Financial Services and Markets Bill

Debate between Viscount Trenchard and Earl Attlee

Committee stage
Tuesday 21st March 2023 Grand Committee

[Earl Attlee (Con)]

My Lords, in moving my Amendment 223, I will speak to my Amendment 241FB. They both deal with the unintended and undesirable effects of the anti-money laundering regime in the UK. I do not profess to have any expertise here; my relevant experience is in defence and security.

I fear that I am obliged to weary the Committee with a little detail. Russia has launched an unprovoked attack on Ukraine and, presumably, HMG have an absolute minimum strategic objective of preventing Ukraine being defeated. Failure to achieve this would result in significantly increased world insecurity and the need at least to double UK defence expenditure. EU and NATO Governments have been providing Ukraine with a range of armoured fighting vehicles—AFVs—through Government-to-Government arrangements. Armoured personnel carriers and armoured reconnaissance vehicles allow troops to move around the battlefield without unnecessarily falling victim to artillery or small arms fire.

To supplement Government-to-Government arrangements, the Ukrainians, through commercial agents and UK SMEs, have also been buying up privately and commercially owned AFVs in the UK. There are only a few businesses and individuals in the UK who can efficiently acquire and export these privately owned AFVs. They are generally small. To undertake this activity, they need to have the necessary technical knowledge, workshop facilities, ingenuity, innovation and contacts; have finance and premises; be seen as a fit and proper person to be granted an export licence for controlled goods on the military list; and, most importantly, be trusted by both Ukrainian buyers and UK private sellers.

The Committee needs to understand the facts of the real world. These small businesses simply do not have the resources to perform due diligence on Ukrainian businessmen and their intermediaries. Even if they could, the Committee will recognise that they would soon find red flags galore. However, the Government have the ability to check that the export of these AFVs is in line with their overall strategic objective.

The Export Control Joint Unit at the Department for International Trade grants export licences for controlled goods on the military list, among other things. So far as I can discern, it is doing a very good job. It is important to note that the Export Control Joint Unit has all the facilities of HMG at its disposal to determine whether military equipment should be exported to a certain customer or not. The money laundering regulations add nothing useful to this process.

I now turn to the mischief which my amendment seeks to address. During our debate on Ukraine on 9 February, I explained the problems that “Peter”—not his real name—is experiencing with the provision of banking services in the context of his exporting AFVs to Ukraine. I will continue to use his pseudonym for continuity reasons. I understand that Peter has export licences for around 100 AFVs and has already delivered a considerable number. Although the high street bank’s name is in the public domain, I will not name it, as it has done nothing wrong and has been extremely helpful. Apparently, in these circumstances, MPs will just get stonewalled by the banks, but I have very good relations with Peter’s bank.

On 20 December 2022, Peter’s bank wrote to him, closing his accounts with the bank without any explanation why. Peter was going to completely lose his banking services on 20 February. This would have put him out of business, as he cannot secure banking services from any other provider, and he would not be able to export any more AFVs to Ukraine. Other banks will not step in because they will have the same difficulties as Peter’s current bank. Peter’s bank made it clear to him that it was not prepared to discuss the matter further. This is standard practice, and I understand why. However, I have found out that the problem is that Peter’s current bank cannot accept the regulatory risk of supplying banking services involving large sums of money when Peter does not have the correct anti-money laundering systems in place. But even if he did, he would surely find red flags, as I have already mentioned, because he is dealing with Ukrainian businessmen. Fortunately, I managed to negotiate with the bank an extension to 20 March, which was yesterday.

Initially, I thought that the problem lay with an overzealous junior bank official and that a quick engagement at a senior level in the bank would get it sorted. I then discovered that it was a money laundering problem, as described, but the problem could be solved if a Treasury Minister wrote to the bank relaxing the money laundering regulations in a specific and minor way. I thought all this could be done discreetly and behind the scenes. How wrong I was. Ministers have refused to relax the money laundering regulations because, as I understand it, they believe that the complete integrity of the regulations is more important than facilitating the export of armoured fighting vehicles to Ukraine.

I repeat the question that I asked my good and noble friend Lord Ahmad on 9 February. Is it settled Government policy that the complete integrity of the money laundering regulations is more important than facilitating the export of armoured fighting vehicles to Ukraine? I look forward to the Minister’s reply. The reality is this: each and every additional armoured fighting vehicle that we send to Ukraine will give another group of Ukrainian soldiers protected mobility on the battlefield. Conversely, stopping the export of AFVs will result in avoidable loss of Ukrainian lives, which is quite immoral.

My Amendment 223 works by requiring Ministers quickly to amend the money laundering regulations so that banks do not have to suspend provision of banking services to SMEs that are exporting AFVs or other military equipment to Ukraine under a relevant export licence granted by the Export Control Joint Unit—in other words, a relaxation under very limited circumstances. Of course, my amendment is unnecessary because Ministers can simply write to the bank asking it to relax the money laundering regulations in the way that I suggest.

On my Amendment 241FB, during my investigations it became apparent that there is a wider problem with banks withdrawing provisions of financial services from aerospace and defence SMEs, for two reasons. The most important reason is again the money laundering regulations. In addition, there is a reluctance within some banks to have anything to do with the defence industry, particularly with things that go bang. However, these are highly regulated businesses, and they are dealing with other businesses and Governments, often outside the OECD. Thus the regulatory risk is far too high for the banks when the potential income is often quite small. It is simply not worth the bank’s while to accept the regulatory risk. I accept that my Amendment 241FB is imperfect and does not necessarily solve the problem. At this stage, it is only a probing amendment. I have been briefed by ADS Group, the relevant trade association, on this problem, and it is clear that it is a growing problem that will not go away.

On my Amendment 223, this is a serious and urgent matter. Clearly, the Minister intends to resist, or she would already have relaxed the regulations and saved a lot of the Committee’s time. I am afraid that thus far, I have not been able to generate much interest in this issue. His Majesty’s Opposition in your Lordships’ House do not appear to be very interested, and neither are the media. It does not currently look as if I will be able to win any Division at Report. In view of these circumstances, I was not in a position, nor was it my role, to seek a further extension of service from Peter’s bank when I could not offer any evidence that the policy was likely to be changed. As a result, Peter lost his banking facilities yesterday and will have to stop exporting AFVs to Ukraine. No one can step in, because they will experience the same problems.

The sense of the Committee will be unusually important on this occasion. Your Lordships can merely listen to an interesting debate or make it very clear to my noble friend the Minister that the Committee will not tolerate the money laundering regulations that are causing avoidable loss of Ukrainian lives by preventing the export of AFVs to Ukraine. I beg to move.

[Viscount Trenchard (Con)]

My Lords, I support my noble friend Lord Attlee in his amendment. His story about Peter reminded me that I have had considerable time-consuming discussions—not with my noble friend’s Peter, whose acquaintance I have not had the pleasure of making, but with another Peter. He is a person like Peter, a former military officer in the British Armed Forces of some distinction who now operates an SME and is closely connected with manufacturers of arms that the Ukrainians are importing from other sources and which they badly need, arms which our own Ministry of Defence is happy to assist in the Ukrainians receiving.

I have listened to my Peter—he is not called Peter; let us call him Jonathan—who has had a nightmare time. He is approved and holds an export licence with the SPIRE system in what is now the Department for Business and Trade; I think that the SPIRE system is the same as the export control system.

[Earl Attlee (Con)]

SPIRE is part of the Export Control Joint Unit.

[Viscount Trenchard (Con)]

Thank you. So, Jonathan is licensed—and has been for many years—with the SPIRE system, formerly under DIT. This means that the security services have carried out a considerable amount of due diligence on him. Nevertheless, he found it completely impossible to persuade any bank to open an account to handle the funds necessary to enable him to assist the Ukrainians in this way, not just at the working level. The moment you fill in a form that suggests any military connection in the goods, red flags fly and bells ring all over the place.

However, these anti-money laundering regulations are considered so important that it is difficult to find any way of obtaining exemptions to go round them, even in situations such as this. It is just a pity that, even at the senior director level, banks are completely prevented under any circumstances—even when the individual is approved under the SPIRE system, as my noble friend Lord Attlee explained. I have sympathy with and support his amendment.