Moved by
That the Grand Committee do consider the Money Laundering and
Terrorist Financing (Amendment) Regulations 2022.
(Con)
My Lords, illicit finance not only risks damaging our reputation
as a fair and open economy, it threatens our national security by
undermining the integrity and stability of our financial markets
and institutions. Illicit finance also causes significant social
and economic costs through its links to serious and organised
crime, and it can reduce opportunities for legitimate business in
the UK. That is why the Government are focused on making the UK
an inhospitable place for illicit finance. The Government
recognise the threat that economic crime poses to the UK and are
committed to tackling money laundering and terrorist financing.
We have taken significant action to combat money laundering and
terrorist financing and to strengthen the response of the whole
financial system to economic crime.
Central to these efforts are the money-laundering regulations.
They are a key part of our legislative framework and set out a
number of requirements that businesses and trusts must comply
with to make the UK an inhospitable place for money laundering
and terrorist financing. These measures include the requirement
for trusts to register with HMRC’s trust registration service.
Trusts are an integral feature of the UK’s legal system and are
used for a wide range of legitimate purposes. However, they can
also be used to conceal the true beneficial ownership of assets
and therefore impede law enforcement as it investigates money
laundering and terrorist financing. The trust registration
service addresses this risk by providing law enforcement with a
key source of up-to-date information on the beneficial ownership
of assets held in trust.
As a result of the changes introduced in 2020, the trust
registration service has been expanded so that most types of UK
express trusts are now required to register. In addition,
overseas trusts with certain connections to the UK, including the
acquisition of land or property in the UK, are now for the first
time required to register.
4.00pm
The statutory instrument under discussion today amends the money
laundering regulations to ensure that the trust registration
service operates as effectively as possible as an anti-money
laundering tool, striking the right balance between the public
interest in tackling money laundering and the right to privacy
for those who use trusts for legitimate purposes.
First, to ensure that trustees have sufficient time to gather the
necessary information and complete the registration process, this
instrument extends the registration deadline for those types of
trusts newly required to register until 1 September 2022.
Secondly, this instrument extends the time limits for reporting
changes to the information held on the register. Trustees are
required to update the register within certain time limits if the
information held on the register relating to individuals involved
in the trust changes. In recognition of the fact that such
changes are often triggered by traumatic life events—for example,
bereavements—this instrument extends the time limits so that
trustees will have 90 days to report such changes to the
HMRC.
Lastly, this instrument makes changes to the categories of trusts
that are excluded from registration. Certain types of trusts that
pose an inherently low risk of money laundering are excluded from
registration. This instrument makes some small changes to the
existing categories of excluded trusts to ensure that the burden
of registration is proportionate to the money-laundering risk
that particular types of trusts pose.
In summary, this instrument will amend the money-laundering
regulations as they relate to trust registration, to ensure that
the regulations strike the appropriate balance between providing
an effective anti-money laundering tool for law enforcement and
minimising the administrative burden on those who use trusts for
legitimate purposes. This amendment will enable the
money-laundering regulations to continue to work as effectively
as possible, to protect the UK financial system and allow the UK
to continue to play its role in leading the fight against
economic crime. I hope therefore that noble Lords today will join
me in supporting this legislation. I beg to move.
(Lab)
My Lords, I am grateful to the Minister for introducing this
measure. It is good to have her back covering Treasury business
again, albeit in somewhat intimate surroundings.
This SI has come at an interesting time, with ever-increasing
interest in these matters. Its scope is relatively narrow, but
that will not stop us from raising wider issues. The Explanatory
Memorandum states that crime enabled by money laundering costs
the UK at least £37 billion per year. I fear that the real cost
is likely to be far higher. Costs for the financial services
sector are also significant. Research published last summer put
the annual cost of anti-money laundering compliance at almost £30
billion. That is generally money well spent, yet we still see
examples of high-profile financial institutions failing to uphold
their duties. The Financial Conduct Authority has acted in some
cases, but funnelling dirty money into the UK still appears to be
too easy.
It was interesting to see that the Explanatory Memorandum asserts
that the UK is
“a leading member of the FATF”—
the Financial Action Task Force. We are, of course, a global
financial centre but we are not immune from criticism, and the
FATF has outlined a range of reforms that in its opinion need to
be enacted. Is the Minister in a position to provide a progress
report?
One of the concerns raised by the FATF—an organisation included
in the OECD—relates to the potential for trusts to be used as a
disguise for foreign or illicit ownership of assets. We welcome
the requirements to register with HMRC’s trust registration
service, the TRS, from 1 September this year, although we regret
that it has been delayed due to IT complications. Can the
Minister say a little more about this?
The regulations propose an extension of the 30-day deadline for
submitting updates to information to the TRS to 90 days. While
that makes some sense at first glance, we have some concerns. The
change is justified on the grounds that some changes may arise
from life events, such as bereavement, which involve processes
that take far longer than 30 days. Of course, people should be
afforded more time in certain situations, but the Government’s
own 2020 consultation concluded that 30 days was ample time in
the majority of cases. Can the Minister outline what percentage
of cases are likely to require more than 30 days? Why did the
Treasury not choose to retain that limit while introducing a
degree of flexibility in certain defined cases?
Another concern returns us to the issue debated in your
Lordships’ House only yesterday—that is, the extent to which
information on the beneficial ownership of firms operating in
freeports areas should be publicly available. In theory,
information contained within this register is accessible to some
members of the public. If that is genuinely the case, it is an
improvement over the Treasury’s usual approach. However, concerns
have been raised by a range of civil society organisations that
the barriers to accessing the register are far too high,
potentially freezing out some of the country’s leading
independent experts. Can the Minister set out in detail the
criteria for access to the register? Furthermore, I would be
grateful if she could provide examples of the types of people who
can access the register, and exactly how they would demonstrate
their worthiness. We do not want to see frivolous requests but,
surely, we should facilitate appropriate non-governmental
investigations of illicit financial activity.
We shall not oppose the SI today; as the noble Baroness knows, I
am rarely in the mood for causing constitutional crises. However,
these regulations seem to be a half-baked response to a very
serious problem. The register is late, it is not fully
transparent, and the Government have ignored some of the outcomes
of their own consultations. Following the resignation of the
noble Lord, , the Government said that they
treated tackling economic crime as an urgent priority. I hope
that urgency will be more apparent in future.
(Con)
My Lords, I thank the noble Lord for his welcome to my return to
Treasury matters—it is good to be back. I also thank him for the
constructive approach that he takes in these debates. As such, I
shall do my best to answer the questions that he posed to me on
this statutory instrument.
The noble Lord asked about the progress that we had made on
reforms outlined by the FATF. The recommendations in the
Financial Action Task Force mutual evaluation have been taken
forward through the landmark economic crime plan, which ran from
2019 to this year. We have strengthened our fight against
economic crime through the publication of that plan in 2019,
which brought together government, law enforcement and the
private sector in close co-operation to deliver a response to
economic crime. Significant progress has been made, with 24 out
of the 52 actions now complete—and I understand that a higher
number than that are on course to be complete within their
aimed-for timetable.
The noble Lord asked for more detail on the IT complications and
the reasons for the delay in the expansion of the register. We
recognise that they IT service went live six months later than
originally planned. The service needed significant development
work to implement the required changes at a time when there was
extraordinary pressure on public services and, in particular, on
HMRC’s IT development resources. Between March and September,
checks and tests by external users were completed to ensure that
the service could be open to all users from September.
The noble Lord also asked about the extension of the period in
which to notify changes to trusts from 30 days, and why we should
not retain that limit and introduce some other form of
flexibility. The expansion of the register of beneficial owners
of trusts has brought a significant number of additional trusts
into the scope of this work. We recognise that a very large
number of trustees are private individuals with no professional
expertise in managing trusts and, as the noble Lord recognised,
many changes will be triggered by life events such as
bereavement, where it is not necessarily realistic to expect
individuals to update the register within 30 days. Continuing
with this requirement would likely mean that a large number of
individuals would find themselves in breach of the regulations
without realising that fact. This change ensures that those who
wish to comply will have sufficient time to do so. We do not have
specific figures to estimate how many changes may be triggered by
life events such as bereavement but, due to the way that trusts
are used in the UK, this will be a common trigger for changes
that need to be reported to the TRS.
On the question of retaining the 30-day limit but with an element
of flexibility, I fear that this would still place affected
individuals in a difficult and stressful position, as they would
have to apply to HMRC for such flexibility with no guarantee that
such a request would be accepted.
The noble Lord also asked, importantly, about the criteria for
access to the register. We believe that placing the information
held on the trust register in the public domain would infringe
the privacy rights of individual beneficial owners, the vast
majority of whom are not involved in money laundering activities.
However, we recognise that, for the register to be an effective
anti-money laundering tool, the information must be made
available to those who are at the forefront of anti-money
laundering investigations.
To that end, the information held on the register is available on
request to law enforcement agencies. From 1 September 2022, it
will also be available to any third party who can demonstrate a
legitimate interest in the information held on the register. The
regulations set out the criteria that HMRC must assess to
determine whether a requester has a legitimate interest in the
information held on the register. These include: whether the
requester is involved in anti-money laundering; whether the
request is being made for the purpose of furthering such an
investigation; and whether the requester has reasonable suspicion
that the information being sought relates to a trust being used
for money laundering.
The Government will set out the detail of how those criteria will
be applied in due course, but each request will be considered on
its merits, and there is no desire on the part of the Government
to prevent access to the information held on the register by
those who are genuinely involved in anti-money laundering
investigations.
(Lab)
Will the noble Baroness commit to sending me a copy of those
regulations as they emerge?
4.15pm
(Con)
Absolutely: that is a very reasonable request. I shall write to
the noble Lord when the information is available, and also ensure
that a copy is placed in the Library, if that is the appropriate
place.
I hope that, in answering some of those questions, I have given
the noble Lord a little more reassurance on the thought that has
gone into this work so far. In summary, as I said, it is the
Government’s view that the amendments contained within the
regulations will assist in ensuring that the money laundering
regulations operate as effectively as possible and continue to
protect the financial system from the threat posed by money
laundering and terrorist financing. They will also allow the UK
to continue to play its part in the fight against economic crime,
which, as the noble Lord noted, has been in the spotlight in
recent weeks, and on which the Government have an ambitious
agenda.
I hope that my responses have been informative and I commend the
regulations to the Committee.
Motion agreed.
