Money Laundering and Terrorist Financing (Amendment) (No. 2) (High-Risk Countries) Regulations 2021

Lord Tunnicliffe Excerpts

Tuesday 14th September 2021 Grand Committee

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, the Government are committed to combatting money laundering and terrorist financing and recognise the threat that economic crime poses to our country. 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 it risks damaging our international reputation as a fair, open, rules-based economy. Illicit finance undermines the integrity and stability of our financial sector and can reduce opportunities for legitimate business in the UK. That is why the Government are focused on making the UK a hostile environment for illicit finance. As part of this work, we have taken significant action to tackle money laundering and terrorist financing, and to strengthen the whole-system response to economic crime.

Underpinning these efforts are the money laundering regulations, a key part of our legislative framework which set out a number of measures that certain businesses must take to combat money laundering and terrorist financing. These requirements include the need for businesses to identify and verify the people and organisations with whom they have a business relationship or for whom they facilitate transactions.

In addition, the regulations require that financial institutions and other regulated businesses conduct additional checks, or “enhanced due diligence”, on business relationships and transactions involving “high-risk third countries”. These are countries that have been identified as having strategic deficiencies in their anti-money laundering and counterterrorism financing regimes and which pose a significant threat to the UK’s financial system. The statutory instrument under discussion today updates the list of countries specified as high risk in the money laundering regulations.

I will explain the background to this instrument. At present, the UK’s list of high-risk third countries, specified in the money laundering regulations, mirrors those identified by the Financial Action Task Force, the global standard-setter for anti-money laundering and counterterrorist financing. The Financial Action Task Force updates its public lists of jurisdictions with strategic deficiencies following the conclusion of each Financial Action Task Force plenary to reflect changing risks and circumstances in these jurisdictions and in the global economy.

This instrument will therefore amend the money laundering regulations to update the UK’s list of high-risk third countries to mirror the Financial Action Task Force’s public lists. This will ensure that the UK’s list is responsive to the latest threats emanating from high-risk countries with inadequate counterillicit finance systems, and that the UK remains at the forefront of global standards on money laundering and terrorist financing. This update will therefore help to protect our national security and the UK’s reputation, and will protect businesses and the financial system from money launderers and terrorist financiers.

In summary, the instrument will update the UK’s high-risk third countries list. Businesses that fall under the scope of the money laundering regulations and which deal with these countries will be required to take extra scrutiny measures. This amendment will enable the money laundering regulations to continue to work as effectively as possible to protect the UK financial system and it will allow the UK to continue playing its full part in the fight against economic crime. I hope that noble Lords will join me in supporting this legislation. I beg to move.

[Lord Tunnicliffe (Lab)]

My Lords, I welcome the Minister to what is for me the first Treasury SI to be held physically since the pandemic began. There is also a sense of nostalgia that predates the Minister: namely, this SI is being conducted by only the Minister, myself and the Government Whip. It is a matter of “never mind the width, feel the quality”.

I am grateful to the Minister for introducing the latest iteration of these regulations. As he outlined, they enact the latest changes to the Financial Action Task Force’s list of high-risk countries for illicit finance, which come three times a year. The last time we debated this topic, towards the end of April, we also covered the logistics involved in defining key terms and ensuring that the UK can mirror the FATF’s list, now that we are outside the EU. Thankfully, the relevant corrections to domestic law have been made, which means that we do not need to revisit that topic in any detail. However, we find ourselves giving retrospective approval to a made affirmative instrument, when the Government’s stated ambition in April was to use the regular process.

Of course, we understand that the work of the FATF may not directly align with the sitting dates of our Parliament. We also accept that delays in bringing forward these regulations introduce a necessary and undesirable risk. While these occasions allow noble Lords to raise a series of related issues with Ministers, it seems unlikely that the Government or Parliament would wish not to enact these regulations when they appear every few months. With that in mind, and given the huge volume of secondary legislation that we now deal with, could the Minister and his department examine whether and how the process giving effect to changes in the FATF list might be streamlined or otherwise improved?

Speaking of peripheral issues, could the Minister also provide a brief update on the Government’s broader efforts in this area? In April, the noble Lord spoke of 52 joint actions being undertaken by the Government and private sector to tackle economic crime. He also referenced 17 extra staff being recruited to the UK Financial Intelligence Unit. How are those exercises progressing? I would be happy for him to write with the details, if necessary.

[Lord Agnew of Oulton (Con)]

My Lords, I thank the noble Lord for his participation in the debate today and for his normal, thorough consideration of the instrument under question.

I shall go to his query about the progress on the 52 actions that we have committed to in this area: 20 of those 52 have now been completed, and we are at a key point in the economic crime plan timeline. The Government recently published the Statement of Progress, which details progress made against the plan; it sets out the UK’s future priorities and outlines seven new priority actions that build on the original actions in the plan. It increases our level of ambition to combatting economic crime, supporting our growth and prosperity and enhancing our global reputation as a clean financial centre and a safe place to do business.

As the noble Lord requested, I shall write to him with further details on the work; there is a great deal going on, covering a number of departments—for example, reforms to Companies House to prevent the misuse of companies, which was set out in September last year. We are looking to introduce reforms to limited partnerships and how they operate, and a register of overseas beneficial owners. Likewise, the Home Office is shortly to consult on a number of economic crime-focused legislative changes to ensure that we have the right powers to share information and seize assets. However, as requested by the noble Lord, I shall put that into a letter so he has a full update.

On the pressure on bringing instruments forward, which will be reasonably frequent, I absolutely accept the noble Lord’s challenge. It is always a difficult balancing act to subject government to proper scrutiny in the parliamentary process but also not to clutter up the timetable. We will take back his comments and see whether there is a better way of doing it.

I hope that noble Lords have found the debate informative, albeit short, and that they will join me in supporting this instrument.