My Lords, the Government are committed to combating money laundering and terrorist financing and recognise the threat that economic crime poses to our financial system. Illicit finance not only damages our reputation as a global financial centre but can impact on our national security by undermining the integrity and stability of our markets and institutions. Furthermore, illicit finance can impact opportunities for legitimate business in the UK and cause serious social and economic costs through its links to serious and organised crime.
That is why the Government are focused on making the UK a hostile environment for illicit finance. As part of this work, we have taken significant action to tackle money laundering and to strengthen the whole system response to economic crime. Underpinning these efforts are the money laundering regulations, the legislative framework which sets out a number of requirements that businesses falling within its scope must take to combat money laundering and terrorist financing. These requirements include the need for firms to implement measures to identify and verify the people and organisations with whom they have a business relationship or for whom they facilitate transactions.
Additionally, the regulations require financial institutions and other regulated sector businesses to carry out greater scrutiny or “enhanced due diligence” in respect of business relationships and transactions involving so-called “high-risk third countries”. These are countries that have been identified as having strategic deficiencies in their anti-money laundering and counter- terrorism financing regimes and that pose a significant threat to the UK’s financial system. The statutory instrument under discussion today amends the definition of a high-risk third country in the money laundering regulations.
Let me explain the background to this instrument, which I note was reported by the Secondary Legislation Scrutiny Committee as an “instrument of interest”. At present, the definition of a high-risk third country in the money laundering regulations is linked to retained
EU law and references the list of countries identified by the European Commission as high risk. This list was previously updated via EU law, which now no longer has an effect in the UK. If our legislation is not amended, the list will become outdated and could leave the UK at risk from those with poor money laundering and terrorist financing controls. Furthermore, the UK will risk falling behind international standards set by the Financial Action Task Force, the global standard setter for anti-money laundering and counter- terrorist financing measures.
This instrument will therefore amend the money laundering regulations to remove references to the EU’s high-risk third countries list and instead insert a new list of countries identified in Schedule 3ZA. This will be the UK’s new autonomous high-risk third countries list. It will mirror exactly the list of countries identified by the Financial Action Task Force as having strategic deficiencies in their anti-money laundering and counterterrorist financing regimes, and it will keep the UK in line with international standards.
The change which I have just outlined will allow us to continue to protect businesses and the financial system from those who pose a significant threat, while ensuring that the UK remains at the forefront of global standards in combatting money laundering and terrorist financing.
I thank all noble Lords for their examination of this important legislation. In summary, this instrument will create a new autonomous list of high-risk third countries. Businesses that fall under the scope of the money laundering regulations and that deal with these countries must take extra scrutiny measures. In addition, this instrument will ensure that the money laundering regulations remain up to date and ready to respond to the threat posed by nations with poor money laundering and terrorist financing controls.
This instrument will enable the money laundering regulations to continue working as effectively as possible to protect the UK financial system. It will allow the UK to continue playing a full part in the fight against economic crime. I hope that noble Lords will join me in supporting this legislation. I beg to move.
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