Domestic Politically Exposed Persons: Money Laundering Rules
(Limited Text - Ministerial Extracts only)
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The Economic Secretary to the Treasury (Harriett Baldwin)
I warmly congratulate my hon. Friend the Member for Broxbourne (Mr Walker) on securing the debate. His speech featured both the clarity and the oratory that regularly win him awards as a parliamentarian.
My hon. Friend has raised an issue that I know has caused a great deal of frustration and anger with our banks, particularly when not just we but our families, by association, experience the same difficulties. I am grateful to him for putting a range of examples on the record, because I regularly inform my officials and the bank representatives whom I meet that my ears are bent every time I go into the Tea Room or the Lobbies, and now they will know that I am not exaggerating. I hear Members’ frustration loud and clear, and I assure them that, along with my right hon. Friend the Minister for Small Business, Industry and Enterprise, who is present, I am keen to enhance the action that we are already taking to deal with this example of red tape. I shall return to that subject shortly, but let me begin by setting out the broader context of our anti-money laundering and counter-terrorist financing regime, of which the issue of domestic politically exposed persons is just one part.
This year will see the most comprehensive review ever of our regime to deal with illicit finance. At a global level we are taking action to improve our response to the threats of organised crime, international corruption and new and evolving forms of terrorism. As the Prime Minister set out in Singapore last year, that is exactly why he will be hosting a major anti-corruption summit in the UK this May.
The Government are also committed to securing the hard-won growth in our economy. In order to maintain this momentum, we need to create a business environment that fosters innovation and investment and that is supported, not hindered, by regulation. That is why it is so important to get the regulatory regime right, and why we are carrying out a red tape review of our current anti money laundering regime, seeking views from the private sector on areas of the regime that it finds unnecessarily burdensome. The aim of this is to help us to fine-tune our legislation so that we have an effective regime that works for our country. That review will report in the coming months, and I look forward to working with my colleague the Minister for Small Business, Industry and Enterprise and to receiving the analysis.
I turn now to the specific issue of domestic PEPs. I recognise that this is the key concern of the debate, and that it is a concern not only of my hon. Friend the Member for Broxbourne but of many others in this House and the other place. As he states, the current global rules on anti-money laundering require that, in cases of high risk, banks and regulated businesses carry out enhanced due diligence on all PEPs—that is, those individuals entrusted with a prominent public function, be it politicians, high-ranking members of the military, senior members of the judiciary or others. Indeed, I myself got caught by this when I held an account with an American firm. There is solid reasoning behind this when it comes to PEPs outside the European Union, because political corruption is something we have seen time and again across the world on a truly astonishing scale.
Let me give three examples. The first is the James Ibori case. He was a state governor in Nigeria from 1999 to 2007. In that time he stole tens of millions of pounds of public money. With an official salary of £10,000 he was somehow able to buy a £2.2 million house in Hampstead, one in Regent’s Park, a house in Dorset and a flat in St John’s Wood, and it was not just Ibori himself who was ultimately convicted and imprisoned: so was his sister, as well as other associates including his UK solicitor. That is because they conspired with Ibori to conceal the origins of his wealth through a complex web of transactions and shell companies.
Another striking example is that of the former Secretary for Transport and Public Works of Macau. He was convicted of 40 counts of corruption and 13 counts of money laundering and sentenced to 27 years’ imprisonment. Since then the UK alone has recovered over £28 million of his corrupt assets and returned them to Macau.
Another example is that of the late Frederick Chiluba. He was Zambian President between 1991 and 2001. On 4 May 2007 he was found guilty of stealing $46 million of assets in a civil case in the Royal Courts of Justice, and used UK-based solicitors to launder money. In 2008 it was reported that about $60 million had been recovered by the Zambian authorities.
There is therefore a reason that we treat foreign PEPs differently under the existing regulations, and that is why families and close associates are also looked at in more detail.
Fiona Mactaggart
All the examples the Minister has cited are of people who had some Executive power. How can Opposition legislators be regarded as having Executive power? I certainly do not feel as though I have any.
Harriett Baldwin
The right hon. Lady is right to highlight that, and I will be coming on to it. Clearly the degree of risk in terms of political engagement will vary not only by country, which is one factor that needs to be taken into account, but also with reference to the role of the individual.
We have heard how the regime works currently, but we have also heard from my hon. Friend the Member for Broxbourne that the regime will be changing in the coming year. The overarching framework is set at a global level by the Financial Action Task Force, which is a collection of 36 countries, including the US and Australia. It includes both domestic and foreign politically exposed persons in its standards. The motivation for these global standards is that in many countries domestic PEPs actually present a higher risk than foreign PEPs, and so one person’s domestic PEP is another person’s foreign PEP. The level of risk is not the same for all countries or all individuals, as has been pointed out, which is why the risk-based approach set out in the standards is crucial.
Of course the UK supports a risk-based approach across the EU to identify and deal with PEPs, especially domestic ones. That is why we were supportive of the fourth anti-money laundering directive, which enacts these global standards. We are now faced with transposing the EU directive into UK law by June 2017, and it will extend the regime so that domestic PEPs will also be subject to enhanced due diligence across the board. Despite the fact that the new regime does not come into effect until next year, I know that some banks—we have heard some examples and some names today—particularly international ones, have already chosen to implement these changes. They are very much applying a one-size-fits-all process, as we have seen in the examples we have heard this evening. I know that for some individuals affected this has caused enormous frustration.
Let me be clear: this change should not prevent any Member of this House, or any other individual in this category, from gaining or maintaining a UK bank account. We are looking at exactly how we can encourage the banks to implement these measures domestically in the most risk-based manner possible. My officials discuss this issue with their international partners on a regular basis, and we are seeking views on this as part of our public consultation on the updated money laundering regulations and how we transpose the fourth anti-money laundering directive into UK law. I am already regularly raising this issue with not only the banks but the regulator.
I have already mentioned the red tape review of our current anti-money laundering regime, and today’s debate is helpful in that context. I know this is an issue of significant concern in this House, as we have heard clearly this evening, so I will report back to hon. Members as this work develops over the coming months. My goal is to have a banking system that is hostile to illicit finance and to terrorists, but which allows ordinary law-abiding and law-making citizens to move easily from one bank to another for better rates and better service. This debate has been very valuable for getting on the record the heavy-handed way in which banks are already applying these new rules. I would like to reassure my hon. Friend, and all other colleagues, that I am on his side, and I am grateful to him for bringing this issue to the House’s attention.
Question put and agreed to.