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

Lord Purvis of Tweed Excerpts

Thursday 25th November 2021 Lords Chamber

[Lord Purvis of Tweed (LD)]

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.

I press the Minister specifically on a connected issue, which is what the Government say they intend to do, which is to have a public register of beneficial ownership of property. We know that, because of the openness of the property market, especially in our cities and especially in London, this has been an area of concern. Prior to the pandemic, Transparency International identified 87,000 properties in England and Wales that are owned by anonymous companies registered in tax havens. We have seen in the Pandora papers that UK property remains a popular way to wash dirty money, and there have been cases, of which we are all aware, where that has led to actions. That demonstrates the clear need for a public register, so, in supporting what the Minister is doing, I would welcome his comments on when the Government will make good on their promise in this area.

[Lord Tunnicliffe (Lab)]

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

“a hostile place for illicit finance and economic crime”.—[Official Report, Commons, 16/11/21; col. 532.]

Many of the initiatives cited have been announced and re-announced without meaningful action following. For example, Companies House has been given an additional £63 million of funds to assist with its reform, but there is little sense that the changes being made will empower that body and lead to better outcomes.

Minister Whately also failed to provide clear justification of the UK Government not classifying countries such as Russia and Afghanistan as high risk. It is true that this instrument is designed solely to administer the task force list, but does the Treasury not see a case for taking action of its own where UK interests are at stake? We await with interest the outcome of the task force’s ongoing analysis of recent events in Afghanistan. It will be interesting to see whether that country is added to the list when we consider the first of these SIs in 2022 but, on Russia, I will simply repeat one of Pat McFadden’s questions: do the Government really not judge Russia to be as big a risk as some of the countries listed in these regulations?

As I said earlier, we are privileged to have a significant financial services sector in this country. Lots of talented people, both regulators and people in the sector, work night and day to detect and stop economic crime and obviously we support them in their endeavours. However, the fact remains that, despite the efforts of individuals, the UK Government’s regulatory framework of choice is seen by the international community as insufficient. As a global leader in financial services, we have a responsibility not only to replicate international initiatives but to lead them from the front. I hope the Minister can outline today exactly how the Treasury intends to do this.