The Economic Secretary to the Treasury (John Glen) I beg to move,
That the Committee has considered the draft Money Laundering and
Terrorist Financing (Amendment) Regulations 2022. It is a pleasure
to serve under your chairship, Mr Robertson. The Government
recognise the threat that economic crime poses to the UK, and are
committed to combating money laundering and terrorist financing.
Illicit finance not only risks damaging our reputation as a fair
and open economy,...Request free trial
The Economic Secretary to the Treasury ()
I beg to move,
That the Committee has considered the draft Money Laundering and
Terrorist Financing (Amendment) Regulations 2022.
It is a pleasure to serve under your chairship, Mr Robertson. The
Government recognise the threat that economic crime poses to the
UK, and are committed to combating money laundering and terrorist
financing. Illicit finance not only risks damaging our reputation
as a fair and open economy, but poses a threat to our national
security by undermining the integrity and stability of our
financial markets and institutions. Illicit finance also has
significant social and economic costs through its links to
serious and organised crime, and can reduce opportunities for
legitimate business in the United Kingdom. That is why the
Government are focused on making the UK a hostile environment for
illicit finance.
We have taken significant action to tackle money laundering and
terrorist financing and to strengthen the response of the whole
financial system to economic crime. Front and centre to those
efforts are the Money Laundering, Terrorist Financing and
Transfer of Funds (Information on the Payer) Regulations 2017—the
money laundering regulations—which are a key part of our
legislative framework, and set out a number of measures with
which businesses and trusts must comply to make the UK an
inhospitable place for money laundering and terrorist financing.
Those measures include the requirement for trusts to register
with Her Majesty’s Revenue and Customs’ 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 to impede law enforcement as it
investigates money laundering and terrorist financing.
The trust registration service addresses that risk by providing
law enforcement with a key source of up-to-date information on
the beneficial ownership of assets held in trusts. As a result of
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. Today’s statutory instrument 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 of tackling money laundering and the right to privacy of
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, the
instrument extends the registration deadline for those types of
trusts newly required to register until 1 September 2022.
Secondly, the 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 the individuals
involved in the trust changes. In recognition of the fact that
such changes are often triggered by traumatic life events—for
example, bereavements—the instrument extends the time limit so
that trustees will have 90 days to report such changes to HMRC.
Lastly, the 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.
(Basildon and Billericay)
(Con)
The Government are right to clamp down on money laundering and to
ensure, courtesy of the draft regulations, that the rules are not
too onerous, but will the Minister, when he has two minutes, look
at some of the questionnaires being sent out by banks seeking
additional financial information, and apparently citing the
Government’s introduction of onerous regulations as the source of
the problem? Constituents have reported to me that some of the
questionnaires ask for quite a lot of detail regarding their
financial affairs.
I thank my hon. Friend for that intervention. I am aware of the
tension regarding the application of rules designed to keep our
banking system both clean and accessible. It has come to my
attention in a number of ways over recent weeks and months, and
in particular the issue of accounts being difficult to set up for
charities and small community organisations. I intend to convene
a roundtable with the banks to examine the issue and ensure that
the interpretation of these legitimate restraints against abuse
does not impede access to banking for our constituents.
This instrument just 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
certain types of trust pose. I thank Committee members for their
examination of this important piece of legislation. In summary,
the instrument will amend the money laundering regulations as
they relate to trust registration to ensure that the regulations
strike an 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 a leading role in the fight against economic crime. I hope
colleagues will join me in supporting this legislation.
4.36pm
(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.
4.42pm
(Glenrothes) (SNP)
It is a pleasure to see you in the Chair this afternoon, Mr
Robertson. I commend the hon. Member for Hampstead and Kilburn on
a powerful speech. I will not repeat many of her points, but I
must pick up on the Minister’s use of the phrase “hostile
environment”—it is still an untasteful phrase for many people on
both sides of the House, given its connotations about being
hostile to people rather than to crime.
In all good faith, the Minister says that that the Government are
making the United Kingdom a hostile environment for dirty money
and money laundering, but that is not what independent
commentators, either in the UK or elsewhere, are saying. Will he
explain the Government’s evidence that they are correct and that
everyone else has got it wrong? It certainly seems to me that a
lot of people are eyeing up London in particular, and other parts
of the UK to some extent, as an attractive place to hide their
money. Remember: money does not have to be hidden forever; it can
just be kept for a limited time within the confines of a
legitimate organisation. Where it goes after that can always be
explained away.
I agree that any legislation around public disclosure must strike
a balance between an individual’s right to privacy and the need
for public authorities to protect all of us against serious and
organised crime. Consider the seriousness of the crimes we are
talking about here. We are not just talking about somebody
pilfering a couple of hundred quid from the cash box; we are
talking about people who are stealing literally billions of
pounds and then using that to fund acts of mass murder either in
the United Kingdom or elsewhere. This is a genuine, serious
threat to us all, and that means, sadly, that the balance of
rights may come down a bit further on an authoritarian
“requirement to disclose” regime than we would all ideally
like.
I regularly get stuck at the airport going through security
checks; I have missed flights because I turned up with an hour to
get through security and did not make it. I do not like it, but
when we think about the alternatives, perhaps missing a flight
sometimes is not such a bad idea. Perhaps not getting the right
to the degree of privacy that we might like is something that
needs to be considered sometimes, if it means that the real thugs
cannot hide behind that right to privacy.
My biggest concern with the Government’s approach to money
laundering and terrorist financing is that they are going far too
slowly. They are not doing enough. A lot of what should be
getting done just does not seem to be getting done at all. The
hon. Member for Hampstead and Kilburn has already mentioned some
of the compelling evidence that has been presented to the
Government in the past that does not seem to have gone
anywhere.
On a couple of occasions in the Chamber recently—once during a
debate on the Finance Bill and once, I think, during an urgent
question—the Government have attempted to explain why their
economic crime Bill has not been seen yet. At one point, they
claimed that there was not enough parliamentary time. Two hours
after they said that, the business of the House collapsed more
than half a day short of its allotted time; there was not enough
business to keep Members talking for the full day. That was the
second time that that had happened in the space of three weeks,
and it suggests to me that there is not a lack of parliamentary
time but a significant lack of political will.
I am going to get the Minister in trouble by keeping on saying
this, but I think he is genuine; I think he genuinely and
sincerely wants that legislation brought forward, but it is clear
that there are powerful forces at work behind the scenes in this
Government to prevent that. We can only speculate about why that
might be, but when we look, for example, at the comments from the
Centre for American Progress, which said that uprooting
“Kremlin-linked oligarchs will be a challenge given the close
ties between Russian money and the United Kingdom’s ruling
conservative party,”
we really have to wonder what kinds of forces are at work behind
the scenes preventing these reforms from coming into place.
While the Minister correctly points out the registration process
that is required for a lot of kinds of trusts, the registration
requirements for companies are non-existent. There does not need
to be a blind trust for someone to be able to set up a network of
legitimate-looking companies in the United Kingdom and use them
to launder money to their heart’s content. As my hon. Friend the
Member for Glasgow Central () pointed out recently,
there are cases where people have been able to be registered as
directors or as people with significant controlling interests in
companies in the United Kingdom when they have not been born yet.
That is the degree of examination that goes into checking who is
setting up businesses in the United Kingdom.
We have to remember that although a lot of well-informed
commentators understand that having a company registration number
in the United Kingdom means nothing, a lot of innocent victims do
not. They think that if a company is registered at Companies
House, it means something—it is a guarantee of integrity—in
exactly the same way as a lot of innocent victims thought that
the Financial Conduct Authority logo on somebody’s literature
meant that they could be trusted, when all too often it proved
that they could not be trusted at all.
Finally, let me pick up on something else that the hon. Member
for Hampstead and Kilburn said. I have a concern that if
someone—especially one of the organisations with an excellent
track record in identifying fraud and corruption in our financial
services sector—has to prove that they have evidence of
misconduct before they are allowed to look at anything, it is a
bit like the police saying, “We’re not going to investigate that
reported crime because there’s no evidence that a crime was ever
committed.”
I have raised a number of individual cases directly with the
Minister, and he has been very supportive of my attempts to get
to the bottom of them. No offence to him, but I have had a lot
more information, and often a lot more direct help, provided to
me and my constituents by non-governmental organisations such as
Transparency Task Force. That is not because the Minister does
not want to do it; it is probably not his job. However,
determined, well-informed private individuals —especially those
who have worked in the industry before, and sometimes those who
helped to bury the bodies and know where they are likely to
be—can be very effective at weeding out the information that
criminals have tried to keep hidden. We need to be very careful
about preventing those people from being able to go about the
work that they have been doing for so long.
Clearly, there must be protections for people’s right of privacy.
The right of privacy in a trust is fair enough as long as people
do the things that they do not bother to do when setting up a
company—for example, proving that the child for whose benefit the
trust has been set up actually exists. There are people who are
registered as company directors at Companies House who do not
exist. As long as that continues, regulations such as these,
welcome though they might be, are a drop in the ocean of fraud
that threatens to engulf the City of London.
4.50pm
Dame (Wallasey) (Lab)
It is a pleasure to serve under your chairmanship, Mr
Robertson.
I know that the Minister is at the centre of the Government’s
efforts to deal with economic fraud and money laundering. I hope
that, if he has not read it yet, he will take a close look at the
report on economic crime that the Treasury Committee issued last
week. It includes many recommendations, which I will not go into
now because that would be out of order.
Economic crime, money laundering and the kind of activity that
this statutory instrument has been designed to bear down on are
complex and require a lot of determined action from many
different angles, and I hope the regulations are just a small
part of that. Perhaps the Minister could reaffirm that the
statutory instrument is just a small part of the Government’s
efforts to tackle the sad fact that we, with a very large
financial centre in the UK, are now regarded as a centre of money
laundering. The “London laundromat” is a phrase that came out of
the Intelligence and Security Committee’s report. It is not one
that I have made up and it has not been conjured out of thin air.
It is used because of the real threats that our open financial
system has been put under by those who, as the Minister said in
his opening remarks, wish to cause problems for our open and fair
economy. If those threats are allowed to progress and fester,
they will have bad effects on social and economic wellbeing in
this country. We are all on the same side in that we want to
minimise the chances of that happening.
Does the statutory instrument go far enough? There are some
doubts about it, although it is good to see it here. I hope that
the Minister will say in his response to the debate whether we
will get an economic crime Bill to deal with some of the rest of
the problem. When resigned so dramatically from
the Dispatch Box in the Lords a couple of weeks ago, he appeared
to do so, at least in part, because he had learned that there was
not going to be an economic crime Bill. The Minister and all
Opposition Members know very well that we need some major changes
in the law to accompany such statutory instruments if we are to
begin to close some of the loopholes that are used by those who
wish our society ill, those who aggrandise themselves,
terrorists, organised criminals and those who wish to hide the
sources of money that they have stolen from elsewhere in the
world and launder it through companies, trusts and property in
this country.
Is the Minister worried that the fact that we will have a regime
that is more lax than that being developed in the European Union
might paradoxically make us more of a target for more of this
sort of money? The fact that the statutory instrument has been
changed in certain ways might make us more attractive when it is
compared with similar instruments that are being promulgated in
the European Union. I am worried about that.
Will the Minister say a little bit about transparency? As both
Opposition Front Benchers mentioned, organisations have said that
the statutory instrument as drafted does not leave sufficient
scope for private sector and civil society actors to investigate
suspected money laundering. They effectively have to prove it
before they are given sight of the trusts. That is a much tougher
area than we are expecting to be the case as the European Union
moves to put its own directives into being. Of course, the
European law is the law from which these regulations have sprung,
albeit we are now outside the European Union.
Can the Minister say something about the trust registration
service? There have been delays, which he mentioned were
something to do with IT problems. Is he convinced and confident
that the IT problems in the trust registration service have been
properly dealt with, so that when this system comes into being it
will be robust in future? Can he say a few words about law
enforcement, because the Treasury Committee’s report last week
commented particularly on the fragmented nature of the fight
against organised crime and money laundering? The way it goes
across so many different Departments, is very fragmented and is
not the main source of action for many of the enforcement
authorities. It seems to fall between the stools of many
different Departments with very few enforcement authorities being
primarily responsible for doing that work. Can the Minister
reassure me that he has sorted that issue out and he is convinced
that the enforcement of the new regulation will be robust enough
to ensure that we can crack down on some of these nefarious money
laundering activities?
4.57pm
I will endeavour to cover the points raised by the hon. Members
for Hampstead and Kilburn, for Glenrothes, and for Wallasey. I
acknowledge that a number of those points refer to the broader
canvas of economic crime and I shall try to deal succinctly with
those, respecting the fact that the Treasury Committee published
a report last week, on which the Government will reflect and
respond in due course. There is an obligation and, indeed, a
determination on my part to bring forward a broader money
laundering SI later this year.
It is the Government’s view that this amendment 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, and that will allow the UK to continue to play its
part in the fight against economic crime.
The hon. Member for Hampstead and Kilburn mentioned several
points made by Transparency International and other organisations
about access to trust information. The SI will extend the
existing exclusion for insurance trusts to exclude all healthcare
policies in trust and will clarify how the exclusion applies to
certain retirement policies and life policies with temporary
disablement cover. The SI also adds a new exclusion for trusts
created in the course of opening child bank accounts. Indeed, the
regulations set out 23 different exclusions: this is not an
exhaustive list, but it includes pension trusts, insurance
trusts, registrable charitable trusts and trusts meeting certain
legislative requirements.
When the trust service was set up, the register of beneficial
ownership of trusts—the trust registration service—was
established five years ago. We have now seen 200,000 taxable
trusts registered. It is the case that it is perfectly legitimate
for some of those trusts to be excluded. There is a matter of the
legitimate privacy for some of the trustees, but that does not
prevent law enforcement or regulated entities from being able to
access them.
I think that there is a question here about the IT service. The
hon. Members for Wallasey and for Hampstead and Kilburn mentioned
that. It is clear that HMRC has had an enormous task over the
last two years to deliver some pretty complex interventions. The
regulations simply give an extension on those registration
deadlines. I am not convinced that there is an enduring IT
problem in HMRC; there is an administrative necessity
consequential to a particular failure.
The hon. Member for Glenrothes picked me up on the use of certain
language. It was not my intention to be provocative, but it is my
sincere wish to convey the absolute frustration that we feel and
our desire to shut down loopholes that allow bad actors to enter
our financial system.
I do not have an issue with the Minister’s use of the phrase
“hostile environment”. I was making the point that, as the phrase
has been previously used in respect of people whom we should have
made welcome, it loses a lot of its impact when used in its
correct context.
That is a reasonable observation. I think, however, that the hon.
Gentleman’s frustration echoes mine; I have been in this job over
four years, and I was before the Treasury Committee on 29
November referring to some of these imperatives, which had been
thrown into focus by the FATF report in December 2018. We need to
make further interventions. I cannot prejudge the outcome or the
business managers, as I think the hon. Member for Wallasey knows,
but the point is that this is an absolute imperative from where I
stand in the Treasury. We do need this legislation to deal with
the broader issues that are outstanding.
Dame
I thank the hon. Gentleman for giving way on that point. It was
absolutely remarkable that when we took evidence from the
Minister, and from his Home Office colleague who was responsible
for trying to crack on money laundering, how dissatisfied both of
them were with the current state of affairs. I wish him well in
attempting to get his business managers to realise what everybody
else realises, which is that this should be an absolute
priority.
I welcome the hon. Lady’s intervention on this subject. I am
happy to recognise her characterisation of the diffused
responsibilities in the report. There are observations and
questions about many interactions. That is something for the
Government to reflect on, as we will do in our response.
The hon. Member for Glenrothes referred to parliamentary time.
Fixing some of these things will take a bit more than a few
hours, but the point he is making is that there is a will to do
this, and I recognise that.
This is a modest set of changes to deal with an administrative
problem with one part of this Government’s response to a
challenge. We are one of the most open jurisdictions for
financial services. We employ 2.3 million people in financial
services and 7.4% of jobs in the UK are in financial services. We
have got to get that balance right, but I recognise the
challenges outstanding. On a broader canvas, at a later point, I
will address those points. I hope that the Committee has found
this debate informative and will support the regulations. I
commend the regulations to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Money Laundering and
Terrorist Financing (Amendment) Regulations 2022.
5.03pm
Committee rose.
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