Counter-Terrorism Bill

moved Amendment No. 47A: 47A: After Clause 61, insert the following new Clause— ““Terrorist financing and money laundering Schedule (Terrorist financing and money laundering) makes provision conferring powers on the Treasury to act against terrorist financing, money laundering and certain other activities.”” The noble Lord said: My Lords, this is a further step in my parliamentary induction. In moving Amendment No. 47A, I will speak to government Amendments Nos. 47B through to 47R, 49A, 61A and 61C. I will also comment on the non-government amendments in the group, Amendments Nos. 61AA to 61AP, 61B, and 61BA. I should stress that I am aware that this is the first time that I stand before the House to discuss the Bill. I know that the Bill has undergone careful consideration during its passage to date and that there has been intense debate on a number of aspects of it both in this House and in the other place. In that context, I am conscious of the impact of moving at such a late stage these amendments, which add to the length and the scope of the Bill. This is clearly far from ideal and I assure noble Lords that I would not be doing so if I did not feel that the amendments are both necessary and urgent. As the House is aware, there is increasing international concern about the constantly evolving threats to national and international security by money-laundering, terrorist financing and the proliferation of nuclear, radiological, biological or chemical weapons. The UK has been in the vanguard of international action through the UN, the EU and the Financial Action Task Force to tackle these threats. The Government are determined that we should continue in that way. We are seeking these late amendments to the Counter-Terrorism Bill in the light of shifting international political dynamics within the Financial Action Task Force that render our current powers less effective than we previously hoped. On 16 October 2008, the Financial Action Task Force issued a statement calling on its members to take further preventive action to protect their financial systems from the risks posed by terrorist financing deficiencies in Iran and money-laundering deficiencies in Uzbekistan. As I set out in the letter that I deposited in the Library of the House last week, the FATF is the foremost international body in the development and promotion of national and international policies to combat money-laundering, terrorist financing and similar threats to international stability. It has 34 members and, through the affiliation of nine FATF-style regional bodies, over 175 jurisdictions are effectively included in its membership. We anticipate that there may be further calls for increased action at the FATF’s next meeting in February 2009. I shall now explain why the Government are seeking urgently to augment their powers in the Bill. The power in the UK’s Money Laundering Regulations 2007 requires a decision by the FATF to formally invoke ““countermeasures””. Keen students of the FATF will have noticed that the public statement issued by the FATF following its meeting in October did not use that term. The FATF works by consensus and, as with other similar bodies, not all of the membership necessarily wishes to move at the same speed against certain jurisdictions. It is becoming clear that some of the members have concerns around the use of such terminology in certain circumstances. The language used in the October statement therefore exposed potential difficulties with the UK’s legislation. If we cannot guarantee the use of the term ““countermeasures”” in the FATF’s pronouncements, we are unable to use the powers in the Money Laundering Regulations no matter the scale of the risks. In order to mitigate any detrimental impact that tabling an amendment at this late stage may have, I have, in the short time available, attempted to address the situation by providing information to the House as well as arranging an open meeting to discuss the matter. I take this opportunity to thank noble Lords on the Conservative and Liberal Democrat Benches, as well as on the government Benches, for their constructive engagement to date, which has enabled us to refine our original proposals. We have sought to consult the private sector, consistent with our industry-led approach to the UK’s anti-money-laundering and anti-terrorist financing regimes. In the time available, we have actively engaged with, among others, the British Bankers’ Association and some of its members and the Joint Money Laundering Steering Group, which is a group of financial services systems and control experts. I shall now set out in more detail the content of the amendments that I shall be moving today. These will provide for the Treasury to apply financial restrictions in respect of non-EEA countries because of the risk posed by money-laundering or terrorist financing, either in accordance with a recommendation of the FATF or on its own initiative if such activity poses a significant risk to the UK’s national interests. Financial restrictions may also be imposed in response to proliferation activities carried on in such countries where this poses a significant risk to the UK’s national interests. Specifically, the amendments will allow the Treasury to impose on firms, first, stricter requirements for customer due diligence—identifying clients, beneficial owners and the nature of business relationships; secondly, stricter requirements for ongoing monitoring of transactions; thirdly, a requirement to undertake systematic reporting of all transactions with designated entities; and, finally, a requirement to limit or stop business with designated entities. As I shall go on to explain, there are a number of safeguards and reporting requirements to be put in place to enable proper treatment of those affected by the directions and suitable parliamentary oversight. Noble Lords might ask why the Government did not simply choose to amend their Money Laundering Regulations. The Money Laundering Regulations that implement the EU’s third money-laundering directive contain some powers to implement FATF countermeasures, but they are limited by the restricted scope of the directive and by what can be provided for in such regulations. The directive does not provide the basis for us to take the full set of steps outlined by the FATF. Furthermore, there is a limit to what can be properly provided for in such regulations. Provision of a power to impose a general requirement for systematic reporting or enhanced due diligence, for example, is a matter for primary legislation. Therefore, we could not simply amend the Money Laundering Regulations to deal with the situation. At the same time, we considered that there was an urgent need to act in the light of the scale of the risks, as well as the likelihood that the FATF might call for further steps at its February meeting without formally invoking countermeasures. In those circumstances we tried to identify the legislative vehicles available and we considered this the most appropriate option, given the timing and other constraints. As some noble Lords will be aware, the FATF countermeasures, if invoked, would apply only to risks for money-laundering and terrorist financing. However, another issue about which concern is growing internationally is proliferation financing. That has been recognised by the FATF, which agreed last year under the UK’s presidency to include a responsibility to address proliferation financing in its remit; the task force published a report on proliferation financing in June this year. The UN, the EU and the G7 have all expressed concern about financial systems being abused by proliferators. However, while the UN and the EU have provided some new powers at an international level to combat that, most specifically in relation to Iran, these are insufficient to deal with serious proliferation risks, as they do not enable us to act promptly to direct mandatory financial reporting or to direct the ceasing of transactions. The new powers that we are seeking would enable us to take such actions. I hope that noble Lords will see why we have moved swiftly to address these issues and will agree that, although introducing such amendments on Report might not be the manner in which the Government would ordinarily seek to progress their legislative programme, in this instance it was a proportionate and appropriate response. In sum, international pressure for action to counter terrorist financing, proliferation financing and money-laundering has been increasing in recent years. The UK has been, and will continue to be, at the forefront of the international call for action and efforts to protect the international system from these threats. However, we are currently constrained in our response by the combination of factors that I have outlined. As I have said, several of our international partners already have, or are seeking, such powers. Switzerland is introducing a systematic reporting obligation on its banking sector in respect of transactions undertaken with Iran. The US, France and Germany also have, or are seeking, powers to enable them to act in the ways that we are seeking here. The Government therefore seek the powers in the amendments to enable an appropriate UK response to these internationally identified threats and to ensure that we can continue to protect the UK economy from potential abuse. The Government will continue to work through international bodies, such as the UN and the FATF, to achieve the widest possible consensus on necessary action, thereby increasing its effectiveness. I shall now give the House a full explanation of the amendments that I have tabled to achieve that. Part 1 of the proposed new schedule sets out the conditions for the Treasury giving a direction that imposes countermeasures. The Treasury can issue a direction when any one of three conditions is met. The first condition is if the FATF has advised that measures should be taken in relation to a country because of the risk of money-laundering or terrorist financing being carried on in or by that country. The second condition is if the Treasury reasonably believes that there is a risk of terrorist financing or money-laundering being carried on in or by that country and this poses a significant risk to the national interests of the UK. The third condition is if the Treasury reasonably believes that a country is developing or facilitating the development of nuclear, radiological, biological or chemical weapons and this poses a significant risk to the national interests of the UK. I underline that the Treasury can direct countermeasures when any one of those conditions is satisfied; they do not all need to be satisfied. It follows that the amendments allow for the Treasury to impose countermeasures for reasons other than terrorist financing, as the conditions also permit the Treasury to impose countermeasures to deal with significant money-laundering and proliferation financing risks where these pose a significant risk to the UK’s national interests. We believe that it is right to deal with money-laundering and proliferation risks alongside terrorist financing risks. As noble Lords will be well aware, money-laundering and proliferation are serious threats that rely on raising or moving funds. There is a significant degree of commonality in the methods used by those concerned with money-laundering, terrorist financing and proliferation financing and the tools for addressing those risks. The financial countermeasures that we are proposing in these amendments can make a real difference in helping to combat these threats and in protecting UK financial institutions from abuse. Decisions on whether the threshold conditions for issuing directions are met will be taken on the basis of evidence. We will make as much of that evidence available to the House as we reasonably can in each case when making orders, consistent with national security concerns. Part 2 of the proposed new schedule sets out who may be the subject of a Treasury direction. We have decided to limit these provisions to financial and credit institutions only, rather than applying them to the entire regulated sector for money-laundering, which includes, for example, estate agents, casinos and lawyers. We believe that this is a proportionate approach. The whole regulated sector will remain subject to the existing Money Laundering Regulations and there will therefore be no diminution in the controls that it is required to exercise. However, we believe that the greatest threat of money-laundering, terrorist financing or proliferation activities coming from other countries falls on the financial or credit institution sectors, which are more at risk from cross-border flows of illicit finance. The definitions of financial and credit institutions reflect those currently in EC legislation. The amendments include a provision for the Treasury to amend by order the definitions of financial and credit institutions to ensure that we are able to keep pace with any changes in definitions that may occur in future at the EU or domestic level. Part 3 of the new schedule sets out what requirements may be imposed on the financial sector by a Treasury direction. This provision allows for a range of potential countermeasures as follows: enhanced customer due diligence; enhanced ongoing monitoring of a business relationship; systematic reporting; and the limiting and ceasing of business. Directions can be imposed on all financial institutions, a sub-category of institutions or individual firms. The countermeasures proposed are those that can be recommended by the FATF. They allow for a graduated approach and we will deploy these measures, if needed, in a proportionate and risk-based way. Part 4 of the new schedule sets out how the new powers will work and puts in place certain safeguards. The powers will be operated by means of a direction given by the Treasury. Paragraphs 14 to 16 set out the procedures for making directions. As noted earlier, a direction can be given to all firms operating in the financial sector, a particular class of business in the sector—for instance, banks or money service businesses—or a particular business in the sector. Where a direction is given to a particular business, the Treasury must give notice of the direction to that business. Where a direction is given to a class of business or generally, the direction must be contained in an order made by the Treasury and publicised appropriately—for example, by press statements, by use of our subscription e-mail services and by website alerts. Orders are made subject to the negative resolution procedure unless they contain requirements to cease or limit business. In those cases, the affirmative resolution procedure will apply. The Treasury will endeavour to provide as much information to the House as possible on the reasons for making these orders at the time they are laid, consistent with the need to protect certain forms of intelligence. As a further safeguard, all directions cease to have effect one year after being made. Finally, Part 4 also provides for a licensing regime where a direction is made to limit business. This is designed to allow certain transactions to be exempted from the requirements of the direction, if necessary, to enable the Treasury to minimise the impact on third parties. Licences can be issued at a general level to exempt all relevant persons from certain requirements, or more specifically in relation to a particular transaction involving a particular person. Before turning to the issues of supervision and enforcement set out in Parts 5 to 8, I should also mention that Part 8 includes a requirement on the Treasury to report on its use of these powers on an annual basis. I know that noble Lords on the Liberal Democrat Benches are keen to specify the contents of this report and I look forward to debating their suggestions. As noble Lords will be aware, Parts 5 to 8 of the new schedule set out the proposed supervisory and enforcement structures for the new powers. The Government’s intention is that these should mirror as closely as possible the structures set out in the Money Laundering Regulations 2007, which form the basis of the current anti-money-laundering and counterterrorist financing regimes. We intend to build on the existing structures and their supervisory and enforcement regimes by extending the powers of the supervisory bodies responsible for financial and credit institutions—namely, the Financial Services Authority, Her Majesty’s Revenue and Customs, the Office of Fair Trading and the Department of Enterprise, Trade and Investment in Northern Ireland. This will enable them to supervise compliance with any directions made by the Treasury under this order, as part of their wider role. The powers of enforcement provided for in the new schedule include the right of the supervisory bodies to require the production of information or documents, to enter and inspect premises either with or without a warrant and to impose civil and criminal penalties as appropriate. I understand that noble Lords on the Liberal Democrat Benches have suggested amendments to some of the provisions in the new schedule. The Government believe that it is important to minimise regulatory burdens by ensuring consistency with the money-laundering regime and similar legislation as far as possible, but I look forward to hearing from noble Lords before commenting further on these points. Overall, the Government believe that this regime will ensure an effective system of supervision and enforcement. The Treasury will, of course, continue to work closely with industry to develop guidance in the event of specific directions being given, to ensure that scope and applicability are clear. As I have explained, there are real and pressing threats to be addressed and, without the powers that we seek to take, the UK financial system risks being exposed to those threats. I have explained why we need to make urgent amendments to this Bill. I thank noble Lords again for the constructive manner in which they have engaged in the discussions that we have held to date. I have also explained the decision to deal with money-laundering and proliferation risks alongside terrorist financing. The financial countermeasures that we propose in these amendments can make a real difference in helping to combat these threats and in protecting UK financial institutions and the economy from abuse. I have also explained the safeguards that we are putting in place. In conclusion, I believe that these powers are necessary, important and proportionate and come with appropriate safeguards. I also believe that they will help to protect the UK from a number of real and present threats and keep the UK at the forefront of international action in dealing with those threats. I beg to move.