My Lords, I begin by thanking all noble Lords who have taken part in the debate for their thorough consideration of the statutory instrument. It is an important subject and some excellent points have been made.
My noble friends Lady Wheatcroft and Lord Robathan asked about the challenge of ensuring that the UK’s new autonomous list mirrors those countries that have been identified by the Financial Action Task Force in its public documents as having deficiencies in their anti-money laundering and counterterrorism financing controls. By aligning its approach with that of the Financial Action Task Force, the UK is in line with international standards, and the identification of countries is underpinned by the FATF’s methodology and assessment processes. It remains open to the UK to review the list and amend it according to our own assessment of risks if necessary.
On the FATF’s assessment of Russia, the judiciary’s lack of independence and corruption were both highlighted in its report. For example, the FATF noted
that levels of corruption are especially high in Russia. The money laundering regulations require enhanced due diligence in a range of situations that present a high risk of money laundering or terrorist financing, not just where a transaction or business relationship involves a country that is listed as high-risk.
When assessing if there is a high risk of money laundering or terrorist financing, a number of factors are taken into consideration, including geographical risk, when countries have been identified by credible sources as having high levels of corruption, such as terrorism. The high-risk third countries list should not be viewed in isolation. Enhanced due diligence, which comes through the money laundering provisions, is applied regardless of geographic risk in certain situations, such as when a customer or potential customer is a politically exposed person, family member or known close associate of a politically exposed person. Under the money laundering regulations, the regulated sector is also required to apply enhanced due diligence in any other case which by its nature could present a higher risk of money laundering and terrorist financing, including where there are geographic factors.
The noble Lord, Lord Chidgey, is also concerned and asks about transparency and beneficial ownership. The Government are committed to ensuring that our anti-money laundering regulations support the identification of criminal and terrorist financing activity, without placing disproportionate burdens on the regulated sector. In answer to the challenge from the noble Lord, I want to be clear on the Government’s intention to introduce a package of reforms to limit the risk of misuse of companies, including by verifying the identity of people managing or controlling companies, providing the registrar with new powers to query and remove information and investing in investigation and enforcement capabilities. This was set out in September last year in our response to a consultation on Companies House reform. We will legislate on that reform programme when parliamentary time allows.
On AML supervision, we remain committed to ensuring that our AML/CTF regime is robust and responsive. The Treasury already works closely with
the Office for Professional Body Anti-Money Laundering Supervision, known as OPBAS, to ensure high standards of effectiveness and consistency among supervisors.
I turn to the noble Lord, Lord Tunnicliffe, and how the list will be updated. The Government intend, before updating the list, to use the affirmative procedure to ensure alignment between the UK’s high-risk third countries lists and the Financial Action Task Force lists, which are updated three times a year and, therefore, we have the flexibility to do the same.
On implementing the FATF’s recommendations in the UK following the report of July 2019, the Government and private sector have jointly published a landmark economic crime plan, which provides a collective articulation of the 52 actions that the UK is taking to tackle economic crime and, in particular, prioritises risk areas by filling in the gaps identified by the Financial Action Task Force’s mutual evaluation report. Key actions include the reform of the suspicious activity reporting regime and improving supervision of anti-money laundering compliance in the regulated sector.
On progress, the Government are bolstering the UK Financial Intelligence Unit with an addition of more than 70 new staff, enabling more feedback of reports and better analysis of suspicious activity reports. As outlined earlier, these regulations introduce a new, autonomous high-risk third countries list, which will ensure that the UK legislation remains up to date and continues to protect the financial system from money laundering and terrorist financing. This legislation represents the UK’s new approach to high-risk third countries; it will allow the UK to take its own view on which countries are high risk without referencing EU legislation and remain in line with international standards in the fight against money laundering and terrorist financing.