International Financial Fraud

My Lords, the UK assumed the presidency of the Financial Action Task Force in July and has made tackling fraud its key priority. Under UK leadership, FATF is developing practical steps to help countries prevent, detect and disrupt fraud, particularly scams linked to organised crime groups operating across borders. This work will also focus on strengthening co-operation between Governments, law enforcement, banks, technology companies and online platforms.

I am glad that the British Government are taking the lead in combating international financial fraud and money laundering, particularly now that cryptocurrency and its problems are so much in our minds. I note that one of the Government’s priorities as president is improving information sharing. The British Government are responsible for a large number of Crown dependencies and overseas territories, many of which are offshore financial centres. They do not share information fully, and I note that the British Virgin Islands, for example, are on the FATF’s grey list, which deals with countries with strategic deficiencies in efforts to prevent fraud and money laundering. What do the Government intend to do to make sure that our leadership against financial fraud includes making sure that our overseas territories and Crown dependencies are up to the mark?

The noble Lord raises an important point. The overseas territories and Crown dependencies are committed to meeting international standards on tax transparency, anti-money laundering and illicit finance. They have committed to introducing publicly accessible registers of beneficial ownership, going beyond international standards set by the Financial Action Task Force and putting them ahead of most jurisdictions. The UK Government respect their constitutional autonomy on domestic tax matters while supporting the implementation of these commitments, including through technical assistance and engagement with organisations such as Open Ownership. The overseas territories and Crown dependencies are also independent members of FATF and therefore are subject to those standards that are set out. They have committed to combating financial crime in their relevant jurisdictions.

My Lords, as a former Minister for the Overseas Territories, I worked closely with our OTs. Many of them represent the best of British and we should stand by and support them. They operated a scheme of exchange of notes, which allowed for legal authorities and tax authorities to get through. Can the Minister reassure me that overseas territories that need support will be supported by His Majesty’s Treasury? Some do not require a SAMLA register: Tristan da Cunha does great lobster, but it is not a centre for financial services. Can the Minister reassure me that we will look at this tactfully and strategically?

I will have to take the noble Lord’s word for it on whether the lobster is any good; being Jewish, it is not really something I would have tried. However, the noble Lord is absolutely right. Where our Crown dependencies require our support, they will get it. Where it is not appropriate for them to operate in that space, it would seem a tad illogical for us to deploy resources in that way.

My Lords, will my noble friend encourage positive engagement with the draft international anti-corruption treaty during our presidency?

How could I say anything other to my noble friend than yes, of course?

My Lords, the Minister may have seen the RUSI paper published in July by Veronica Stratford-Tuke on the UK’s efforts on anti-money laundering, counterterrorism financing and the risks. It says: “The UK does not appear to have appropriate mechanisms to work through trade-offs between its financial crime risks and competing political objectives”. Will the noble Baroness acknowledge that that is a problem and see that there is a problem in the Financial Services and Markets Bill, given that it is a Bill to deregulate the financial sector and aim to grow it?

I have seen the report. I disagree with the noble Baroness’s suggestion that we would prioritise political decision-making. Let me just touch on what the Government have done. In terms of fraud action, there are 400 new specialist investigators at the national fraud squad. We have established the National Cyber Security Centre and its early warning service. We have established the Online Crime Centre with the NCA as a public/private initiative. The measures in the Online Safety Act to protect against fraud are now being fully implemented. We have funded the UN and Interpol’s Global Fraud Summit. This Government are doing more than just talking; we are taking action.

My Lords, about two or three years ago, FATF removed Cambodia from the risk list. Cambodia is widely seen as one of the most corrupt countries in Asia and is one of the major sources of fraud and scams globally. Given that decision, does the noble Baroness think FATF is fit for purpose?

The noble Lord will know better than I do that FATF assesses every country, including ours. Where there are concerns, it puts in place an action plan to make sure that people are fully compliant with their commitments under the standards of FATF. Given that we are now the global president for the next two years, I would very much believe us to be fit for purpose.

My Lords, stopping the money laundering means stopping the enablers. Will the Government rethink their legislation to transfer from professional bodies to the FCA the direct AML supervision of professional firms? Have they now recognised that the FCA lacks the resources and the expertise but, worst of all, that it has no capacity to provide the myriad small firms with adequate support rather than general guidance, thereby creating huge loopholes?

I appreciate the noble Baroness’s expertise in this area and, while I understand her concerns, the Government do not share them. We have invested a significant amount, not least through the economic crime levy, to protect against AML, which includes an extra £110 million per annum.

My Lords, according to a former Minister, 40% of global illicit financial flows pass through the UK, its Crown dependencies and overseas territories. Can the Minister explain why UK Governments continue to fail to curb the flow of illicit financial funds?

The noble Lord—my noble friend rather, although maybe not based on that question—has significant expertise in this area. While I appreciate his concern, this is of course something that the Government take very seriously, which is one reason why we have been elected to chair the FATF presidency for the next two years. It is also why we are taking action on anti-money laundering and in the fraud space. We are very aware that 47% of all crime in England and Wales is through fraud and we are working to protect the victims of this crime.

My Lords, fighting financial fraud is very important, but it imposes huge costs on honest and reputable businesses without always catching the criminals. How do the Government gauge whether regulations and their enforcement, which she described so graphically, are proportionate?

I occasionally agree with the noble Baroness, and in this instance, I find that I do. One of the issues here, though, is the wider cost of fraud to UK plc: it is currently £14 billion a year. While I appreciate the concern about the impact on individual companies, the reality is that there were 6 million attempted frauds in the UK last year, 80% of them were online and 70% had an international dimension. I appreciate the concern, and there is a reason we have been very targeted in the economic crime levy about who is paying for it, but there is a genuine issue here that is undermining us in every corner of the economy.

My Lords, I raised this last week, talking about the billions of pounds in fraud. Can the Minister kindly tell me when they are going to recover the millions of pounds of fraud from the noble Baroness, Lady Mone?

My noble friend will be aware that there are current, ongoing legal cases, so I cannot comment on an individual case.

My Lords, I want to return to the question of the overseas territories, recognising the difference between Tristan da Cunha and the Cayman Islands, other than merely the question of lobsters. I speak as a member of the Constitution Committee, where we have urged the overseas territories time and again to come up with bilateral compacts, recognising the differences between the territories and allowing us to judge progress or otherwise in each of them according to their own lights. The slowness of reports coming forward is proverbial, and I wonder if my noble friend the Minister can inject some energy into that process.

My noble friend is aware that I tend to inject energy everywhere I go, so I will endeavour to do so here. There are two issues, one of which is about the role of FATF, which undertakes a review of every jurisdiction, as I said. There is a responsibility on us too, but I will have to write to the noble Lord about where we are with the bilateral conversations.