Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024
(Limited Text - Ministerial Extracts only)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 (S.I., 2024, NO. 69).
It is a pleasure to serve under your chairmanship, Sir Robert. The Government recognise the threat that economic crime poses to the United Kingdom and are committed to combating money laundering and terrorist financing. Our commitment is recognised around the world. Illicit finance undermines the integrity and stability of our financial sector and can reduce opportunities for economic growth and legitimate business in our great country. The Government are bearing down on kleptocrats, criminals and terrorists who abuse the UK’s financial services sector. The Economic Crime and Corporate Transparency Act 2023 built on the Economic Crime (Transparency and Enforcement) Act 2022 to ensure that the UK has robust, effective defences against illicit finance.
At the centre of the UK’s legislative framework for tackling money laundering and terrorist financing are the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which set out various measures that businesses must take to protect the UK from illicit financial flows, such as conducting enhanced checks on business relationships and transactions with high-risk third countries. The 2023 Act changed how high-risk third countries may be defined under the 2017 regulations, and this statutory instrument implements that change. It removes the separate list of countries from schedule 3ZA and replaces it with an ambulatory reference to those countries listed by the Financial Action Task Force, which is the global standard setter for anti-money laundering and counter-terrorist financing. In practical terms, that means that countries listed by the Financial Action Task Force will automatically be in scope of obligations under these regulations.
By taking this approach, which was passed in the 2023 Act, we will ensure that the UK remains at the forefront of global standards on anti-money laundering and counter-terrorist financing. Where countries have made significant progress to improve their defences against illicit finance, it is equally important that we recognise that and promptly remove such countries from the scope of high-risk countries in UK legislation.
Ahead of this update, the UK and Financial Action Task Force lists were already aligned. Indeed, the Government have always updated the UK list, since its creation in 2021, to reflect changes to the Financial Action Task Force list. The SI does not add or remove any countries from scope or change the obligations of regulated businesses. It delivers on Government policy in a streamlined way, ensuring automatic alignment with the Financial Action Task Force list without the need for frequent, routine secondary legislation coming to Committee Rooms such as this, enjoyable though the process is.
The SI also ensures that firms will be notified in a timely manner of updates to the lists and their obligations, thereby keeping them up to date as risks change. I reassure the Committee that if at any time the Government sees it fit to deviate from the Financial Action Task Force list, we retain the authority and autonomy to do so. In such cases, a statutory instrument will be brought before Parliament for consideration in the normal way. The measures in respect of high-risk countries are an important mechanism to mitigate the risks posed by illicit financial flows from overseas. We will continue to use them and the other tools available to respond to wider and emerging threats from other jurisdictions, including by applying financial sanctions as necessary.
The instrument will enable the 2017 regulations to continue to work as effectively as possible to protect our financial system. It is crucial in protecting British business and the financial system from money launderers and terrorists financers, so I hope colleagues will join me in supporting it.
Bim Afolami
I thank the Committee for its broad support. Let me answer the questions that Members have put to me.
The first question was about how one practically manages the process of including countries or not. Broadly speaking, the Financial Action Task Force is the centrepiece for how most countries—all the G7 countries and many others—deal with illicit finance. We do it in such a collaborative way globally because, frankly, in the modern world we can tackle illicit finance only by working in strong, close partnership with other countries. It is quite important that we have a degree of alignment on how we do that, but we of course retain the right as a sovereign nation, as everybody in the House would agree, to individually put countries on the list if we choose to. The instrument is a common-sense measure that will make it easier and faster to do that, rather than our having to wait for gaps in parliamentary time. Recesses and various other things come up that could mean there is a critical gap and illicit finance could get through defences. That is why we are doing this.
In response to the point made by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East about writing to the House, we will deposit a notice in the Library when we have done so, so that the House is kept fully informed.
On how the change is being communicated to businesses, the Treasury has active and frequent discussions with the private sector on this and many other matters, so Members should rest assured that businesses and financial institutions are kept closely up to date with what is going on. That is in addition to the publication of an advisory notice, which will be made when any countries are or are not put on the list.
I will have to write to the hon. Member for Cardiff South and Penarth on his point about the situation in Iran. I do not want to inadvertently mislead the House in any regard—I want to be very precise in my answer—so I will write to the hon. Gentleman about his questions in that regard.
On the Crown dependencies and overseas territories, we are committed to working with the overseas territories to tackle illicit finance, and we have long engaged with them on ways in which to do that. We continue to engage with the British Virgin Islands for its ongoing mutual evaluation, and we have supported it with its evaluation process. The BVI’s mutual evaluation report will be published after the quality and consistency checks required by the Financial Action Task Force. I cannot comment any further in relation to the BVI, but more broadly we are closely working with the overseas territories and Crown dependencies to ensure that they satisfy all the things that the Financial Action Task Force requires.
Stephen Doughty
In another capacity, I serve as the shadow Minister for the overseas territories. Will the Minister say a little about whether he will publish a list of how exactly the measures apply to all of the overseas territories, where compliance is and what governance mechanisms are in place? OTs and Crown dependencies obviously have different mechanisms for applying UK law; are they doing this by themselves or are we doing it for them? Will the Minister explain that in a bit more detail, perhaps in writing?
Bim Afolami
I am happy to follow that up, but I know that the Crown dependencies and overseas territories are subject to the same rules as any country in relation to the Financial Action Task Force, which is the centrepiece of the whole way in which we tackle this issue, so dealing with them is no different from dealing with any of the countries that are so listed—indeed, I have talked about the BVI. I am happy to follow up in more detail as the hon. Gentleman requires.
In conclusion, the Government are taking focused action to tackle economic crime. We know that the House is united on tackling illicit finance and we strongly support that. I have listened carefully to Members’ contributions, and it is the Government’s view that this statutory instrument will ensure that UK legislation remains up to date and best delivers on policy commitments. The new definition of high-risk third countries means that the UK automatically reflects changes to Financial Action Task Force lists, putting us entirely in lockstep with the international community on this issue while retaining the ability, if we so choose at any time, to put a country on or off our list.
Stephen Doughty
I appreciate the Minister’s generosity in giving way before he sits down. One issue that we have regularly raised regarding our sanctions regimes is the failure to actually prosecute or take forward implementation actions. I do not expect the Minister have the answer in front of him right now, but perhaps he could also outline in writing to the House—to myself and the Library—how many enforcement actions have been brought under the regime to date, and what the implementation mechanism will be for this measure. It is all very well to have the legislation and regulations in place, but unless we provide a deterrent effect against those who would seek to evade such measures, we are not going to be implementing the full picture.
Bim Afolami
I am happy to follow up with the absolute number—again, I do not want to get that wrong in Committee. The Financial Action Task Force takes the approach of working with countries to help to improve their systems. It is not an overtly punitive or aggressive approach; it is an approach that says, “How do we help to support you to make your systems less vulnerable to illicit finance and financial crime?” Of course, when we are dealing with private sector entities that seek to evade rules, they fall under the criminal sanction, as one would expect. I am happy to write to the hon. Gentleman about the precise number that he asks for; I would not want to get it incorrect. With that, I commend the regulations to the Committee.
Question put and agreed to.