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

Pat McFadden Excerpts

Monday 13th September 2021 General Committees

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Thank you for your chairmanship today, Sir Graham.

I am grateful for the Minister’s explanation of the measure and of the criteria for including countries on the list, which is updated periodically and relies heavily on the work of the Financial Action Task Force. We shall not, of course, oppose this today because we believe that it is important to have the strongest anti-money laundering regime and to take the strongest measures possible. That is very much in the public interest. It is not easy, because regulators have to keep track of evolving practice among those who try to get round the law.

There is a particular duty on the UK to take the issue seriously given the size and global reach of our financial services sector. Anything that suggest slackness on our part—anything that involves UK institutions and anything where it appears that the regulators have taken their eye off the ball—is bad for public confidence in the UK’s financial services sector. Sadly, UK institutions have been named quite a lot in recent years in stories about illicit finance.

We see from the regulations that the picture changes over time, with some countries coming off the list and others being put on to it. For example, Ghana has been removed from the list, but Haiti, Malta, the Philippines and South Sudan have been added. Malta is an EU member state. One would hope that high standards of governance and supervision were in place. Can the Minister explain further why Malta has been added to the list?

More notably, Afghanistan is not on the list. Is that because the measure was drafted in July, before the Taliban takeover? If so, have the Government taken measures on money laundering and terrorist financing since the Taliban assumed control on 15 August? A brief look at the Government’s consolidated list of financial sanctions targets shows that there are 135 Afghans on it, a number of whom have assumed positions of significant power in the Afghan Government. Sirajuddin Haqqani, the new Afghan Government’s interior Minister, is on the UK consolidated sanctions list. He is also on the FBI’s most wanted list, because—according to Reuters—of his links to suicide attacks and al-Qaeda. There are others, too.

How do the Government intend to respond to the formation of the Afghan Government and money laundering and terrorist financing? We do not want to do things that hurt the Afghan people, but what will the Treasury, regulators and, indeed, the Government as a whole do to ensure that funds are not channelled to terrorist organisations as a result of the Taliban takeover?

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[John Glen]

I am happy to address Members’ points.

It is the Government’s view that the amendment will ensure that UK legislation remains up to date and continues to protect the financial system from the threat by jurisdictions with inadequate money laundering and terrorist financing. The amendment enables the UK to remain in line with international standards on money laundering and terrorist financing, allowing it to continue to play its full part in the fight against economic crime. I agree with the right hon. Member for Wolverhampton South East and the hon. Member for Glenrothes about the need to retain high standards in our financial services regulation—the consistent duty I have put on our regulators in conversations with them, week in, week out.

The right hon. Member for Wolverhampton South East was absolutely right when he said that, because of the size and sophisticated nature of financial services in the United Kingdom, keeping to those high standards will always be an imperative for us. He asked me to comment on the listing of Malta and Afghanistan. At the June 2021 FATF plenary, FATF collectively agreed to include Malta on its list of jurisdictions under increased monitoring. As this is one of the FATF public lists that the UK list mirrors, Malta will be added to the UK’s list of high-risk third countries. The outstanding issues that Malta must address are outlined in FATF’s publicly available statement.

The hon. Member for Glenrothes made a point about this country’s past. FATF’s rules and processes are searching, rigorous and extensive. The British Government receive extensive lobbying on these matters but we defer to the rigour of the process, no matter how uncomfortable it might be given the strong relationships we might otherwise have. Part of today’s upgrading following the June decisions goes ahead of where the EU is on a number of these issues, and I am pleased that we are applying the highest standards.

The right hon. Member for Wolverhampton South East made a number of points about Afghanistan and the challenges that exist. Afghanistan is not currently identified on any of FATF’s public lists, but it is important to note that the money laundering regulations require enhanced due diligence in a range of situations that present a high risk of money laundering or terrorist financing, not just where a transaction or business relationship involves a country that is listed as high risk. When assessing whether there is a high risk of money laundering or terrorist financing, the regulated sector must take a number of factors into consideration, including geographical risk where countries have been identified by credible sources and alerts from supervisory and regulatory bodies.

There are at present various sanctions in place in relation to Afghanistan that include members of the Taliban. Targeted sanctions impose an asset freeze, including making directly or indirectly available funds or economic resources to or for the benefit of designated individuals or entities. Under the UN’s existing Afghanistan sanctions regime, 135 designated individuals are linked to the Taliban or the Haqqani network—which as Members will know is a UK-designated and proscribed organisation closely linked to the Taliban—and four Afghan Hawala businesses. Several other designated groups and individuals with links or possible links to the Taliban are also designated under the UN al-Qaeda/Daesh regime, UNSCR 1267.

As anti-money laundering and counter-terrorism financing supervisors, the Financial Conduct Authority and HMRC reminded obliged firms in their recent alerts about potential financial crime risks from Afghanistan and about their obligations to ensure that they appropriately monitor and assess transactions with Afghanistan to mitigate the risk of their firms being exploited for money laundering or terrorist financing purposes and to implement sanctions screening. Similarly, the Office of Financial Sanctions Implementation, which sits within the Treasury, issued an alert reminding businesses that UN sanctions are already in place against individuals and entities associated with the Taliban. The alert advised businesses to exercise caution given the changing environment and reminded them of the continued existing obligations to carry out customer due diligence and implement sanction screening.

FATF will continue to analyse countries at risk and will likely look at those matters during its next plenary, which I believe is in October. The United Kingdom will play an active part in that conversation.

[Mr McFadden]

If we were to think of a country at greatest risk of being used for terrorist financing, Afghanistan and its new Government would be high in our thoughts. The Minister tells the Committee that the list is based on FATF’s work. I understand that, but presumably the Government have the power to go beyond FATF and say, “We think Afghanistan should be on the list.” Is there anything to stop the Government adding Afghanistan to the list, according to their own timetable, before FATF looks at the issue again?

[John Glen]

The purpose of this statutory instrument is to update according to the last assessment. We would not want, as a response to immediate events and without analysis or rigour, to add additional countries. I have explained at some length the considerable sanctions regime against proscribed individuals and the upgrading of the advice on its obligations to the regulated sector from HMRC and the FCA. Other jurisdictions such as the EU are not even upgraded to the list that I hope the Committee will agree to today. We do not rule anything out in the future, but we believe that FATF is rigorous. Indeed, the UK experienced rigorous analysis in 2018. We stand by the assessment and will see what it will do in October.

The hon. Member for Glenrothes mentioned wider issues with Scottish limited partnerships. The registration numbers thereof have diminished significantly recently, but as this is a BEIS competence I hope he will not mind my writing to him on it. I hope that satisfies the Committee.

Question put and agreed to.