Sanctions and Anti-Money Laundering Bill [HL]

Lord Ahmad of Wimbledon Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Wednesday 6th December 2017 Lords Chamber

[The Minister of State, Foreign and Commonwealth Office (Lord Ahmad of Wimbledon) (Con)]

My Lords, I thank noble Lords for introducing their respective amendments. I recognise, as I did at Second Reading, that there has been a good deal of interest in the anti-money laundering provisions of the Bill. In that regard, noble Lords may have noticed—and I am delighted—that I have been joined by my noble friend Lord Bates beside me on the Government Front Bench. I shall defer to him for some of the groups that we will discuss today.

Importantly, I hope this emphasises three things to the Committee: first; the Government’s cross-Whitehall and collaborative approach to the Bill; secondly, the Government’s recognition, as I said, that this is an important Bill and our desire is to get it right; and thirdly, as I hope noble Lords acknowledge—I know I speak for myself and my noble friend—that the Government deeply value what this House brings to discussions and scrutiny and equally respect its role in this regard. That is also true of today’s Committee. We have therefore ensured that appropriate Ministers are present to listen to the points raised by noble Lords.

The description of a wolf in sheep’s clothing took me back to reading the story of the Big Bad Wolf to my three and five year-old children. I assure noble Lords that there are no surprises in the Bill. The intent is very clear. I shall also provide greater detail in laying out the context behind the Government’s response to the amendments before us because that is important to your Lordships’ Committee.

Amendments 68ZA, 68ZB and 68ZC propose that regulations made under Clause 41 may be made only for the purposes of improving the detection, investigation or prevention of money laundering or terrorist financing, or for improving the implementation of international standards published by the Financial Action Task Force. I agree with the intention behind these amendments. This Government and our predecessor have, since 2015, led the way in combating money laundering and terrorist financing. Earlier this year, we brought the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 into force, ensuring that our anti-money laundering and counterterrorist financing regime met the global standards set by the Financial Action Task Force. We are the only G20 country with a public register of company beneficial ownership and, through the Criminal Finances Act 2017, we are taking further action to permit banks to share information relevant to identifying financial crime.

The United Kingdom plays an active role in shaping the international standards set by the Financial Action Task Force, and has done so since it was first established in 1989. In view of the UK’s clear intentions and long record in leading the way in this area, and taking particular account of the commitment shown by this Government and our predecessor, I do not think these amendments are required to take us any further forward. I am sure that the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins, would agree that, realistically, no Government would bring forward regulations under Clause 41 to weaken our abilities to detect, investigate or prevent money laundering or terrorist financing, or worsen our compliance with international standards. Therefore, I hope the noble and learned Lord may be minded to withdraw his amendment.

Turning to Clause 41 in more detail and Amendment 68A, I understand that Amendments 68A, 69A and 69E—tabled by the noble Baroness—seek to protect the current anti-money laundering regime. That is set out in the 2017 money laundering regulations—I set out the full title earlier and will not burden the Committee with it again—which implement the EU’s fourth money laundering directive. Although I sympathise with that intention, I hope I can reassure the Committee that the level of protection afforded by these amendments is excessive and may have unwelcome effects.

Current regulations on money laundering and terrorist financing follow the internationally agreed standards set by the FATF and impose granular obligations on regulated firms. The UK has chosen to follow the FATF standards as anti-money laundering regimes are more effective where they are aligned internationally. That is a general principle accepted by noble Lords. As a general point, the precise nature of the obligations contained in regulations, such as detail of how firms should approach conducting due diligence on their customers and the factors they should take into account in assessing risk, is better suited to secondary legislation than primary.

That follows the approach typically taken in the UK and elsewhere to establishing detailed obligations on regulated firms. For example, the UK transposition of the fourth EU money laundering directive was given effect through primary legislation, for matters of a general nature—including existing provisions of the Proceeds of Crime Act 2002, the Terrorism Act 2000 and the Anti-Terrorism, Crime and Security Act 2001—with more detailed requirements on firms relating to, for example, their approach to due diligence and identifying beneficial owners being made in the 2017 money laundering regulations. A similar approach to transposition was taken by other EU member states.

To provide more detail on the UK legislation relating to the prevention of money laundering, the Proceeds of Crime Act 2002 establishes the general obligations on the regulated sector to report details of transactions that give rise to suspicion of money laundering or terrorist financing. Part 7 of that legislation additionally establishes the substantive money laundering offences relating to the concealment, acquisition, use and possession of criminal property. The 2017 money laundering regulations establish further and more detailed obligations, such as how firms should conduct due diligence on customers, establish and maintain group-wide policies and procedures, and assess risk connected with different customers. Unlike the provisions contained in POCA, those obligations are better suited to secondary legislation, given the detailed requirements that they impose on firms and the need to keep the detail of such obligations updated, to address emerging risks.

An example of the need to address emerging risks can be found through the rapidly evolving policy framework at EU and international level. As noble Lords will be aware, the EU’s fourth money laundering directive was largely transposed into UK law in June via secondary legislation, through the money laundering regulations, as I have said. Yet noble Lords will also be aware that amendments to the fourth money laundering directive were being negotiated even before EU member states had transposed the original directive, demonstrating that anti-money laundering and counterterrorist financing standards can evolve at a rapid pace. The noble Baroness, Lady Kramer, made the point about the justification that the Government are giving and continue to give in this regard: to quickly and effectively address emerging risks and ensure that the UK is a hostile environment for illicit finance, it is right that we use secondary legislation to implement future policy changes. That will ensure that the UK stays aligned with the evolving international standards in this area.

[Baroness Kramer]

I hope that the Minister can clarify something. He said that it is important to have access to regulation to reflect changing policy standards. Where are those standards? Are they in a piece of legislation? Are they up for debate in this House? Are they really what one Minister decides is policy? Perhaps he can explain that, because that is the missing piece—there is no structure for policy to go through a democratic process.

[Lord Ahmad of Wimbledon]

As I have already indicated—and I will perhaps challenge the noble Baroness—when we take the legislation in a wider sense, whatever the legislation, there is primary and secondary legislation. As I have said before on secondary legislation, the procedure being put forward by the Government would allow that policy to be stated and debated in both Houses of Parliament.

I shall finish the point. In terms of existing money laundering, I have already alluded to the fact that with the previous directive the money laundering regulations laid out the detail to which the noble Baroness refers.

[Baroness Kramer]

I must press the Minister on this. He used the word “allow”. I am sure the Government can do what they wish in that sense and can bring forward primary legislation, which this is. Will the Minister confirm that it does not have to go through primary legislation? The—in effect—primary legislation that sits behind the 2017 regulations that he described took place within the extensive process of democratic debate, scrutiny and votes in the European Parliament. I am trying to understand where that piece goes in this legislation.

[Lord Ahmad of Wimbledon]

My Lords, once we leave the European Union—and I notice the change in tack from the noble Baroness who said “when” and not “if” any more—

[Baroness Kramer]

It was an error on my part. The more we go into this discussion, the more “if” sounds realistic.

[Lord Ahmad of Wimbledon]

The noble Baroness knows how much I care for the accuracy of Hansard. She has clarified that.

In this case, the Government’s view is that there will be scrutiny of all future legislation once we have left the European Union. The Government will decide what element of policy that is subsequently translated into legislation will appear as primary legislation or as secondary legislation. However, for the purposes of this Bill, which I will come on to in a moment, there are certain elements that we are laying out in primary legislation and in secondary legislation. In both cases, after we leave the EU it will not be scrutiny in the European Parliament but scrutiny in this Parliament, and the Government will ensure it. I ask the noble Baroness to reflect on this point. When I come to the more substantive comment, if she will allow me, there are mechanisms within secondary legislation to allow for the effective debate to which I alluded at Second Reading.

To get back to the point that I was making—perhaps we differ on this and I acknowledge what the noble Baroness says—we believe that in order to address emerging risks quickly and effectively it is important to ensure that the UK is a hostile environment for illicit finance. This is consistent with the broader regulatory regime relating to financial services, for example, which also requires swifter tools that can be more readily updated to address emerging risks than primary legislation. A similar approach to implementing the standards set by the FATF is applied outside the UK in countries such as the United States. There, the Currency and Foreign Transactions Reporting Act 1970 imposes requirements relating to the reporting of suspicious transactions and so is broadly analogous to the Proceeds of Crime Act 2002. The detailed requirements of the international standards relating to areas such as due diligence and record keeping are then established through regulations promulgated by the Financial Crimes Enforcement Network, housed within the Department of the Treasury.

The Government are committed to parliamentary scrutiny of legislation made through delegated powers as we leave the European Union. This is the point I wish to make to the noble Baroness. I have made it before, but I hope it will reassure some, if not all, noble Lords that regulations made under Clause 41 will be subject to the draft affirmative procedure, unless they update the list of high-risk third countries, in which case they will be subject to the made-affirmative procedure. I made this point previously. I emphasise that updates to the list of high-risk countries will still require parliamentary approval, but they need to be put in place swiftly, as I am sure many noble Lords accept, so that banks and businesses can start to apply the enhanced due diligence measures which are appropriate for these high-risk areas.

The use of secondary legislation to amend anti-money laundering and counterterrorist financing regulations is consistent with our legislative approach in the past. The noble Baroness, Lady Bowles, raised the use of secondary legislation with certain Acts, but in general that is not new. I believe I have already made this point, but it was used, for example, to put the money laundering regulations 2017 in place following the fourth money laundering directive. It also provides consistency with our approach to regulations related to financial services and ensures that our anti-money laundering and counterterrorist financing regime remains consistent with internationally agreed standards. It also avoids the unusual position whereby secondary legislation made by a Minister cannot be changed without primary legislation made by Parliament. I hope that I have convinced the House that Amendment 68A is unnecessary and would place an excessive burden on legislation that needs to be flexible and capable of rapid change.

[Baroness Bowles of Berkhamsted]

The Minister said that the reason this is done in regulations is because telling a bank how to do its due diligence is too detailed for primary legislation. But he is rather overstating the case, because Regulation 18 of the 2017 money laundering regulations says that, “A relevant person”—this would be the bank—

“must take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which its business is subject”.

The first requirement there is:

“In carrying out the risk assessment required under paragraph (1), a relevant person must take into account … information made available to them by the supervisory authority”,


under Regulation 17. If you go back, you find that the supervisory authority has to take notice of what the Treasury and the Home Office have said. So this is a cascade that automatically updates. If there is a new risk, the Government identify it, along with mitigating measures, and tell the supervisors, which devise ways to update the information for their sectors. Then the onus is still on the individual businesses to work out how to do this. Yes, there is a list of factors to include, but it is within the power of the Government to say, “This is an extra factor; it does not even need any legislation”. However, it embeds the duties of the Government to have a position and to come out with their reports and then the duties of the supervisors. None of that is definitely retained, because everything to do with this money laundering directive can be rubbed out. So it is not about the excruciating detail that the Minister says it is—the excruciating detail comes from the supervisors.

[Lord Ahmad of Wimbledon]

I understand the point the noble Baroness makes, but it is not about—to use her term—the excruciating detail. Secondary legislation—with parliamentary scrutiny—provides the Government with the ability to react to rapidly changing circumstances. Relying on primary legislation would not allow the Government to do that. We have a difference of opinion in that regard—but, on the point she made, guidance to financial institutions would follow whatever legislation and whatever rules and laws prevail at that given time.

I turn to Amendment 69A. After the EU (Withdrawal) Bill receives Royal Assent, the powers under the Bill as they are drafted will allow changes to the money laundering regulations 2017 and to the funds transfer regulation which are appropriate to prevent deficiencies that arise as a result of the UK ceasing to be a member of the European Union. It will not enable any other changes to be made. I note that the noble Baronesses, Lady Bowles and Lady Kramer, are aware of the need to make such changes to the money laundering regulations 2017, as demonstrated by Amendment 69D, which we will discuss later today. However, the Government’s approach in this area is to ensure continuity for regulated firms, and certainty for businesses as to the nature of the obligations with which they need to comply.

In order to ensure that our anti-money laundering regime makes legal sense on withdrawal from the EU, we anticipate laying brief regulations made under the power in Clause 7 of the EU (Withdrawal) Bill so as to fix a limited number of deficiencies within the money laundering regulations and the funds transfer regulation. Our approach will make amendments such as—for example—removing references to the Government needing to have regard to reports published by the European Commission and to the Government having to file notifications of risk assessments with EU institutions. It would not be appropriate to keep these obligations, as I am sure noble Lords acknowledge, once the UK ceases to be a member of the European Union.

Given the necessity for such changes in order to have functioning UK law, I do not agree with Amendment 69A, which would remove the ability to make these necessary fixes to our existing laws. Being unable to make necessary changes of the type that I describe would not take account of the fact—the basic fact—that the UK will have ceased to be a member of the European Union.

Legislative reform orders that derive from the 2006 Act are designed to reduce the regulatory burden rather than achieve any policy changes. They must meet a number of preconditions before they can be used to reduce regulatory burdens. Most importantly, they are not allowed to remove any necessary protection, and are therefore not a risk to regulatory safeguards within the money laundering regulations 2017.

I do not agree with the proposed exclusion of a useful tool to ensure that the UK’s anti-money laundering regimes can be simpler, easier to understand and easier to comply with, while ensuring—a point well made by the noble Baronesses in speaking to their amendments—that standards are not driven down, which I agree with, and the strength of the system is maintained. That is another point of principle I agree with.

I hope the Committee will also consider how legislative reform orders are used. There is no convention to use them to make controversial changes, and the preconditions in the 2006 Act will always apply. I believe that the preconditions of the 2006 Act are the appropriate way of constraining the use of its powers. Further, disapplying legislative reform orders in a single case might suggest that it would be appropriate to use them in other similar contexts.

I turn now to the proposed new clause contained in Amendment 69E that would limit amendments to the money laundering regulations 2017 to only those which implement standards published by the Financial Action Task Force, or that identify or revoke a designation of a high-risk third country. I should add that I am again grateful that within the clause both noble Baronesses recognise that new powers are required to update the UK’s money laundering regime after we leave the EU.

The Government are committed to playing a leading role in shaping global anti-money laundering standards through our membership of the Financial Action Task Force. Noble Lords will be aware that we led a successful campaign through the FATF to clarify that only some charitable organisations, such as those working in conflict zones, are vulnerable to terrorist financing, and in doing so improved the ability of civil society organisations to function and receive funding. We have also actively worked to clarify the obligations on the private sector to share financial intelligence. In doing so, we are addressing a key priority for the private sector, which consistently delivers the message that we will be better able to manage financial crime risk if it is able to share more information regarding suspicious customers.

It is right that the Government have the power to update the UK regime when such standards change. There are, however, several areas where the UK’s anti-money laundering regime already goes beyond these standards. Our recently established register of trusts generating tax consequences, for example, goes beyond the standards set by the Financial Action Task Force. Similarly, the decision at Budget 2015 to regulate virtual currency exchanges for the purposes of anti-money laundering and counterterrorist financing did not reflect an expectation of the Financial Action Task Force—it went beyond and it was a policy decision to which we expect to give effect through transposing amendments to the fourth EU anti-money laundering directive.

Although we will remain aligned with Financial Action Task Force standards after the UK ceases to be a member of the EU, our anti-money laundering regime already exceeds its standards in certain areas and we will wish to ensure that our defences against misuse of the financial system remain ahead of global standards, rather than solely reflecting them. Ensuring that we can make regulations so as to detect, investigate and prevent money laundering or terrorist financing, as well as to implement the standards of the Financial Action Task Force, is the most certain method of placing future changes to our anti-money laundering system on a sound legal basis. Adopting the amendment would limit our ability to do so in future.

[Baroness Bowles of Berkhamsted]

I concede that maybe we should have said “be at least as strict as”, but there is nothing in the Bill that says we are going to maintain and be ahead of global standards. We would all be a great deal happier if there were something in there indicating that standards would be maintained. We know there are good intentions, the Government have been doing good things and the Front Bench opposite would do good things, but it is not there in writing. That is what is fundamental to this: the principles are not fixed.

[Lord Ahmad of Wimbledon]

I thank the noble Baroness for acknowledging the actions that this Government have taken and—I am sure I speak for the Front Benches—for the faith that she has in both Front Benches. I have listened carefully to her point. The point that I am making is that the UK has already shown that through our commitment to the FATF, which we will continue to be part of. Not only are we complying but we are leading, and that role will continue and indeed be strengthened by the UK’s membership of the FATF. The objectives and obligations that it asks member states to adhere to will continue after we leave the EU.

I turn to Amendment 72A. The definition of terrorist financing contained in Clause 41 of the Bill is identical to that which already exists in the 2017 money laundering regulations. This definition provides that “terrorist financing” means an act that constitutes an offence under various legislative provisions, being sections of the Terrorism Act 2000; the Anti-Terrorism, Crime and Security Act 2001, the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011 and the Terrorist Asset-Freezing etc. Act 2010.

As noble Lords will note, elements of the definition of terrorist financing within Clause 41 cross-refer to secondary legislation that creates a criminal offence; namely regulation 10 of the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011. This provides that any person who contravenes prohibitions contained elsewhere in those regulations commits an offence relating to the financing of terrorism. The offences created through those regulations play an important role in deterring the financing of terrorist organisations. Regulation 14 of those regulations further provides that a person guilty of the relevant offence is liable, on conviction on indictment, to imprisonment for a term not exceeding two years’ imprisonment or to a fine or indeed both.

Clause 1 of the Bill provides that an appropriate Minister may make sanctions regulations where doing so would further the prevention of terrorism, whether in the UK or elsewhere. It is possible that such regulations made under the powers conferred by Clause 1 could impose targeted sanctions and penalties similar to those that are established through the ISIL (Da’esh) and Al-Qaida (Asset-Freezing) Regulations 2011, and which are already captured within the definition of terrorist financing within the 2017 money laundering regulations. If such regulations are made, they will effectively update the UK’s regime for counterterrorist financing. I am sure noble Lords will also note that the reference in the definition to the Terrorist Asset Freezing Act etc. 2010 will become obsolete when Part 1 of that Act is repealed.

In these circumstances, it is right that the definition of terrorist financing within Clause 41 of this Bill can be updated so that the UK’s counterterrorist financing framework can be applied consistently, working off a single definition of terrorist financing. Clause 45(5) of the Bill provides that any regulations updating this definition would rightly be made through the draft affirmative procedure, providing Parliament with an opportunity for fully scrutinising any such changes. In the absence of such a power, the Government would otherwise be obliged to maintain a definition of terrorist financing within this legislation that could quickly go out of date and so limit the effectiveness of our response to the financing of terrorist groups.

[Baroness Bowles of Berkhamsted]

My Lords, there are a lot of regulations going on here that interact with one another. Will they be considered one by one, so that they can be looked at comprehensively, or will they come in a great big wodge—akin to the sort of thing we get on money laundering?

[Lord Ahmad of Wimbledon]

My Lords, I am sure that the noble Baroness will accept that there are times when it makes sense to discuss certain regulations together in a group. At other times, they will be discussed individually. We will certainly look at the context of each regulation and introduce it in the appropriate manner. The key point I would make in all this is that, under the procedure we have adopted, we want to ensure that there is effective scrutiny.

I totally accept the point of principle and have noted our difference of opinion on the point made by both noble Baronesses and others on primary and secondary legislation. However, I have explained why the Government believe their approach is the right one. I also appreciate the patience of Members of the Committee in our detailed discussions setting the context, which I am sure will be reflected in our discussions today. I thank noble Lords for their patience and indulgence, and hope that they are minded to withdraw or not move their amendments.

[Lord Davidson of Glen Clova]

My Lords, the patience of this side has not been strained by the Minister, who provided a complex and interesting setting-out of the way in which the UK envisages the future. The debate in this complicated and difficult area has been most useful.

The noble Baroness, Lady Bowles, provided an intensive forensic analysis, which, I suspect, may leave one or two questions that require answers that we may, no doubt, look at on Report. Plainly, there is a difference of view between the Government and the Opposition as to the way forward on minor matters but not on the substantive way forward. While I therefore recognise the tack made on the Bill by the noble Baroness, Lady Bowles, we do not share the way forward that she suggests. However, we recognise a number of the concerns she identifies.

The noble Baroness, Lady Kramer, set out her assessment of the damage to democratic scrutiny that this approach adopts. One does, of course, speculate what would happen if a Labour Government had proposed such wide powers for Ministers. One might imagine that certain Brexiteers would have fairly vociferous views on any such proposal.

The speed argument for the anti-money laundering aspect of this clause is not entirely clear, to this side at least. As to the answer stating that there are emerging risks, it would perhaps be useful to have some examples of how they have emerged and how the current system has failed to deal with them.

The noble Baroness, Lady Kramer, identified the possibility of a sunset clause. She will be pleased to see that my noble friend Lord Collins has an amendment proposing such a clause.

I must reject the ovine reference. We are trying to find a way forward that is consonant with a good, strong regime on AML and terrorist financing. I welcome the Minister’s intention to get it right. He sees improvement as a way forward and we share that approach. Our concern is that not every future Minister might share this Minister’s good intentions and is therefore to push the legislation in an improving direction, and it is for that reason alone that we advanced this amendment.

The Minister set out the UK position at length. Long may it continue; it certainly puts the UK in a strong, leading position in relation to money laundering and terrorist financing protection. At this stage, we will go way and think about this further. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Collins of Highbury]

The Opposition’s view, in terms of global economic theft, for want of a better word—the noble Baroness, Lady Kramer, raised this point—is that we are not talking about domestic industries or domestic activities. We are talking about transactions that are going global in terms of what I would call international crime. Not only the Panama papers but also the Paradise papers are showing that these activities are causing far more damage.

I believe that the overseas territories have an obligation to comply with international agreements, certainly regarding our UN obligations on sanctions. If we sanction a country for corrupt activities, the overseas territories have to comply. If it is good enough for sanctions, it is important that we consider it important enough for some of the crimes we have heard described this afternoon.

[Lord Ahmad of Wimbledon]

My Lords, I thank all noble Lords who have taken part in this debate. In particular I thank the noble Baroness, Lady Stern, for tabling this amendment. It would require the Secretary of State to provide all reasonable assistance to the Governments of certain of the British Overseas Territories with significant financial centres to enable each of those named overseas territories to establish a public register of company beneficial ownership. It further provides that if, by 1 January 2019, such overseas territories have not established such a register, the Secretary of State should take all reasonable steps to ensure that the Privy Council legislates to require each relevant overseas territory to do so. With your Lordships’ indulgence, I shall refer to the overseas territories as the OTs to save a degree of time.

I also appreciate that, as the noble Baroness articulated in moving the amendment, it was a probing amendment. That allows me to outline what steps have been taken. The OTs, as you know, are separate jurisdictions with their own democratically elected governments. They are not represented in this Parliament and so it has only been in exceptional circumstances that we have legislated for the OTs without their consent.

Financial services are the domestic responsibility of territory Governments. This creates an entirely different relationship from examples where we have had to legislate. For example, we have acted over international human rights obligations and, indeed, on decriminalising homosexuality. On the governance structures in which these territories work, as the noble Earl and my noble friend Lord Naseby have indicated, and as the territories and the House will recognise, legislating for the OTs without their consent would effectively disfranchise their own elected representatives. It would create considerable ill-feeling, which the Government do not wish to do.

Legislating to require certain OTs to establish public registers of company beneficial ownership when they do not wish to do so of their own volition would also mean that the territories would be less keen to maintain their current level of co-operation. This would jeopardise the progress—which I shall come to in a moment—that has already been made in this area and the spirit of working in partnership that we have fostered with them. The noble Lord, Lord Collins, said that I was running off to the joint ministerial council—I think I ran from it. We covered this subject; indeed, it was also covered by my right honourable friend the Prime Minister in her meeting with the overseas territories. Jeopardising progress in this respect is not something any of us want to do. Given the necessary lead-in period for establishing any new register of beneficial ownership, this would set back UK law enforcement’s ability to access information relating to the beneficial ownership of companies in the OTs.

Let me assure noble Lords that this does not mean we are content for no action to be taken in this space. It simply means that we wish to take action within the existing framework of friendly co-operation, building on the progress already made. The noble Baroness, Lady Stern, made the point that I am the Minister for Overseas Territories. I have been dealing quite extensively with them, as noble Lords will understand, particularly certain territories, because of the tragic hurricanes that struck. We raised these issues directly, and we have seen good progress.

As noble Lords will know, the UK is a global leader in the cause of corporate transparency. We are the only country among the G20 to have a fully established public register of company beneficial ownership, and we continue to push for this to become a global standard. The international standards set by the Financial Action Task Force do not require it, however, reflecting the lack of international consensus in this area. These standards require only that:

“Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities”.


Nevertheless, should public registers become the global standard, we would expect the OTs to meet it. The UK is far ahead of other countries in this area. The current EU framework does not require all member states to establish public registers of company beneficial ownership, so many have chosen not to do so. There is already progress in this area and we need to build on it within the existing framework of friendly co-operation, to which I have alluded. Under the arrangements that we concluded with the OTs in 2016, overseas territories with significant financial centres committed to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with automatic access to such information within 24 hours of a request being made, or within one hour in urgent cases.

These arrangements—also known as the “exchange of notes”—came into effect on 30 June this year and are in the process of being fully implemented by the OTs. An important point is that effective implementation of these arrangements will put the OTs ahead of many G20 members and many individual states of the United States—a point made well by my noble friend Lord Naseby.

I am pleased to report that Bermuda, the British Virgin Islands, the Cayman Islands and Gibraltar have central registers of beneficial ownership information or similarly effective systems in place, and they are taking forward population of their systems with beneficial ownership data.

We are also providing support to the Government of Anguilla to establish an electronic search platform providing access to beneficial ownership information, as well as support in drafting underpinning legislation. We are now working with Anguilla to finalise a memorandum of understanding on the terms for provision of our support, and we expect its beneficial ownership system to be established in the spring of 2018, notwithstanding the current rebuilding challenges it is facing following the hurricane. Work on establishing a central register in the Turks and Caicos Islands has been delayed owing to the impact of Hurricane Irma, but we expect this to be in place soon.

We did not seek a bilateral arrangement with Montserrat, as we had with the other OTs with financial centres, because Montserrat had already committed in November 2015 to include beneficial ownership information in its existing public companies register. A Bill requiring the inclusion of beneficial ownership information in the existing register will be introduced to Montserrat’s Legislative Assembly this month. The target date for the addition of that information to the register is 1 April 2018.

Having heard that detail, I hope your Lordships will agree that it demonstrates what can be achieved by working consensually with the OTs. It is right, therefore, that we focus on the implementation of the existing arrangements and that future work in this area be carried out within the existing framework of friendly co-operation, rather than generating ill will by imposing upon the OTs without their consent.

We are committed to following up on these arrangements to ensure that they deliver in practice, are implemented effectively and meet our law enforcement objectives. There is explicit provision in the exchange of notes for the operation of the arrangements to be reviewed six months after they came into force—that is, at the end of this year—and subsequently on an annual basis. These formal review processes are in addition to ongoing monitoring of the practical application of the exchange of notes by the UK and each relevant OT.

In addition, noble Lords will recall that Section 9 of the Criminal Finances Act 2017 amended Part 11 of the Proceeds of Crime Act 2002 to establish a statutory review process for the implementation of the exchange of notes. This report must be prepared before 1 July 2019 and relate to the implementation of the exchange of notes from 1 July 2017 to the end of December 2018. Once prepared, it will be published and laid before Parliament. The Government are clear that OTs with significant financial centres must fully implement the exchange of notes to which they have each agreed. The noble Baroness, among others, asked whether this matter had been raised. I have already said that it was raised at the JMC, and the Prime Minister reiterated this at her meeting with the leaders of the OTs last week. These arrangements have been made and must be honoured.

A key feature of the Government’s approach has been to maintain a level playing field between the OTs with financial centres and the Crown dependencies. As I am sure noble Lords reflecting on my contribution will see, we have robust review processes for the implementation of these arrangements, both on an ongoing basis with the Crown dependencies and the OTs and through the Criminal Finances Act. If these review processes demonstrated that full implementation of the exchange of notes was not taking place in any individual jurisdiction, it would be right for us to consider the issue further.

My noble friend Lord Patten, who I see in his place, raised the EU blacklist. Perhaps I may, first, give some factual information. I will check Hansard but I believe that he mentioned that Bermuda was on the blacklist. Bermuda is not on it; nor are the Cayman Islands or the Crown dependencies. Bermuda, the Cayman Islands and the Crown dependencies are on a separate list—I am quoting here—of co-operative jurisdictions which have been assessed by the EU as being unsuitable for the blacklist. They have also further committed to address any remaining concerns by the end of 2018. I can be quite specific in saying that this is not a grey list; on the contrary, it is a demonstration of the progress and positive commitments that have been made and are being achieved.