Charles Walker moves new clause to Bill to money laundering regulations

Charles Walker introduces a new clause to the Bank of England and Financial Services Bill to ensure that banks act proportionately in respect of money laundering regulations intended to target foreign despots and dictators but which have been disproportionately applied to law-abiding people holding political office, military or public sector positions in the UK and their extended families and associates.

Mr Walker

New clause 9 is designed to prevent the restriction or withdrawal of banking services from perhaps tens of thousands of people. Those people include soldiers and others serving in the armed forces, judges, civil servants, trade unionists, and local councillors and their officials. Those people, along with their families and associates, are deemed to be “politically exposed persons” for the purposes of the fourth money laundering directive, which is due to be transposed into UK law by no later than June 2017.

The scope of new clause 9 is straightforward. It is designed to ensure that when that money laundering directive is transposed into UK law, reasonable regard is given to the parts of the directive that deal with proportionality. The new clause makes it clear that prior to the enactment of the directive, the Financial Services and Markets Act 2000 will be amended so that the Financial Conduct Authority will be required to publish clear guidance to the banks defining what it deems to be proportionate. New clause 9 also makes regulatory provision for PEPs who believe that they have been treated unreasonably by their banks to ask that their case be adjudicated by the FCA.

Steve McCabe (Birmingham, Selly Oak) (Lab)

I congratulate the hon. Gentleman on introducing the new clause. I understand from what we heard during today’s topical questions that it is likely that the Government will accept it, so he is obviously in the right area. Is he worried that banks are acting in advance of the measure and that there is quite a lot of evidence that they are ​already gathering information about ordinary, law-abiding members of the public and using it as an excuse to restrict their banking activities?

Mr Walker

The hon. Gentleman makes a valid point. Banks are de-risking very aggressively at the moment and we need to inject some proportionality into their actions. I believe that the new clause will go some way towards achieving that.

New clause 9 inserts into the Bill a process of adjudication. If a politically exposed person believes that they are being treated unfairly—being denied access to banking services—they can take their concern or complaint to the FCA, which can then adjudicate. The FCA can decide whether banks are interpreting the directive over-aggressively and, if they are, levy a fine on them for doing so. The new clause has nothing to do with reducing accountability; it is about increasing proportionality, which is the right thing to do.

Why is new clause 9 needed? It is needed because it is clear that in interpreting the fourth money laundering directive, banks are making no distinction, when determining who is a politically exposed person, between PEPs drawn from the corruption hotbeds of Nigeria, Russia and parts of the subcontinent, and those drawn from developed democracies such as ours that have high levels of scrutiny and accountability.

Mr Stewart Jackson (Peterborough) (Con)

May I put on record the thanks of all of us in the House to my hon. Friend for his diligence, focus and tenacity in bringing this massively important issue to the attention of the Government and for what we hope will be a satisfactory conclusion today? Does he agree that the collateral damage of some of the precipitous action of the banks has been a big impact on people’s families and, as a corollary, their future credit worthiness?

Mr Walker

My hon. Friend makes a good point. As I said, the banks have acted very aggressively, and I shall return to that point in a few moments.

May I thank the Economic Secretary for her time and patience in dealing with this matter? I have been speaking to her about it for four months, and I admit that I have got a little over-excited on occasions. However, she has always maintained high levels of good humour and patience, for which I thank her. It is important to put that on the record.

At this late stage, without the intervention of new clause 9, the directive risks blighting the lives of decent people. They are not just people working in public life and service but, as my hon. Friend the Member for Peterborough (Mr Jackson) pointed out, their partners, spouses, children, parents, siblings and in-laws. The directive is not proportionate.

Even more worryingly, the directive covers the close associates of politically exposed persons. I am aware that one such close associate is a member of the press lobby. He had some problems with an individual savings account and was subject to close questioning by his bank. When he asked the person on the other end of the phone why the bank was conducting itself in such a way, the response was, “Because we understand that you are an associate of the Prime Minister.” Even the media are caught up in this directive, or rather the banks’ de-risking in preparation for its introduction.​

The Financial Action Task Force, whose guidance underpins the directive and is repeatedly referred to in it, states:

“For close associates, examples include”—

the House needs to listen carefully to this because it is quite an odd paragraph—

“the following types of relationships: (known) (sexual) partners outside the family unit (e.g. girlfriends, boyfriends, mistresses); prominent members of the same political party, civil organisation”—

that could be the National Trust—

“labour or employee union as the PEP; business partners or associates, especially those that share (beneficial) ownership of legal entities with the PEP, or who are otherwise connected”.

My fear is that, without clear Government-backed FCA guidance, as provided for in new clause 9, the banks, in their rush to de-risk, will continue to draw on the work of the Financial Action Task Force. The Financial Action Task Force states in paragraph 37 of its 2013 guidance:

“there should be awareness that middle ranking and more junior officials could act on behalf of a PEP to circumvent…controls. These less prominent public functions could be appropriately taken into account as customer risk factors in the framework of the overall assessment of risks”.

Sir Greg Knight (East Yorkshire) (Con)

The case that my hon. Friend makes is overwhelming. Will he tell the House whether he is aware of anyone who is opposed to what he is trying to do?

Mr Walker

I am sure that there will always be people who are opposed to what I am trying to do. That is the nature of society—we live in an open society in which people have different points of view on many issues. The fourth money laundering directive should be about capturing bad people in its scope, not capturing all people. If everyone is thought of as bad, it is very difficult to identify who is actually breaking the law. We want to go after the law breakers, not those people who, by accident, are described or identified as PEPs by banks in this country.

James Cleverly (Braintree) (Con)

Does my hon. Friend share my concern that the rush to implement these actions ahead of the directive indicates a desire by the banks to take what seems to be decisive action against a group of people who are quite easy to target, and that the banks will be less keen to take that action against people who are harder to track down? [Interruption.]

Mr Speaker

Order. I know the fondness of the right hon. Member for East Yorkshire (Sir Greg Knight) for live music, and it is a fondness that I share, but there are limits.

Mr Walker

I thought that rather complemented the intervention from my hon. Friend the Member for Braintree (James Cleverly)—it was almost like an opera singer opening his lungs.

My hon. Friend makes a very good point. Banks need to invest their resources, time and energy in going after high-risk people. Banks know which people are high risk. To be perfectly honest, whatever people in this country think about their Members of Parliament, trade unionists, council officers and leaders, Assembly Members and Members of the Scottish Parliament, they are, in the main, not bad people indulging in money laundering. I am not saying that there will not be a bad apple, but those people do not present the real ​and current risk. Banks’ energies should be focused not on chasing after the good, but on chasing after the very bad.

The Financial Action Task Force catch-all that says that even middle-ranking people can be involved in money laundering basically puts everyone above grade 7 in the civil service in the frame. Think of people in a Government-backed organisation or trade union regional organisers. If banks follow the FATF guidance, those people could be deemed to be politically exposed persons, so not only their banking facilities, but those of their families and associates, could be withdrawn or curtailed.

I will make some progress, as I was not planning to speak for so long. Once a PEP, always a PEP. Although article 22 of the directive states that after 12 months have passed from the point at which the politically exposed person has left office, a bank can decide that that person is no longer a PEP—that sounds like good news—it goes on to say that banks will

“be required to take into account the continuing risk posed by that person and to apply appropriate and risk-sensitive measures until such time as that person is deemed to pose no further risk specific to politically exposed persons.”

That is the lobster pot from which few will escape. Banks are risk averse, so they will feel that it is much better to keep someone as a PEP indefinitely than to take the risk of downgrading them to the status of a normal customer unless they are obliged to do so.

Forget people serving in public life; let us think about those who have left it. Without the protections and guidance in new clause 9, ex-Army officers, ex-judges, ex-trade union representatives, ex-community leaders, volunteers and ex-members of political parties, and former Members of Parliament could be denied the opportunity to serve on charitable and company boards because their presence would confer the status of politically exposed person on the rest of the board. That status is best avoided by individuals who are not yet stigmatised. If conferred, such a status could lead to a withdrawal of the relevant charity or company’s banking services. This is not supposition and I am not making this up. Along with the restriction of banking services, the closure of personal accounts and the blackballing of family members, it is happening now. In accepting new clause 9, the Government will enshrine in an Act of Parliament that banks have a legal duty to act proportionately and in accordance with FCA guidance, and that is the correct thing to do.

4.15 pm

New clause 9 is not about protecting politicians. Politicians are politically exposed people, but I understand that even a Parliamentary Private Secretary in the Treasury has had difficulties with this issue. Although the rights of politicians and their families are no less deserving of respect than anyone else’s, this is about protecting the banking, financial and future employment rights of the many thousands of people whose names appear in the civil service year book. It is about protecting the rights of military personnel who serve our country, committed council officials who serve their community and trade unionists. New clause 9 not only protects those people’s rights, but the rights of their extended families who had no say in their relation’s career choice, but are dragged into the scope of the directive.

Finally, I thank the Government for indicating that they will accept new clause 9. By doing so, they will reduce the chances of an Army officer who is serving their country somewhere hot and dangerous receiving a telephone call from his or her spouse saying, “Darling, while you’re being shot at, we’ve had our bank account closed and we’ve lost our mortgage.” I congratulate the Government on doing the right thing today.

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