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

Pat McFadden Excerpts

Monday 22nd November 2021 General Committees

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

It is a pleasure to have your chairing our proceedings, Ms Elliott. I thank the Minister for her explanation.

We debate these money laundering regulations quite regularly—as FATF changes its list, countries are added and removed. This particular statutory instrument removes Botswana and Mauritius from the list of high-risk countries, but adds Turkey, Jordan and Mali, which are now classed as high-risk countries that require extra due diligence.

As the Minister said, those changes are based on periodic FATF reports. I refer to the Treasury’s own response to the FATF report, which states in paragraph 1.6:

“Whilst the UK achieved a high rating, the FATF assessed the UK’s supervision regime to be only moderately effective. Specifically, it found that there were significant weaknesses in the risk-based approach to supervision among all the UK AML/CTF supervisors, with the exception of the Gambling Commission.”

My first question to the Minister is, what has been done since the Treasury accepted that there were significant weaknesses in our approach? The same document states:

“For the accountancy and legal sectors, weaknesses in supervision and sanctions are a significant issue which the UK has put steps in place to address.”

I would be grateful if the Minister could update us on that. It matters for a number of reasons. The UK has a particular responsibility with regard to money laundering and terrorist financing because of the size of our financial services sector. It is a big advantage for the country to have a financial services sector with such global reach, but that means that it can be attractive to those who make their money through illicit means as well as legitimate ones.

Since we debated the last such statutory instrument some months ago, we have had the publication of the Pandora papers. They set out a familiar story of the UK and its overseas territories—one or two of which are mentioned in the list we are debating—being used as a vehicle for hiding finance and concealing ownership. I would like the Minister to tell us where we are on some of the promised measures on that. For example, where is the registration of overseas entities Bill, which has been promised for years? In fact, 10 December marks the fourth birthday of the promise of that legislation. Where is it? Where is the reform to empower Companies House to do more checks on who the owners and directors of companies actually are? Where is the implementation of the recommendations in the Intelligence and Security Committee’s Russia report? What do the Government propose to do to ensure that donations to political parties are not the proceeds of kleptocracy?

Talking of individual countries, why is Russia not on the list we are discussing? Is it really the Government’s position that Turkey and Jordan, to take two random examples, are places that require extra due diligence for financial investments, but Russia is not? Similarly, in recent months there has been major change in Afghanistan, but it is not on the list. Why not? What assessment have the Government made of the risk of terrorist financing as a result of the Taliban takeover of Afghanistan? I would be grateful for a response to those questions.

Obviously, we will not oppose this statutory instrument, but it would be absurd to think that all we need to do is mirror the FATF list to have adequate defences on anti-money laundering. It is crucial for our financial system that we act to expose the nature of hidden asset ownership and empower Companies House and others to crack down on illicit finance. Right now, those promises are not being put into practice.

--- Later in debate ---

[Mr McFadden]

The Minister’s closing statement, in a sense, sums up the problem. Yes, this list does keep us in line with the FATF list; nobody is disputing that. My point is that that is not enough. We should be capable of exercising our own judgments.

The Minister says, on Afghanistan, that FATF is looking at it, so we will wait until it looks at it. Surely this country, with a financial sector of such a size and a Treasury as powerful as the one she is a Minister in, is capable of exercising its own judgment about the financial risks in other countries? We took a major decision a few years ago that was all about sovereignty, and here we are franchising out our judgment on high-risk countries to another body and saying that until they come up with a verdict, we will not add any country to this list.

The same goes for Russia. Is the Minister really telling us that the Treasury and the Government do not judge Russia to be as big a risk as the countries on this list? That seems to me to be a judgment that is franchising out our capacity to act on these important issues to another body, in a way that the Government have spent five years telling us they do not want to do any more. My plea to the Minister is to have the confidence to exercise some of her own judgments on such things, because the very size of our financial sector means that we must be far less passive than that.

I am afraid it is not enough to say, on the registration of overseas entities Bill, that I will just have to ask another Department. The lack of urgency is not good enough given the risks posed in these repeated releases of papers. Similarly, the Minister is right that plans have been announced—over and over again—to reform Companies House, but they have not been implemented in a way that would empower that body to be a guardian of propriety, rather than simply a library of data.

The statutory instrument will go through, there is no question about that, but I would say to the Minister that we need a lot more urgency if we are to not just keep up with the FATF list but set an example around the world on how to tackle money laundering and terrorist financing. We should be taking enough pride in our country to want to set an example, rather than simply coming back here every few months to say that we have kept up with the FATF list.

Question put and agreed to.