Amendment 98

Financial Services and Markets Bill - Report (3rd Day) – in the House of Lords at 4:30 pm on 13 June 2023.

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Earl Attlee:

Moved by Earl Attlee

98: After Clause 71, insert the following new Clause—“Withdrawal of banking services(1) When a provider of banking services in the United Kingdom decides to cease to provide banking services to an existing customer, or decides not to offer banking services to a specific prospective customer, because of one or more of the reasons specified in subsection (2), the bank is required to inform the FCA about that decision within the period of 4 weeks after the decision is taken. (2) The specified reasons are—(a) there is a reasonable suspicion that the customer is, or has, engaged in money laundering;(b) there is a record or specific instance of the customer not complying with requirements under money laundering regulations in a significant and easily-avoidable manner;(c) the provider cannot accept the regulatory risk of providing banking services to the customer despite the reasons set out in paragraphs (a) and (b) not applying;(d) ethical reasons;(e) the customer is in the defence industry.(3) The FCA must maintain a record of decisions notified to it under subsection (1).”

Photo of Earl Attlee Earl Attlee Conservative

My Lords, I will also speak to my Amendments 99 and 100. In Committee, I moved an amendment similar to Amendment 99. I will not weary the House with the arguments I made in Committee in detail. Suffice it to say that, in the new year, I became aware of a small business that was exporting armoured fighting vehicles to Ukraine under export licences granted by His Majesty’s Government’s Export Control Joint Unit. I will call the businessman in question “Peter” for reasons of security.

Peter’s major high street bank has withdrawn provision of banking facilities and will give Peter no reason—exactly the problem discussed in the previous group. In these circumstances, I understand that the banks will generally stonewall a Member of another place. However, the bank in question was very helpful to me, and explained that the problem was the money laundering regulations and the attendant unacceptable regulatory risk. I tried as hard as possible to resolve this problem discreetly and behind the scenes. The bank indicated that it could continue to provide financial services if it received a suitable letter from a Treasury Minister. Sadly, Ministers would not provide one. I am grateful to the Minister for meeting with me many weeks ago, but she was unable to change her position, which is why I moved a suitable amendment in Committee.

All export licences for lethal military equipment are very carefully considered. In Committee, the Minister correctly made the point that the export licensing machinery tests whether or not the equipment should be exported, while the money laundering regulations are a different test to check for, and counter, illicit finance. The reason I drew the export licence point to the attention of the Committee was that it proves that it is within the defence and security policy of His Majesty’s Government for these vehicles to be exported to Ukraine. If it was thought undesirable, or even just unhelpful, a licence would not be granted. I therefore contend that the money laundering regulations are thwarting the intent of His Majesty’s Government.

Unfortunately, rather than becoming aware of a little problem that I could resolve by the close of play at the end of the first week, I found I was just touching the tip of an iceberg. I found that it was not just Peter being adversely affected. For instance, I quickly found that a man dealing in helicopters all around the world, and outside of the OECD, was having his bank accounts closed, presumably because of the money laundering regulations, although of course we cannot tell. He is a member of the respectable ADS trade association and deals with both Governments and commercial concerns. I can understand why the banks would act as they have done: it is simply not worth the regulatory risk for the sake of a few large currency transactions that do not actually generate much income.

In Committee, the Minister did not believe that there was a systemic problem but indicated that, if there was, the Government would act. I drew this to the attention of ADS, the aviation and defence trade association. It asked its members to contact me if they were experiencing similar problems. While the numbers who came back to me were not large, the problems were very serious indeed. Not only do we have the problem of money laundering regulations but the ESG agenda means that banks are reluctant to deal with defence businesses, particularly ones that make things that go bang. This includes businesses supplying the MoD, according to ADS.

SME defence firms are in a difficulty because they have to be very discreet for reasons of security and to avoid further difficulties. I talked to one firm which said that it had lost its premises because of the nature of its business and had had to find alternative premises. Your Lordships could be forgiven for wondering why affected defence suppliers do not simply call for the great clunking fist of the MoD. The difficulty here is that a junior procurement official will simply assume that the bank is being difficult because of financial problems at the SME and will therefore cancel the contract. For the SME, it is better to keep quiet than ask for help from the MoD.

I am pleased to say that, earlier this afternoon, I had a meeting with my noble friend Lady Goldie, your Lordships’ Defence Minister. I think she now understands that there might be a much wider problem than just those of Peter. We will have to see what transpires, but I will be helping her and her officials as much as I can. I am absolutely convinced that we have a systemic problem, which is why I have brought this matter back to the House for consideration on Report. My noble friend the Minister could solve Peter’s problem today by writing to the bank directing it to ignore the money laundering regulations in certain specific ways, but I know that she will not and probably cannot.

Turning to my amendments, I contend that my noble friend the Minister does not have the foggiest clue what is going on with banks terminating accounts, simply because the FCA does not either. The FCA will claim to Ministers that it is doing a great job in countering money laundering, and it may or may not be, but forgive them for they know not what they do. As far as I am aware, there is no data, so nobody knows what is going on. If the House agreed to my Amendment 98, data would be collected and Ministers would soon have a clear picture because the banks would have to inform the FCA when they restrict the provision of banking services. Unfortunately, I did not include PEPs as one of the categories in my amendment.

My Amendment 99 seeks to protect respectable and bona fide aerospace and defence companies from being caught up in money laundering regulation problems. It does this by requiring the Treasury to amend the money laundering regulations so that banks are not prevented from providing financial services. However, for a business to benefit from this protection, it would have to be a member of a designated trade association and have satisfied the Secretary of State that it is beyond reproach.

My Amendment 100 is designed to help the Peters of this world. It works in the same way as Amendment 99 but is specific to the export of military equipment to Ukraine under export licence. It is of course unnecessary, because my noble friend the Minister could simply write a letter to the relevant bank.

I have not made a long and impassioned speech about Ukrainian soldiers unnecessarily running around the battlefield in soft-skin vehicles. Nevertheless, these are exceptionally important defence and security matters. If the Minister does nothing about it, they will surely bite her or some other Minister, hard, at some point in the future. My question for the Minister is this: is it the settled policy of His Majesty’s Government that the complete integrity of the money laundering regulations is more important than facilitating the supply of armoured fighting vehicles to Ukraine? I beg to move.

Photo of Viscount Trenchard Viscount Trenchard Conservative 4:45, 13 June 2023

My Lords, I declare an additional interest as stated in the register as a provider of geostrategic advice to Safe Security (SSL) Ltd. I will not repeat the arguments so well put by my noble friend Lord Attlee, who has given much voluntary military service over the years. I have added my name to my noble friend’s Amendment 98, but I also support both Amendments 99 and 100.

The Export Control Organisation at the former Department for International Trade grants export licences for controlled goods for military purposes. Its online export licensing system is called SPIRE. The organisation’s website states:

“We advise that you register your company on SPIRE, benefits include: More Control … Time Saving”.

I understand that it takes much time to obtain a SPIRE licence, but I am not convinced that it saves any time in carrying out this control business. It is of course right that companies wishing to receive licences to conduct this kind of business should be properly vetted and undergo the most stringent checks. However, once they have done that and been granted SPIRE accounts, why do they then find that the money laundering regulations prevent banks opening accounts in order to execute this kind of business under any circumstances?

In Committee, my noble friend the Minister acknowledged that

“the government process for the granting of export control licences focuses on the end use of goods rather than the source of funds paying for them”.

She told the Committee that the Treasury has

“engaged with the Export Control Joint Unit, the Financial Conduct Authority and other partners on this issue”.

She said that she was

“not aware of a systemic issue”,—[GC 297.]">Official Report, 21/3/23; col. GC 297.] but would “act to address it” if the Government identified one. I rather think there is a systemic issue here, because banks run a mile when anyone, particularly an SME, tries to open a bank account to do this kind of business. Banks are not aware of the SPIRE system and give absolutely no recognition to any licence granted under it to a prospective customer. The result of this, at least in some cases, is that the business is being carried out in other jurisdictions, such as Finland, that do not apply these regulations in such a stringent manner. This obviously deprives the Exchequer of corporation tax revenues and results in the official statistics understating the extent of British support for Ukraine.

This does not apply only to military equipment but includes the provision of vehicles to be used as field ambulances. I want to ask the same question of my noble friend the Minister as that asked by my noble friend Lord Attlee: do the Government think that absolute observation of the money laundering regulations is more important than permitting those who are licensed to do this business to do so?

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

My Lords, we should thank the noble Earl, Lord Attlee, for raising a set of significant issues. I have no specialist knowledge in this area, but I am very well aware that SMEs generally are disadvantaged under our current framework arrangements. As the Minister will know, individuals and micro businesses—usually a small sole trader or somebody of that ilk—fall within the FCA’s regulatory perimeter, but the SMEs that have just been described fall outside of it.

Therefore, where there are gaps or where their treatment is completely inappropriate, they have nowhere to turn. In those circumstances, they face significant disadvantage compared to their competitors across the globe. So I hope the Minister will understand that this is a reflection—I think “tip of an iceberg” was the correct term—of something that is quite systemic in many different ways, and an area where the Treasury, and the regulators, need to focus attention.

Photo of Baroness Penn Baroness Penn The Parliamentary Secretary, HM Treasury

My Lords, as I set out previously in Grand Committee, I commend my noble friend Lord Attlee for his strong role in supporting Ukraine and bringing the value of his expertise in support of efforts to provide Ukraine with vital supplies. I understand that my noble friend wishes to ensure that the money laundering regulations do not hamper the private export of armoured vehicles or military vehicles to Ukraine. However, this cannot come at the expense of weakening the regulations in a way that would allow them to be circumvented by those wishing to launder money or finance terrorism.

The Government are committed to providing economic, humanitarian and military support to Ukraine. That is why the UK is proud to have pledged £6.5 billion in support of Ukraine, including £1 billion of World Bank guarantees to go towards closing Ukraine’s 2023 financing gap and £2.3 billion in military support for 2023. In 2022, 195 standard individual export licences and three open individual export licences were granted for the export of military items to Ukraine.

I recognise that my noble friend has concerns about a wider issue relating to provision of banking services to those involved in the defence industry and the refusal or withdrawal of services for other reasons connected with money laundering or ethical concerns. As I said in Committee, I am not aware that banks are taking a blanket approach to such customers. I am grateful to my noble friend for setting out some further specific cases today and I am glad that he had the opportunity to meet my noble friend the Defence Minister. The Treasury would be happy to look further into these cases with my noble friend and the Ministry of Defence. Equally, if the defence industry has wider concerns, I would encourage it to bring them to the attention of the Government and the regulators.

My noble friend made a comment on the Government’s ESG policy and its impact on defence companies. Our ESG policy is focused on delivering the net-zero commitment and there is nothing in that policy framework that prohibits or otherwise disadvantages defence companies and the war in Ukraine—

Photo of Earl Attlee Earl Attlee Conservative

I am sorry to interrupt the Minister, but it was not the Government’s ESG policy that had caused me a problem but the banks’ ESG policies.

Photo of Baroness Penn Baroness Penn The Parliamentary Secretary, HM Treasury

I understand the point that my noble friend makes, but I think that is rather a matter for the banks. Nevertheless, as I have said to my noble friend, if there are wider or more systemic issues in this area, I would encourage him to draw this to the attention of the Government and the regulators. The Government are clear that investment in the defence sector remains important.

My noble friend suggested again that I or another Treasury Minister write to the bank which withdrew services from his associate telling it to relax steps to be taken to comply with MLRs. However, it would be extraordinary and inappropriate to override the MLRs in this way. Further, banks would still be under obligations in relation to the Proceeds of Crime Act which relate to dealing with such money.

I thank my noble friend for raising this issue. I am glad that he has met the Ministry of Defence on it. If there are wider issues that he would like to highlight to the Government, the Treasury is committed to working with the MoD to look at them. None the less, I hope my noble friend does not press his amendments at this time.

Photo of Earl Attlee Earl Attlee Conservative 5:00, 13 June 2023

My Lords, I am grateful for the response of my noble friend the Minister. I detect a little bit of movement, but I am not surprised at her response. Of course, I am very happy to withdraw my amendment.

Amendment 98 withdrawn.

Amendments 99 to 101 not moved.