, the Economic Crime and Corporate Transparency Act enables the Government to amend the money laundering regulations to create an ambulatory reference to the task force list. That will result in the same legal effect, with regulated businesses being required to apply enhanced due diligence to relevant business relationships and transactions with these countries, but without the need for secondary legislation after every change to the list. The Government will bring forward an SI to implement that provision in the money laundering regulations shortly. In notifying the House of this, I emphasise two things: first, the Government retain the authority and autonomy to deviate from the FATF at any time if the Government so decide; and secondly, that deviating would require further secondary legislation and a debate in both Houses of Parliament.
The instrument will enable the money laundering regulations to continue to work as effectively as possible to protect the UK financial system. It is crucial to protecting UK businesses and the financial system from money launderers and terrorist financers, so I hope that colleagues will join me in supporting it.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve under your chairship, Ms Fovargue. We support the regulations, which amend the list of high-risk third countries to reflect the changes made to the Financial Action Task Force list.
I heard what the Minister said about the Cayman Islands and its progress, and have just one question to ask him about it. It is welcome that, five years after the Sanctions and Anti-Money Laundering Act 2018 legislated for public registers in the overseas territories, the Cayman Islands has finally announced that it will introduce company registers, but I worry that the registers will not be made fully public. There will be a filter that allows access only by those who can demonstrate a “legitimate interest”. Does the Minister share my concern? Will he work with his counterparts in the Cayman Islands and the other overseas territories to ensure that they raise their standards where they may be lacking?
Bim Afolami
I thank the shadow Minister for supporting the regulations. It is incumbent on me to make two key points to address her question about the Cayman Islands. First, a country’s being taken off the list reflects that it has now satisfied what the Financial Action Task Force has set out for it, that it has worked hard and has evidenced how it is doing that. The point about ownership lists and whether a legitimate interest is required is a fair and interesting one, but it has not triggered the Financial Action Task Force to say that the Cayman Islands is not largely compliant. That is the first point. The second is that this is always evolving and no country in the world is perfect. Illicit activity is a scourge that we are trying to remove from our financial system, so we continue to work with the Cayman Islands to make sure it does everything it can.
Tulip Siddiq
I draw the Minister’s attention to Transparency International’s warning that the requirement to demonstrate a legitimate interest could limit access for civil society organisations and journalists, who in recent years have been key in uncovering corruption and money laundering. That is my point when I ask about access to the registers. Does he share my concerns about that?
Bim Afolami
I am happy to look into that. The UK and various overseas territories, not just one in particular but across the whole landscape, have been working at official level technically to improve access and visibility in terms of beneficial ownership. The UK, when Lord Cameron was Prime Minister, was a leader in doing that internationally, and we will continue that work. I am happy to continue discussing with the hon. Lady what more we can do in respect of the Cayman Islands.
I listened carefully to the hon. Lady’s speech, and it is the Government’s view that the amendment will ensure that UK legislation remains up to date and in line with international standards. It is clear that money obtained through corruption or criminality is not welcome in the UK and should not be welcome anywhere. That is why we are playing such a leading part in the Financial Action Task Force.
The new procedure for dealing with the problem will enable regulations to allow the UK to automatically reflect changes agreed by the Financial Action Task Force in our own list. In the event that the Government choose to deviate from the list, such updates will need to proceed through a draft affirmative SI.
Nigel Mills
We all remember the Panama papers leaks of a few years ago and the light that they shone on financial crime, so I am intrigued that we are removing Panama from the list. The impact assessment sets out that in a survey of 1,900 respondents in the industry, 19.7% thought Panama was high risk, whereas only 2.2% felt Bulgaria was and for Croatia it was only 1.9%. Is not taking Panama off the list and adding Croatia and Bulgaria a slightly perverse thing to do?
Bim Afolami
I thank my hon. Friend for that intervention. Everyone in the House knows about his long-standing interest in these matters and his knowledge and understanding of them. The Financial Action Task Force operates on objective measures that are worked out by experts in their field. They look at this as objectively as they can. The views of certain participants are relevant, but are not determinative. However, the points he makes are good ones and I am happy to discuss them with him separately.
I hope that hon. Members have found today’s sitting informative and that they will join me in supporting the regulations.
Question put and agreed to.
Draft Biodiversity Gain (Town and Country Planning) (Consequential Amendments) Regulations 2024
Draft Biodiversity Gain Site Register (Financial Penalties and Fees) Regulations 2024
(4 months, 1 week ago)
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The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Rebecca Pow)
I beg to move,
That the Committee has considered the draft Biodiversity Gain (Town and Country Planning) (Consequential Amendments) Regulations 2024.
The Chair
With this it will be convenient to discuss the draft Biodiversity Gain Site Register (Financial Penalties and Fees) Regulations 2024.
Rebecca Pow
It is an absolute pleasure to have you in the Chair, Sir Graham, for our first debate after the recess. Welcome, all, back from recess. As you can hear, there is a buzz of excitement about this statutory instrument. [Hon. Members: “Hear, hear.”] It is an important moment for us.
The statutory instruments have been grouped as they are part of a package of regulations that will work together to introduce the new framework for mandatory biodiversity net gain. Biodiversity net gain is a key policy delivered by the Environment Act 2021, which I am very proud to have taken through the House, but some of the policy involves amendments to the planning system. I will speak to both instruments together, given their interlinks, but I say up front to you, Chair, and to the shadow Minister, the hon. Member for Greenwich and Woolwich, that I do not profess to be an expert in the intricacies of the planning system. I therefore commit to writing to the hon. Gentleman if he raises points that need clarification.
As I say, these instruments form part of a package of SIs that commence the new, world-leading biodiversity net gain requirement. I know that we keep saying that, but this genuinely is a piece of world-leading legislation, which is why it is so exciting that it is finally coming into operation. This new approach to development and land management was legislated for in the Environment Act 2021, and had strong support, I am pleased to say, from across the House. It aims to leave the natural environment in a measurably better state than it was before, by requiring a 10% net gain for biodiversity from each eligible grant of planning permission. Those gains must be delivered through on-site habitat enhancement or creation where possible; otherwise, they can be delivered through off-site enhancements, by purchasing units from the market, or, in the last resort, through purchasing statutory credits sold by the Government.
A public consultation on the policy and the implementation of biodiversity net gain was held in 2022; the Government response, which was published at the beginning of 2023, confirmed the policy intention of mandatory biodiversity net gain and informed the drafting of these regulations.
I turn to what the draft Biodiversity Gain Site Register (Financial Penalties and Fees) Regulations 2024 do. The Environment Act gives the Secretary of State for Environment, Food and Rural Affairs the power to make provision for a register of biodiversity gain sites. The core purpose of that publicly available register is to record allocations of off-site biodiversity gains to developments. The register will be established by the Biodiversity Gain Site Register Regulations 2024. The detail of how the register will operate—for instance, the information that landowners will need to provide to register their land—will be set out in those regulations, and we have published them already, in draft, ahead of the signing. We will lay them before Parliament next week, as part of the second package of SIs, which will be made under the negative procedure.
The instrument makes provision for the imposition of a financial penalty and the payment of fees relating to applications to that register. It allows for financial penalties to ensure that the biodiversity gain site register contains accurate information. Those penalties will encourage compliance, deter individuals from submitting incorrect information and remove illicit financial benefit—for example, through cost avoidance.
Rachael Maskell (York Central) (Lab/Co-op)
I wish the regulations success, but how has the Minister determined whether the penalties, which are incredibly small compared with the value of land, will have their due effect?
Rebecca Pow
Obviously, enforcement and monitoring are really important. We consulted on that, and Natural England could impose a £5,000 penalty if it found that incorrect information was submitted. In all the stakeholder engagement that took place, it was pretty much agreed that that was a suitable level of penalty. There is also a need to report on how the biodiversity is going, and how the system is building up. The first report is due from the relevant authorities on 1 January 2026—my officials will let me know if I have got that date wrong. A whole system has been built up to ensure that the process works.
The instrument also provides for fees to be charged for different applications to the register. The applications include gain site registration amendment applications, and applications for the allocation of habitat enhancements to development. The fees have been set to achieve cost recovery for the set-up and maintenance of the register. Developers are not obliged to use the biodiversity net gain register, and should first aim to achieve biodiversity gains on site before turning to any kind of off-site gains. Landowners who choose to supply off-site gains to developers must apply to register their land, and we expect that they will do so only if the benefits of selling units outweigh the costs. Without the regulations setting the requirement for fees to be paid, and the amount to be paid, the register would not achieve cost recovery, and there would be a significant cost to the Department.
I turn to the Biodiversity Gain (Town and Country Planning) (Consequential Amendments) Regulations 2024, ably drafted by the Department for Levelling Up, Housing and Communities. Obviously, there has been a close working relationship between that Department and the Department for Environment, Food and Rural Affairs. The Environment Act 2021 amended the Town and Country Planning Act 1990 to make provision for biodiversity net gain in the planning system by adding new schedule 7A, which sets out the statutory basis for the 10% biodiversity gain objective and metric, and the general biodiversity gain condition that will apply to planning permissions. It also made consequential changes to other parts of the Town and Country Planning Act.
These regulations will make further consequential changes. First, they provide rules in schedule 7A for determining the local planning authority responsible for the approval of a biodiversity gain plan required under the general biodiversity gain condition. Secondly, they further amend section 73 of the 1990 Act, which enables the variation of conditions of previous planning permission to cover circumstances in which an earlier biodiversity gain plan is to be regarded as approved where the development’s on-site habitat is irreplaceable. Finally, they make amendments to section 88 of the 1990 Act for the purpose of appeals against determinations by planning authorities in respect of the biodiversity gain plan. These are technical amendments to ensure that the provisions for the biodiversity net gain in the 1990 legislation work.
In conclusion, I emphasise that the regulations are essential to the successful delivery of the new mandatory net gain requirement, which will help to deliver much-needed gains for nature. Once these regulations are approved by both Houses, we will lay before Parliament the rest of the biodiversity net gain regulations, which we have already published in draft. I commend the instruments to the Committee.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
It is a pleasure to serve with you in the Chair, Sir Graham. I thank the Minister for her explanation of the instruments. We welcome both sets of regulations, which are integral to rolling out the new biodiversity net gain framework and integrating it with the planning system.
Although both instruments are uncontroversial, I will take this opportunity to raise three concerns with the Minister that arise from them, relating to how the new framework will operate in practice. The first relates to outcomes. I am sure the Minister agrees that, when it comes to BNG, we should always aim for the optimum outcome in terms of biodiversity value. The statutory biodiversity metric is intended to provide a rigorous and transparent framework for assessing such value, and it is designed to ensure that the focus is on the quality of land used for mitigation rather than the quantity.
However, given that BNG can be achieved in a number of different ways, there is a clear risk that sub-optimal outcomes could be produced simply because they are easier or cheaper for developers to achieve. Provided everything permitted on the biodiversity gain site register is of high quality, it should eliminate that risk for off-site BNG commitments secured via units on the market. However, the risk will remain for off-site offsetting where developers use their own land, outside the development site. That is because—if I have understood the instruments correctly—they are under no obligation to register plans in such instances, and monitoring and enforcement will fall to overstretched local authorities. Will the Minister tell us how the Government intend to guarantee that all kinds of offsetting will prioritise high-quality habitats with the greatest biodiversity potential, rather than lower-quality habitats that might be easier and cheaper to set up and maintain?
The second concern relates to habitat monitoring and maintenance. The Environment Act makes it clear that habitats should be secured for a minimum of 30 years and that, when delivering BNG, the relevant planning obligations or conservation covenants should hold for at least the same period. Off-site land used for BNG, which is recorded and verified on the biodiversity gain site register, can obviously be effectively monitored. However, the onus for monitoring and enforcing on-site improvements will lie with local authorities. Given that management plans for development are not always monitored or enforced appropriately, can the Minister give us a sense of how the Government plan to ensure that local authorities consistently maintain improvements in biodiversity value over the long term?
The third concern relates to local planning authorities themselves. I have mentioned them several times, because the effective operation of the new framework will rely heavily on LPAs being able to carry out their new duties and obligations, whether that is scrutinising individual biodiversity gain plans or reporting on BNG delivery more widely. The Government committed to funding all new burdens on local authorities arising from the Environment Act, and have provided transitional funding for LPAs to prepare for the mandatory net gain requirement up to the end of the 2023-24 financial year. Will the Minister tell us when further funding, beyond the current grant period, will be confirmed, and give us a sense of what steps her Department and the Department for Levelling Up, Housing and Communities are taking to help LPAs to secure the skills and expertise they are likely to need to meet the requirements of mandatory BNG? [Interruption.]
Rebecca Pow
Thank you, Sir Graham; as you can see, I was trying to scribble down those quite detailed questions. I thank the shadow Minister for supporting the statutory instruments, which, as he will realise, will be important not only for improving our developments and the way we live, but for restoring nature. They are going to be game-changing for our environment.
First, I want to clarify the date that I referenced for when local authorities will be required to report on their biodiversity net gain actions. The first report must be submitted in January 2026, and from then on it will be five-yearly. That addresses some of the points that the shadow Minister raised about whether the quality of the net gain will be good enough. The reporting requirement will make that transparent. That is one of the ways that we will be able to see that this is working and that the right nature is being delivered.
Of course, there is a whole process for developers to calculate how much nature they need to put back and to work out the credits. Natural England has a whole system for calculating biodiversity net gain credits. As I am sure the hon. Gentleman is aware, there has been a huge amount of engagement for a number of years with stakeholders, local authorities, developers, Natural England and the Future Homes Hub, so that local authority planning departments understand what is coming their way and can handle it in the right way, and so that we get the right outcomes. A great deal of work has gone into that, and there is also draft guidance on all of that.
The hon. Gentleman asked in particular about enforcement, which is an important point. Local authorities have a range of existing planning enforcement tools at their disposal, and the Environment Act includes mechanisms to ensure that commitments through conservation covenants are adhered to. The enforcing body that has entered into agreements to secure the site will play the key role in enforcement. That may be the local authority, or it could be a responsible body for a conservation covenant—there are different ways of going about it. Significant on-site biodiversity gains must be secured by a planning condition, planning obligation or conservation covenant, all of which bind the land, which means they apply to successor landowners as well. Off-site biodiversity gains must be secured, including management by either a planning obligation or a conservation covenant. Failure to deliver or attempt to deliver biodiversity net gain outcomes that are secured with the conditions or obligations, subject to which the planning permission is granted, can result in enforcement action by the planning authority. I hope that makes the position clear.
Matthew Pennycook
I thank the Minister for her response. All the processes that she has outlined, from the scrutiny of the initial plan to the monitoring and enforcement, rely on local authorities having the skills and capacity in this very specific and technical area, as she has made clear. Is it the Department’s contention that local authorities have the necessary skills and expertise to roll out the framework? If not, what steps is the Department taking to support local authorities in finding and bringing forward those skills and expertise?
Rebecca Pow
Obviously, that is an important issue to which a lot of attention has already been given. For example, I have spoken to my own local authority, which is rather excited about the whole process and has already had a lot of engagement on skills and training. But there will be more, and lessons will continue to be learnt as the whole system is rolled out and gradually reviewed. That is an important point because, for the system to work, local authorities need to know what they are doing. We have draft guidance, we have consulted widely and a lot of engagement is already taking place, but obviously more will be ongoing through both Departments.
Barry Gardiner (Brent North) (Lab)
I appreciate the way in which the Minister is trying to set out the process, but there is a real concern among local authorities, only a third of which have a competent ecological officer who can do this enforcement. The Minister knows the figures on the loss of ecological expertise. Also, where the off-site gain has not been made within the area of the local authority, who is going to enforce that?
Rebecca Pow
I thank the hon. Gentleman for that, but I reiterate what I have already said. I am aware of the position of ecologists, but that is why a lot of effort has already gone into engaging with local authorities—that work will continue—and why we have draft guidance, which was worked up in combination with local authorities, developers and all those involved. Obviously, we need to make sure that it works, and that will be watched as time goes on, but it is an essential part of this.
The regulations have been coming for some time. The Environment Act was passed in 2021; Natural England has been working on its metrics since 2012, with a whole range of pilots and so on. I hope that gives Members some assurance, but I am happy to write to the shadow Minister, the hon. Member for Greenwich and Woolwich, if he requires more detail.
The Government initially committed £15 million to work with local authorities on their preparations for biodiversity net gain—[Interruption.] A musical interlude! I can only reiterate that the Department for Environment, Food and Rural Affairs has been working hard with our local authorities to ensure that they are ready when the regulations come in. Many local authorities are already delivering biodiversity net gain through the national planning policy framework. There are lots of really good examples—I am sure the hon. Member for Brent North has some in his constituency. This work is building on that. We are aware of the training and skills issue, and we are working on it with local authorities. As I say, a huge amount of evidence-gathering has gone on, and we are working to ensure that the system, including that guidance, is fit for purpose.
We also funded a planning advisory service to support local authority planners to prepare for the mandatory biodiversity net gain, and there are actually more than 600 members in the practitioners network. I hope that gives Members some assurance. This is not being taken lightly at all. Off-site is the same as on-site: local planning authorities will still be responsible for enforcing off-site, where there are biodiversity projects going on elsewhere, if they cannot take place on the development. I will leave that particular answer there; I hope that provides the hon. Member for Brent North with some reassurance.
I will conclude my winding-up speech. I am grateful for hon. Members’ input. It is a whole new world—it is, as I say, an exciting one. The regulations we are debating today will support the new mandatory net gain requirement, which will help to secure positive outcomes for biodiversity, create better places for our communities and support a more streamlined, consistent and transparent approach to our planning process.
Once the regulations are approved by both Houses, we will lay the rest of the biodiversity net gain regulations, which we have published in draft, before the House. Those regulations will cover the detail of what developers will be required to submit—there will be a lot more in those regulations to cover some of these questions—as part of the biodiversity gain plan through the planning process, as well as the list of what are considered irreplaceable habitats for the purposes of biodiversity net gain and the list of development types exempt from biodiversity net gain, which will ensure that the policy is proportionate. Those regulations will also provide detail on what landowners will need to submit to get on the biodiversity net gain register. We will also lay before the House the commencement SI, which will confirm the legal go-live date for biodiversity net gain.
On that note, I thank Members on both sides for their input, as well as my officials. I commend the draft regulations to the Committee.
Question put and agreed to.
Draft Biodiversity Gain Site Register (Financial Penalties and Fees) Regulations 2024
Resolved,
That the Committee has considered the draft Biodiversity Gain Site Register (Financial Penalties and Fees) Regulations 2024. —(Rebecca Pow.)