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

Helen Whately Excerpts

Monday 22nd November 2021 General Committees

[The Chair]

I remind Members that they are expected to wear face masks, in line with Government guidance and that of the House of Commons Commission, and to give colleagues space for social distancing when leaving the room.

[The Exchequer Secretary to the Treasury (Helen Whately)]

I beg to move,

That the Committee has considered the Money Laundering and Terrorist Financing (Amendment) (No. 3) (High-Risk Countries) Regulations 2021 (S.I. 2021, No. 1218).

It is a pleasure to serve under your chairmanship, Ms Elliott.

This Government recognise the threat that economic crime poses to the UK, and we 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 and 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, from introducing the economic crime levy to 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 legislation framework for tackling money laundering and terrorist financing, they set out various measures that businesses must take to protect the UK from hostile actors. Under the regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. Those countries have strategic deficiencies in their anti-money laundering and counter-terrorism financing regimes and could pose a significant threat to the UK’s financial system.

The 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-terrorist financing. 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 lists 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 counter-terrorist financing.

The amendment will enable the money laundering regulations to continue to work as effectively as possible to protect the UK financial system. It is crucial to the protection of our national security and the UK’s international reputation, and will secure businesses and the financial system from money launderers and terrorist financers. I hope that colleagues will join me in supporting this legislation.

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[Helen Whately]

I will briefly pick up on some of the points made by hon. Members and address their questions as much as I can. I appreciate the overall support for the regulations.

The top-line point is that the Government are committed to making the UK a hostile place for illicit finance and economic crime. The Financial Action Task Force found that the UK has one of the strongest systems in the world for combating money laundering. To that end, in our ongoing action against economic crime, we have committed new investments of £18 million in 2022-23 and £12 million per year in 2023-24 and 2024-25 for economic crime reforms, in addition to £63 million across the spending review period for Companies House reform and the introduction of the economic crime anti-money laundering levy, which will raise approximately £100 million a year from 2023-24 to tackle money laundering and fund economic crime initiatives. We are in the process of legislating for that in the Finance Bill.

The shadow Minister asked about overseas territories. The Government have worked closely with the Crown dependencies and overseas territories to combat the risk of money laundering. They share confidential information on company beneficial ownership and tax information with UK law enforcement bodies under the exchange of notes arrangements and have agreed to introduce publicly accessible registers of company beneficial ownership.

We have already set out plans to reform Companies House and strengthen the UK’s ability to combat economic crime. Those reforms are significant and will deliver, alongside broader reforms clamping down on the misuse of corporate entities, more reliable information on the companies register via verification of the identity of people who manage, control or set up companies; greater powers for Companies House to query and challenge the information submitted to it; and the removal of technological and legal barriers to allow enhanced cross-checks on corporate data with other public and private sector bodies. As I said, we have already committed an additional £63 million for Companies House reforms.

I emphasise that the register of overseas entities will be one of the first of its kind in the world, which is good news for the UK; it will enhance our already strong reputation as an honest and trusted place to do business. These measures have full Treasury support but are not Treasury-led. I encourage the right hon. Member for Wolverhampton South East to take up the specific timetable for the introduction of that legislation with the Department for Business, Energy and Industrial Strategy.

The high-risk third countries list will now include Jordan, Turkey and Mali, which were listed by the FATF in October 2021. Botswana and Mauritius will no longer be listed because both have completed their FATF action plans and addressed the deficiencies in their anti-money laundering and anti-terrorist financing regimes that had previously been highlighted. Afghanistan is not identified on any of the FATF’s public lists. However, the FATF published a statement expressing concern about the current and evolving money laundering and terrorist financing risk environment in the country. The FATF is closely monitoring the situation and has called on countries to facilitate information sharing with their private sectors on assessing and mitigating any emerging money laundering risks that are identified.

In the absence of any explicit country listing, the money laundering regulations require enhanced checks in all instances where there is a high risk of money laundering or terrorist financing. In implementing this requirement, the regulated sector must consider geographical risks, such as those that exist in Afghanistan, and take into account information from reliable sources, such as the FATF or domestic supervisory and regulatory bodies. UK supervisory bodies, including the Financial Conduct Authority and Her Majesty’s Revenue and Customs, recently issued alerts to highlight the increased risk in Afghanistan. Those alerts inform firms that they must appropriately monitor and assess transactions with Afghanistan to mitigate the risks of being exploited for money laundering or terrorist financing purposes. There are also various targeted financial sanction requirements in place in relation to Afghanistan.

It is the Government’s view that this measure will ensure that UK legislation remains up to date and continues to protect the financial system from the threat posed by jurisdictions with inadequate AML and CTF systems. The measure also keeps the UK in line with international standards on AML and CTF, allowing it to continue playing its full part in the fight against economic crime. I thank hon. Members for joining us for this afternoon’s Committee, and I commend the regulations to the Committee.