My Lords, these regulations have been laid to update the UK’s list of high-risk third countries in Schedule 3ZA to the Money Laundering,
Terrorist Financing and Transfers of Funds (Information on the Payer) Regulations 2017, which I will refer to as the money laundering regulations.
The Government recognise the threat that economic crime poses to the UK and our international partners, and are committed to combating money laundering and terrorist financing. The Government are committed to bearing down on kleptocrats, criminals and terrorists who abuse the UK’s financial and services sectors. The Economic Crime and Corporate Transparency Act built on the earlier Economic Crime (Transparency and Enforcement) Act to ensure that the UK has robust, effective defences against illicit finance.
The money laundering regulations provide the legislative framework for tackling money laundering and terrorist financing, and set out various measures that businesses must take to protect the UK from illicit financial flows. Under these regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries, which are listed for these purposes in Schedule 3ZA to the money laundering regulations. These are countries identified as having strategic deficiencies in their anti-money laundering and counterterrorist financing regimes which could pose a significant threat to the UK’s financial system.
This statutory instrument amends the money laundering regulations to update the UK’s list of high-risk third countries. It removes Albania, the Cayman Islands, Jordan and Panama from the list, and adds Bulgaria, Cameroon, Croatia, Nigeria, South Africa and Vietnam. This means that the UK’s high-risk third-country list will be aligned with the decisions of the Financial Action Task Force, the global standard-setter for anti-money laundering and counterterrorist financing.
FATF’s methodology ensures that countries around the world are subject to expert, robust evaluations of their anti-money laundering and counterterrorist financing regimes. Where countries are found to have strategic deficiencies which they fail to address, FATF members can agree to add them to one of two lists: jurisdictions under increased monitoring and jurisdictions subject to a call to action.
By aligning our own high-risk third-country list with that of FATF, we ensure that the UK remains at the forefront of global standards on anti-money laundering and counterterrorist financing. This protects the UK financial system from illicit finance linked to the jurisdictions being listed. Where countries have made significant progress to address their strategic deficiencies, it is equally important that we recognise that and promptly remove them from the UK’s list.
This is the eighth SI amending the UK’s list of high-risk third countries to respond to the evolving risks. In June, Schedule 3ZA was amended to remove Cambodia and Morocco after they were de-listed by FATF, but otherwise updates to the high-risk third-country list have been paused since November 2022. As set out in the Explanatory Memorandum, that was to allow time for a full impact assessment to be conducted. This was required due, in particular, to the listing of Nigeria and South Africa, given their significant economic ties to the UK. The pause in updating Schedule 3ZA has led to the need for this more significant SI, with six countries being added and four removed.
I am aware that many noble Lords have expressed frustration at parliamentary time being taken up by these relatively routine matters, which keep our high-risk third-country list aligned to FATF. The Economic Crime and Corporate Transparency Act enables the Government to amend the money laundering regulations to create an ambulatory reference to the FATF lists. This will result in the same legal effect, with regulated businesses being required to apply enhanced due diligence to relevant business relationships and transactions with these countries, but without the need for secondary legislation after every change to the FATF lists.
The Government will bring forward an SI to implement this provision in the MLRs shortly and, in notifying the Committee of this, I emphasise two things. First, the Government retain the authority and autonomy to deviate from the FATF list at any time if the Government change their policy decision with regard to mirroring the FATF lists and, secondly, if we were to do so, it would require further secondary legislation and a debate in both Houses of Parliament.
I conclude by noting that the high-risk third-country list is an important mechanism that the Government have to clamp down on illicit financial flows from overseas threats, but we will also continue to use other mechanisms to respond to wider threats from other jurisdictions, including, for example, by applying financial sanctions.
These amendments will enable the money laundering regulations to continue to work as effectively as possible to protect the integrity of the UK financial system. I beg to move.