DRAFT MONEY LAUNDERING AND TERRORIST FINANCING (AMENDMENT) REGULATIONS 2022

Tulip Siddiq Excerpts

Monday 7th February 2022 General Committees

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve with you in the Chair, Mr Robertson.

A trust can be an entirely legitimate way of managing assets. However, because trusts separate legal and beneficial ownership, they can be exploited to disguise foreign or illicit ownership of assets. That is why it is so important that the information on the beneficial ownership of trusts is made publicly available. As the Minister will be aware, both the OECD and the Financial Action Task Force have identified trusts as a serious money laundering risk in the UK. They have warned that trusts provide hostile foreign actors, including Russia, with an ideal route for hiding their dirty money in the City of London. In 2021 alone, Transparency International UK identified more than £5 billion-worth of property bought in the UK with suspicious wealth, one fifth of which originated from Russia. Ending the flow of unexplained wealth through UK trusts must form a key part of the crackdown on illicit finance from overseas.

The Opposition are therefore broadly supportive of the draft regulations. In particular, we welcome the introduction of a register of beneficial ownership for trusts and the principle that it should be open to some members of the public. This is a long overdue and necessary step in the fight against money laundering and terrorist financing in the UK. We support the addition of trusts such as those created for a minor or a vulnerable person to the list of exclusions from the regulations. We recognise that these trusts are highly unlikely to be used to conceal illicit finance.

I understand that the Government’s 2020 consultation found that people should have at least a year to register their trusts with HMRC. The Government’s inability to develop the TRS—the trust registration service—on schedule has made it necessary to extend the deadline to September 2022. Has the Minister considered whether this extension could allow money laundering to continue undetected for an additional six months? Although I recognise the need for the extension in the light of the Government’s failure, will he please explain why this failure happened and what steps he is taking to prevent future IT failures from undermining the UK’s efforts to crack down on illicit finance?

Although Labour broadly supports this secondary legislation, we have two serious concerns with the draft regulations as they stand. The first is the Government’s proposal to extend the deadline for updating changes to trusts on the register to 90 days. I listened to what the Minister said about special life circumstances such as bereavement, but this change would result in information on the register being three months out of date. Transparency International UK has warned that this would seriously hinder efforts to crack down on dirty money being laundered through UK trusts. The proposed extension contradicts the Government’s own 2020 consultation findings that any updates or changes to trusts must be registered within 30 days. The Government’s justification for this U-turn—that trustees should be provided with adequate time to make changes to the register after major life events, which the Minister reiterated—simply does not stand up to scrutiny. As the Government’s 2020 consultation found, in the majority of cases, 30 days would provide ample opportunity for trustees to make changes to the register.

Transparency International UK has sensibly called for the retention of the 30-day deadline, but with an option for trustees to apply for an extension in limited circumstances, such as those relating to major life events when there are legitimate reasons for needing more time. That is the sort of fair and balanced method that should inform the UK’s approach to money laundering. Instead, we find ourselves in the extraordinary situation where even US Department of State officials are warning the British press that London has become a safe haven for illicit Russian finance under this Government. Has the Minister considered what signal his Government would be giving to money launderers across the globe by U-turning on proposals for a tough 30-day deadline?

My second major concern with the draft regulations is the complete failure to address the warnings raised by civil society organisations, such as Transparency International UK, the Finance Innovation Lab and Spotlight on Corruption, about the public’s inability to access the register. Labour supports the principle established by the draft regulations that the register should be open to some members of the public. However, the Government have set an evidence threshold that in practice could deny access to the register to NGOs, journalists and private sector actors investigating dirty money.

The current regulations allow access to non-state investigators only if they can provide sufficient evidence to HMRC that the trust they are investigating is involved in money laundering or terrorist financing. That produces a Catch-22 situation: investigators’ ability to establish a trust’s link to criminality will often depend on access to information held in the register. That means our nation’s leading independent experts on corrupt wealth flowing into the UK from Russia and elsewhere could effectively have no access to the register, and puts the UK out of step with the regulations being developed in the EU, which allow for much higher access to trust registers. Will the Minister explain why the Treasury has not used the draft regulations to remove these Kafkaesque and bureaucratic barriers that prevent NGOs, journalists and others from investigating dirty money in the UK?

My main concern is that the gaps in this SI are part of a worrying trend of inaction from this Government. They have delayed the economic crime Bill, did not fully implement the Intelligence and Security Committee’s Russia report, and are now U-turning on trust regulation. Labour will support the draft regulations today to ensure that the register can get up and running, but I would like more reassurance from the Minister that he plans to bring forward further legislation to strengthen the UK’s zero tolerance of dirty money.